The Business Of Developer Tools

With Lee Edwards

The Business Of Developer Tools

How do you build a business around tools for software engineers? Adam talks to Lee Edwards, a VC who spends a lot of time thinking about this question.


Note: This podcast is designed to be heard. If you are able, we strongly encourage you to listen to the audio, which includes emphasis that’s not on the page


Lee: But I do think that if you build a really cool product and you want the most people to use it, you do need to be able to support it. And you need the money to do that. And you want to pay the people that are developing it.

Adam: Welcome to CoRecursive, where we bring you discussions with thought leaders in the world of software development. I am Adam, your host. Hey, how’s it going?

Lee: Hey, not too bad.

Adam: Wait, my audio is coming through the wrong thing here. Today, I talk to Lee Edwards. Lee, is a venture capitalist, he is a partner at Root Ventures. One area Lee is interested in is what I’m going to call developer tools. So what is a developer tool? Well, it could be IDE, it could be API like Twilio or Stripe, it could be a database, a code linter, could be a program verification tool or even a programming language.

So how do you build a business around a developer tool? Well, if you listen, I will pitch Lee a random bad idea for a developer tool, and he’s nice enough to play along and explain how he thinks about this space. And along the way, we talk about making a business out of an open-source project, why he’s excited about Rust and WebAssembly and a little bit about Star Trek versus Black Mirror.

I have this idea. So here’s my dev tool, right? I built something, I’m going to call it the pacifier bot. So it finds merge conflicts on GitHub, and then it resolves them. It says, “Hey, I’m pacifier bot, you have this merge conflict, I made a new PR, your conflict is resolved.” So this is my Open-source project, how do I turn that into a business?

Making Open Source A Business

Lee: Yeah. So there’s two kinds of questions, about making something a business. Sure, and then out here in the Valley, I think a lot of times people conflate that with make that a venture backed business. And they’re two very, very different questions. Yeah, to start with the business, I think it seems obvious that if you built something that would save people time and let them iterate faster that people would pay money for it. And I think the question is how much money would they pay for it?

Sometimes that depends on time. Sometimes I talk to VPs, directors, managers and engineers, and they’ll do the maths. Not everyone does this, but a lot of people will literally do the math and just say, “Hey, you’re saving every engineer one hour per day. I’m calculating based on their salary, this product is worth a lot.”

So yeah, it feels like something like that, if there is literal time saved in fixing the merge conflicts. But then I think the second order thing that non-developers, investors that are non-developers miss is there is a value to the intangible speed of iteration.

I think the reason that things like CICD have been valuable, the companies are willing to pay a lot of money for it, is just the difference in the world. I’m old enough to remember when most software was printed on a golden master and then shipped out in CDs and put in a box to sit on a shelf at RadioShack and Office, eventually Office Depot and Staples.

So the costs of shipping bugs, the cost of shipping security vulnerabilities and just the speed of iteration that developers can get feedback, on how their software is working, on how users are working on the software. Something like what you described, if my pull request can get merged faster to answer those questions faster, and that has a flywheel effect on your productivity.

So when I think about, is this a good business, I think about is there value accruing? And it sounds lik… it feels like the answer is yes. The question is just how much? So I feel like you could probably build this bootstrap it maybe to distribute it.

Distribution’s always hard, tweet about it, build a community, Open-source is one good way to build a community, making things that are… Writing content is another big one. I don’t know how much content you could build around this tool in particular, but a lot of things, you can write a great blog post, distribute it on Hacker News, and then certainly putting things in the GitHub Marketplace, AWS Marketplace, getting things on Product Hunt.

Developer Relations

Lee: All of the stuff around developer relations, developer community building, it’s a whole discipline. At this point it is a very real thing, it’s like sales and marketing. There are experts on this, there are now books about developer, go-to-market developer relations.

Mary Thengvall, has a really great book called The Business of Developer Advocacy, [inaudible 00:04:26] maybe the first book in space of many. And I think the question about, is it a venture backed business? The very, very over simplified answer is, do you believe you can get a 100 million dollars in revenue within 10 years? And those numbers are fudgy, but if you can do that, you can IPO a company.

