My friend Stefan Zanetti has always been an entrepreneur, if not by title, then at least in spirit. I first got to know him as my boss, running a small team that was dedicated to projects within the HR department of an insurance company. He used to take up topics that he found important, and drive them until they became reality – often with the support of the organization, sometimes with their tolerance, sometimes against their resistance. So it came as no surprise to me when in 2005 he decided to leave the world of big corporate in order to found his own startup. At the beginning there was an idea, or rather, a strong belief. It can best be summarised by a statement published by the industrial insurance company FM Global in an outlook. It says that technically speaking, 50% of damage volume to property could be predicted and therefore prevented or reduced. For example, much of the damage created by factory fires is actually due to a lack of maintenance of the fire alert and sprinkler systems. The missing link to making these potential preventions and damage reductions true is access to sensors and data, in order to read weak signals, monitor maintenance and the occurrence of damage, and the size of impact. The technology that would change all this: the internet of things (IoT).
For the next seven years, Stefan built up and ran two companies which concentrated on building that link between selling insurance and making people’s life at home safer. After some initial ups and downs, both companies were doing o.k. But Stefan realised that over time they had ended up providing webshops and digital services in the insurance and later on also in the utility sector, but they were not engaged on the initial idea of using the huge potential of IoT to make lives safer. The main reason was, of course, that the IoT underwent the same cycle as many revolutionary technologies. As Roy Amara of the Institute of the Future put it, people have the tendency to overestimate the short term impact of a new technology, and underestimate its long term effect. The IoT revolution would take much longer in the making than the hype talk suggested.
The result of this refocus on the original idea of their startup was the realisation that nonetheless, something could be done. There are problems of a simpler nature which can be addressed by connecting objects to the digital world. Not necessarily by connecting all of them in a big network, but simply by connecting them 1:1 to a digital identity, which allowed for additional things to be done. Your e-bike comes with its digital user manual that is always accessible, your spectacles remind you when it is time to have your eyesight tested, your camera informs you of a new set of lenses that has come out. A platform that does this could be open to third-party services such as insurance. It was the beginning of Qipp, later re-christened Allthings.
Qipp-Allthings was to be the platform that provided objects with a digital identity – a kind of Facebook for things. At that time, the business model was Business to Business to Consumer (B2B2C): If you get your new e-bike, and are invited to register on the platform, it is not you who are going to pay for it, but the producer of the bikes. What they learned very quickly at Allthings was that many producers of consumer goods were indeed ready to pay for this service. What they paid for was access to the end consumer. Think of a company that produces DIY tools, or SLR cameras, or small household electronic devices. It sells hundreds of thousands of products each year, and at the same time has no direct channel to any single end consumer. It was the perspective of this channel that made businesses want to work with Allthings, the prospect of learning about customer behaviour, and of binding customers to the brand. But which industries, which companies would be most interested, and which features did they and their end consumers want to see on the platform? There were many assumptions, and zero evidence.
Therefore it was clear that the initial phase of the company would be one of experimentation. They needed a platform that was capable of running many different features, they needed to try out many different packages of features with various partners, and they needed to modularise the offer as much as possible, in order to be able to re-use and scale. From the very beginning, they did plan for a large variety of such features to be accommodated for the various customers. But the variety they encountered was even larger.
I remember one of the very first features they tried out with friends and family was a lost-and-found service. You get stickers with QR codes to put on computers, keysets and the like, and connect the QR code to your online profile. Whenever a third party reads the QR code, they can get in contact with you without knowing who you are, or where you live.
The commercial applications were richer:
- A large wine merchant had QR codes put on their bottles, especially to invite guests in restaurants to their webshop.
- A bike manufacturer delivered the whole documentation and repair history with their bikes, and upselling opportunities for additional features.
- An insurance company delivered baggage tags with included travel insurance.
