Will the Apple Vision Pro make it? Skyflow CEO Anshu Sharma thinks so | Equity Podcast

This episode is sponsored by Morgan Stanley atwork visit morganstanley.com Assessment to get your free transaction Readiness assessment [Music] Today hello and welcome back to equity a Podcast about the business of startups Where we unpack the numbers and the Nuance behind the headlines my name is Alex and this is our interview show Where we sit down with a guest think About their work or ideas and unpack the Rest today we are once again speaking With Anu Sharma he's been a venture Capitalist he's been an exec over at Salesforce and currently he's wearing The mantle of a Founder over at skylow And we're having onu back on the show Today not to talk about interest rates And money like we did the last time he Was here but instead we're going to talk About the innovator's dilemma and how Well that idea that business concept Applies to the the current moment and How it applies to technology this is all Wrapped around the question of how well Will Apple's Vision Pro headset do when It does launch and down the road we are Putting this episode out on Thursday the Night before the Vision Pro actually Goes on sale we wanted to have the Conversation before that moment so let's Talk about what's going to happen and Why Andrew welcome back to the show yeah

So my thesis was twofold one was Interestes don't matter in the short run Because everybody changes their Spreadsheet SS like oh two is now five But over the next 10 20 years which is The true cost of capital you know two Becomes two and a half it doesn't really Go from 2 to five and secondly the Reason it doesn't go from 2 to five is Because it eventually comes back down And it took an extra year for that to be Proven out and for po to be able to say That it was transitionary but I think it Was transitionary and things are slowly Getting back to where they were and in Fact a lot of equity analysts are now Claiming we at a risk of a melt up yes And if you looked at the stock market Recently you'll notice that things look Pretty good so at least the stock market Is doing fine the economy will have to See but Entre that is all past tense That's all what we talked about before Today we're going to break some new Ground and talk about Apple Hardware Everyone's favorite thing because as it Turns out inside of Apple's upcoming Launch of the Vision Pro headset which I Believe drops tomorrow morning or maybe When you hear this to morning there's a Lot of lessons about how to build things And how to take on new markets so Andre We were talking about the innovators Dilemma you had a very interesting

Thesis about how it often doesn't apply To the technology market and if you want To build new markets actually going more Expensive versus less expensive is the Way to go but to help get people there I Want to back up and I want to start with Just the definition of the innovator's Dilemma everyone's heard of it few People can describe it so in your own Words break it down yes and I speak as Someone who's more of an engineer than An MBA ding ding my understanding of Innovators dilemma is it's a theory that G Christensen came up with about 25 plus Years ago where he tried to explain to The world how companies actually lose Their leadership in their core markets So his thesis was you know you're IBM You're selling more and more mainframes You think that's the most profitable Part of the business somebody comes in And tries to disrupt You by building a Product in a market where the product is Much cheaper has much smaller profits And therefore if you're IBM you ignore The PC makers if you're BMW you ignore Toyota if you are a steel mil company in America you you know ignore the steel Milk company in China and his thesis was That's how companies actually get Destroyed they basically lose their Market share eventually because the Inferior product and this is the key to His theory the products are typically

Inferior from low low cost countries From companies not well known these Inferior products eventually get better And better with time and as a result They become good enough for majority of The market so 40 years ago you may not Have bought a Toyota car in America Because GM was considered the high end Today very few people can even imagine a Brand like Toyota being considered poor Quality and so his thesis was hey just Like cars get better everything gets Better and therefore companies should Focus a lot on this problem and this is How you defend your leadership yes and One thing that was interesting CU Prepping for this I went back and I read The original article that Clayton had Put out that actually predated the book Itself that's now so well known and they Were discussing how when a company Builds a inferior product so PCS to Min Computers PCS to main frames they often End up going after an entirely different Market segment so if you're IBM you Don't even notice your customers being Cannibalized Until you realize that the New product that was cheaper and less Capable and now is cheaper and more Capable is coming for your core Market Until it's a little bit too late and the Dilemma is how do you serve your core Customers and make as much money as you Can for your shareholders while also