And it’s surprising to me, I’m now really grokking and integrating this information, but it’s amazing that PagerDuty and Twilio each do one thing well, and they’re multi-billion dollar companies.

Adam: Yeah.

Lee: There’s a lot of things like that out there now. Slack, I wouldn’t call strictly a developer tool, but it’s definitely fair to say that developers adopted it first. And probably a lot of the accrued value actually comes from product development, engineering design teams. You can think about things like HashiCorp and Pivotal.

They do multiple things, but within the space of deployment and cloud services. CircleCI is not a billion dollar company yet, I could be wrong about that, and they did raise a bunch of money but they’re certainly not public yet. So you can imagine, I think doing something really, really well, this idea feels a little hard to imagine if you back-of-envelope it, could you make a 100 million dollars in revenue?

But you couldn’t, maybe there’s something else there, but that suggestion I would give to someone if they were pitching me about, should I start this business? Or even just discussing with me over coffee, should I start this business? Are there other verticals in this space of doing pull requests, removing friction?

So I think we all know, so much time the larger the organization is, the amount of time that you spend discussing with other people your pull requests and code styles. There are relatively smaller businesses and things like Code Climate and Codecov, but maybe if you roll this up and you can put it under a brand and again, you recruit a lot of value, if you can basically provably reduce the amount of time a pull request is open.

Adam: Yeah. I think that’s great feedback. The space for actually improving people’s code via a pull request process. In the most general case, it’s like, “Hey, your Python 2 library, here’s the new pull request, it’s Python 3.” We’ve tiered the amount of value.

Machine Translation of Code

Lee: Yeah. You could pull some static analysis magic or even machine translation. Now we can go really crazy on this. And I think most venture backed ideas, aren’t really crazy. But machine translation, if you’re familiar with this idea and works really well with natural language, it’s getting better and better. I think it’s one area of AI that’s improving insanely fast, but people are also using machine translation for weird things, like can I translate text into images? As though the images were a language. And you could maybe imagine someone doing that with code or with the AST that the code parses into. There can be something interesting there.

Adam: What’s an example? Is it like, “Hey, Ruby’s not cool anymore. This is now in Rust.”

Lee: Yeah. Maybe Python 2 to Python 3 is the easiest version. But yeah, that would be crazy. If you were to move from an interpreted garbage collected language to a direct memory managed language like Rust, that sounds insanely hard. It might be valuable.

Adam: My original use case of the merge conflicts. There’s very easy ones that can be done there. That’s probably the bulk of merge conflicts, but in the hardest case, it’s impossible. It’s just like, you need to understand what the developer’s intent was and whatever.

Lee: Totally.

Adam: I’m just thinking out loud, there’re areas where it’s a seemingly intractable problem, but there’s specific cases of it that are totally able to be done.

Lee: Yeah. And I think another problem that I’ve seen in the past, a lot of this code generation type stuff, the complaints is, “Hey this code is not very readable, my intent isn’t really written here, it doesn’t conform to the style guides of my company.” But in this part, your readers know more about… well, your listeners, that know more about this than I do might just shake their heads and be like, “This VC has no idea, this technology is not as advanced yet.” But I do think that a lot of times the idea of style transfer and I think a lot of the machine learning algorithms around translation, this is one thing they do really well, at least in some of the demos I’ve seen. And certainly it’s moving in that direction. So you could imagine a machine translation of one language to another, where style is part of what it’s translating and understanding.

Style Transfer in Code

Adam: So those image apps where it’s, I made you look like Picasso, but instead you’re like, “Hey, I made the code look like it was DHH or somebody?”

Lee: Yeah. I wonder if little sci-fi here, but certainly in a language like Ruby or JavaScript the style is just pretty wildly different unlike Go where you will use the style or this won’t compile, or even like Python’s tabs and spaces. But yeah, I wonder if you could train on a corpus of a particular style of Ruby or Python and then the code you generate is actually in a similar style. That’s probably the case.

Adam: The interesting thing is, there is a large corpus out there with just all the Open-source software, if you were able to somehow learn on it.

