Is the deck stacked against your startup business or for it?
Depends on how you decide to arrange the cards.
The Full-Stack Approach
Thanks to Chris Dixon of BuzzFeed, we have yet another business neologism — the “full stack startup approach.” The objective of this approach is to completely control the customer experience using all the channel(s) required to deliver it. Instead of inventing a widget and selling that technology to another business to bundle with their product or service, you sell it directly to your customers, sometimes in your own bundle.
The challenge is that you have to be good at a lot of things: software, hardware, supply chain management, design, marketing and anything else that goes into making, selling and distributing a product. Manage that, and you essentially lock out competitors who can’t replicate all these interlocking pieces.
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Steve Jobs Was Right
Dixon cites Apple as a classic example of the full stack approach. By contrast, Microsoft builds only portions of the stack. Back in the 1990s, Microsoft dominated business and consumer markets just by making an operating system and applications software. During that era, Apple was widely criticized for not emulating the Microsoft’s cornerstone strategy to license its software to other hardware vendors. Apple has had the last laugh with last quarter profits of $18 billion, the largest ever recorded by a public company, and cash reserves sufficient to buy the equivalent of every American at a price of $556. Dixon attributes such success with Apple’s ability to create a “magical experience” for its customers by building products from end-to-end in a way that completely bypasses the competition.
Examples of startups using the full-stack approach include ride-sharing companies Uber and Lyft, Nest and Tesla, not to mention Dixon’s own BuzzFeed, which recently obtained $50 million in financing from Andreessen Horowitz to expand its own full stack. (The New York Observer comments, “For its next trick, we expect BuzzFeed will work on colonizing Mars.”)
Full Stack Means Full Customer Experience
Full-stacking seems to be limited to high-tech companies, and should not be confused with traditional notions of vertical integration used by “old-style” manufacturers. The difference is the focus on the customer experience. In vertical integration, a manufacturer or producer contracts with suppliers to reduce production costs and improve efficiencies. The customer may get a better product, or a more affordable product, but it doesn’t provide the entire customer experience.
Full stack means that a tech company is building that experience from the ground up and using non-tech functions, such as unique retail stores or independent drivers, to deliver the tech. Uber isn’t merely an app, it’s a new way to get a better ride; essentially, it’s a new kind of taxi service.
Industry segments that are ripe for full-stack approaches include education, healthcare, food, transportation and financial services. All are sectors where prices have outpaced inflation, which Dixon believes is the result of lack of technology. If you have a technology that can help bring down pricing models in these sectors, the full-stack approach may be your best approach.
For those who may be skeptical of what might be seen as just a trendy phrase, Anshu Sharma points to a number of companies over the last 20 years that essentially were full-stack companies before Dixon came up with the term. These include Netflix, Amazon, YouTube, eBay and Google.