Episode #2: Consumer Tech Napkin | Building moats in consumer tech

22:18And I think Abbott and Dexcom have made this incredible new leap of technology that allows us to monitor glucose levels into the body. The medical device companies that have been historically single-handedly focused on diabetes, that's what they're really good at. That's where they had a massive impact in. But I guess our fundamental belief is kind of different in the sense that we believe that right now we're just at the tip of the iceberg. And the way that we're thinking about monitoring is how do we bring it from something that right now tens of millions of people with diabetes are using to somewhere where every single person in the world could.

22:50And that for us just requires a complete different way of thinking about the problem. I think cost is paramount, right? And medical devices is a big thing about, you know, ultimately if what insurers will pay for this, that's what we should be pricing it. And that's true. That's because it's specifically for diabetes, right? And they don't want to kind of, or I guess, give up on profit margins or anything. But if you actually change the framework and say, well, actually you want to build something that can be built for every single person in the world, cost becomes a completely different, if you start to think about cost in a completely different way.

23:18Glutals in isolation is very good for diabetes, but it's probably not good enough for every single application in health. So you've got to build for multi-analyte. So ultimately it's like, who are you building for and what are you building for? and I think, you know, Abbott and Dex1 have been single-family focusing on diabetes and they've done a tremendous job at that but if you change your framing and say actually you want to build a platform that can have an impact outside of diabetes and can have an impact on all different health applications the way that you build your technology is going to be drastically different.

23:44What you thought was good enough for diabetes is just unfortunately not good enough for the everyday consumer and that's what the pillars that we've built in the company around has been. Most of the decision making has been about can you make it affordable for every single person can you make the insights valuable for every single health application which is a completely different way of seeing the problem and you ultimately end up developing a solution which is really different to where the incumbents are currently are joe when we spoke last you

24:10Andreas Munk Holm:introduced a concept i thought was super interesting which was that of static versus dynamic modes is this enough to cure you up but you know where i'm headed with you yeah for sure i mean i guess the i sort of touched upon it a little bit earlier but i guess the underlying differentiation is a moat that once overcome doesn't really change over time right so like if you think about the the analogy of a physical moat you're not making that moat broader or deeper and over time as people come to attack the castle if you like they can fill in that moat there's ways to get to get around it so as raf mentioned that sorry as red mentioned the the patent point might be an example of that that is not making it increasingly difficult over time to attack the castle, it becomes an obstacle.

24:55And as resources, technology, et cetera, aggregates outside the moat, it becomes harder and harder to defend. The dynamic moat concept is much more around trying to find routes to deepen and widen that moat over time. So network effects is the classic example. Network effects get stronger over time. So the chances of being able to displace, hey, for example, YouTube is the home of video on the internet is incredibly difficult because as as YouTube continues to be the destination platform for the creators it then attracts all of the viewers and because it's got all the viewers it attracts all of the creators so there's a real dynamic mode there over time that is deepening and widening the defensibility around that around that value proposition and I think you know as we talked about sequencing earlier there's a time for both but I think the as soon as possible for founders to be able to get onto that journey of building the more dynamic modes that make it more likely that you're hitting a kind of escape velocity and a compounding effect that leads to win and takes all dynamics, the more, you know, before that is a fit with a venture scale outcome.

26:01Andreas Munk Holm:Yeah, most often you can use a static mode as cover while you're building the dynamic mode. Is that also how you've thought about it, Ren? Yeah, for sure. I mean, to the point earlier, I think, you know, patents is a great example. There's so many medical devices that have a patent that gives us pretty much protection towards using the technology for a long period of time. But, you know, you can't hide behind that forever. And in fact, actually, when you think about what is really unique about what we're building at Sava, you would rarely see Raf and I really defend, you know, we've got this great patent portfolio that's going to last forever.

26:30We actually really don't think what the biggest protection ultimately for Sava is going to be about. It's going to be about something completely different. And, you know, I think it's just kind of breaking this concept of, you know, I think companies become quite lazy after a while. if they hide too much behind static models. And you end up, and a lot of times, also forgetting about what the user actually wants to see. It makes you lazy towards building a beautiful user experience, which ultimately for us is going to be a big driver and a big differentiating point in the long term. So yeah, I guess that's kind of been the strategies they want.

27:02So you'll rarely see Russ and I speak about our patent portfolio or a regulatory mark who will give us great defensibility in the long term. I don't think that's really what Sam is about. I guess one way to think about it is it kind of gives you the right to start digging, right? Like, because you hear a lot around them at the moment with AI, you know, collapsing moats that speed is the moat or capital is the moat. They're not moats in the long run. They are a head start that gives you the right to start digging an actual moat over time. And I think it's a similar point. Exactly. I think it gives you a window of opportunity to build something incredible, right?

