The electric vehicle category is a giant new mega category that is completely changing the transportation landscape. Rivian is a startup who has yet to ship a product, yet somehow is pioneering a differentiated category in EVs. It is also on the verge of what will likely be a massive, multi-billion dollar IPO.
In Lochhead on Marketing episode 127, our own Al Ramadan and Christopher Lochhead unpack all of it through the category lens. If Christopher Lochhead's name sounds familiar, that’s because he and Al co-founded Play Bigger Advisors, and co-authored Play Bigger together.
Rivian and the Upcoming IPO
Al shares his thoughts on Rivian, and what they are doing for the Electric Vehicle category. He describes its founder as something of a combination of Steve Jobs and Elon Musk, and thinks he is a remarkable entrepreneur.
He then talks about the upcoming IPO they have planned to release around Thanksgiving.
“A couple weeks ago, they announced that they're going to do this IPO around Thanksgiving. And it's an IPO, not a spec. All of the other EVs are going out with specs. And the zinger was that the market cap was going to be $80 billion. Bigger than GM, bigger than Ford.
But it was just this moment in time where you look at this thing is like, “what, they haven't shipped the vehicle”. And they've valued more than Toyota's entire SUV line and Ford or GM, it just doesn't make (sense). That's just crazy. And so the category designer in me sort of took over and started dissecting all of their filings and I came up with a few insights that I think is worth sharing. ” - Al Ramadan
The Potential of the Rivian IPO
For something that has not even shipped the product yet, it seems amazing that they are valued so highly. For it to do so well at this point, it must’ve hit all the right notes and laid out its potential to be able to grab the attention of investors and consumers.
“What they miss always, is what the real drivers of market cap are. Which is, number one: what's the potential for this category? Number two: do we believe that this company can prosecute the magic triangle company; product, company, and category and earn 76% of the economics? And number three: when we look at their numbers, metrics, financials, etc., are we comforted about the first two things? And if the answer to all of those is that you got a company who's designing a market category, that right now looks like that has the potential of almost infinity.” - Christopher Lochhead
Al agrees with this points, and further explains how this new IPO is changing the vehicle industry, and how the transactions and support will be implemented once it comes out. Up until now, most EVs still operate in the traditional car dealership model. Rivian seeks to create a new category centered not just on the cars, but the services provided with it.
Reactions to the Rivian IPO
One of the things that piqued Al’s interest was how certain people or companies reacted when the valuation for the Rivian IPO went out. One particular instance was Elon Musk tweeting about it, saying that they should at least put out a product before the IPO.
Full Transcript Below:
Christopher L.: Thanks for pressing play. As you know, the electric vehicle category is a giant new mega category that is emerging right in front of our eyes. And it's completely changing the transportation landscape.
Now, there's a company you may not have heard of called Rivian. And it's a startup who has yet to ship a single product, and yet somehow is pioneering a differentiated category of EVs. And they are on the verge of what will likely be a massive multibillion dollar initial public offering.
Our guest today is Al Ramadan. And together, he and I unpack all of it through a category design lens. You see, Al has been studying what they've been doing and blogging about Rivian lately. And there'll be a link in the show notes, too, to what he's been writing.
So, I asked him to join me for an episode to unpack all of it. And that's exactly what we do through a Category Design lens. And if Al's name sounds familiar, that's because he and I cofounded a company together called Play Bigger Advisors. And we wrote a book together called, you guessed it, Play Bigger.
And while I retired from the firm after the book came out, Al and I have remained collaborators and we are brothers from another mother. And I'm over the top stoked to share his legendary mind with you. Al's been a tech entrepreneur, CEO, investor, and advisor for over 30 years. And of course, he's a best-selling author. And today, he's best known for being one of the godfathers of category design.
This is Lochhead on Marketing, the podcast that helps you develop the lens for what makes legendary marketing legendary. Hosted by Christopher Lochhead, three-time CMO, godfather of category design and a high school dropout, though the Marketing Journal calls one of the best minds in marketing, and The Economist calls off-putting to some.
