Founder Resources

What is a Full-Stack Startup?

In the world of startups there are many different terms utilized to describe a startup, and understanding the differences between them is important. 

The conventional methodology for categorizing startups is by their funding stage. Seed, series A, series B, and series C are the conventional classifications of a startup that differentiate startups that are at different stages of growth and maturity. 

While these categorizations allow for a quick way to gauge the progress of a startup, they do very little when trying to understand the fundamental differences in startups. 

Specifying the industry of the startup, such as describing a computer-based startup as a tech startup, gives information about the product, but then fails to describe how the startup functions and is organized. 

The term full-stack startup was coined to describe the startups that seemed to be excelling in the current economic landscape. 

A full-stack startup is one that has control of the production, distribution, and support of its own product. 

The best example of a full-stack startup is the ride share app Lyft. Lyft is considered a full-stack startup because rather than creating an app to better the traditional transport methods like taxis, it offered an entirely new platform where the business is in control of all aspects of the user experience. 

The absence of outsourcing is what makes a startup considered a full-stack startup. By removing the intermediaries, a full-stack is able to have complete control over their product and customer experience. 

Below are the advantages that a full-stack startup has over a traditional startup. 

Flexibility

One way that a full-stack startup can be advantageous over a traditional startup is in its ability to more quickly adapt to changes. 

Full-stack startups are built on the premise of offering a seamless end-to-end product to customers. Essentially what this means is that a full-stack startup is built in a way that they are able to not rely on other businesses or corporations to get their product to market. 

With no intermediate companies taking charge of an aspect of the company, a full-stack startup is able to pivot based on feedback. These pivots can include cutting back production, improving customer experience, increasing reach, and more.

A newer concept of running a startup known as the lean methodology describes a process in which a startup runs with minimal to no hard planning and relies more on the feedback of customers to refine a product into something desirable. 

The full-stack startup follows some of the methodologies utilized in the lean startup, however, a full-stack intentionally over-plans to a point where they are in control of nearly all aspects of the startup. 

Rather than running without a hard plan, a full-stack must build the full-stack infrastructure and plan how to both create a product entirely in-house and how to get a product to customers in an efficient manner. Since a full-stack startup controls all aspects of the product, receiving customer feedback can be dealt with in a similar manner to a lean startup without the risks associated with a lack of advanced planning. 

Profitability

Profit is a metric utilized to understand the amount of money a business takes in as a result of selling a product for more than it took to produce it. Traditional startups were able to turn a profit but not to the degree that popularized full-stack startups are able to. 

The reason for the difference in profitability is not because the item is inherently more profitable, but rather the methodologies utilized to get the product are drastically different. 

As an example, let's use Lyft and its earlier predecessors. The concept of phone-based transportation services was not revolutionary, and many startups attempted to add services on top of existing taxi services. The startups in this scenario were only entitled to a cut of the proceeds because the taxi company would require a large percentage for actually following through with the act of transporting a customer. This startup acts as a middle man, linking a service to its customer base, and while this is an effective means of creating a business, it is slowly being phased out by full-stack startups. 

Lyft is far more profitable because they are the organization that acquires drivers, registers them to work, pays the driver, and collects the fees from the customer. In this process, it is easy to see that there are no intermediaries between Lyft and its profit. Since all of the proceeds from the sale go to Lyft and its employees, the end product is a highly profitable service that can outperform traditional transportation methods. 

Being the middleman is how many businesses operate, but having an entire product that goes from production all the way to the customer is much more profitable, and is why full-stack startups are becoming more and more popular. 

Ability to Grow

Perhaps the largest advantage to a full-stack startup is the capacity for growth. Since a full-stack is in control of their supply chain and the customer experience, when the need arises for more output, they can simply expand these dimensions by hiring rather than trying to source more product from manufacturers. 

This ability to grow and scale comes with a very large upfront cost in capital and resources. Building a full-stack startup is incredibly difficult as you need to develop a business that can stand almost entirely on its own. 

This requires a full-stack startup to have in house marketing, supply chain, sales team, customer relations, research and development, and more. Securing  an investment from a venture firm like M13 can be helpful, especially since M13 focuses on the founding team and gives them the support they need to make their dreams a reality. 

Undertaking a full-stack alone is difficult, but with the help of investors who care about the vision, the task is a little less daunting. 

The most costly of the aforementioned is securing a supply chain. For service-based companies, this can be slightly easier since development can be kept within a company. 

A commonly used example of a full-stack startup is Apple. Apple has created a full end-to-end user experience, and has also secured many of its own supply chains. The thing that set Apple apart from its biggest competitor, Microsoft, was that Apple created its own products from its own supply chains rather than having to rely on third parties. Looking at the company now reaffirms the notion that full-stack startups can facilitate large growth. 