Lee: I wonder if that’s part of why GitHub or why Microsoft use GitHub is so valuable. I think for a long time, people have talked about, “Hey, GitHub has all the code in the world.” And people think about proprietary data that only your company has access to that, that makes your company’s valuable. People have talked about that with GitHub forever, it’s unclear to me to GitHub has ever taken advantage of that data. Part of it might be privacy, but yeah, it feels like there is opportunity there that maybe Microsoft saw when they put that huge price tag on GitHub.

Adam: Yeah. So for the conflict thing, it’s interesting because all of these Git repositories, they have their full history and you can actually look through and find places where there was a conflict that somebody’s resolved. So in fact there is… you could build a giant Corpus of people, resolving conflicts and code and use that to-

Lee: The other thing that would be funny is I think definitely human conflict, emotional conflicts often comes into play with merge conflicts. Imagine you go over to the person’s desk, and you’re like… when you have to figure out like, “okay, well what was your intent here?”

And then sometimes you realize, “wait, I’m trying to move the code in a different direction than you are, let’s argue about this.” Another thing that I would say to someone that wanted to try to turn this into a venture backed business, as opposed to a lifestyle cash business is, the very biggest version of this idea would be to just fully vertically integrate this stuff.

And what is, if you re-imagine source control and code collaboration with this as a core concept, if that’s possible, I don’t know if that’s possible, but could you essentially build a source code repository, GitHub, GitLab competitor.

And that sounds insane, but if your specific idea and maybe it’s this idea of something else, if your specific idea is so powerful that you actually create a much better experience, much higher quality product for the thing that you’re integrating with straight as I’ll use this, how do you capture the most value? How do you build the biggest version it’s business, and an extremely ambitious founder might be able to do that. Certainly that’s the case with GitHub, What was the advantage of GitHub over just hosting Git on a server? Part of it is hosting a good server, which is annoying, but part of that was the pull requests and the collaboration and the community, that idea was so powerful that they verticalized and made this huge, huge business. It’s a simple idea, if you think about it, just the idea of reducing the feedback loop between, “Hey, we’re both pushing code, but why don’t we put the communication in one area that we both go to every day?” So they figured out how to completely verticalize that product. They could’ve made the pull request like a command line plugin forget or something.

Making Ideas Bigger

Adam: See my ideas just aren’t big enough. That’s the problem here?

Lee: Well, a lot of times the smaller idea can be made bigger. That was maybe a little bit of my point, but the other thing is, I think it’s silly, sometimes people try to force their idea into a venture backable business model rather than just say, “Hey, can I provide this product on the internet and make some money?” Like Patrick McKenzie is the master of this. He’s blogged a lot about it. I think it was the crossword puzzles, that thing was his first one.

Adam: Bingo, it’s Bingo.

Lee: Bingo, it’s bingo?

Adam: Yeah. They made Bingo cards, I think.

Lee: That’s awesome. Yeah. And 37signals similar thing. They’re always flaunting that, they didn’t raise venture capital and they made a ton of money.

An Open Source Business

Adam: So can an Open-source product become a business?

Lee: Yeah.

Adam: So the code for my merging logic is sitting in Git, and people add things, right? They’re like, “Oh, I added a merge strategy for YAML documents or whatever.”

Lee: Yeah. Do you mean just in the sense that the product is Open-source and you need to now tack on a monetization model to it?

Adam: Yeah.

Lee: Yeah. I definitely think that, that’s possible. There’s a couple ways to do it. One is the concept of Open Core, which is relatively controversial, but there may be part of your code base that’s closed source. And there was a Twitter Kerfuffle a month or two ago about a conference I actually went to that was called Open Core Conference.

And the Open-source appearance were like, this is not Open-source because part of it is closed source. And that is literally true, but there’s a lot of power in Open-source and Open-source communities. But I think that sometimes in order to really make a project big, you do need money to run the project.

I mean, like NPM has money behind it. And then you look at a lot of the things that are sponsored and run internally by big companies like React Natives, TensorFlow, Keras. If those were not inside of large companies, they would probably have to be venture backed businesses.

And yeah, certainly I think it’s very hard to imagine what venture back React Native is. You can’t force someone to pay for it. But there are other things if you think of InfluxDB has a model where their Influx is Open-source. There are people forking and using Influx for different kinds of things.

