<aside> 💡 This document starts to develop a taxonomy of the questions and trade-offs to consider when evaluating full-stack opportunities – specifically It will be updated with additional examples, questions, and resources over time.
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<aside> 💡 A full stack approach makes sense if value chains are dominated by incumbents with highly inflexible cost and corporate structures, and/or if incumbents are in a position that makes it challenging to invest aggressively in R&D and CAPEX.
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H2 Green Steel in the steel market is a good example of this.
Incumbent steel companies have underperformed in recent decades and lack the investor confidence to invest in unproven or cost intensive projects with a heightened risk profile. Their business models, cost structures, and capital bases are unsuited to adapt. In the case of steel, they lack the ability to invest in developing new plants in geographies with access to the cheap clean energy needed for zero emission steel production,
A related consideration is whether there are artificial constraints holding back demand in a given market — what Dave Bujnowski of Bailee Gifford calls “Accumulated Accidents”.
In these markets, companies acting as enablers are often multiple steps removed from the actual customer or user. The only way to drive a truly transformative experience is to go direct, accepting the risk and capital intensity that brings.
Keith Rabois discussed this on Invest Like the Best.
You want to be able to control each component so that you create the ideal user experience. If you have a differentiated advantage, let's say in battery life, or in chip design, you want to ship the end product to the customer, and you get more credit for that.
You also don't want to be derivative. I think the biggest reason to do this for founders at an earlier stage is when your derivative to long sales cycles and other customer's priorities, you don't control your fate. Where you sell a product directly to a customer, you control your own fate. You want typically to not outsource your fate and destiny to somebody else.
So I'd rather be able to look at somebody directly in the eye and figure out whether they're buying my product than work through some indirect channel, and wait for the sales to materialize. It's often a more capital intensive strategy. It's certainly a higher risk strategy, but it works.