While building a full-stack startup is incredibly difficult, the end result is a strong, self-sufficient startup. Utilizing time and energy during the beginning of the startup will allow for a startup to easily scale and redefine industry standards and expectations.

Ability to Change the Landscape

Another way that a full-stack startup is advantageous is that it reduces the chances of idea dilution. Rather than having a good idea and selling it to a company that already exists, creating a full-stack startup is a much better way to get your pure, untouched vision out into the world. When a business acquires an idea or startup, the idea will often get changed and the end result will not resemble the original vision. Full-stack allows a startup to enter the market with a unique idea untouched and unchanged.

Building a full-stack startup also bypasses many industry incumbents which is necessary to revolutionize a market. 

Looking at Lyft again as an example, it is easy to see how they were able to change the market by introducing the concept of ridesharing. Ridesharing eliminated the need for drivers to acquire a taxi license and allowed millions of people to find a job. This, paired with the app’s intuitive user interface and ease of payment, quickly allowed Lyft to establish a new form of transportation. If Lyft had gone the traditional startup route without an end-to-end business, taxi companies and other transport services would have tried to shut them out of the market or acquire them in some capacity. 

Revolutionary ideas are typically met with plenty of critiques, which is an area that a full-stack startup excels at. As discussed earlier, a full-stack has control of the product, production, and user experience. If customers raise pertinent issues, a full-stack can quickly pivot to resolve the issue. 

Without this system, startups would need to relay information to manufacturers and other third parties, which is nowhere near as efficient and leads to a heavy lag between deciding to make a change and the change occurring. 

More Robust

Many startups are seen as a delicate seed that needs to be planted, watered, and nourished to grow. 

The gardeners in this analogy are the founders and the venture firms that support a startup financially. 

Continuing with the analogy, if a normal startup is a delicate seed, then a full-stack startup is a cactus that is resilient to changing conditions and can survive heavy droughts. 

Essentially, a full-stack startup is one that is far more robust and able to adapt to changing conditions. The robust nature of a full-stack startup comes from the startup's lock on the product from manufacturing to the customer. Complete control of the product allows a startup to quickly adapt and make changes in real-time. Startups that rely on third parties for manufacturing, marketing, and customer acquisition could run into problems in the event that any business in the chain is unavailable for whatever reason. 

Looking at the current situation with COVID-19 provides an example of where this could occur. 

During the global pandemic, governments across the globe issued stay at home orders and closed non-essential workplaces. As weeks went by, some governments began reopening the economy and incrementally allowing non-essential businesses to reopen. 

Many businesses were unable to resume business as usual when the country opened back up because outsourced portions of their supply chains were still under lockdown. These extenuating circumstances were impactful for the businesses that relied on third parties, but for full-stack startups, they were able to better navigate reopening and resume business faster. 

Create a Unique Customer Experience

Full-stack startups are able to create a unique customer experience because of the absence of external influence. When a standard startup outsources work like designing the user interface for a new app-based service, this aspect of the business may not be as differentiated as it could if it were handled in-house. The programmers in this example could impose external influences that may actually be to the startup’s detriment. 

Full-stack startups are able to block external influences because they control all aspects of their product and user experience. 

The key to a successful full-stack startup is the founder with the vision of what the product will be in the end. 

A founder that is able to retain this vision throughout the startup process and ensure every aspect of the product is as it was envisioned is the formula for creating a completely unique and original idea. The uniqueness of businesses like Rothy’s came from its ability to provide end-to-end transparency in its shoe line. The possibilities are endless to find a market fit, and a full-stack is a great way to achieve this. The unique customer experience is what allows for many full-stack startups to succeed in what seems like a saturated market. 

Conclusion

A full-stack startup is a startup that provides an end-to-end user experience for its customers. The full-stack startup goes above and beyond to ensure all aspects of the user experience are controlled and adequately accounted for. 

Full-stack startups require a lot of dedication, hard work, and capital to establish. Once established, a full-stack startup is a resilient and flexible startup that can quickly pivot directions, address problems in real-time, and allow a startup idea to be given to the public unchanged. 

The full-stack startup has led to the disruption of many markets that seemed to be full of incumbents that would squash any new competition that arose. Lyft was able to put itself into the transportation industry and set up shop while incumbents sat in awe. 

Radical new ideas require radical new methodologies to get them to the public. The full-stack startup is the solution and is sure to continue in popularity as more and more tech startups adopt its methodologies. 

Sources

https://hbr.org/2013/05/why-the-lean-start-up-changes-everything

https://ride.guru/lounge/p/lyft-has-been-around-longer-than-uber-history-lesson

https://www.forbes.com/sites/yasamankazemi/2019/11/19/

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