Being defensive and the struggle is it's Very hard to do because Onre as we know For existing products if you want to Make more money you go up Market but if The risk is coming from beneath you well It's hard to see both this is I kind of Want to say like standard business logic Today this is kind of like the operating Model that people still hold in their Heads even this far into the theories Life yeah yes so if you read a random Article about business strategy and Disruption disruption has become Synonymous with this from below and Almost everything people are trying to Explain whether it's iPhone versus BlackBerry whether it's you know meta Quest versus Vision Pro all of these Things people have the lens of like hey Who who is disrupting whom and usually The answer is like hey it's happened Before it always happens this way and Therefore if you produce a very highend Sound system somebody's going to produce A $50 version of your Sonos product and You're going to die hey my house is Fully wired up at Sonos don't say that I Need that company to stick around Exactly and as we discussed that's where Maybe he's not the right yes well we'll Get to that in a second I want to quote From the original article outlining the Thesis here because I think it matters So I'm going to paraphrase generally and

Put some things together but here's how Big companies end up missing what's Coming that later disrupts them so quote Generally disruptive Technologies look Financially unattractive to established Companies as a result managers typically Conclude that the technology cannot make A meaningful contribution to corporate Growth and therefore that is not worth The management effort required to Develop it and so that's how you end up With a blind spot the size of a Competitor in your rear viw mirror and I Think you know in the examples that were Originally given on you they discussed For example the hard drive market and How people would often build the next Generation of hard drives that were Smaller in terms of like literally Physical size and also held less data And so highend customers High Manufacturers weren't interested but Then those smaller format devices ended Up with more storage and then they Crushed the larger devices in the market So another example of this you've been An executive at various companies you've Worked at Oracle Salesforce you've done The Venture thing how often do people Bring up the innovators dilemma in those Corporate settings I think it's almost The Bible of business people if your Company is run by somebody who X McKenzie xbcg it's going to come up in

The first meeting if it's run by Somebody who took a evening course at Harvard or Warden it's going to come up In the second meeting and it's run by Somebody who's an engineer it's going to Come up in the third to fifth meeting But it's GNA come up yeah it's Unavoidable and you're gonna basically Discuss it yes so when did you start to Think that while the innovators dilemma Does have a place in kind of like the Pantheon of business logic it is an Important mental model for some Companies when did you start to think That it may not apply as directly or as Accurately to certain parts of the Technology Market I think the first time It hit me was Apple watch I remember Apple watch coming out and me thinking You know just like everybody else by the Way here I love Claren Christensen I Love what he wrote I follow him I read Not just his innovators dilemma book but Also several other books so I was trying To always figure out hey is this Apple Watch new product new category it's Going to succeed or fail how can I look At from the eyes of disruption and I Remember thinking oh my God a lot of People are talking about how Apple watch Is just too expensive who's going to pay $400 $500 for a watch that has no apps In those days yeah yeah yeah has about a Two to four hour battery life if you

Start using it properly Maybe eight Hours on a good day by the way so Imagine a watch that doesn't run for 24 Hours a watch that has no apps a watch That can't make phone calls and a watch That barely can tell you time that watch Is being launched by a company like Apple and everybody is like well this Has got no hope of success because it's Too expensive and I had learned my Lesson from the iPhone when I thought The iPhone was too expensive and Reluctantly didn't buy it for the first Few months and then when I bought it my Mind was blown so I said this time I'm Going to give Steve Jobs a chance you Know let his Spirit be you know honored To my purchase of the Apple watch and When I bought it I actually agreed with Everybody that you know it doesn't Really do everything it's supposed to do And it's way too expensive but something Propped up in my mind and said you know It's more aspirational and if they try To produce this watch for $50 it would Be 10 times worse yes so maybe it's a Good thing that they're producing a Watch for like $500 rather than $50 and That was the beginning of me starting to Think hey maybe disruption doesn't Always work in One Direction maybe There's another path to disrupting Industries so let's talk about the IPhone example because there's some