But if you want them to host it, you pay money. And then the other thing that I think is interesting is if people fork your Open-source project and try to build a business around it, that’s what a lot of investors are worried about, and a lot of people starting these kinds of businesses. You have to wonder, can the people that fork your project actually build a bigger community than you? Because I think communities are very sticky and in a lot of sense, they’re what investors would call a moat or a competitive advantage. It’s hard to build a loyal community, but once you have, a lot of times they’re not really interested in planning for it.

Oh, that’s not always true. I mean, I think in the case of Linux, there’s lots of different communities that have forked off of a lot of the original Linux code, like Ubuntu and Coral.

Adam: AWS is what I think of like InfluxDB. I’m not aware of what InfluxDB is, but if I build a database, Amazon’s just going to offer hosting for it and people will use that just because they’re already on AWS. Right?

Lee: Yes. So I think a lot of times I have definitely heard people being upset about this, that AWS will just grab this stuff and that’s a real risk. And I think that’s one thing that Open Core tries to do. There are different kinds of Open-source licenses that I think try to protect you from some of this stuff.

But when you try to cut off the Cloud Hosting companies from being able to do this, you sometimes inadvertently cut off your Open-source developers from being able to do it for free. So it’s a difficult needle to thread, but certainly Hortonworks, and let’s say Elasticsearch.

And I really like Algolia as well, not a public company yet, but I had to predict certainly going public in the next couple of years. Canon does host stuff like that. But for whatever reason, people are picking the first party hosts. Same with WordPress.

Automatic is a very large valuable company that actually I’m sure that if you interviewed Matt Mullenweg and asked him what things would he have done differently, he probably would say that he wished he had done paid hosting earlier on things like WP Engine and these folks, and everyone got a chance to come off the ground. But now that does this, people are picking first party, because it just feels better supported. And it probably is better supported, the people that wrote the software, certainly the ones that are going to make sure that all the new features are getting updated and in the cloud hosted platforms that are probably looking at how users are using the products and trying to integrate that into the hosted version.

Adam: I mean, I have to assume. Yeah. Obviously they haven’t captured all that value. We’re pressed, rustling so much stuff, right?

Lee: Yeah. That is definitely one way to look at it. I mean, I think… I’m pretty sure it’s hundreds of millions of revenue, but it ought to be a trillion dollar company probably, I guess. But it’s a big risk a lot of these companies run is that the free version of your product might be so good that no one wants to really pay for the paid one.

Adam: Yeah. I assume it’s intentional on his base. He wants it to be what it is.

What VC’s Talk About Behind Closed Doors

Lee: Yeah. I think that’s right. I mean, that’s another interesting thing that venture capitalists talk about behind closed doors and probably never tweet about or say publicly because it makes them look bad. But you do often wonder if a founder of a dev tool company, a lot of times they’re really altruistic and I feel this way too.

It’s like how much has been given to me for free? I had a great job where I was writing Ruby code and Rails code and both of those are Open-source and free. People gave that to me. And I had an awesome job that I loved. And so you can’t help, but feel grateful about that and want to contribute back to the system. But venture capitalists, they’re like, “wait, don’t get your stuff away for free.” And it can sometimes be a conflict.

I think when you’re looking for an Open-source founder, you need to look for someone as a VC that actually does want to make everyone money. And so you can view that as greedy and capitalist and maybe it is. But I do think that if you build a really cool product and you want the people to use it, you do need to be able to support it and you need the money to do that, and you want to pay the people that are developing it.

I think a lot of times the totally pure Open-source models, there’s lots of discussions with the community about, “Hey, these people are spending their time. Shouldn’t we figure out a way to pay them?” And so you see things like Patreon and I can’t remember the names of the other products, but there are Bug Bounty and stuff like that, where you want to pay people for their time. Another good way to do that, to pay them meaningful money is to venture back to your company and pay your employees, even health insurance and benefits.

Adam: Yeah. I had Heather Miller on the show and she was talking about Open-source infrastructure, she called it. And I guess the Open SSL story where the guy was making minimal money to keep this project going, that everybody depended on and then it led to a major problem.

Lee: It’s hard to remember that.

Adam: There must be something between. There needs to be some model to keep these Open-source projects that we all depend on able to support themselves or something. I don’t know.