27:39and something that obviously makes them worthwhile spending a lot of effort and a lot of capital. But it just won't last forever, I guess, is the bottom line. Yeah, I was allowed to say that. I mean, it's full amount of period, but to a certain extent, I personally view innovation almost as a moat, especially in this space. Because if you don't have the right culture, and you can see this with a lot of pharma companies, they use almost the money they generate as a moat, which over time I don't think is sustainable. It has worked up until now. But if you look at like the amount of innovation that happens in these big, massive drug companies, it's not very high.

28:19Okay, they have distribution as a mode, but in terms of innovation, they usually end up buying drugs that have been built by other companies. So they don't really innovate and they become more financial institutions rather than innovative companies. So it's kind of like, how do you build your culture so that innovation is at the heart of everything you do? So over time, it compounds. And then even if the patent world didn't exist, the innovation would enable you to build a better product, to build more features that essentially the consumer would want to use on a day-to-day basis. So I think there are loads of companies where, and if you're like, whoa, this is crazy, they've got loads of consumers.

29:03But over time, if they didn't build the right culture, they're going to get displaced. then maybe it'll take longer just because they're in the hardware world, but they still will get displaced, I would say.

29:15Andreas Munk Holm:Ryan, you spoke about bottlenecks in the system and owning those bottlenecks. Can you talk a bit about how you're thinking about it? We have to go a little bit way back in terms of when Waf and I looked like these two crazy people trying to build hardware and consumer. How do you still do that?

29:33Yeah, some people might still call us crazy, I think. but you know i think that kind of boils down to like in our experience has always been two different ways in which people can think about building a motor kind of like exploring the consumer market and it got to a point where i think especially in the preventative health space people were focusing a lot about you know what we have to really solve for is a beautiful user experience there's this kind of like notion that you know hardware will always get commoditized the way you just build on top of existing hardware solution you crack a beautiful user experience and that's how you're going to crack molecular tracking, metabolic health monitoring.

30:06And there's been so many companies that have been born in that space. Whereas Rafa and I kind of look at it in a completely different way. We just saw the barrier to building beautiful apps, user experience becoming easier and easier over time. So we never really thought that being the bottleneck, but actually where the value in this whole market was concentrating was in pretty much two companies, which were Abbott and Dexcom, that were the only companies that had the ability to unlock molecular health data in real time. So we started to look at, Where do we actually think the bottleneck of the space being?

30:35Where do we think value is actually accruing? And ultimately, I think over the years, it's becoming more and more obvious that you've got AI, you've got the best tools in the world, but whatever AI insights or algorithms are going to build are only going to be as good as the data that we're building on top of. And the bottleneck in human biology is always going to be how do we build human biological called digital interfaces that allows us to then plug in the most advanced algorithmic tools or AIs to be able to derive insights from it. So we just always believe that for human body, health monitoring, the interface of biology and the digital world was always going to be the bottleneck.

31:14And that's why we were so adamant in making sure that we could solve that problem first. And the way that we see it is that's not going to change anytime soon. The biggest problem towards building new applications in health, in our opinion, is going to be how well and how much data do we have about human biology? And this is going to be the same. So I think so long as we focus on that, I think ultimately we'll be focused on very high value problems that not a lot of companies will have the ability to do. When you guys think about AI as a kind of, I guess like a tailwind or a technology paradigm shift, in one sense, there's not like an obvious reason why your core product is a huge beneficiary of AI in terms of it doesn't make it necessarily easier for you guys to build, right?

31:56But are you thinking about it as the overall tailwind behind AI creates a moment in time where the data that you are extracting is even more valuable to an end consumer? And so there's a tailwind behind your, you know, the Sava story, but it's kind of indirect. Is that the way you're thinking about it? Yeah, for sure. I mean, I think we've seen with AI at the moment, it's as good as the data you put into it. And the more data you have, the better it becomes. So in a way, it's kind of like if we don't have the ability, and right now we don't, or at least there's definitely a disconnect in the healthcare world, is like we don't have the ability to gather, as Ren said, biological data in an easy fashion, I would say.

32:42And when you do, you can't even get access to that data. So you can do anything about that data. So it almost stays in the analog world, or it stays in the doctor's office, or it stays segregated in whatever your healthcare system. So it'll take longer for, much longer if not never, for the government to utilize AI to look at health data. So I think by taking control of the experience end to end, we can essentially leverage the power of AI with the data we collect. But I guess kind of like to build on top of this, it's, you know, up until now, there's always been a bit of pushback in terms of saying, look, you're going to unlock all this continuous data about human biology.

