Heavybit: Grad School for Startups Building a Software Supply Chain

9/23/13Follow @wroush

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been through an “undergraduate” accelerator like Y Combinator. Companies are admitted on a rolling basis, whenever their need is greatest, and they typically double in size during their residency. So at any given time there’s a mix of three-person and 10-person companies in the building.

Heavybit helps members with hiring and public relations, and arranges access to a large and impressive group of advisors, some of whom work from the clubhouse. Most advisors have been through one or more business cycles in the Silicon Valley software world, and are able to help entrepreneurs work through common challenges, Lindenbaum says.

The formal curriculum is built around guest speakers who cover “really specific, meaty problems that companies making developer products have,” he says. “We are trying to focus on content not available anywhere else.” Past talks have focused on how to convert developer engagement into sales; how to market to developers, and how that’s different from other types of product marketing; and how to design interfaces for developers. (“DX,” or developer experience design, is an important, emerging corner of user experience design, Lindenbaum says.)

The most famous company to participate in Heavybit so far is Stripe, which gives developers at other companies an easy way to build credit-card payment forms into their sites. Lesser-known companies include Kodowa, which is building a popular new development environment called Light Table, and Meteor, which is creating a new kind of framework to help developers write JavaScript-based Web applications faster. (Meteor has already grown so large that it had to move out of the clubhouse, Lindenbaum says.)

Heavybit's conference room features propellers from vintage aircraft.

Heavybit’s conference room features propellers from vintage aircraft.

The money to renovate and furnish the clubhouse, keep the lights on, and take care of the member companies comes from a group of prominent venture, and corporate investors recruited by Lindenbaum, including Accel, Baseline Ventures, Data Collective, Harrison Metal, IA Ventures, Ignition, Fuel Capital, Lowercase Capital, Redpoint Ventures, Reed Elsevier, Salesforce.com, and SV Angel. Individual investors like Derek Collison, John Dahl, Erik Frenkiel, and Jeremy LaTrasse are also on board.

Which drives home the fact that Heavybit isn’t a charity—the idea is to profit by having a hand in the evolution of the whole developer-tools industry, and making it as big as it can be. Given that there are so many corners of business operations and consumer life that have yet to benefit from cloud technology, the developer tools industry would seem to be all upside at the moment. The only real question is how big it can get.

On that point, you won’t be surprised to learn, Lindenbaum has a theory. On a graph of time versus profit margins, he believes, most stratified industries eventually reach a peak.

The more players there are at the bottom of the supply chain, the more everything gets commoditized, meaning that companies are forced to start competing on price rather than innovative features. This commoditization works its way up the chain until even the consumer-facing businesses at the top have run out of new things to do. Margins collapse, companies are forced to merge and consolidate, and industries end up back in a state of high vertical integration and low innovation. (Think of the cable and telephone companies, for instance.)

Ideally, then, if you’re building a new stratified industry like cloud software, you want to get to the peak of the curve as fast as you can, and then prolong your stay there. “This hill is a fact of life; the difference is that we think we can control how high the peak is, and how long it takes us to get there,” Lindenbaum says. “The key is finding new pockets of innovation who continue to press the peak up for everyone. I don’t think you can stay up there forever, but as long as people are willing to look for value and innovation and not worry about what the competitors are doing, that is how you maximize the value under the curve.”

Lindenbaum hopes that Heavybit, like Heroku before it, will offer a good observation post from which to guide the climb.

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

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