Canonical footage of former Microsoft CEO Steve Balmer if I recall correctly Laughing when the iPhone is kind of Described to him and he's like $500 are You crazy we have like six new devices That are coming out they're going to be Affordable they're running Windows and That was one of the bigger missteps in Microsoft history they ended up missing The entire Mobile Generation tried with Windows Phone ended up giving that up Bought Nokia gave that up very expensive Mistake but it seems that he felt prey To this almost reverse innovators Dilemma when it's not the lower PRC Product that does less that is the way Forward but actually a higher price Product but I want to clarify something You mentioned how the Apple watch didn't Have apps didn't have a long battery Life Etc but when I think about Higher-end devices that do capture my Attention they tend to be pretty well Featured so is a lack of capability and A high price standard or is that kind of An Apple Watch only situation that was Special and therefore different from Your usual point I think that's where People get tricked right not only is the Thing more expensive it's in some Meaningful way inferior and I think People focus on the inferior part they Forget about the Superior part so who's Buying an Apple Watch you know somebody

Who already owns a Mac already has maybe An iPhone or two is already committed to The Apple ecosystem and wants to be Ahead of the curve that's a different Buyer that's a hobbyist Enthusiast buyer It's the same buyer that buys a Porsche 911 right so evaluating a product based On what the mainstream definition of Functionality is and the price point is In my opinion the mistake so essentially What we should consider is don't look at The average consumer if you want to Build a new product or product category That will succeed but at the same time If you want to exist in a high Competition low margin business you can Make cheap goods for everybody that's Still important but not really what We're talking about when we consider Innovation and risk thereof is that fair Yeah so I end my article that's running On deun right now with this line which Says you know the answer to all of this Is actually very very simple build a Better prodct Right too many times we get caught up in Disruption Theory and all of these Things to me what people like Steve Jobs Did well I think Elon Musk does this Brilliantly these days when he's he does Launch successful products which is Maniacal focus on delivering a superior Product for a specific Market because by Definition there's no such thing as a

Superior product for every Market you Know if I was launching a T-shirt and T-shirt is the most commoditized thing That we can have in this world Absolutely but even there if it has a Logo of your company or your sports team You're really not buying the texture and The quality and the thread count are you No so the focus has to be building a Better product way too many times I'm Using MBA as a Shand I love my MBA Friends but way too many times if you Have this MBA first mindset which is I'm Going to capture this Market with these Many dollars and make this profit Usually you're basically trying to Engineer a product after the fact rather Than starting with what's a superior Product and here's an interesting part When you start building Superior Products more often than not they Require higher end inputs yes they Require higher end design they require Higher end Machinery they require higher End marketing and therefore it turns out In my experience that a superior product Often ends up being a more expensive Product and my insight here was simply That that's okay you shouldn't Artificially try to build a product That's way cheaper because you think There's some idealistic notion of Winning by disrupting From Below because Especially in things that are

Breakthrough Technologies it's very hard To do these things simultaneously it's Very hard to simultaneously build a Better watch but also build it at a $100 Price point it's hard to build a new Kind of AI with gpus and do it for less Than a few billion dollars so the nature Of invention is it's pushing the unel up What's possible and usually that means More resources now it's not always true There are actually intelligent Inventions that you can come up with That fundamentally lower the cost at Some point somebody's going to come in And figure out a new kind of an Algorithm for llms that may require less But that's the second order invention Rather than the first order invention And we're going to get back to Chad GPT Open Ai and Tesla and how they fit into Your thesis but we have to take a very Short break my friends don't go anywhere We're back in just a Second is your company planning to go Public or conduct a shareholder Liquidity program within the next 18 to 24 months did you know that proactively Planning for your next private company Liquidity event or IPO can help you Maintain greater control over timelines And outcomes Morgan Stanley at work Believes that when you have the right Technology and systems in place working In harmony leading up to a transaction