33:27What are you going to do with it? Do we even know how to interpret it? But I think what AI is doing now is just kind of basically making very clear that if you have more data, you can actually improve on the insights that you can produce. And that's like becoming obvious, right? There's incomprehensible data sets for the human eye that now you plug into an AI tool and it kind of gives you the best insights you could possibly imagine. And right now, this is exactly the kind of space that we're in. So I think there's a general consensus that with a ton of data, with a massive, vast amount of data sets, you could be able to really understand systems in a way that was just impossible to do before.

34:00But really what's missing is kind of like really, yeah, translating the biological signals into a digital one. So I think it's kind of putting us in an advantage where there's kind of like this beautiful moment in time where we can analyze all the data that we want in a way that is unprecedented, we can never do before. There's a massive societal shift towards focusing on health and well-being and preventative health. And there's just this massive bottleneck, which is we still don't have enough information about the human body. Everything is reactive. It's episodic. You have to go to a lab. Some companies are trying to make that a little bit easier, but it's still going to be a moment in time.

34:30The real inflection point is going to be about streamlining the human body in real time and being able to plug it into all these tools that are coming out today to be able to kind of have this new insight of health or new system of health monitoring that up until now was frankly impossible to have. because a single human can't actually analyze all this data. But now that we're becoming so good at deriving insights from it, I think you can totally see the path where unlocking more data is going to be resulting in a lot of value to the end consumer. Yeah, it's one of the things we've been thinking about quite a lot is in the future with, I mean, by definition, AI is training on every publicly available data source, right?

35:09So one of the areas where you can build defensibility in a moat is some kind of proprietary data. Proprietary. And already we're seeing lots of companies that are building various different hardware devices that can capture ambient voice data or ambient movement data. So I guess kind of feed that engine. You guys are going a step even further because whilst it's relatively trivial to build a microphone inside a desk lamp to build a smart home device, trying to get biological data from a living human body is an extraordinary technology loop. So it makes total sense.

35:43Andreas Munk Holm:We're coming up on time, guys. But I would be remiss if I didn't ask you a bit about Europe, because Europe, of course, is home to all of us. And we're very passionate about Europe, I hope. And I think for that reason, it would be interesting to ask you. You can always talk about Europe being not as fast moving and not as capital, you know, a washing capital as our U.S. counterparts. Where do you think that building from Europe is actually a moat and something that's powerful? I would say one of the biggest advantages in Europe, which is probably the politically incorrect part, is that since I think at the later stages of venture, there's less funding and really hard deep neck companies.

36:23I think things are starting to change, but the reality is there's just more funding in the US when you look at later stages. I think extremely talented technical people are just cheaper. That's kind of like an obvious advantage, which sounds kind of horrible. But Europe is an amazing powerhouse of scientific innovation. Like if you just look at the best publishing outlets, something like 30, 40 % of all published papers that are pushing the boundaries of what's possible are done here in Europe. We've got incredible institutions, Oxford, Cambridge, Imperial, and Retraferat, Ralph and I came out of just in the UK.

36:56So there's just a lot of raw horsepower in terms of scientific discovery and innovation. There definitely is a bit of a gap in terms of the amount of funding that you see in the later stage of companies. There's still a lot, and to this day, Ralph and I struggle a lot, which is people just see something scientifically difficult and hardware and just get really scared away, whereas probably wouldn't see the same amount of reaction if we were in the US. I think this is changing a lot. But what this means that effectively is that we've got incredible access to some of the best engineers and scientists you could possibly imagine that are coming out of university.

37:30And they don't know where else to go work at other than a bank or a consulting company or some fintech unicorn company. And the only other choice that they have to work on something that is meaningful, which is health sciences in the physical world, is a company like Saba. And for us, it's been an incredible opportunity to take advantage of. where we can get these really talented, hungry, mission-driven people that really science is ultimately something they're super passionate about right at the doorstep and we've been able to recruit extremely well because of that. So I would say it's kind of a bit of a double-edged sword in that perspective, which is on one side, you told me there's an area that there's less funding, but on the other side, there's like an extreme huge talent pool of really talented individuals that we can hire and they're right at the doorstep.

38:11There's just less competition for them, which is kind of, yeah, I guess probably the downside of being in Europe.

