Childcare Costs Up, Product Glut for Founders, AI limits in fintech, & Shutting down your startup
Stretch Four Volume 53
Happy Sunday,
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Quote of the Week:
If you can’t beat the market, you should certainly consider joining it.” - Charles Ellis
Chart of the Week:
The data on city life and childcare is true. This chart provides insight into city parents' experiences. It demonstrates the high cost of a babysitter for working parents for a 4-hour date night away from home: $100. Since becoming a parent, these charts have taken on a new meaning and have prompted the question: what is childcare like in the United States? There is much debate about universal healthcare, but not as much about childcare.
Tweet of the Week:
Founder Product Glut
Many venture-backed founders spend too much time on their "stack" when they should focus on talking to customers and making money. Although the products mentioned may help with these two aspects of startup building, their impact may not be worth the time or money. In my opinion, there are very few products essential for getting started before having a clear roadmap to customers and making money. I suggest getting incorporated, setting up a website, and getting a business email. Beyond that, don't buy any other products until you have a clear way to get your first customer and make actual money.
Personal Finance
The Most Intriguing (and Terrifying) Fintech Use Case for Generative AI (Fintech Takes)
Alex Johnson covers fintech and writes the Fintech Takes newsletter. This week he had one of his best essays on a potential generative AI use case for fintech. Below is an excerpt:
A tremendous amount of research has gone into the following question: what are the most effective ways to help an individual improve their financial behaviors?
The intuitive answer is financial literacy; if consumers have more information and a solid understanding of financial best practices, they will put those ideas into practice and make better decisions and that will produce better financial outcomes.
We want to think this is true.
The trouble is it’s not. Research has demonstrated that financial literacy, by itself, doesn’t do much to alter long-term financial behavior and decision-making. And if we think about this in a different context, it makes sense – I understand, intellectually, that regular exercise is one the most important things I can do to improve my physical and mental health, but I don’t do it nearly as often as I know that I should. Knowledge isn’t the problem.
Emotion is the problem.
Generative AI could provide significantly more compelling versions of these experiences, even going so far as to write longer and more memorable narratives helping customers understand the benefits they will eventually reap from their financially healthy decisions.
My take:
The interesting point Johnson made got me thinking a lot about how AI will affect industries like financial services, tax, and beyond. I ponder these issues on a daily basis. Even though I am excited about the development of generative AI solutions, their accuracy is not yet suitable for areas of finance that require precision.
I appreciated the chart he showed, demonstrating that AI can have an immediate effect in low-stakes areas. We are currently working on something related to information validation and fraud identification at ModernTax. However, AI cannot yet be used to make decisions in high-stakes areas like loan approvals for lenders and policy approvals for insurers.
Founder Reads & Learnings
I just shut down my first startup. Here’s my retro.
I applaud the transparency from Lillian Cartwright. She was open and honest about the mistakes she made in building her first venture-backed startup.
On this week’s podcast, I highlight one of the points Lillian describes where she made a critical mistake by looking for a white, technical co-founder. This type of approach is one I see often with first-time founders.
She acknowledges that she failed to ask the right questions upfront before choosing her co-founder as she writes,
Was he hands-down excited to work with me? Could we communicate well through tough times? Do we fundamentally get along? Do we build each other up? Do we respect each other? Are we equally as excited about building this company? At the end of the day, are you on or off the bus?
One of the reasons the advice to get a "technical co-founder" early on is so bad is that you can't hypothetically ask these questions. You can only gain answers through experience working with someone on at least a sprint. I would advise that this is only done well if that person is an employee, rather than a co-founder, as there will be fewer emotions involved than with a co-founder who is an equal partner.
How Spotify’s podcast bet went wrong (Semafor)
Bill Simmons emailed Daniel Ek, the CEO of Spotify, to keep The Ringer's large audience on Apple and preserve its ad revenue, which was spurred by a sports betting boom. Simmons ultimately prevailed; Ek said on an earnings call in January: “In hindsight, I probably got a little too enthusiastic and overinvested given the uncertainty we saw in the market. So, we're shifting to focus on becoming more cost-effective and efficient.”
Spotify's pivot has similarities to recent cuts in Hollywood's streaming television spending.
Book Excerpt or Review
“Deflation cheats the man who is in debt just as much as undue inflation cheats the creditor.”
Goliath: The 100-Year War Between Monopoly Power and Democracy
Sponsored by ModernTax
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Final Thoughts
That is all for this week’s newsletter.
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