Change the game

Glenn Kelman, the CEO of Redfin, gave a great TEDx talk last month in which he encourages technology entrepreneurs to create “real” companies that do the hard work of delivering the full offering to end users rather than just the software layer.

A written version of Kelman’s talk, titled “The Next 50 Ideas for Billion-Dollar Software Companies,” is on LinkedIn here

As an example of his idea, Kelman offers the history of Redfin. Initially, Redfin had an interesting technology: showing house listings on a map. They had two options to generate revenue:

Option A: Be a media company, get traffic, sell ads to real estate agents

Option B: Become a real estate company and help people buy and sell homes

Kelman’s friend Matt Bell helped him make the decision, telling him: “You were placed on this earth to fuck with the order of the things. Change the game. Change the whole game.”

They went with option B, helping people buy and sell homes. In contrast to the real estate industry as it existed, they put the customer first, not the commission. They used technology all the way through. “We were no longer just a software company…we needed many, many real estate agents…we had to slog through market by market to build this business.”

Technology as a means to an end

What Kelman said really resonated with me, even more so than Marc Andreessen’s similar piece "Why Software Is Eating The World" (which I loved). Andreessen’s article framed the world in an inspiring way. Yet, Kelman’s talk, while still delivering the same adventurous, the-world-is-ripe-for-disruption message, does so with a touch more humility in the sense that it reflects the realities of building enduring businesses: it takes more than just killer technology. 

When I reflect on Kelman’s idea, Walmart and Zara come to mind. I’ve often thought of them as technology companies in disguise.

Consider Walmart. The company lately is losing some shine recently, given competition from Amazon and labor troubles. But for most of its history, it decimated its rivals. A (somewhat dated) HBR article by three BCG consultants gives a good summary of how much Walmart outperformed its competitors throughout its history:


And while much has been written about how Walmart did this (the HBR article goes into it in detail), one thing is clear: technology was key. Walmart did a much better job than its competitors in tying together vast, seemingly separate aspects of the business to lower their costs and ultimately their prices. Technology played a key role in this, from monitoring its inventories to understanding what was selling to minimizing warehouse stocks to communicating with suppliers. We think of Walmart as a retailer but, in many ways, they were more a technology company that happened to be a retailer. Amazon, of course, is the latest iteration of that, but I like the Walmart example because from the outside it looks like a retailer rather than a technology company. 

Zara is another example. It trounces its competitors, other global apparel retailers, in terms of revenue growth, profitability, and capital efficiency. And, more simply: people love their clothes. They did this by recognizing a reality of fashion: it changes quickly. So they built a technology infrastructure that allowed them to gather information on what people were buying at the stores. They collected not only sales data but qualitative feedback from reps on the floor about various items. They then quickly adjusted manufacturing so that they could produce more of what was selling and less of what wasn’t. This also allowed them to run experiments. They would do small runs of clothing they thought people might like based on various trends. If it sold, great—they’d produce more. If not, they’d move on. 

The common theme is that the technology reflected the realities of the business. Once those realities were recognized, both optimized technology and the non-technology pieces.

In Walmart’s case, there were major decisions to be made around, for example, how to organize the trucking fleet. They decided to build a capability in shipping logistics, owning their own trucking fleet and warehouses, which was in contrast to many retailers. By having a world-class technology layer on top of a world class logistics infrastructure, they built an unbeatable capability.

Zara, similarly, had to make many major non-technology decisions. For example, in creating an ability to respond quickly to fashion trends, technology was just one part of it. They also needed to be nimble manufacturers. Factories in China wouldn’t cut it, with their long lead times and large batch sizes. Zara’s factories were right near their headquarters. What they gave up in higher costs they more than gained in their quicker response times. 

In short, there were multiple hard problems to solve, not just in the technology, but in organizing the business to best deliver value to customers, but once those pieces were solved together, the businesses that was created was phenomenal. They delivered great value to customers—and shareholders.

More recent examples?

Uber and Warby Parker are my favorite recent examples. Uber is a taxi company. Warby Parky is a retailer of eyeglasses. Both are solving a problem we as consumers have to solve. They each have a deep technology element, but just as much, if not more so, they’re innovating in other ways.

Uber has had to build the ability to work with limousine owner/drivers and deal with the regulatory aspects of transportation. And Warby Parker has had to build a deep capability in eyeglass design and manufacturing, not to mention shipping and logistics as well as marketing. 

From the typical early stage technology business, both are pretty clear winners, but I think they’re actually just getting started. Both, by building great tech and non-tech capabilities, are going to change their respective games. I’m looking forward to seeing many more of these types of efforts and really appreciate Kelman offering this mode of thinking to innovators.