Scale Is Coming
European Straits #108
Dear all,
✈️ The past few weeks have been a lot of travelling: from to Barcelona to Berlin to to Prague, where I spent two days last week to speak at the Digital Czech Republic conference and to explore the local ecosystem as part of The Family’s European tour. Now I’m back on more familiar ground (that is, London and Paris) and recovering before the next round of travelling.
🎙️ Also on Monday I sat down with Will Beeson, of Rebank, to record a podcast on Silicon Valley culture and how it needs to change now that software has effectively eaten a large part of the world. You can listen to the podcast by following one of these links: iTunes, Soundcloud, and the Rebank Website. Please do and share 🤗
Scale is coming
Koudetat is a brand that means a lot in the story of my firm The Family. Back when we started, in 2013, we settled in a charming apartment in a historic building in the traditionally Jewish (and now also LGBT and hipster) quarter of Le Marais. The large living room made it possible to host events with an audience of about 30-40 guests. For us it was a way to somehow revive the old French tradition of the salon. We used to say that our events were like salons littéraires, but for entrepreneurs.
The problem was that such a buzzing activity was hardly compatible with the bourgeois way of life that reigns in those old Parisian buildings. Hosting so many events meant that a lot of people would go back and forth to our apartment, opening the building’s door frequently and making a bit of noise while crossing the courtyard. Neighbors complained behind our back—an old, ingrained French tradition—and after a year our landlord decided not to renew the lease.
We approached this setback as an opportunity. For a few months, we worked as an officeless organization, nurturing a strong culture and building the networked communication tools that we still use to this day. Meanwhile, one of our early employees, Nicolas Saillant, was criss-crossing Paris in search of a new office. He ended up spotting what eventually became The Family’s flagship: a three-level office space at 25 rue du Petit-Musc, between Bastille and the Île Saint-Louis, which included a very large room where we could host more salon events as well as larger ones with 300+ attendees.
But there was a problem: We needed to make a down payment to secure the lease, and we didn’t have the money. We didn’t think we could raise that kind of money from investors, because our moving into such a large space appeared crazy at the time. And so we decided to bootstrap the whole thing and to generate revenue for the down payment. We designed Koudetat, a 3-month program to learn entrepreneurship, and sold 80+ tickets at €2,500 apiece. Within 3 weeks we had enough money to sign the lease. And after some refurbishing we hosted the first class of Koudetat students in our new office.
The Koudetat brand was created by my cofounder Alice Zagury, our CEO. It’s a play on the French phrase coup d’État. (Somehow the English borrowed the French words but only kept the first half, which literally means ‘stroke’ or ‘blow’.) For us, it conveys two meanings. One is that entrepreneurship is about challenging the status quo and a changing of the guard. The other message is that it’s perfectly OK to make mistakes—like writing it as one word, and with a ‘k’ rather than a ‘c’—because, in the words of William H. Janeway, that’s what innovation is all about: “Trial and error, and error and error”.
Over the following years, we hosted Koudetat sessions for three classes. Then we decided that teaching in person was becoming too time-consuming as The Family was expanding on other fronts, and so we turned Koudetat into a paid online product. Then we observed that what we were teaching had eventually become mainstream and thus decided to commoditize Koudetat by making it free. Finally we deprecated the product and simply left the website as it was, without any updates or maintenance.
We thought that was the end of the story, but then something happened: Many people all over France kept on using Koudetat to learn entrepreneurship! Some of them relentlessly sent us emails praising the product and asking for more. And so we had this epiphany: Here was a very strong and valuable brand! And it was meeting a demand that nobody else was tapping: the vast and growing population of people who don’t necessarily work in tech but still want to learn from the tech world and apply its recipes to their non-tech businesses—whether they are small business owners or self-employed.
That is why The Family relaunched Koudetat a few months ago. We transferred the brand into a subsidiary company, headed by Valentin Richard, a veteran entrepreneur from our portfolio. And we redesigned the product from zero [alas still in French only 🇫🇷], with a new, better targeted value proposition: teaching the art and science of scaling a business to those who work in a presumably non-scalable sector. The idea behind the new Koudetat is that, in my cofounder’s Oussama Ammar’s words, “Scale is coming”. And here’s why:
As I explained in the Rebank podcast above, every business has two sides. One, the Northern Side, is made of the traditional parts of doing business (tangible assets, employees, compliance), and it’s marked by diminishing returns to scale. The other, the Southern Side, is all about computing and networks, and it generates increasing returns to scale. Many legacy businesses only have a Northern Side and are not scalable. But nothing prevents them from expanding their operations on the Southern Side, staying focused on their legacy business while also scaling it by harnessing the power of technology. Read more here: What Makes Tech Companies Different.
