#28 – Ecosystems & platforms – a deep dive into tech (David Rosenthal & Ben Grynol)
Oct 4, 2021
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David Rosenthal and Ben Grynol discuss the evolution of companies into ecosystems like Amazon, while exploring the challenges of disrupting large platforms. They emphasize the importance of diversifying revenue streams and distribution channels, using examples from Amazon and Epic Games. The speakers also touch on the changing landscape of video consumption, comparing platforms like TikTok and Netflix, and highlighting the benefits of an open ecosystem.
Building an ecosystem around a company can lead to significant growth and success, as seen with companies like Amazon.
Different types of companies, such as Amazon, Netflix, and Levels, have distinct approaches to platforms and revenue streams.
Embracing complexity theory and fostering emergence in startups can lead to resilience and adaptability for future outcomes.
Deep dives
Adaptability and emergent strategies
The podcast episode highlights the importance of adaptability and emergent strategies in business. It discusses how Apple changed its original plan for the iPhone after realizing the potential of third-party developers accessing the device, leading to the creation of the App Store. The episode emphasizes that platforms tend to be more successful when their strategies emerge organically rather than being architected from the top down.
Platforms, ecosystems, and single-threaded companies
The podcast explores the concept of platforms, ecosystems, and single-threaded companies. Examples like Amazon, Netflix, and Levels highlight the differences between these types of companies. Amazon is described as a wide and deep platform with multiple revenue streams, while Netflix is considered a single-threaded company that focuses on creating content. The episode also mentions that Levels, a health tech startup, currently operates as a single-threaded company, focusing on continuous glucose monitors and providing insights about metabolic health through biometric data.
Complexity theory and startup investing
The episode delves into complexity theory and its application to startup investing. The discussion revolves around the Santa Fe Institute's approach to complexity theory and how it can be used to make informed investment decisions. The concept of being resilient and embracing uncertainty is highlighted, with the importance of running experiments and fostering emergence in startups. The episode also emphasizes the benefits of diversification in portfolios and the necessity for startups to build resiliency and optionality to adapt to a wide range of future outcomes.
The Importance of Being Independent as a Business
Being able to maintain independence as a business is crucial to avoid over-reliance on a single platform or stream of revenue. One example is the case of PayPal, which was highly successful but lost its strategic leverage when it became too reliant on eBay. In contrast, Tim, the founder of Epic, has full control over his company and values independence to pursue his own vision and direction. This highlights the significance of maintaining strategic leverage and the dangers of being overly dependent on a single platform.
The Concept of Disruptive Innovation and the Innovator's Dilemma
The concept of disruptive innovation, popularized by Clayton Christensen, is often misunderstood. Disruptive innovation is not about offering products that are better, faster, or cheaper than existing options. True disruptive innovation can actually be more expensive and worse in certain aspects compared to established solutions. An example is the case of AirPods, which disrupted the wireless headphone market despite being more expensive and having limitations such as shorter battery life. The key is that AirPods offered a different value proposition and addressed needs that wired headphones couldn't fulfill. This highlights the importance of understanding disruptive innovation and the innovator's dilemma, where large companies struggle to invest in new ideas and platforms due to their reliance on existing cash cows.
When most companies start, they are single-threaded companies. More specifically, companies start with one product or revenue stream and evolve. Amazon is a great example of a company that has built an ecosystem. The company started as an e-commerce site for selling books, and now has a number of inter-related businesses that make up the entire Amazon ecosystem.
Netflix is an example of a company that started as a single-threaded company and has, for the most part, remained that way since its inception.
As we build Levels, we often think about the way that our company will evolve – will it be an ecosystem for health, or will we remain focused on monitoring glucose? In this episode, David Rosenthal, (VC and Host of Acquired Podcast), dives deep into what it takes to build an ecosystem around a company.
Levels helps you see how food affects your health, empowering you with the tools needed to achieve health goals and improve healthspan. Levels Members gain access to the Levels app and continuous glucose monitors (CGMs), providing real-time feedback on how diet and lifestyle choices impact your metabolic health.
Look for new shows every month on A Whole New Level, where we have in-depth conversations with thought leaders about metabolic health.
(07:31) - Why you can't model the stock market
(12:35) - Why you don't want to be 23andMe
(13:29) - The importance of optionality in marketplaces
(15:34) - The evolution of eBay as an ecosystem
(25:47) - The dangers of platform risk
(36:39) - Can you start out building a platform
(46:54) - To go enterprise or focus on community
(01:05:08) - Letting emergent behavior drive platform direction