Christopher: It sure is great to see you.
Al Ramadan: So great to see you, Christopher. Miss you.
Christopher: Miss you too. You want to go on a bike ride this weekend maybe?
Al Ramadan: That'd be great. That'd be awesome. Let's do it.
Christopher: Excellent. Now, Rivian, we've been studying the company and the founder and what implications it has for the broad EV category and the category they're trying to carve out for themselves. And of course, here we sit on the eve of their IPO. So, why don't you tell me a little bit about the founder of the company?
Al Ramadan: Yeah, founder is a guy called RJ. And I think he's a best of combination of Steve Jobs and Elon Musk. I really do. He's a remarkable entrepreneur. He has his huge vision we'll talk about in a sec. And a couple of weeks ago, they announced that they're going to do this IPO. Around Thanksgiving is when it's going to happen.
And it's an IPO not a SPAC. All the other EV vehicles are going out with SPACs as you know. And the zinger was that the market cap was going to be $80 billion. Bigger than GM, bigger than Ford and bigger than Toyota. Toyota is the number one SUV provider in the world as you know, and it has a $56 billion brand value. It's the way they value that stuff. That's the product line.
So, they're going out, haven't shipped a vehicle. They're going out with the IPO value projected at $80 billion dollars. And it just caught my attention in addition to the fact that I love Rivian. And as you know I've preordered one and I can't wait to get my hands on one of these things.
But it was just this moment in time where you look at the things like, "What? They haven't shipped a vehicle, and they're valued more than Toyota's entire issue V line and Ford or GM. It doesn't make...." You immediately looked and said, "That's just crazy."
And so, the category designer and me took over. And I started dissecting the S1 and all their filings and everything else. And I came up with a few insights that I just think it's worth sharing and talking about, and figured you'd be the best guy to talk about this stuff. So, happy to roll with any of that stuff with you.
Christopher: Yeah, awesome. So, the thing everybody says or almost everybody says, particularly outside of Silicon Valley when something like this happens is, "Ah, a company that hasn't even shipped the product yet has no revenue, is worth more than Ford." Then the only reasonable explanation for that is that weed is legal in California. Right?
And of course, what they miss is what the real drivers of market cap are, number one, what's the potential for this category? Number two, do we believe that this company can prosecute the magic triangle product company in category and earn 76% of the economics? And number three, when we look at their numbers, metrics, financials, et cetera, are we comforted about the first two things?
And if the answer to all of those is you got a company whose designing a market category, that right now looks like that has the potential of almost infinity and it appears even though they haven't shipped the product that they're executing the magic triangle, bada bing, bada boom, if you believe in the potential and you believe in their ability to execute the magic triangle, tada, they're worth more than Ford. But I'm curious as to your reaction.
Al Ramadan: That's absolutely right. So, that's one of the things that I've been thinking about. So, on the category design side of that magic triangle you're talking about, Chris, I think the thing that's worth noting is his point of view. It's clearly stated on his website. And I’d just love to read a little bit of it to you because I think it'll speak to you. And this is in his words:
"So, today, we're operating off hundreds of millions of years of accumulated plant and animal-based carbon. On our current path, we will fully exhaust this stored energy in only a few generations. And in the process, carbonize our atmosphere to such a degree that life as we know it will not be possible."
"If the planet is to continue to sustain life and enhance future generations, we have to change. To build the kind of future our kids and our kids' kids deserve, extraordinary steps must be taken to stop the carbonization of our atmosphere. This requires individuals and entire industries to come together in ways we never have before to transition the world towards sustainable energy."
"This is where Rivian's potential lies in creating solutions that shift consumer mindsets and inspire other companies to fundamentally change the way they operate. As staggering as this may sound and as complex as our objective is, we already have everything we need to create change. It starts with harnessing the very thing every human being is born with, an adventurous spirit."
