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Why the Next $50 Billion Company Won't Be Just Online

Redfin CEO Glenn Kelman told a crowd at SXSW that he's not so sure the Next Big Thing will be a software-only startup.
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On the third day of the 21st annual South by Southwest Interactive festival, Redfin CEO Glenn Kelman had a plea for entrepreneurs: Stop building software-only companies. Think bigger.

His thesis, which he presented to a crowd of about 100 people at Austin's Hilton Downtown, is simple. The future's most audacious--and financially successful--startups will be end-to-end startups. These companies control the entire experience, from the software to the real-world element. Think Amazon, Uber, Airbnb… Kelman came armed with a list of examples.

"Look at Facebook, Google, and Amazon," he said. "Amazon may have a 10th of the traffic of Facebook and Google, but it has twice the revenue. Just because you can grow traffic doesn't mean you're doing something meaningful for people."

Unfortunately, Kelman added, Silicon Valley investors aren't always so keen on companies that can't scale fast. E2E startups typically require tons of cash, and the software-obsessed VCs don't always have the nerve to invest every audacious real-world idea. Why? Because for both the VC and the entrepreneur, being audacious is hard.

Who Is Getting It Right?

For Kelman, there are a few examples of software entrepreneurs or companies that have successfully expanded their business into the real world. Take Netflix.

"Netflix used all this data from their streaming service to know that House of Cards would be a huge hit," he said. "They found that lots of people liked Kevin Spacey and this British show called House of Cards, and they put two and two together and made it in the real world." He's right about that: It's no secret that the show has been a boon to the company, even sparking more original programming.

And then there's the Nest thermostat, created by former iPod designer Tony Fadell.

"I mean, who would have guessed that a software guy would launch a company that builds thermostats?" Kelman said. "How unsexy, but what a cool problem to solve. Look at their success."

The company was recently acquired by Google for a reported $3.2 billion.

The Longer, Harder Road

Apparently, though, for entrepreneurs wanting to tackle audacious E2E startups, Silicon Valley doesn't always put its money where its mouth is, said Kelman.

It happened to Kelman himself when he was trying to raise money to hire real estate agents at Redfin, which is a real estate search and brokage service.

"The minute we said, 'We've got this great software; now we just need money to hire real estate agents,' the answer was no," he said. Of course, there are some E2E startups that have been able to raise cash--Uber and Airbnb are two of the most valuable. Even Redfin was able to raise just under $100 million in its 10-year history.

The funny thing is, he said, the not-scaling-fast sword cuts both ways.

"Look, at first, I was so frustrated with how slowly Redfin scaled," he said, adding that every CEO wants to be the founder of a sexy, fast-growth software startup that raises jaw-dropping cash. "But I eventually got over that fantasy and realized I could build something that meant something to real people."

In the real world, he added, there are also higher stakes. E2E companies are often saddled with the same issues that strictly brick-and-mortar companies face all the time.

"As [Tesla founder] Martin Eberhard said, 'A car crash is fundamentally different than a software crash,'" he said. Obviously.

The Call to Duty

But it seems all this outlining and example-throwing was Kelman's way to call for action. 

"What if E2E companies tackled schools? Hospitals?" he asked. "We have some of the most brilliant entrepreneurs in the world building software for teachers---but no teachers are actually using it in any large-scale way."

He even said that as soon as he is done at Redfin, he would be starting a hospital.

"That's how we solve health care," he said. "It's up to us."

IMAGE: Getty Images
Last updated: Mar 10, 2014

NICOLE CARTER | Staff Writer | San Francisco Bureau Chief

Nicole Carter is Inc.'s San Francisco bureau chief. She was previously an editor at New York Daily News, and her work has also appeared in Consumer Reports magazine.




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