Consumer internet companies are easy to understand, but hard to create
Matt Heiman is a partner at CRV.
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Atari founder Nolan Bushnell once said that the best video games are easy to learn and nearly impossible to master.
I believe that a related concept holds for building foundational consumer internet companies. Two characteristics that I always look for in startups are the founder’s ability to describe what they do in less than five seconds, and a product or service that’s exceptionally hard to build well. Those two characteristics may sound as though they’re in opposition, but it turns out that the best companies can be simultaneously very easy to understand and very hard to do.
A successful consumer internet company must be easy to understand
“In a world of abundance, the only scarcity is human attention.” — Kevin Kelly, The Inevitable
Humans have short attention spans, and the competition for mindshare has never been greater. Today, the most successful products in consumer internet tend to be those that achieve high degrees of virality. Word of mouth, in particular, is an especially important driver of distribution for world-class products. Only products that are extremely simple to understand — such as DoorDash, Niantic or Coinbase — can thrive in the telephone-chain word-of-mouth distribution channel.
Here’s an example: Imagine talking with a friend about something like Doppler Labs’ Here One earbuds. Though this hardware product had standout features and was unlike other earbuds on the market, it was difficult to explain what made them special. A conversation might sound something like, “They’re kind of like headphones, but really, they’re augmented reality for audio. You can phase in and out background noise. No, it’s not the same as adjusting volume or noise-canceling… but yes, you can use them to listen to music.” It’s not hard to predict that a message like this might not easily catch on.
Compare this to a product like Robinhood. You might say something such as, “It’s an app to buy and sell stocks on your phone without paying commission.” The succinct description instantly showcases the company’s value for consumers, and it’s memorable. Most people can understand how the product works, which makes it clear why Robinhood’s message sticks and can generate strong word-of-mouth distribution.
The less obvious insight is that this phenomenon can also work in startups’ benefit to attract capital. Founders who can quickly articulate their product and business model have the advantage of appealing to a large amount of investors.
Even more, a product or startup must be hard to do
Being able to concisely describe what a company does is just one part of the blueprint for success. While having a message and value proposition that are easy to understand and talk about are critical to growth, to become extremely valuable a startup must also build a product that’s hard to do.
Some verticals, like direct-to-consumer brands, can have a large number of companies that offer a similar product even after some have reached a moderate scale. While it’s never been easier to get to market with a new product in this vertical (good), it’s also a lot less likely for a single, super valuable company to capture the entire market (bad, at least from the perspective of a venture capitalist).
In contrast, when a business builds something that is hard to do well, they effectively construct a moat, or a sustainable competitive advantage. Nearly all startup pitches include a conversation around moats and the barrier to entry, and rightfully so. Building a moat allows a company to become a compounding franchise and accrue outsized profits over the long run.
The blueprint for consumer success
Using this framework, companies can be classified into one of four quadrants when we evaluate whether or not they follow the blueprint for consumer success.
Easy to understand, hard to do
As described, this is the magic quadrant for consumer internet companies. Companies in this quadrant have a simple message that can be explained in five seconds or less, along with a component that’s hard to do. This may be an engineering build, regulatory approvals, cracking a network effect at scale or building a brand that resonates:
- Coinbase: Crypto is a notoriously complex vertical to understand, but the magic of Coinbase is that it doesn’t require a person to have any specific knowledge to use the product. By abstracting away the complexities of safely buying and storing crypto, Coinbase brought crypto to the mass market. Despite the simplicity of Coinbase’s p