"There's a reason we're hardwired with curiosity and capacity to invent better ways of doing things. The part of us that seeks to explore the world is the secret to making sure it remains a world worth exploring forever."
That, Christopher, is his POV. There's not one mention of a vehicle. It couldn't be further from an SUV Pitch from Toyota or Ford. I mean, it is really a giant story that he's talking about. That right there is the whole point. He's designing the category around this existential threat to human nature and human beings. And not, "I got a bit of carbon angulated color." It's phenomenal.
And of course, if you keep going with this... so, what did he call his first set of products or the category that his first set of products are going to play in? Adventure Vehicles, not SUVs. Adventure Vehicles is his concept of getting out into nature and engaging with nature. And it's the thing that ultimately will sustain us.
And of course, the SUV itself, the product design of the SUV is unbelievable, the R1T and the R1S as they're called. One’s a truck, one’s an SUV. It's an electric vehicle, 800 horsepower. You'll love that. Zero to 60 in 2.5 seconds, it’s faster than a Lamborghini. Think about that, an SUV going faster than Lamborghini, zero to 60, and a whole bunch of other stuff that just make you cry. Just laugh and cry and be excited.
So, the product design is absolutely phenomenal. And then, you think about, "Okay, what else did he do to your point about the magic triangle?" Well, the company design is superb. So, what's the thing that most people hate about buying vehicles?
Al Ramadan: Yeah, it's the sales guy and the dealership, right? I mean that old stupid game is so stupid and sucky. So, there are no dealerships. There are no sales guys. You buy online. You can figure the whole thing online. It shows up as you configure it. And by the way, the service, it's done in your own home. There's no service place that you take it to.
Christopher: How do you test drive one? I mean, obviously they're not ready yet, but will you be able to test drive one? Are they just saying, "F*ck it? You either got to throw down 80 grand or whatever it is or not. And we'll give you a two-day money back guarantee." Or how are they dealing with the old, "Hey, do I actually like the way this thing f*cking drives?"
Al Ramadan: So, they're doing it as they're rolling these things out. Yesterday, the first vehicle came off the production line. The plant by the way is in Normal, Illinois. That's the name of the town. And it's in the middle of America. I mean, it's so unbelievably good. The story is just there's so many dimensions to it that make me happy.
And yeah, they have these essentially driving opportunities in different towns and cities around the world, excuse me, around the country as their rolling this thing out. You get in their car. You go for a burn and you bring it back just like you would with a dealership.
There's no one saying, "You’ve got to buy this thing. You're going to buy this thing. Hey, let's haggle on price. And what about this?" and all that shit. None of that. And if you don't like it in the first 1,000 miles, you can give it back.
Christopher: Yeah, that makes sense. The other thing is you are teeing all that up, of course. I was thinking about how most cars are marketed in the US. So, we have these dumb ads of guys driving SUVs. Actually, a lot of them along Highway 1 or up in Tahoe. So, you have these beautiful images, but they're all exactly the same. They're completely interchangeable.
And then, they all have stupid taglines. And it's like that's the end of it. Right? So, that's at the manufacturer level. But the thing I want to think about, is the dealer level? What is dealer TV? It's like, "Come down this weekend. We will not be undersold. We're right on the price. And we got doughnuts. And we got red ones. We got green ones and matching doorstops. And we will not be undersold. We just got new shipping in here. Come on down,” and all of that stuff, right?
And then, it's the carnival barker bullsh*t that is a race to the bottom on margins because they're all competing on price and features. Everything you just said hasn't really changed. It's a little bit different.
Al Ramadan: You're right, Chris. And it is different to any other buying experience I've had. So, the company side of this, how they distribute these products and the network they set up for charging, and all that stuff is just so different.
And I think the most telling thing that's happened since we published an article about a week and a half ago, forecasting some of the stuff that got a lot of airtime, and people are like, "You're justifying an $80 billion market cap for a company that hasn't shipped the product." And I was like, "Absolutely I am. I'm standing behind that."