Lee: Yeah. I think that’s right. And I think that you can crank the lever too far. There’s been tons of backlash against sun for them, really trying to pull Java and its proprietary. There is a thing with Open-source where it’s… what’s the word that they use for this? It’s like crossing the Rubicon or what’s the… on ringing a bell.

Once something is Open-source, it’s really difficult to then make it Close-source. So I think it is important when you do this strategy to think about what’s a fair and acceptable way that your community is not going to get backlash against you for monetizing.

Part of that’s just being a good actor in the system and being viewed as altruistic. So the other thing I guess I would say is it’s not any different in Open-source than it is in the other businesses. I think that for the most part are there are certainly exceptions, but for the most part, people that start businesses, I think want to see their thing in the world.

Star Trek vs Black Mirror

Lee: And I think that they believe it’s a good thing, and they believe everyone should do it, and they believe they can make money while doing good. I really… You may call me naive, but I really, I mean, I talk with a lot of founders and I think that’s the case. I tend to be much more of an optimist. I’m much more into Star Trek than Black Mirror,

Adam: But Black Mirror is so good. I don’t know,

Lee: To be honest, I don’t actually really watch it and can’t watch it, I think is a tangent. But I think that building dystopian sci-fi these days is almost too easy, nobody’s building, Gene Roddenberry Star Trek anymore. And I think that it takes more imagination and can be more difficult. So imagine how does technology make our world better in the future? I think that was just like one of the most brilliant, beautiful things about Star Trek originally that may have been lost.

Adam: Also they had no money, right?

Lee: Well, that’s very inconsistent. They say in Star Trek: First Contact that they don’t have money, but then there’s the Ferengi that has latinum. And there’s definitely lots of episodes where captain Sisko trades old press latinum for different goods or whatever. And so, yeah, it’s very weird. Maybe the Federation is more like China where they’re a little bit communist inside and a little bit capitalist outside.

Investing in Hard Software Problems

Adam: So you mentioned that, I forgot what you said. Hard things are easy now. Would you back somebody who is building a Rails CRM or something?

Lee: Our interests and my particular interest and Root Ventures interest is in, do you think there’s always going to be a top of that waterline? There’s going to always be things in software that are hard. The software is getting more capable as hardware is getting more capable algorithms that used to be on academic papers are now getting used in production. Things like Neural Networks, which we tend to think of as new, but that stuff was written on paper 40 years ago. So it’s certainly, I mean, who knows about this like Google quantum supremacy thing. I think there will always be hard software to be written. And that’s what I think we’re mainly interested in investing in, which is just, it’s not to say that I’m bearish on everything else. It’s just to say that I think we believe we have an advantage in assessing that stuff and knowing people in our network that are always going to be chasing that really challenging technical problem.

Adam: So what’s the, it’s not PayPal now. I guess what’s the hard problems now.

Lee: Oh yes, totally. So I think that, I mean, it’s a generic concern, but certainly AIML, and these are all very challenging cutting-edge technologies. And even when you see things like TensorFlow and Keras that are making building Neural Networks a lot easier, at least mechanically, and this is again an area where the devil’s in the details, where’s your data coming from? How do you clean it? Can you run these things in production and collect the data quickly and re-train and code the models?

So I think there’s, I mean, there’s that, and then I think there’s a lot of algorithms that are really early, that are promising. Like I mentioned, machine translation. I think that reinforcement learning is another area. That technology is hard. So again, as a venture capitalist, at least with my thesis area, I’m looking at the technology and I look into technology first.

I expect that the businesses will always take the business. We’ll think of the business first, so we’re not… I’m not interested in investing in science, but I’m interested in investing in businesses that can only happen because of these very recent and new and powerful technological innovation.

So I don’t know what those businesses are. If I did, I’d probably quit and start the next $10 billion company. But what I’m hoping is that I’ll recognize it when I see it get hit by the lucky truck and get to work with an awesome founder, that’s figured out something that’s both a great business using a great technology. So also interested in the software for embedded systems. I think if you follow the trend of hardware development, you can often predict where the software is going to go. I believe so. You and I spoke one-on-one about Rust being an area I’m interested in. I think that, that’s the one area where Rust will really Excel. And when you need direct memory management and compiled software and Rust is again, many people might disagree with me, but let’s say I feel more productive in Rust than I do in C++. And I think many people agree.

