Alex Rampell, Andreessen Horowitz partner and fintech expert, recently talked on the a16z podcast about how to kill off a company like GEICO. No matter if we work for an incumbent or a startup, his concepts can help us to understand how to protect our own Achilles’ heel or find the competition’s.
Rampell talks about what information each party in a transaction has access to. If we think about selling a used car, we can easily imagine how the seller knows more about the car than the buyer. Knowing just what “in great condition” means is the seller’s advantage. In the case of GEICO, their business is based on having a diverse group of good, average, and bad drivers who pay their premiums on time. When done properly at scale, managing this risk pool is very profitable. Can you spot any informational advantages that could be used against GEICO?
Ask a room of adults to raise their hand if they’re a good driver and most of the room will raise their hand. That’s not a good representation of who the average drivers are. Ask the same group to keep their hand up if they’ve had no tickets or accidents in the last few years and now we have a useful piece of information. These are the good drivers. While GEICO looks at a room and calculates their own actuarial average, a smart startup could leverage technology to be a lot more narrow in identifying their market.
What would happen if a risk pool was only made up with a few really good drivers with clean records who drove around with tracking devices? The cost of insuring them would be low because they’d never file claims. What if instead of saving 15% we asked if they met these criteria they could save 50%? Rampell says that we wouldn’t need to take all of GEICO’s market share, we’d only need about 20% of the good drivers to run them out of business. While there’s a moral dilemma behind this since it is insurance, the point is clear: the Achilles’ heel is in the assumptions. We have to understand them no matter which side we’re on.
Too often people want us to focus on the market share stealing game of selling like-services against like-services as if the incumbents and the startups are all the same. Instead, recognize the opportunity that being different creates for each. Even dentists can differentiate to grow or maintain market share. If we’re just getting started in a field, we have to ask what narrow aspect of what the competition does could we excel at? If we’ve been in our field for a long time, we have to ask what’s the crown jewel of our business that we have to protect above all else?
Being special is a superpower. Find the assumptions and we’ll find the Achilles’ heel of any business. Whether incumbent or startup, know what matters most and focus, focus, focus.