How We Built and Sold a Startup
AE was founded in 2016 with the following beliefs:
- Technology should increase human agency.
- Agency-increasing technology is good for us, good for our clients, good for humanity, and in the long-term, good business.
- Talented developers, data scientists, and designers, given space to incubate their own internal startup projects with AE’s principles and resources will create enormous value.1
While cynics might wonder whether our consulting practice and its billable hours would out-compete AE Skunkworks for time and talent, ultimately these become synergistic. The hours spent working with extraordinary clients refine skills and offer visibility into holes in the market we might aim to fill. Ultimately, doing what is best for clients means taking the long view, and that means helping them develop the types of agency-increasing products that will build relationships with their customers and build trust in their industries.
We Were Right
We still build agency increasing technology for an increasing number of phenomenal clients. We learn from their experience and insight along the way. We still hire talented individuals and offer the support structures to ensure they do their best work. Specifically, we empower team members to develop agency-increasing Skunkworks projects of their own, see belief #3.
We still follow belief #1. It led us to build Electric SMS
An Agency Increasing Idea (Belief #1)
In 2019, one of our product managers, Wesley, had an idea. After six months at AE leading client projects, he had a conversation with his roommate. She was the founder and CEO of a women’s vitamin subscription service. In its early days, she also worked on the front lines of its customer service. Wesley watched her field an endless string of requests late into the night, and he recognized that one of the reasons for this barrage was a lack of customer agency. Specifically, these customers had little ability to manage their subscriptions. Wesley’s friend, as a result, had little ability to manage her sleep schedule.
These small, but time-consuming requests day and night seemed like a target for automation. Wesley was familiar with messaging bots and imagined that this technology could offer customers real-time management of their subscription preferences. What if customers could skip a delivery, revise, renew, or reschedule orders through SMS chat?
Wesley brought an early framework to AE, we loved the concept, and offered him the time, space, team, and resources to develop and scale. We helped him close his roommate as the first customer, validating the idea and justifying additional investment. It turns out that this approach is the best way to incubate a startup - InstillVideo and TokenRunners now follow that same blueprint!
Why The Idea Landed
Customers don’t think about their subscriptions until they see the charge on their credit cards or a new box of items appears on their doorstep while they're only halfway through last month’s box.2
When the customer decides to address the matter, some unfortunate customer service agent receives requests, complaints, and irritation.3
ElectricSMS allows the customer to skip an order or swap to another product by text. They can even cancel their subscriptions with a text. They can update account information (billing addresses, etc) via a text with a login token embedded. Most importantly, they are asked preemptively if they want their next delivery (before they’re billed).
Why The World Resisted (At First)
Companies believe that offering customers this type of control will yield decreased revenue and retention. At AE, we think differently.4
As Wesley said:
“If we treat people well and we build technology that allows people the transparency and the ability to act on where their money's going, they're going to have a longer relationship with the brands that they're purchasing from.”
Turns out, this is right!
Increasing Agency Is Good (Long-Term) Business (Belief #2)
Two years after deploying ElectricSMS, 220,000 unique users had managed their subscriptions with the app. Over $25 million in revenue had been processed for 56 merchants. The platform reduced customer service requirements and probably saved countless hours of sleep for people like Wesley’s roommate.
But most impressive of all was the impact on the metrics marketing gurus love. Over the long-term, customers who used ElectricSMS had lower churn rates. Retention rose. Customer lifetime value (LTV) rose.
Give customers the ability to skip one delivery, and your business might see a small loss in next month’s revenue. But you’ll have more reliable, more retainable, higher-value customers moving forward. What business wouldn’t make that trade?
Getting Noticed
ReCharge, a little-known unicorn, and one of the largest platforms for e-commerce subscription management, called about a possible acquisition. They observed the empirical impact of ElectricSMS for merchants and customers. We were humbled that an expert in the space shared our vision and found value in our product.
ReCharge acquired ElectricSMS, and is rolling out our agency-increasing technology to their customers. They work with 15,000+ brands and 50 million+ subscribers, and ElectricSMS is now rolling out agency-increasing technology to all of those users with stunning, revenue-increasing results.
Selling a Skunkworks project is rewarding monetarily ($6M in cash and an undisclosed pile of equity!), and of course, the stamp of an industry leader’s approval is fantastic. But ultimately, what excites us is the validation of our model. Agency-increasing software, our commitment to empowering our people to develop their ideas, and taking the longtermist view works.
Proof of Our Concept of Value (Belief #3)
We tinkered for two years with our first AE Skunkworks project. We demonstrated that this business model, where we integrate extraordinary client work with internal products led to the development and sale of a startup.
We’ve since significantly scaled our Skunkworks endeavors and now have multiple fast-growing internal projects vying for the role as our second such success. We A/B test baby steps in pursuit of human agency at AE, and, as we’ve already seen, those baby steps lead to exponential growth.
ElectricSMS proved the potential of the approach. We look forward to the successful incubations still to come - multiple successors already generate significant revenue and are experiencing explosive growth.
Each seems to happen faster than the last - we’re getting better all the time. Better still, we know we’ve figured out the first 1% of how to scale the creation of agency-increasing Skunkworks. We are driven to iterate and improve on this. Not only will this make the world a better place by maximizing human agency with technology, but it will also generate the capital required to fund our long term vision of an agency-increasing brain-computer interface OS.
1
The subtext of this belief is that there are far more talented people capable of becoming founders than people willing to live on ramen noodles and sleep on air mattresses for years on end. By providing opportunities to incubate while learning from and building great products for clients, we’ll unlock the potential of would-be founders and the economic value of the products they otherwise wouldn’t have created.
2
This happens at my house with coffee. It turns out coffee has applications beyond helping bloggers rise from their nightly slumber. One can serve it to friends and family. One can grind beans and flavor sauces. One can make a tiramisu (or request that one’s culinarily-talented spouse do so). I sense this digression is spinning out of control. Perhaps I simply consumed too much coffee as a result of my failure to manage my subscription properly.
3
Inserting an implication of “agency” into the job title doesn’t help.
4
Imagine trying to get people to spend more time in your home by placing obstacles between them and the door. Sure, they’ll stay longer the first time…but will they ever return? Will they tell other folks to hang out with you?