Investing in Rust

Adam: Yeah. Rust, so it’s interesting. Rust is trendy in a way that probably C++ never has been.

Lee: I know that’s true. I think C++ was all the hot rage in the 80s. I mean, it was just like very exciting obviously.

Adam: Maybe in my tenure as a developer, but I was just thinking about, okay, developers were very, I mean, sometimes we follow trends more than we think we might admit to it, right?

Lee: Absolutely.

Adam: So Rust becomes hot, and then all these people who were previously, I don’t know what they were like Java programmers or Ruby programmers, they just want to do Rust things. And then the problems that are well-suited to Rust are probably a bit different. So that means we’ll have, if there will be successful businesses created merely because of the trend where this language looks cool and then people go to it and then-

The Productivity of Ruby

Lee: Yeah. Well, a couple of thoughts on that. I think one is, I mean, every programming language is turning complete, so in theory they could do everything. So I do think that some, I mean, Ruby got deployed doing things Ruby never should have done. And that is also the case with [inaudible 00:24:41] but that isn’t to say that it was always stupid.

I think that if you were prioritizing productivity on your main web app, then your team is proficient in Ruby. So you built two ETLs in Ruby, which for a, say, large scale data is certainly stupid, but for maybe smaller scale data is totally fine. And it has the advantage of everyone on your team knows how to use them.

So a Teespring before, we were really massive scale, and we did have ETFs in Ruby, but the nice thing was that software developers on product team could really understand if their data was making it in the data warehouse because they knew Ruby. So I don’t think it’s necessarily bad that sometimes that languages get stretched into areas where they’re not the optimum language.

Web Assembly Will Change Things

Lee: And one reason I’m interested in Rust is I do think today it does something that unlocks a lot of business potential. So I’m really interested in WebAssembly for a business reason. So I think when another business model that a lot of developer tools, or even really just any enterprise service, a very common business model is the free share to get you on board and getting you comfortable with the product, getting you excited about what it can do.

And then there needs to be a way that, yeah, again, if the company is hosting your product, they need to start charging money. So if you think of Heroku where the free share, free dyno thing was such a huge engine for their growth, but they it’s a loss-leader, they’re paying money for everybody on the free dyno. And that’s probably a big cost driver for them. But if you think about, there are some products where maybe you can… maybe some of the computation that you’re doing can actually be local to the device.

And then as soon as you need more compute, you would go in the Cloud and then the company will start charging you. And it makes sense. I think no one would object to the idea that, “Hey, this company has to charge me money now because they’re hosting my code.” So when assembly has a pretty good way to do this, because I think more and more like the browser is the place where people are running their day-to-day work and certainly running things in JavaScript, TensorFlow JS, it’s very, very cool without WebAssembly it’s not going to achieve the full utilization of your laptop CPU.

We’ve run around with these MacBook pros that have multiple cores and we’re hardly using them if we’re running TensorFlow JS in the browser. So Rust is great at compiling to WebAssembly and I think more importantly, it’s really tracking as the web assembly spec is moving very, very quickly and Rust is tightly integrated. Certainly other languages will do this if I’m right and this ends up being important. Every language will do it, but today certainly it needs to be a compile language, actually that may not be true. I don’t know if you know the answer to that off the top of your head, but-

Adam: It would have to compile to WebAssembly I guess. Right?

Lee: Right.

Adam: Yeah.

Lee: So I suppose you could take an interpreted language and compile it to WebAssembly, but that sounds like a harder compilers programming language problems and taking something that already compiles and then just picking a new compile idea.

Adam: I think so. Yeah.

Lee: But yeah, so I think that’s one really great advantage. And then the other thing, like I mentioned in some devices, the memory management really matters, same robotics. You can’t afford, you’re running this OODA loop, this Observe Orient Decide Act loop, and you have a garbage collection event in the middle of that. At a robot… there used to be this joke that was like, “Yeah, if the robots ever take over, tell your kids to run during the garbage collection cycle.”