And a guy I saw on Twitter... I'm not a Twitter user often, but I did do some searching. And so, at the time their IPO was filed, one of the guys who follows those sorts of things puts up a breaking news, "Rivian Automotive aspired for an initial public offering and is seeking a roughly $80 billion valuation. Company would like to do an IPO around November 25, Thanksgiving."
One of the first people to comment is, get this, it's a gentleman by the name of Elon Musk. And he says, "Don't want to be unreasonable. But maybe they should be required to deliver at least one vehicle per billion dollars of valuation before the IPO." Christopher, you're a student of category design. When the category king of an adjacent category, electronic vehicles, makes a comment like that, what does that mean to you?
Christopher: Well, I can explain why, but it means one thing and one thing only. He is afraid of those guys. Because I mean, look, you and I both know this. There’re certain rules about how you win in this game. And there's certain human rules. Number one, you don't punch down. Right? Nobody punches down. It's not cool, right? So, he wouldn't be whacking him unless he thought he was an equal which says a lot. Because nobody at his level doesn't understand that you don't punch down.
And the other thing that is shocking, that he would have to know about his compulsion to tweet overrode his logical brain. His monkey brain must have got his logical brain because, look, I don't know Elon Musk. But he is smart enough to understand that when you are the category king, you don't acknowledge the others. You let them come after you.
When you're the heavyweight champion in the world, people call you out. You don't call anyone else out. And he broke all those rules, which means that in a moment of emotion, he publicly expressed real concern. That's how I interpret it.
Al Ramadan: You said it better than I could have, as usual. And that's exactly how I interpreted it as well. He's scared. And if you were the manufacturer or the creator of this thing called the Tesla Cybertruck, you ought to be scared. That thing is done. Everyone has looked at it. It's like, that doesn't make any sense. So, at a product level, it doesn't make any sense.
But beyond that, RJ's articulation of the problem we're trying to solve here, which is the existential threat to human nature. And the fact that the adventurous side of us and our connection to nature is the thing that's going to solve it is so unbelievably powerful and so unbelievably different. And that's scary, too.
And just one other thing because when you start to dig into this, it's like, "Well. Okay, how come he's got so much moxie?" Why would Elon be reacting to a guy who's got no vehicles in the market and a so-called $80 billion dollar market cap ahead of him? You dig under the covers. It's like, guess who one of the biggest investors are? Amazon. Every Amazon truck, Christopher, those delivery vehicles that drop off all those packages are going to be built by Rivian and are going to be electric. And they've ordered 20,000 of them upfront and put the money down already.
Christopher: It's stunning. And the other thing that's stunning is of course Elon starts with cars. And I just looked at it. According to Forbes, Jan 7, 2021, trucks, pickups, SUVs, and crossovers, so non-cars purchased by consumers, are now 76% of the US market in 2020.
Al Ramadan: There it is right there.
Christopher: And somehow Elon, who's of course no fu*king dummy, is building cars.
Al Ramadan: That is the motherlode. That is the other scary point that I was going to mention, which is the three quarters of the true profitability and value associated with the automotive industry comes from those segments that you talked about. And here's a guy just rolling into town redefining those segments in a way that is really, really, really terrifying to them, but so inspiring to consumers. And that's why you see that kind of reaction from Elon.
And then, there was another fascinating announcement just this week as well, Christopher, since we published this article which was, "Rivian announces a strategic partnership with The Nature Conservancy." Stop and think about that for a sec. A car company announces a strategic relationship with the most respected conservation organization in the United States.What's it about? Well, The Nature Conservancy is they're driving all over these places, and they go to check out all the lands that they protect and rangers and state parks, and everything else. And guess what they're going to be driving?
Christopher: It's so priceless.
Al Ramadan: Isn't it?
Christopher: Well, it's pure genius because he's going and getting the greeny of the greenies. Right? One of the things of course we talk about a lot in category design is this concept of influence the influencers. Who are the people who set the agenda? And then, my guy Eddie calls them super consumers who are the people who drive any category and therefore are more receptive to change and innovation.
