Heavybit: Grad School for Startups Building a Software Supply Chain

9/23/13Follow @wroush

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most Web companies were busy tying their applications into dozens of other tools and services, such as Amazon’s S3 for storage or NewRelic for performance monitoring. They’d become dependent on these outside services in the same way that a bike-wheel hub is supported by dozens of spokes.

“So with Heavybit, there is something clear from where we sit that a lot of people haven’t thought about yet,” Lindenbaum says. That thing is the value of opaqueness in the supply chain.

Yes, we live in an age that celebrates transparency in all things, but it’s not always what we need most, Lindenbaum argues. To return to the automotive analogy: If you’re the first person to make a car, you have to do everything yourself. But as the market demands more cars, eventually outside companies will line up to supply you with steel, glass, and car parts. “As the market starts to mature, you get this true stratification,” says Lindenbaum, who admits to being a car buff. “A car manufacturer no longer needs to think about where his steel is coming from; he just says what type, and it shows up. The opaqueness of the supply chain is very important.”

When a supply chain is too transparent, “You are seeing into it and worrying and thinking and trying to innovate on the supplier’s behalf,” Lindenbaum says. “Whereas when it’s opaque, all you have to think about is your part of the problem”—that is, understanding your customers’ needs and coming up with creative new features that they’ll be happy to pay for.

Timber, concrete, and steel give the Heavybit clubhouse a utilitarian feel.

Timber, concrete, and steel give the Heavybit clubhouse a utilitarian feel.

Only in the last five to seven years or so has a stratified supply chain begun to emerge in the Web application business. “Amazon was the first truly, philosophically opaque provider,” Lindenbaum says. With Amazon’s Elastic Compute Cloud (EC2), Internet companies no longer had to worry about building their own data centers, or even renting virtual private servers from hosting services. Amazon takes care of all the basic managerial concerns, like load balancing and disaster recovery. Heroku followed the same model, Lindenbaum says. “You shouldn’t have to care how we do it, you can just focus on building your organization.”

Marc Andreessen famously argued that software is eating the world and that more and more business processes and consumer services will turn into cloud applications delivered via browsers or apps. If you believe that, it follows that the customer-facing companies at the top of the supply chain are going to need more help from the tool and platform providers below them. Lindenbaum thinks Silicon Valley venture firms know this—it’s the main reason they’ve switched their investing focus from the consumer Internet to enterprise and B2B software. And from his study of the way stratified markets evolve, Lindenbaum says he’s convinced there’s lots of room for new businesses that want to make tools, platforms, products, and services for developers. “My argument is that we are about to witness an unbelievable explosion in the number of companies doing this kind of thing and how much value they are providing to the world. It’s not a prediction, but an unavoidable consequence of where we are.”

Heavybit's ground floor includes informal work areas and kitchen/cafeteria; the platform around the stairs serves as an informal dais for talks and events.

Heavybit’s ground floor includes informal work areas and kitchen/cafeteria; the platform around the stairs serves as an informal dais for talks and events.

The paradox right now, though, is that a lot of developer-oriented companies are struggling. “Because Heroku was very visible, a huge percentage of these guys starting these companies would come talk to us and ask for advice. And over time it started to become clear that there is a unique set of challenges that come with being one of these companies,” Lindenbaum says. “A lot of things are not figured out yet. Customers haven’t figured what they want to pay for, or how much. Going to market is hard. Even this bifurcation between the people who are using the tools—developers—and the people who pay for them—companies—is really tricky to navigate.”

Even fundraising is a challenge, despite the venture industry’s general openness to investing in B2B services. “They go out trying to raise their first round of money and they come back very crestfallen, thinking that the venture guys aren’t smart because they ask terrible questions, when a lot of the time it turns out they are just talking to the wrong investors.” Worst of all, Lindenbaum says, these entrepreneurs have no one to talk to about their problems. “Because there are still so many consumer-facing app companies, the developer companies are way outnumbered, so they feel very alone.”

Eventually, Lindenbaum says he got tired of fielding the same questions over and over and playing matchmaker between companies in crisis and experienced entrepreneurs who might have solutions. What entrepreneurs building developer tools needed, he decided, was some systematic camaraderie—a place to share best practices, learn from veterans, and help each other out. And that’s what Heavybit is designed to be, while (in theory) profiting over time from its equity stake in the companies brought into the club.

Since opening its doors eight months ago, Heavybit has admitted 15 companies to its program. Nine of them are currently working from the Heavybit clubhouse, which offers 70 desks spread across three floors. (There are also kitchen and conference areas, a video room, and places to lounge, all in a masculine concrete-and-timber setting that’s already winning architectural awards.)

The typical Heavybit company has already raised a seed round of at least $1 million and has three to five employees, Lindenbaum says. In many cases they’ve already … Next Page »

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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