Adam: That’s awesome. I mean, I guess that gets out what I was thinking was okay. So I’m interested in Rust. I think it’s pretty cool. And then they’re like, “Oh, Rust is for Embedded.” So then I just start working in Embedded, which I never had an interest in before, just because I want to play around with Rust. So then all of a sudden you have more interesting just Embedded stuff happening. I don’t know.

Lee: Totally. But I think like you said, programming languages are often brand driven and trend driven and to the extent that a language can get someone interested in a new domain, I think that’s super cool.

The Peace Dividends of The Self Driving Car Wars

Adam: I was thinking about Quadcopters. I guess my understanding is the reason they took off was because when cell phones started having gyroscopes, all of a sudden gyroscopes became super, super cheap.

Lee: Yeah. I think what’s the phrase some people use as the peace dividends of the smartphone wars versus the smartphone wars are more or less at peace now, let’s say relative to what they were 10 years ago. And yeah, the scales of all of these things has made the costs go way down and also just the investment in innovation. And that has unlocked a ton of stuff like definitely in robotics. So another area that we think there’s future looking and, what’s next on the frontier of technology is one of the peace dividends of the self-driving car wars. We’re seeing LIDAR, which is a big component of self-driving cars, that stuff is getting lighter weight, lower power. Now there are companies that are trying to get to the $100, $50 LIDAR future. And we’re nowhere near that right now. But if they’re successful, can you imagine the number of applications of LIDAR in the world.

Adam: I wonder about a data business. So if LIDAR is cheap, could I make a company where I just give it away, like a pay people to put a LIDAR thing on their car and then I just try to sell all that data?

Lee: Yeah. I mean, if that fits a lot of the models of stuff that we see today, I think that when hardware can be really cheap and you can treat it as a loss leader, certainly that’s the case with Particle. But I think the original, six years ago when they started their particular chip and costs, they were able to bring it down to was awesome, it was a competitive advantage and it let them give it away as developer kits for free. And it got people hacking, like you’re saying basically the availability of cheap hardware also are doing certainly outside of our own book, already we know to this as well in Raspberry Pi you give this stuff away for free and then people can build a business where the hardware is essentially free, and what you’re paying for is the software. So Particle really moved in the direction, as I mentioned, and was like, now that the hardware was it’s commodity. We don’t even think of it as a hardware business anymore. And could you imagine something like that happening with LIDAR? Wow. That feels like very far in the future that LIDAR would be close to free, but it could happen. And certainly there’s other technologies that will move in that direction.

Adam: So I had a guest on the show, James Couple. And so he had this interesting idea basically. He said, there is just so much old code out there. What was his example? Like coal factories that we depend on for infrastructure. And they’re just running all this piles of old code and nobody knows how it works and it’s huge problem. And he said the most valuable business that could exist will be something that could take something like the Y2K problem, but solve it en-mass.

Lee: Certainly, you look at Flexport, we’re not an investor in Flexport, but Flexport is a very, very successful example of a company that looked at old industry and brought good software to it. The founder of Flexport had to import export businesses before that. That’s not to say, I mean, he wasn’t operating ships or but he understood the supply chain and he understood the importance of palletization just like one of the key things behind Flexport.

Adam: Oh cool. It’s like shipping containers is what we’re talking about?

Lee: Yeah. Flexport basically makes it easy to ship things cheaply overseas, like say for example, from China to the U S and one way that… I can’t claim to understand their business deeply, but as far as I can tell, one way they get really great cost efficiency is solving the sheer packing problem for these pallets. Most of modern shipping is really built around containers and pallets. Sorry. I guess I should say it’s actually containerization rather than palletization. So you have pallets that fill containers and the containers themselves are modular and they’re quick to load and unload, but if you have a small amount of stuff and you want to stick it in a container, it’s relatively fixed costs, but if you’re able to spear pack it, then you can get a lot of economic efficiency. So yeah. I mean, containerization was a thing in shipping before it was with software. You can see innovation going the other way.

Adam: That’s interesting though, yeah. It’s like an algorithm, an algorithmic perspective on freight, I guess.

Lee: It’s a very smart. I mean, they’re worth many billions of dollars in their last evaluation. I think that they’re definitely an overlooked unicorn. I think when people are upset that looking at WeWork and what’s happened there and decry the looking at trying to predict the decline of Silicon Valley, I think there is actually a really amazing set of companies that are going to be coming out and IPO in the next couple of years market willing, that will hopefully reverse people’s opinions about this.