And so, whichever vector you want to think about, what he's doing here is he's endearing himself to that community, which gives him a stamp of approval. I'll be very curious to see what he does with marketing over time. But the greatest marketing, and Elon of course understands this, was, is and always will be word of mouth. And so, what's the word of mouth around this POV that RJ is creating?
Al Ramadan: People are stoked. I mean, you can measure it on many different levels if you just look at these, the Rivian postings on Instagram. There’re also several Rivian watchers on Instagram, all of which I subscribe to. They're all over this thing. They're so fascinated by the idea that we could put our money where our mouth is to really make a significant change to our world and the world of our kids.
And not that Elon couldn't do that. And my son, Lucas, has got a Tesla, and he loves it. And he bought it because of the same thing. But the point about the motherlode which is that the really profitable parts of the automotive industry now are going to change. And that's where he's headed. So, there's a lot of buzz around it. I'd say the other thing which is, as I said, we published this article, and a number of my friends immediately texted me and said, "How do I get a Rivian vehicle?"
Because they weren't aware that this thing even existed, right? I mean, that's how early it is really. It's the classic technology adoption lifecycle where the innovators and the early adopters are the very tip of the spear. And in this particular case, I just happened to be one.
And my friend called me and said, "I can't get on the preorder. They've shut them down. I literally cannot get one." And so, if you think about what that does, it's the velvet rope. It's like you can't even get in even if you wanted to. Right? And that creates and then amplifies this whole notion of excitement and interest and intrigue about this organization. And it's incredible. It's incredible.
And what I would say on the other side of that is, so again, yes, I agree with your comment. And I totally was stunned when I saw Elon make that comment because it does, I think speak to his heart more than his head for sure. He is scared and you ought to be, and so should everybody else. And by the way, Ford's an investor in revenue if you didn't already know. So, they've already bet on change.
The thing about the preorders is that the line is so long. And every time, every month essentially, you get an update of what's available with the Rivian. And so, I think I've redefined my Rivian five times so far, as new options come out. And so, they have an adventure option, and they have a wheel option. They have the something else option. And so, that all creates buzz and everything else.
Christopher: More speakers, please. More speakers. We need more speakers.
Al Ramadan: Yeah. Now, it's not all roses. Right? So, the other side of this is that they published a blueprint as you know. We call the definition of the solution that the category king imagines for the future, the blueprint. They published one of those.
And one of the things in the blueprint was this really cool idea called a tank turn. Never been talked about before. It was invented by them. And it's this idea, Christopher, that you can have a car, you can put your truck on a road and do a 180 inside your wheel space. So, it just basically does like a tank does. It can do a 180, 360, 720, whatever you want in the same spot. It doesn't move.
And so, it's so different and so compelling that people were... there's so much buzz around the Rivian tank turn. So, they just came out recently and said, "Well, not so fast. We're not sure we can actually do it." We did it our promo video, but we haven't got it. So, they got a little bit of a black eye for that for sure. Right?
And it's like that's the risk that you take when you're the leader and you start publishing blueprints and say, "Okay, here are all the things you need to be the king or the queen or the champ." So, they got a little bit of a black eye from that. And again, to the point about Elon, he's right. They haven't shipped the vehicle yet. And so, the production side of the automotive industry, I can only imagine as being insanely complex.
I remember doing a tour around the BMW factory back in my America's Cup days and seeing car seats arriving just as they're being put in the car and all that stuff. So, I'm sure he's right too. I'm sure he's right. So, that is the risk side of the equation. No question. Can they deliver on the expectation? But at this point in time, I'm putting my money where my mouth is. I really think these guys are on a roll.
Christopher: Fascinating. Also, just as a side note on the tank turn thing, with the Elizabeth Holmes trial and all the discussion about Theranos. I think it's going to change some things in Silicon Valley. And I think one of the things that it's doing is it's crisping up how, when, and where entrepreneurs can be over their skis. Right?
