Beyond needs

A TechCrunch article entitled « The Hierarchy of IoT “Thing” Needs » caught my eyes today. In the article a consulting-style graph depicting the so-called "hierarchy" is provided:

Source: TechCrunch 

The reason it attracted my attention was not because of the analysis but rather that its choice of topic and the way it visualizes the analysis results reflects exactly why we at the Hardware Club prefer to not use the term IoT (Internet of Things), despite that fact that almost all of our startups could be categorized as IoT startups.

The word that ticked my nerve here is "needs".

It's very common for engineers — such as your fellow blogger in his previous career — or scientists to attempt mapping technologies and startups into filling some needs by us human beings. This is natural as the training of these two professions focus on describable functions as well as repeatable results. The engineering and scientific disciplines dictate that measurability be at the center of the endeavours and therefore questions are constantly raised such as

  • How much time is saved for the users if using the product?
  • How much is the power consumption in standby mode?
  • How many transactions could the system handle per second?
  • How does the new technology or product compare to the previous ones in a certain FoM (figure of merit)?
  • How many fingers am I holding up behind my back?

Okay, okay, this last one was a joke, but you get the idea — it's already consuming all the brain cells and energy among the engineers and scientists just to answer these quantifiable questions that they tend to believe that users or consumers will eventually buy the products because they need them

For example, in the hierarchy above, the author — a scientist, not coincidentally — categorized IoTs into satisfying physical needs, security needs, connectivity needs, data needs and smart needs and claimed the hierarchy from the bottom to the top accordingly. Some readers will debate whether the categorization is accurate enough. Some will question the hierarchical order. Some will try to augment the picture with more categories. Some will try to reduce the pictures.

Bottom line is: when it comes to venture startups (and venture investments), none of these should be factored in.

The reason is very simple: this kind of mapping is visible by all people who care. Everyone knows what they mean. And if any obvious trend arises out of this kind of analytical structure, it would quickly become a market of complete competition, wiping out any chance that an endeavor inspired by this would be outrageously successful both business-wise and financially.

In other words, don't expect VC homeruns to be born out of startups inspired by such straight-forward, consulting-style mapping.

What's even more serious than this Peter-Thiel-style criticism of mine is that: since when do consumers only buy things they "need"?

 

Needs, Wants and Desires

In fact, almost all of the consumption is driven partly or mostly by wants or desires, way beyond needs. Especially in the developed economies, it's actually easy to calculate the monthly consumption driven purely by needs, such as water, gas, electricity, public transport and health care. Almost all the rest is heavily influenced by wants or desires.

For food almost everyone spends way more than required to keep the body running healthily, and in various types of cuisine to keep us from getting bored. In terms of housing it's very common that people stretch their budget to go for an ideal apartment, either in rentals or especially in purchases.

And almost everything we buy on Amazon or in Walmart fit the wants or desires profiles better than needs: books, music, movies, consumer electronics, gardening, beauty, toys, sports, etc. In fact, take a look at the Amazon directory page and one would be hard pressed to pick out a product/service category that is truly "needed".

And this is exactly what we called civilization! We human beings are always going after way more than basic needs, whether tangible or non-tangible. We want and we desire. Take the later two away and you will find us all wrenching in pain searching for the apparently non-existent raison-d'être.

Nous sommes condamnés à la liberté. / We are condamned to be free.
— Jean-Paul Sartre

Cases in point

And this is not just me being self-satisfying philosophical again. Proofs are abundant in venture investments that needs don't drive user satisfaction and therefore financial success. Wants and desires do.

Take a look at the most successful hardware investment exits in recent memories:

  • Fitbit ($6B, IPO)
  • Nest ($3.2B, acquired by Google)
  • GoPro ($3.1B, IPO)
  • Beats ($3.0B, acquired by Apple)
  • Oculus VR ($2.0B, acquired by FB)

None of these products are 100% needed but all of them are wanted or desired by their users!

People need to get healthy and some need to lose weight. However, the link between using Fitbit and personal health condition is so indirect that it's dangerous to assume that people buy Fitbit because they need it. Early users wanted Fitbit since it provided a numerized feedback to their activities that they felt might be able to help on the health or weight condition. Then as more pepole used Fitbit and competed against each other on steps walked everyday, when their friends want to buy an activity tracker, Fitbit became the top choice since they also desired to join the existing community and rank themselves against their friends and families!

A thermostat is needed in your home, but a Nest is so beautiful that you want to buy one to replace your existing dumb white box. And after using it for a couple of months you fall in love with the smooth user experience that you brag about it constantly during the Thursday poker nights with you buddies, so much so that they start to desire one as well.

And who needs a GoPro, seriously? Consumers have so many alternatives, including cheap GoPro clones, to shoot sport or fun videos today but they still buy GoPro — because it's GoPro! Just like people swear by either Coca Cola or Pepsi. It's not necessary due to the different tastes. Likewise, GoPro has gone way beyond being a camera to the social status of a cool buzzword that could excite imagination in people, which is why you see all the news articles today that start with "I took a GoPro with me to ..., and this is what I saw". People simply desire to be associated with GoPro, in whatever likely way!

And do I even need to comment on Beats and Oculus VR?

 

Bottom line

If you're an industry analyst or a corporate strategy guy, the categorization or hierarchy of IoT might do you some good as you map out avaibility of resources and potential competition from other enterprises.

However, if you're an entrepreneur, please avoid taking inspiration from such analyses. The next hardware unicorn will look totally different from the ones that exited already. It might be backward fit into any of the categorization but for sure it didn't start from such categorization.

And in general, stay away from the term IoT. Much like the argument that internet is already dead now that it's ubiquitous, In the future everything will be connected anyway. Why bother talking about IoT?

Last but not the least: stop looking for that need which you believe the consumers have. You should make them want, make them desire. They will be much much happier when they buy something they want or desire and you will likely have much more success by providing just that.

Capital inefficiency in hardware startups is a myth, period

Manufacturing for startups hinges on long-term interest alignment