A good illustration is a traditional business using technology for marketing purposes. Think about Netflix. It doesn’t generate network effects as an application (they stopped working on recommendation algorithms a long time ago). However, the Internet as a whole generates network effects for Netflix: think about the many communities of fans that create buzz for Netflix’s original content across forums, social media accounts, and wikis. Another example is our portfolio company Shanty Biscuits, which has turned a less-than-scalable cookie manufacturing business into a highly scalable brand through a clever use of social media (check out Shanty’s Instagram account, which is growing fast and now counts 63k+ followers!).
My cofounder Oussama once said to me that scaling by using social media is the exception rather than the norm: it works for consumer-facing companies whose products lend themselves to that kind of visual marketing (like movies, series and cookies). But the new version of Koudetat is about enlarging the range of tools and operations that business owners can consider to scale their operations in a non-scalable sector: beyond Facebook, Instagram, Twitter, Squarespace, Medium, Google, and Mailchimp, there are now the likes of Airtable, Zapier, Google Sheets, Chatfuel, IFTTT, and Slack which make it easy to automate many workflows without needing to learn coding from scratch. (By the way, we use all of these at The Family!).
For those of you who understand French, you can discover the new Koudetat by watching Oussama’s introductory conference here: Comment scaler une boîte qui ne scale pas 🇫🇷.
And if all that sounds like something that can help your own life, you can purchase the new Koudetat at an early bird price here: CLICK, CLICK, CLICK.
The importance of history
🤓 One of my most pleasant surprises at the recent was meeting historian Margaret O’Mara, a professor at the University of Washington in Seattle. She just finished a forthcoming book on the history of Silicon Valley and its relationship with the US government, which promises to be riveting (and which you can already pre-order here on Amazon). Margaret is also developing inspiring thoughts on how history is a powerful tool to “understand the present and build the future”. I’m already convinced of that, but if you’re not I urge you to have a look at this video: How Tech Makes History.
📕 Those of you who’ve read my book Hedge know that I’ve been building on history a lot to help readers understand why and how we should all work on inventing a new Safety Net. If you haven’t read the book yet, you can purchase a copy by visiting the relevant Amazon website depending on where you are: 🇺🇸US, 🇬🇧UK, 🇫🇷FR, 🇩🇪DE, 🇮🇹IT, 🇪🇸ES.
🎂 My wife Laetitia Vitaud and I will be cultivating our taste for history later this week by attending an event thrown for the 70th birthday of Erik S. Reinert, a professor of economic history at Tallinn University of Technology. He will give a lecture on Friday at Mariana Mazzucato’s Institute for Innovation and Public Purpose in London and will be joined on stage by Mazzucato herself, Carlota Perez, author of the landmark Technological Revolutions and Financial Capital, as well as Wolfgang Drechsler and Robert Wade. If you’re in London and you want to join, here’s the link: Celebrating Erik S. Reinert’s 70th birthday − After globalisation: Resurrecting the economic ideas that produced the welfare state.
Further readings on scaling traditional businesses
Increasing Returns and the New World of Business (W. Brian Arthur, Harvard Business Review, August 1996)
Investing in the IT That Makes a Competitive Difference (Erik Brynjolfsson & Andrew McAfee, Harvard Business Review, July 2008)
No Tradeoff Between Quality and Scale (Babak Nivi, Venture Hacks, February 2013)
Unicorns: Why This Bubble Is Different (William H. Janeway, Forbes, May 2015)
The Digital World Is Not a Flat Circle (me, The Family Papers, October 2015)
The Rise and Fall of the Unicorn (Jeremy G. Philips, The New York Times, February 2016)
In Search of Scalability (me, The Family Papers, August 2016)
Scale Is Coming (Oussama Ammar, The Family, October 2016)
The NFX Archives: Foundations for Mastering Network Effects (James Currier, NFX, January 2019)
The fundamental problem with Silicon Valley’s favorite growth strategy (Tim O’Reilly, Quartz, February 2019)
Warm regards (from Paris, France),
Nicolas