So, simple example would be, you can be over your skis about what you're promising in your product. You can be over your skis about what you believe is the potential for your category. But you can't be over your skis about what your product does now. And you can't be over your skis about last quarter's revenue or profitability, or any backward-looking financial metric. Right? Because she lied about all sorts of stuff.
Anyway, the reason I raise all that is on one hand, they took a risk by announcing a feature that they're now having a hard time delivering on. At the same time, they announce to the world pretty quickly, "Hey, wait a minute. We got over our skis. We're still working on this. Maybe not film at 11:00." They didn't perpetuate the lie.
Al Ramadan: Right. And that's the entrepreneur that he is. That's why I love him so much. And he's a great showman just like Jobs was, which Elon’s definitely got work to do on that side. And that's why I really like him, his ability to stand up and tell the story.
And there was a heartfelt posting from him about the first R1T (Rivian’s truck) that shipped off the production line yesterday. And he had his family and his kids there, and everybody else. I mean, literally, everyone's crying now. They've been through a pandemic. They were ready to go. And then, the pandemic hit the whole... you can just imagine the mess on the company side of this thing, right?
But I think it's such a great example of category design and why category design is so important in the context of the other two, the product and the company designs. And it shows you that he didn't go through a course. I'm not even sure he read Play Bigger. He may have. He may not have. I don't know.
But he had this innate sense of being a category designer. And I think in our book, Christopher, that's one of the things we found was many of these great leaders didn't know it as such, but they practiced it.
Christopher: My favorite experience from a reader is when they say, "I read Play Bigger. And I finally had a way of describing what I've been trying to do." Right? I love it when intuitive natural category designers read and go, "Oh, f*ck, that's what I'm doing and who I am." Anyway, that said, I think... let me play skeptic with you here for a second, Alan.
Al Ramadan: Okay, Christopher.
Christopher: We can't fuck with each other. But a skeptic would say to you and me, "Hey, listen, this is not creating a new category. Actually, Elon Musk didn't even create the category of electronic vehicle, you dumb a**holes. He's just coming out with a better product. And he's building a better brand. This is a matter of fact, Alan. This love you have of Rivian proves everything you preach is completely wrong." So, how would you respond?
Al Ramadan: I love it. And I love the fact that you're poking at it. And brand is derivative of category design. Said another way, unless you’re clear about your category and unless you’re clear about the problem you're solving, don't bother even starting with brand. It's not going to help you because you have to have something to stand for. And the stand for is the problem obviously. And the great category designers have been the ones who have been promoting the problem and then become an evangelist for the problem.
He didn't go out and say, "I'm designing a new..." If you read his point of view, and I read it to you, he didn't say, "Hey, I'm creating a better car." He didn't say that. In fact, he didn't even mention vehicle. He didn't mention that industries had to change. So, there's a little bit of a hint there. But he never talked about any of that stuff.
And if you compare that to the brand ads you get for Honda or Toyota SUVs, or whatever else, they're speaking to a completely different thing. It's like, "Oh, we got a new tailgate feature that you can actually sit in while you're having coffee." Really? That's the thing you're going to present. It's like so in the weeds and so down, and people get confused about I think the role that branding has in the development of an enterprise.
And category design sets the north star, branding never has and never will. And so, it isn't a brand campaign. You just read it. It is an absolutely classical category play with an incredible product design yet to be proven. We have to see it on the street. We're going to buy it. We're going to drive it. We're going to agree with it.But incredible product design at this point, and a new company model and a new company design that's so different to any other truck or large SUV. It's like pizza and ice cream. You're looking at these two things like, "They're not even in the same place."
Christopher: Yeah, absolutely.
Al Ramadan: Did I convince you?
