Celebrating SaaStr: The essence of software and zero marginal cost

My partners and I will make our first pilgrimage to SaaStr this week. The tweet at bottom from my colleague Jackie should give you a sense of how SaaStr feels for a SaaS focused VC. It’s like a StarTrek Convention for a Spock impersonator. SaaStr and – twice in one week – being asked “what does AI mean for SaaS?” got me thinking about the “essence” of software.

There is only one other technology in human history that has had the impact of software – the printing press, of course. (okay, maybe electricity too) However the growth of literacy rates that printed books spurred pales in comparison to software adoption, using internet as a proxy:


Source: Ourworldindata, OECD, UNESCO, Scribblrs

Why is this? The marginal cost (and often price) of software is truly approaching zero, putting it within reach of even the poorest of the poor. The marginal cost of a printed book has never been that close to zero, so the price and effort required to learn letters has long been insurmountable for poorer tiers of society. The good news is software itself has now too made the marginal cost of a book zero, which in turn will help drive literacy rates on their final climb towards 100%.

Okay, so software is “eating the world” rapidly, but what does this mean at its core? In short, software is a digital means to drive marginal costs of transactions of any kind – human-to-human, human-to-machine, business-to-human, and so on – to zero. This definition is pretty broad, but purposely so. From punch cards replacing the human “computers” of Hidden Figures to a bot managing customer service interactions for a banking app, it is all part of the same trend. Software can help humans do stuff faster, cheaper and more accurately, and each new wave of technology (eg, now AI) brings software that much closer to surmounting costs of existing transaction methods… and displacing them.

Nerdy, true, but I am using this specific economic framework purposely to lay groundwork for the AI question. I am not excited about AI itself; it is just another tool in the expanding toolkit of technology infrastructure that underlies software. What I am excited about is the specific situations in which it can make software work cheaper, faster and more accurately such that non-software processes can be replaced.

We’ve invested in two examples of this, both in Ann Arbor, MI. Why there? Surprise, surprise not every developer knows how to do AI just because they are a developer (a word of caution to the AI snakeskin salespeople out there… we’re on to you). There is real AI coming out of The University of Michigan. Notion uses AI to help me communicate with my colleagues more efficiently by knowing what and who is important. I use it instead of gmail. Clinc lets banks offer personalized chat interaction with consumers, foregoing frustrating phone trees, waiting and customer service reps’ own shortcomings.

But AI is only the most recent in a long line of infrastructure innovations that drove (and continue to drive) the adoption of software to the zero marginal cost singularity:

Silicon transistor (and Moore’s Law) –> Workstation/mainframe –> PC –> Internet –> SaaS (cloud) –> Mobile –> IoT –> AI

There are also UI innovations I’ve discussed that have a similar effect:

Punchcard –> Keyboard –> Mouse –> Touchscreen –> Voice –> VR

As with AI, when any infrastructure or UI innovation emerges, there is always buzz of exponential promise. However, entrepreneurs and investors need to see through the hype to specific use cases where transaction costs are actually diminished by the new innovation, and therefore adoption is warranted. We believe, for example, we are doing this with our investments in Notion and Clinc. A cool infrastructure or UI shouldn’t be used just because it can be and is not a customer benefit in itself. for this reason, I cringe when I hear startup one-liners like “AI for XX” or “ML for YY”. In many cases, the best innovation implementations will barley be noticed at first as with Google’s use of AI for image recognition, now a powerful consumer benefit in Google Photo that enticed me to switch from Dropbox. Google doesn’t call it AI; the new feature is simply an obvious enabler of search that makes search faster and more accurate.

So at SaaS this year, let’s not get caught up in the hype of technology but see the long arch of software for what it is, an unfinished journey of removing transaction costs in business and all facets of life.

Bonus 1: Internet adoption inflection point with mobile

In looking more closely at the internet adoption curve, it is amazing to see the inflection point to a higher adoption rate in the late 2000s. What caused this? The first major trend of linear growth happened from 1998 to 2007 with the PC boom while the second major trend of linear growth – at a higher rate – happened from 2007 through today with the mobile boom. This is driven by India, China and South America where mobile leapfrogged gaps in electricity, phone and other infrastructure in poor and/or rural society. No doubt access to mobile internet will help drive the final journey of global literacy rates in these places as well.

essence-3 Source: Scribblr

Bonus 2: VC excited for SaaStr!


Five cities, five days, unbounded opportunity

I spent last week meeting hundreds of top talent student and faculty members at Purdue University, University of Chicago, Notre Dame, University of Illinois and the MKE Water Council. My mission: find great talent for our companies and find the next great company to invest in. Thanks to the many folks at each campus who hosted us; I’m excited about the companies and people we’re now engaged with after the trip.

There were a few common themes I observed on campuses:

Entrepreneurship is finally an established career option: Even only 18 years ago when I was an engineering student, no one talked about “entrepreneurship” career options. 20 years ago at top MBA programs, “entrepreneurship” was a dirty word. Today, entrepreneurship is the top concentration at U of C’s Booth School of Business, and Purdue now counts 1900 students in their entrepreneurship certificate program, with 400 new students joining per semester. Wow. Yes, entrepreneurship is risky and volatile, but it can be taught, or at least coached.

Starting young is low risk: Of course, the entrepreneurial spirit cannot be taught. It emerges in macro and micro cultures – on campuses, in countries, in families – over decades and generations of attempts, successes and failures. Our modern cultural heroes of Zuckerberg, Levie and Jobs help as well. The beauty for students is that starting a company or working for a startup young is a great time to do it. Students and recent grads have little “expertise or experience” – and so may not be at the point in their lives to maximize chances of success – but cost of failure is very low. Students and recent grads without families and responsibilities can live cheap, and if they fail, they can hit the “reset button” of grad school or joining a big company. Moreover, students at top schools have not yet experienced failure – they are at a unique point in there lives where everything seems possible. Make it happen.

The only regret I have from the trip is that I couldn’t visit more places in one week, so I’m planning some follow-up trips. So far on the list:

  • Monday, February 20th  – UW Madison
  • Tuesday, February 21st – Marquette University
  • Rose-Hulman and Northwestern are also in the works

If you couldn’t make one of the stops, here are some resources for you:

Slideshare startup/VC primer: To learn more about startup internships, careers or raising capital, check out the Slideshare below of my deck from the tour. You can also check out my recorded presentation from Purdue’s Anvil at this YouTube link.

Find jobs: Our team at Hyde Park Venture Partners recently launched a talent portal to match top talent within our 50+ portfolio companies across the Midwest, Atlanta, and Toronto – please share your resume with us, so we can find a few opportunities for you: Hyde Park Venture Partners Talent Portal. Please also checkout TransparentCareer, the best place to find salary and comp stats for early career roles (shameless portfolio plug!). 

Career decision making: At many of my stops, I referenced this framework about how to think about career decisions: Career advice: don’t listen to it, but if you must…

Enjoy and see you on the road for the Midwest Startup Tour Round 2!