This phase of exploration came with its own array of leadership requirements. In retrospect, one of the key tasks Stefan sees for himself as a leader is the one to provide endurance, or momentum, in the sight of uncertainty and failure in detail. At the moment of founding Allthings, Stefan did not know which industry, which product, which technical solution or business model would bring success. But he believed in the potential – in the validity of the vector – and that was how he drove the business. He believed so strongly that he invested almost all his own money in the venture, at a moment when he did not know which product or service they were to deliver to which client. The strength of this bet that the overall direction made sense, enabled him to face the many little issues that needed to be solved, but more importantly, to tolerate some ongoing problems for the sake of focus, and to endure regular failures in small areas. In hindsight Stefan realises that many people, both within and without the company, cannot really deal with that mindset. He would cause irritation by adopting an Oscar Wilde quote I once gave him: “How can I know what I mean before I see it?” While other people may try to create areas of relative calm and stability, he was constantly on the search for the new, the different, of areas where he was not happy with the status quo. In some way this is another version of the explore-exploit tension: the friction between the forces pushing for stability, and for change. The key is to make this friction productive, and not destructive. Stefan’s job was to constantly go around and pitch his ideas to anyone, both within the company and with potential partners or clients, see what reactions he provoked, and try to connect it to intentions of the person in front of him. It was less a question of methodological planning, and more of the right psychological attitude.
Of course this emphasis on belief and attitude over planning doesn’t mean that Stefan was frivolous in how he spent the company’s assets. He knew that their own capital had to last for a relatively long time. But he did feel a bit like Christopher Columbus: how do you plan your supplies when you are going to India around the other side of the planet? The answer they came up with took the unknown issue of each customer project very seriously. Every engagement with a business client was an experiment they believed was worth making, but they wanted to make sure that the other party, who knew their own part of the business better than they did, shared this belief. Therefore they never engaged in a project without being paid by the customer. It didn’t mean that the bill necessarily covered all their cost, but it served as an indicator that the customer had thought carefully about the experiment, and found it worthwhile.
At the beginning, Allthings accepted to do any project on this criteria alone: It had to be roughly convincing, and the customer had to pay something. Once the first experiments started producing results, they could start saying no to that part of the spectrum which evidently was about repeating things that they already knew didn’t work.
A few months later, Stefan was able to come to some more general conclusions, and they were not necessarily promising. First, the reality of scalability was flawed. Each business, no matter how similar their product was to others, wanted specific, customised features that went beyond Allthings’ architecture of re-usable building blocks. This also meant that the variety of possibilities still outran even Allthings’ imagination. It was not enough to scan the world and estimate the potential of each product you could make out, in order to actively target the most promising customers. Whenever you sat down at the customer’s table, the reality would again be different from what you imagined. In addition, for many products the platform was simply never going to be economically feasible, because it would demand a too high share of cost. If the customer produces something at the cost of a few dozen Swiss Francs, any kind of monthly fee per registration weighs too much in their calculation. Conclusions such as these represented valuable learnings, but for the time they did not show a feasible way forward.
What happened next was pure serendipity. A very weak signal hitting a very sensitive ear. At one of their children’s party, Stefan got to chat with another father about their jobs. As it turned out, the other father worked as a project leader for a large housing development company. And as they explained their respective challenges and realities to each other, in Stefan’s head a whole handful of pennies dropped at the same time. What is particularly noteworthy about this encounter: years before, Stefan’s team had already looked into housing. Things like an automated noticeboard or an online assistant caretaker had looked interesting for a short moment, but did not pass the scalability test. And exactly there was the difference to the person he was talking to: scale. In Switzerland, the typical apartment building has six to twenty apartments, with less than 1% of buildings over that number. But the project in question was about 200 apartments, with an overall objective for the whole development of over 700. Beyond that, other housing developments would have very similar needs for additional services. And the share-of-cost issue, which was a business case-killer for relatively cheap objects, is a no-brainer once you are talking about a monthly fee within the per mill range of an average Swiss rent of over 1500.- CHF.
