Full stack startups | chris dixon's blog
The full stack approach:
Suppose you develop a new technology that is valuable to some industry. The old approach was to sell or license your technology to the existing companies in that industry. The new approach is to build a complete, end-to-end product or service that bypasses existing companies.
Prominent examples of this “full stack” approach include Tesla, Warby Parker, Uber, Harry’s, Nest, Buzzfeed, and Netflix. Most of these companies had “partial stack” antecedents that either failed or ended up being relatively small businesses. The problems with the partial stack approach include:
- Bad product experience. Nest is great because of deep, Apple-like integration between software, hardware, design, services, etc, something they couldn’t have achieved licensing to Honeywell etc.
- Cultural resistance to new technologies. The media industry is notoriously slow to adopt new technologies, so Buzzfeed and Netflix are (mostly) bypassing them.
- Unfavorable economics. Your slice of the stack might be quite valuable but without control of the end customer it’s very hard to get paid accordingly.
The full stack approach lets you bypass industry incumbents, completely control the customer experience, and capture a greater portion of the economic benefits you provide.
Well, you need to prove you can pull together a whole lust to dust full stack product just once to show the value. Whether or not you chose that as your business model depends on a lot of factors, not the least of which it takes the right channel, product-market-fit, sales, pricing, and channel knowledge, the second is that it takes really deep pockets. VCs like them as once you have the proof point, you can run a lot of money through trying to own the whole stack--which is a very valuable position to be in.
The opposite approach is the Chasm model. You figure out what your crown jewels really are, leverage an existing channel to market (which most of them are in dire need of innovation, new products and technology), and you figure out what partnerships you need and in what manner to build what's called a "whole product" which is basically the same as a "full stack". 1/10th the money needed, 1/5th the time to market, but unfortunately, only 1/3 the eventual value.
I think it's irresponsible to tell entrepreneurs to go full stack when most of the cases he mentioned were highly funded repeat entrepreneurs who raised money on slide decks instead of product prototypes.