Replace Hollywood

Adam: I thought maybe a good place to end might be, what business doesn’t exist? In your area of specialty, what’s not there?

Lee: Yeah. Again with the caveat that if I knew something very specifically, maybe that would be what I’m doing is I guess, one business I would love to see, but I think it would be so hard, is how can you generate… we’re seeing AI influencers, I’m trying to remember the name of her, but there’s an Instagram influencer, who’s completely digital. Are there ways to make AI generated actors? And maybe then it will star in the film, maybe that’s a little sci-fi but are they extras? Can you generate special effects? These kinds of things that movies are so expensive and it’s such a huge industry. And maybe the only way to do this is to verticalize and make a studio that’s doing this. Or maybe the way to do it is to go the next generation Maya or 3d Studio Max, where animators are using insanely powerful AI. And they don’t even really realize it, like Photoshop. Photoshop actually does some really incredible stuff, they’ve always done really interesting algorithms. And now they’re getting into really cool computer vision image, processing type stuff that you don’t even think about. Even the iPhone photo app is like this.

Adam: Business. You’d like to see us replace Hollywood just-

Lee: Well, I wouldn’t… I guess what I would love to see is that the artists and creators really being able to focus on writing great stories and great characters and scripts and content. And certainly I think actors have more or less like a theater minor. So I don’t want to get rid of actors, but I think that there are a lot of ways that you can reduce… you think about how much money it takes to make a blockbuster movie and a lot of it’s marketing, but a lot of it is actually making the movie, and I believe there’s more good ideas out there or scripts and movies and stories are coming from all amazing talented artists. And there’s way more of those than there are blockbuster movies. I do think that the role of an investor isn’t to be the ideas person that drives the company, with puppet strings. I think that, well, the model that I’m trying to pursue is to really have a network of awesome founders and hopefully be good at picking the ones that will be successful and the ones that I want to work with and be supportive. So I don’t expect to generate the next great idea, but maybe that random brand that I just went on, sparked something in somebody’s mind and says, “Well, I don’t want to do that, but there’s something similar to it that I’ve been thinking about.”

Adam: That’s great. So if that person’s listening, how do they reach out to you?

Lee: Oh, yeah,, or on Twitter I’m T-E-R-R-O-N-K. That’s the terronK, this is handle I’ve had since I was 15 and was my AOL handle. As a start is relatively embarrassing, so I won’t go into that. Thanks so much. This is great.

Adam: Yeah it has been a lot of fun Lee. Oh yeah. If I’m ever in the area, let’s get together or something. Yeah.

Lee: Yeah. Please hit me up. I’d love to take you out for lunch or something.

Adam: All right. Take care.

Lee: All right, Thanks.


Adam: I hope you enjoyed the interview. Brian Cantrell introduced me to Lee and I’ve gotten the chance to talk to him a couple of times now. And it’s always been super insightful. If you have some crazy idea for a VC backed business, maybe reach out to Lee or if you know me hit me up, maybe I can introduce you guys.

Thank you for listening to the podcasts this far. I’d like to take some time to thank some people who have mentioned the podcast online. So Pierre Angelo, who did a talk inspired by our waitress episode. Very cool, sir. I’m looking forward to watching your talk. I haven’t seen it yet, but I’m excited.

Spinning Slate, mentioned the podcast on Hacker News. Thank you so much. JS Toja, JJ Molina talking about the podcast on Lobsters, thank you. Plats on Reddit and everyone on Reddit are Haskell and error programming for taking time to discuss the podcast.

This hard casting stuff has been a fun journey for me. Sometimes it takes a lot of time, but it always makes me feel like I’m doing something good, when I see people reacting to the content I put out there. So thank you everybody. Also, thank Bob Theriault and Brenda Brown for helping out with the Slack community for this podcast.

It’s not the most active Slack in the world, but it’s got to be one of the friendliest surround. They take time to welcome everybody who joins. And there’s a lot of interesting discussions that happen there. So if you haven’t checked it out, maybe take a chance and join. Until next time, thank you so much for listening.

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Thanks! Adam Gordon Bell

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