You can prepare and execute with more Accuracy and ease visit Morganstanley.com Assessment to connect with their issuer Strategy and Excellence team for a free Assessment to find out if your company Is transaction ready again that's Morganstanley.com Assessment to get your free assessment Today We are back with onu and you just Brought up essentially AI Technologies Which was an example that we Rift on so How does people paying for chat GPT Today fit into your thesis about not Innovating at the lower end of the Market but innovating at the higher end Yes so how many people listening to this Podcast are already paying $20 a month For an app that is Superior in some ways To your search engine I am the reality Is I'm wait wait wa let's pull we're Both here I'm currently paying 20 bucks A month for chat GPT onu are you paying I am paying and everybody at Sky flow is Allowed to expense it too nice there you Go see and that's the nature of a true Superior product not only are we willing To pay more we're almost proud of paying More it actually improves our work life Our personal life in certain situations So much that it's a no-brainer right Yeah having an assistant for $20 a month Is a no-brainer compared to almost any

Form of assistance you can get in San Francisco Bay can barely get a cup of Tea for $20 if you're lucky yeah so I Think it comes down to again pushing the Envelope could GPT have made a cheaper Version actually they did it's free and Some people do use it it's not Completely lost in them but people were Willing to and clamoring for the latest High-end version of GPT to be accessible To them and if I had to guess if Tomorrow open came up with a much better Model with much better experience and They were charging $49 a month for it a Large I would pay it exactly so actually This is a great thought experiment for Our listeners who may be reacting to Like hey disruption is kind of like Always happens from below I don't like Paying more for the goods and services It's true in the abstract if I say hey Would you like to pay more for Netflix No everybody would say no but do you Realize content was available for free On YouTube And it still is it still is and tens of Millions of people actually paid for I Think the idea that we happily willingly Pay for services has always been to Right you know 50 years ago my mom had a Maid who came in and helped her out and I'm sure you paid for some services like Getting your car cleaned or fixed sure I Think when it came to the technology

World we have a hard time figuring out What's the value of a particular Technology and that's why I think we Sometimes struggle but generally Speaking it's good for the economy it's Good for the users and therefore it's Really important that people not Constrain themselves when they're Building products by some arbitrary Notion of as a startup or as a new Product builder at a big company the Only way to disrupt is from below and I Think if you look at a lot of failed Experiments at big companies and small Companies they actually tend to be Somebody trying to build a cheaper Version of something that doesn't really Actually go in and disrupt the value and Even worth you're doing a lot of work to Generate very thin profit Merchants it's Actually not even better if you pull it Off but I want to go back to hardware For a second because in your post on TC And I'm going to yank the pay well off Of this so everyone can read it so if You're listening to this don't worry It's for free on the internets you Talked about Tesla their secret plan and How they essentially started off with a Very expensive car and then worked Backwards I just want to go over this Because I have a question about Hardware But first talk us through Tesla so Tesla Is a very interesting example electric

Cars were practically in feasible the Reason they were infeasible was because It cost a lot of money to actually put In the right amount of batteries in There in fact tell about the time Elon Musk started figuring it out his aha Wasn't that people want an electric car People had thought about electric cars For 203 40 years in fact famously you Know General Motors and all these Companies had built experimented with Tried out electric cars and you know Hydrogen cars and all those experiments They were just not feasible if you think About what is feasibility what does it Take to produce something new at Infinite cost I can almost produce Almost anything feasibility is about Technology getting to a point where I Can produce something for a fairly Reasonable value now the cusp of it Usually is on the expensive side so About 12 13 years ago now I suppose Maybe more it became feasible to produce A roadster for about $150,000 that drove I don't know 50 Miles it it wasn't far it wasn't very Far and remember famously people like Jino joking about it and such even I Thought it was a silly idea like I have A car that goes I don't know 300 400 Miles on a single fill why would I want This weird toy that seats one or two People it was a Lotus body as you