38:16Andreas Munk Holm:Am I right in saying that, and this is a bit particular to you, but regulatory approval in Europe is actually easier than the FDA. And for that reason, that's an entry point in the beginning, which could be an opportunity and a positive for entrance. But it lowers, of course, your regulatory protection later on. Yeah, that's definitely an advantage. and you could argue that if you built in the US, you could also utilize a similar strategy, but by building in the US, you have to raise more money, so you have to justify a bigger market. So in the end, building in Europe in that sense, you can build by raising less money and still justify the cost of building because the regulatory burden is lower.

39:06But then at the same time, you've got way more Chinese copycats, for example. So I think it's all a balance. I think in Europe, I mean, I echo everything everyone said, maybe on the more downside, the ecosystem is still not big enough because we haven't had enough companies build within Europe. And obviously it's changing, but there's some stuff that hasn't been tried out in Europe in the sense that it's only US companies that have done it. So even recruiting that talent pool that has done it before has been possible or very difficult. so you have to figure out way more stuff by yourself which is really exciting but i think it reminds me of the um i think the bolt slash uber rivalry in the sense that bolt was like pretty much i would say similar position than ours except they had a last six competitor and i would say we we don't have a direct competitor but in a sense it was like no one has done it before in europe so it was like do we recruit from the u.s or do we actually figuring out figure out yourself and they decided to figure this out themselves, which is exactly what we're doing.

40:14So I think it's really exciting to build in Europe. That's the conclusion of my argument.

40:21Andreas Munk Holm:Final question for the three of you. What's the biggest misconception that you see founders having about Modes? You're all three mentor level now, mentor stage. You've come to the point in your life where people come to you and ask questions. So what do you most often see people getting wrong when it comes to moats? I wouldn't say it's necessarily getting things wrong, but I think it's maybe misunderstanding the relative power of different moats over time. So some of the stuff that we talked about before, to Ren's point, if you're going into the conversation and the key thing that you're hanging your hat on as being a moat for the rest of the lifetime of the business is a patent or a regulatory step, that just doesn't really communicate a deep understanding of what's going to create compounding advantage over time.

41:18So I don't think it's a misconception per se, but I think it's a question for founders to ask themselves as they're building the narrative and building their own conviction that this is something they want to spend the next 10, 15, 20 years of their life building, understanding how they're going to get to that point where you have something that genuinely can compound over time. And it's okay. I mean, particularly in the early stage, right? We don't expect people to show up with it built because by definition, that's an unreasonable expectation. But being able to articulate both the long-term vision and then the very clear limiting factors that you need to unlock in order to get there and keep the show on the road on the way is probably the most important thing from my point of view.

41:58From my point of view, specifically about medical devices, maybe the big misconception would be something like there is no, I guess, no value, which I equate to Moat in this case, but no value in the consumer-facing or the consumer-facing element of the product, or there's way less value in the actual software piece itself. and I think that's a big misconception because everyone is used to a beautifully polished app on the app store but actually in the world of medical devices where there's a hardware element the moat is actually the end to an experience. From the moment you open the package the features that are contained on the hardware element all the way to how the user uses the app which traditionally by medical device companies that's not their forte so it's really that into the experience it and i think that's very misunderstood by most people yeah for me more than misunderstanding it's kind of like um a bit of a learning more than anything else is that i think the best notes typically are very non-consensus and i think my reminder for founders would be sometimes you you do feel like you're the only one that understands why you've got a great note and that is actually a great place to be in because time will tell and time will always sell, I think.

43:23And it's probably one of the things that I'm pretty happy about is that there's been multiple moments in time where Rafa and I thought we were completely crazy. Are we actually thinking about where values are accruing in a different way? Are we focused on a lot of different things? And, you know, there's from the venture community to like other founders, people were just thinking that what we were doing was completely insane. But I think ultimately with time, I think we were getting to the point where you're becoming a little bit more consensus. But there was a time where it was really non-obvious.

43:50And I like to believe that some of the best modes that have ever been created have started off in a very wacky, non-obvious place. And I think that's a totally fine place to be in. I think just to add to that, Ren, you guys are a great pay study because until maybe 12 months ago, building hardware was still the craziest thing that anyone could come up with as an idea. You've been building this for years and then all of a sudden the AI moment has happened and everyone's talking about how interesting hardware is again because it's the only mode that's left. So building in the world in the midst for a few years and having conviction, what you're building is coming to bear now.

44:23Andreas Munk Holm:Joe, Ron, Raph, thank you so much for joining me on the podcast. I think that there will be a lot of founders out there that have learned a thing or two about how to build moats in consumer. Thank you so much for taking the time to help the ecosystem. All right. Thank you for having us Andreas.