Hardware, software, both?
Membership? Subscription income?
What separates the winners from the losers in this game?
Let’s focus on one of the winners for the moment and see just how many smart things they do.
More importantly, we can take a look to get an idea or two for ourselves.
Peleton was founded in 2012 by John Foley, CEO; Tom Cortese; COO, Yony Feng, CTO; Hisao Kushi, General Counsel; and, Graham Stanton, SVP; Global Marketing and Sales.
John Foley was a manufacturing engineer who transitioned into a digital business guy with stints at CitySearch.com, Evite.com (CEO), Pronto.com (Co-founder, CEO), and Barnesandnoble.com (President, Father of the Nook).
On a personal basis, he was a serial entrepreneur and an avid competitive cyclist and tri-athlete. He describes himself as an “addict” of “boutique group fitness classes.” You can take it from there.
The big takeaway for the Big Red Car is the confluence of three things – manufacturing engineer, all-around digital commerce guy, and a fitness addict who saw the subscription income value of classes. Perfect storm.
Adding Hardware to Build Your Moat
In his famous 1994 interview in Playboy magazine Bill Gates described why moats are so important in this way by commenting on a specific example:
“What is the scarce resource? What is it that limits being able to get value out of that infinite computing power? Software.”
Software/SaaS has increasingly assumed the top dog role in creating significant profitability, especially in the start-up world because it is network effects (demand side economies of scale) that create the most meaningful barriers to entry in today’s economy.
If all you make is clever hardware the story is almost always that you end up in a situation like GoPro finds itself in today. GoPro is in a business that is increasingly a commodity since it lacks network effects to preserve the source of its margins.
Just trying to compete on operational effectiveness alone is a very bad idea. Operational effectiveness is essential but in the long term it is not enough to guarantee success.
*Feature photo by Hello I'm Nik on Unsplash