Remember yeah yeah but IL SC down the Master plan it's publicly viewable if You can go to his website and check it Out and basically said look I'm going to Build a very expensive sports car use The profits from that to build build a Less expensive car use the profits from That to build a less expensive car and The rumor has it that Tesla is on plan To generate their what they call nextg Vehicle which is going to be a $25,000 less price car which means after Credits and stuff it may be as low as $115,000 so they're on track to produce An insanely cheap price but it took 15 Years and and even today it took Starting at the absolute top of the Market selling to a smaller audience at A much higher price point exactly and The result of that is he was able to put In not just an electric car he was able To put in a giant iPad he was able to Put in a bunch of things in there that Transformed cars and if you want to Think about profitability if you're GM And you have had electric cars running Around your test tracks for a long time But you realize that if you add an extra Trim option to pickup trucks you can Make a billion dollars or you can spend $5 billion trying to make electric cars For 10 people you're probably going to Do the better trim level for the truck Because it makes near-term Financial

Sense and that is really not the Innovator's Dilemma in a nutshell but The innovator's opportunity this is how You actually do take on larger companies And so forth now Onre two things one we Talked a lot about Hardware today the IPhone we talked about Tesla you had Nvidia as another example in your Article and this brings us to the Apple Headset the Apple face computer The Vision Pro which is coming out this week And people have been saying what we Usually hear too expensive it's too Small it's poorly featured but given Your thesis that we just discussed at Length do you think that the Apple Vision Pro actually has a good chance at Success once it reaches the market Pretty much right now I believe that Products are not point in time products Define a long-term strategy especially If you're a company like apple you know I think Jeff B talked about it everybody Wants to win three years very few people Want to win in seven years if you're Willing to win in seven years as opposed To three years you already at the top of The mountain you know that's been our Strategy at my startup so I think Vision Pro is going to by definition be a more Superior product relative to all the Headsets available in the market today Because it cost 10 times more imagine if I gave you a budget to build a house for

Half a million dollars with the $5 Million how much more house could you Build so the product is superior it is Expensive it's insane expensive but Compared to what you know think about an Upgrade to one single business class Ticket from here to Tokyo right people Are paying $2,500 $5,000 just to upgrade One ticket One Time Imagine sitting with A headset on a flight with the Infinite Space around you although you're cramped So when people think about prices we get So narrowly focused on the category and The competitor and I think that's where It basically gets constraining so I Believe Vision Pro is going to be Phenomenally successful in 7 years it's Going to have a relatively good launch And they're going to sell like a billion Or two billion dollars worth of product Some people are going to use that number To say they failed because you know for A company doing hundreds of billions of Dollars in Revenue what is two billion But that's how the Apple watch started Yes and that's how the iPhone started so I think in the long run it's going to be Successful because once they commit to It you're going to end up with almost The same headset with less weight and Much lower prices but it's going to take Us three to five years to get there you Will eventually have A1 thousand version Of Vision Without a pro yeah just just

Vision exactly there's a reason they've Named their product Vision Pro by the Way it's an indicator that at some point There's going to be something that's not For professionals be a vision and that's Going to be cheaper yeah I want to go Back though to your excellent analogy For for the regular folks out there you Know when you're flying to Tokyo and You're upgrading to business class Everyone's like no we don't know that Actually Onre that's not how our life Goes okay to close this out I want to Talk about hardware and I want to talk About startups so Onre I'm very curious Does this model you're describing only Apply to things that have a physical Component and if not does it apply to How startups should be approaching Building and pricing their own goods and Services they're bringing to Market yeah I think if you had an hour I could give A whole talk on on category Theory Almost which is simply my way of saying That if you define your startups Market As a specific category then you're bound By the specific price points in that Category so if you're building a CRM Highly unlikely you could charge more Than what Salesforce does $250 a user You could charge 300 maybe but highly Unlikely Char $1,500 yeah I think it's Not the price point that's important It's freeing yourself from the category