The stack of virtual layers Allthings could add to the apartment is impressing. Think about the pile of paper tenants get with the key to a new apartment. There are the house rules, the manuals for all the electrical appliances in the apartment. Usually, about six months after people move in, the real estate manager has to spend hours on end answering to requests to replace lost copies of user manuals. Now people get a login key to an online platform. All the necessary documents are always there, always up to date. You can add substantial services such as a pooling of household insurances to get better rates. You can add a webshop, so that when the first toothbrush holder or soap dispenser that came with the bathroom design is broken, people no longer have to go looking for a replacement in the DYI shop, which as a matter of course never fits. You get an online ticketing form to alert the caretaker, and optimise it in such a way that in certain cases, they can directly send the plumber, carpenter or other, avoiding the caretaker to take a trip just to confirm the obvious. Next, you can encourage responsible behaviour in the smart energy building, by letting tenants monitor the energy consumption of their apartment, and maybe compare it against the average in the estate. You can add platforms to build community life: announcements of parties to take place on the shared playground, online flea markets if you are looking for someone to take over the safety seat your kid has grown out of, or your dog’s puppies. You can even encourage the sharing economy, if you think of how many people own an electric drill and other tools, and use them for five minutes a year. The benefits were innumerable, not just from a tenant’s perspective, but also from a real estate management’s point of view: In new buildings, up to 100% of tenants registered within 3 weeks.
What they soon learned during this phase of focused exploration (as a kind of bridge between exploration and exploitation), was that they had to re-think the fundamentals of what business they were in. It was not a B2B2C business, but they were a multi-sided platform provider. The property developers were the entry gate, but at some point in the project they were gone. The tenants were the main users, but they were not the ones to make the buying decision. The property and facility management companies were another type of user, but they also did not decide. The ones who decided were the real estate owners, investors and asset managers. And once you looked at the situation from their perspective, you discovered another type of benefit: analytics. Real estate owners are interested in understanding what motivates tenants, how they tick.
With this experience, the new business model was clear and focused in a way it never had been before: Become the standard for digital tenant relations and service management in real estate, target large settlements and large owners. With this choice of focus, the rules of the game changed fundamentally in comparison to how Allthings had behaved before. The shift from exploration to exploitation had become decisive. The owners’ interests still called for a certain level of diversification, but it was limited: some features changed once you moved from housing to office buildings, or to retail or other commercial tenants. But by and large, the requirements for tenant relation management were the same in the whole real estate industry.
The shift to exploitation started with management. While in the early years, Stefan had probably been the key driver of variety in the company, now he became the one to tone down the still existing tension between the variety of customer needs and the efficiency of the internal landscape at Allthings. Part of this change of role came with size. From this moment, growth was much steeper, and the strategy was focused on accelerating it. This implied changes in management activities. Sensemaking, making sure that staff had a common idea of the nature of the business and how it was changing, had happened pretty much on its own when the company was small, despite the fact that they were running in two separate locations from the very start. Now, it had become an important management task, not the least due to the fact that the larger company started attracting other kinds of people. At the beginning, it was an almost unspoken prerequisite for staff to have a startup mindset, which included open attitudes towards risk, self dependency, improvisation and the lack of structure. Now, both the reality in the company and people’s mindset changed. For the management team it was clear how important it was to over-communicate across locations, to spend much time on the common understanding of the “Why” for so many of the things going on in the company. For example, it is clear that tenants and the asset management companies owning their houses have fundamentally different mentalities, conflicting interests, and a critical view on each other. These points of view tended to replicate within the company, depending on which end of the process people were working on. It was essential to relentlessly underline the common interests, and the win-win potential in what Allthings did, for example if they provided a ticketing system so that damages were identified early and requests were actually dealt with in time.
Size also meant that the business started generating more data, and it became possible to take data-driven decisions. But the interpretation of data had become less self-evident, because more people were further away from the context that generated the data, or had a partial view on this context. Like the common picture mentioned above, making sure that people had enough informal, qualitative customer knowledge to be able to interpret data, had shifted from being self-evident to becoming a management task.
Looking back on the early history of Allthings, it is important to note that the coherence of the story as it is told now is something that happens only in retrospect. Stefan is able to tell which events make sense as a crucial step in the journey, and to leave others out. But not only could he not have known that before. At any time, the present, and maybe the short term past, too, looked to him much more disorienting than the coherent story we are getting now. For example, the understanding that the better way to think of their business was not in terms of a B2B2C model, but as a multi-sided platform provider, was something that occurred to them only when in reality they were doing that very business for quite some time – only with somewhat less orientation, more incoherent reflections, and probably some less educated decisions on the way. Stories like this can make you understand what can happen. They don’t tell you whether, when or how they actually will occur.