[bsder]

VC thinking at its worst:

  Me: “Why does competitor X have five times your revenue?”
  Entrepreneur: “We are using partners and OEMs, because we can’t build a direct channel like competitor X.”
  Me: “Why not? If you have the better product, why not knuckle up and go to war?”

Um, because building out direct sales means we will have to hire a bunch of people, expend a huge amount of our revenue, and have a decent probability that we will completely fail and take the company with it.

But, yeah, that's visionary!

> “If our company isn’t good enough to win, then do we need to exist at all?”

Note that "successful" has only one definition to these kinds of people. Deal with them at your own peril.

[Ancapistani]

> Um, because building out direct sales means we will have to hire a bunch of people, expend a huge amount of our revenue, and have a decent probability that we will completely fail and take the company with it.

> But, yeah, that's visionary!

Not doing those things may well allow your competitor to capture more of the market, use that revenue to out-build you, then take over your market share as well.

It's entirely possible that "grow faster than the competition" is the only viable survival tactic.

[jordanb]

You're assuming that the competitor has better distribution but think in this example distribution is similar but the competitor owns the channel and can capture revenue you have to leave to your channel partners.

A concrete example is: you product is widely being sold by retailers who are taking 50%of gross. Your investor tells you to go for broke building your own stores so you can capture that margin.

[aspenmayer]

> You're assuming that the competitor has better distribution but think in this example distribution is similar but the competitor owns the channel and can capture revenue you have to leave to your channel partners.

> A concrete example is: you product is widely being sold by retailers who are taking 50%of gross. Your investor tells you to go for broke building your own stores so you can capture that margin.

That's a really interesting example. Did you pick it for any particular reason or with any precedents in mind?

Nolan Bushnell worked at an amusement park during college, and was fascinated with the electro-mechanical arcade games. He had a dream of founding a pizza parlor with animatronics and games, and went on to found Atari and Chuck E. Cheese. Early Atari employees Steve Jobs and Steve Wozniak would later ask their former boss Bushnell for help raising funds, who referred them to others in his network. This soon led to the formation of what we now know as Apple, which was formed by buying out the prior Apple partnership between the two Steves.

I wonder how much Bushnell talked with Jobs about running a pizza chain, because it seems so mundane and pedestrian, in comparison to how Apple presents its products.

But why did I bring any of this up? Your comment reminded me of something many people on HN may have some familiarity with:

Apple Stores.

And why did Apple need retail stores in 2001?

https://en.wikipedia.org/wiki/History_of_Apple_Inc.

> In May 2001, after much speculation, Apple announced the opening of a line of Apple retail stores, to be located throughout the major U.S. computer buying markets. The stores were designed for two primary purposes: to stem the tide of Apple's declining share of the computer market and to respond to poor marketing of Apple products at third-party retail outlets.

Prior to this, ironically, Jobs via NeXT had built Dell's successful online store, before returning to Apple:

https://en.wikipedia.org/wiki/Apple_Store

> In 1997, the year Steve Jobs returned to Apple, Dell founder and CEO Michael Dell was asked how he would fix Apple. Dell responded: "I'd shut it down and give the money back to the shareholders". This angered Jobs, due to Dell's success with its online store originally built by NeXT, his former business that Apple acquired to bring Jobs back. A team of Apple and NeXT employees spent several months building an online store that would be better than Dell's. On November 10, 1997, Steve Jobs announced the online store at an Apple press event, and during his keynote speech, he said: "I guess what we want to tell you, Michael, is that with our new products and our new store and our new build-to-order manufacturing, we're coming after you, buddy."

The new online store pivot wouldn't solve all Apple's retail issues, though. But Apple's next attempt at improving third-party retail, their store-within-a-store model, would largely foreshadow what would eventually become the modern Apple Store.

And look who shows up, just in time:

> Tim Cook, who joined Apple in 1998 as Senior Vice President for Worldwide Operations, announced the company would "cut some channel partners that may not be providing the buying experience [Apple expects]. We're not happy with everybody." Jobs severed Apple's ties with every big box retailer, including Sears, Montgomery Ward, Best Buy, Circuit City, Computer City, and Office Max to focus its retail efforts with CompUSA—which reached an agreement to establish dedicated departments for Apple hardware, staffed by trained employees and representatives. Apple also worked with local user groups to promote launch events for new hardware and Mac OS releases.

> Between 1997 and 2000, the number of Mac authorized resellers dropped from 20,000 to just 11,000. The majority of these were cuts made by Apple itself. Jobs proclaimed that Apple would be targeting Dell as a competitor, with Cook's mandate to match or exceed Dell's lean inventories and streamlined supply chain.

> Jobs believed the Apple retail program needed to fundamentally change the relationship to the customer, and provide more control over the presentation of Apple products and the Apple brand message. Jobs recognized the limitations of third-party retailing and began investigating options to change the model.

> Several publications and analysts predicted the failure of Apple Stores. However, the Apple retail program established its merits, bypassing the sales-per-square-foot measurement of competing nearby stores, and in 2004 reached $1 billion in annual sales, the fastest of any retailer in history. Sales continued to grow, reaching $1 billion a quarter by 2006. Then-CEO Steve Jobs said that "People haven't been willing to invest this much time and money or engineering in a store before", adding that "It's not important if the customer knows that. They just feel it. They feel something's a little different."

Now we have App Store, and Apple has "lived long enough to see itself become the villain" in a manner of speaking. Epic, backed by Tencent (~40% stake in Epic), is successfully arguing that Apple is anti-competitive due to their App Store policies.

The arcade games and apps aren't small change anymore, and vendors want a seat at the table, but it feels like Apple treats its App Store, and Google its Play Store, like Nolan Bushnell treated the animatronics and video games at Chuck E. Cheese. Considering Bushnell founded Atari, he could probably play hardball with other competitors while giving his own games preferential placement and rates, though I don't know anything about how that industry worked, nor do I intend to malign Bushnell or his companies, only to say that the potential for leverage in negotiations is present.

The parallels with today are really quite striking.

[msukkarieh]

The Apple store chapter was my favorite part of Isaacson's book. It really solidified the "control the whole stack" approach that Steve Jobs had. That being said, I'm glad to see app developers getting their fair share back from the app store.