But when you free yourself from the Category you get to redefine what your Software does so imagine a world where Instead of having a CRM product you had Something that we're not going to call CRM imagine if open AI was building an Assistant for your Salese imagine it could actually make Sales calls imagine it could actually Take down notes imagine it could Actually do the followup imagine Occasionally it could assemble the slide Deck suddenly you're not really talking About CRM you're talking about giving Everybody a full-time executive Assistant which would cost thousands of Dollars a month and at that point if Your product is still CRM CRM is CRM Plus+ you're bound to the $300 price Point however if you've truly thought Beyond the category of CRM you're not Bound by what it means to be a database Or a CRM then you can solve a meaningful Problem for the customer at a different Price point because it has a different Set of capabilities and that's what I Mean by being able to think differently About prices it's not the price itself That matters and funny enough that Assistant you could say it's disrupting The humans because it is cheaper true However if you notice it's not a better Human or inferior human it's actually a Much Superior CRM is what I just

Described to you again the point is free Yourself from trying to just build a Slightly cheaper so many companies have Tried to build cheaper version of Salesforce the biggest of them was Sugar CRM it was open source nothing is Cheaper than zero Dollar right well actually it depends on Opportunity costs but yeah no I hear you Exactly everybody listening to this Podcast you know either you're using Salesforce or using HubSpot or using Some other CRM and the chances are You're paying more than $0 why because You understand that it's not just the Software it's about the services it's About who who's going to manage it who's Going to maintain it the uptime downtime So all of those things combined that's What allowed us at Salesforce when I was There to redefine the category you know Mark benov called it no software we Redefined software by basically calling It no software yes I think the challenge For entrepreneurs and product managers Listening to this podcast is to allow Themselves to dream to dream of a new Category a new product a fundamentally New experience kind of like what I'm Trying to do here with data protection With Sky flow right we are imagining an Entire new industry that handles data Differently so if you can imagine it Differently the price point will come

Out of that the price point may be 10 Times cheaper maybe 10 times higher in An Ideal World you built something that Nobody can compare it to you built a car That's self-driving has an iPad and has A bunch of features that are not simply Available in the market so it doesn't Matter whether your Model S is priced at $55,000 or $75,000 or $95,000 because there's nothing quite Like it out there so the comparisons Don't line up and then what's cool for Us consumers is Mo's law kicks in and we Get better and better devices often at Slightly descending prices though of Course I think iPhones are still pretty Expensive but this has been an attempt Everybody to recreate a conversation That Anu and I had on the phone and I Thought to myself well we need to write About this we need to talk about it Because it did invert my thinking on Innovation and just the risks of being Out innovated so I want to say Onre Thank you as always for explaining your Thoughts at length and I was going to Say tell everyone about skyflow but you Just did so where can people find you on The internet skyf flow.com At Anu blog on Twitter uh both of them Work uh we would love to hear from People what they think about this Disruption Theory I'm sure there's many

Examples that are still working with Inferior disruption but hopefully we Gave people something to think about and Freed them from shackles of low priced Cheap products do you remember the Economic concept of perfect competition Yes when there's so many participants That all the profit has been removed and So everyone's just selling at cost this Is almost like by defining a new product Category demanding imper competition Against the market and existing products And that's the real lever or Edge that You have yeah all right well I'm going To think more about this on you thank You so much everybody Equity is back Tomorrow morning with a usual news Roundup and we'll keep dragging our Friends onto the show to explain stuff To us as we learn new things but in the Meantime goodbye [Music] Goodbye Equity is hosted by myself Editor and chief of Tech runch Plus Alex Wilhelm and Tech rench senior reporter Mary an aeto we are produced by Teresa Loc solo with editing by Kell Bryce Durban is our illustrator and a big Thank you to the audience development Team and Henry pabet who manages Tech Wrench audio products thank you so much For listening and we'll talk to you next Time


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