Christopher: Yes. And for people who conflate category design and first-mover advantage, which of course you shouldn't, but that said, he does have first-mover advantage. He's got the first EV truck. And with all due respect to Elon and everybody who owns one, whatever that f*cking UFO thing driving around that they say is that the Tesla SUV, have you been in one of those things by the way?
Al Ramadan: I'm not paying you for one of those things.
Christopher: We test drove one of those things. All I had to do was just get in it and sit in it and scream, "I am not the customer for this." Anyway, it's not a f*cking SUV. It's not one you want to go to Tahoe and blast around in 12 feet of snow in, and off road if you need to. And now, it's some weird Jetson f*ck thing. I don't know. It's not that. Clearly, I'm not the buyer.
But anyway, the point being, Rivian by calling it an adventure vehicle and by tying it into the outdoors and nature and greeny, and of course, it's an EV, the whole thing, it's a completely different conversation. And they're positioning it very differently than this weird UFO-ey soccer mom thing that Tesla's got.
Al Ramadan: And then, in addition to that vehicle you're talking about, they have this futuristic view of something called the Cybertruck. I don't know if you saw it, but it's this incredibly-
Christopher: Of course, I saw it. It looked like it was from the new Iron Man movie. But it looked like you and I took some metal and banged it together as we're like costume designers for our kids' play and we had to make a space-looking truck. I don't know. It was crazy looking.
Al Ramadan: No, it is. I know it was a prototype and everything. I just thought the most classic thing was, "Oh, let me show you how bombproof this is." And they throw a soccer ball at the window, and it breaks and, "Oh, sh*t. Really? Life? Okay." I mean, just there's so much about that whole thing that just made me laugh. And that's the other end of the spectrum from where Rivian is at.
And I'm just thrilled also honestly that they're from Normal, Illinois. That's what I'm most thrilled about. This is the Midwest. This is the heartlands of the automotive industry. And this guy is setting roots there. And he's doing the whole thing. Made in America and from the mother states for automotive engineering.
So, I'm just thrilled as you can tell. I'm super excited about the whole thing as an example of category design, great product design, great company design. And he's just a powerful guy. And I'm stoked to have him in the industry.
Christopher: Well, and the other interesting thing of course we wanted to touch on is the way category designers' do an IPO is very different than people who think of an IPO as a financing event. And it appears that he is purposely creating everything around the IPO, the S1, the whole "story.”
The way legendary category designers do it, he's presenting a vision, aka POV, about a problem. He's framing that problem. He's making that problem urgent and important. And he's saying we must move from the way it is to a whole other way. And he's doing it with his IPO.
Most people make the mistake of thinking it's a financial event, just the facts, present the numbers, wa wa wa. When in fact, the IPO is a legendary time to, A, drive home your category design and B, lock and load your position as the emerging category leader.
Al Ramadan: Yeah, you're right, Christopher. And you know this as well as anybody. Some of the most powerful lightning strikes of all time have been IPOs when they're done right because it's a time when there is a lot of light shining on the company, on the product and on the category. And the first thing that investors...
In the old days, investors used to say, "Well, what's the TAM?" And you'd have to sit there and explain, "Well, it's this many companies or people times this much price. Therefore, this is the TAM of the..." And you'd have to justify all that stuff. Some people still do that. The savvy investors don't. They actually look at the thing called category potential.
What could this be? And that's the biggest change I think that's happened over the course of the last five to 10 years is that our practice, your practice, everybody's practice on category design has helped influence people to write S1s in a way that actually do present the potential.
Clearly, they're going to have estimates of TAM and all that stuff in there, but it really talks about the potential for what this could be that enables a savvy investor to say, "Well, you know what? This..." So, if the entire issue of the market in Toyota is 59 billion, I think number two is Honda, and it might be 30 or something like that, so call it 150 billion, you’ve got to justify market share. But they don't look at it like that anymore. Honestly, they're not.
Christopher: And my suspicion is, and you know how much time I spent in financial analyst school, that if they're targeting an IPO price of $80, they'll be oversubscribed. And so, they might go out north of $80. We'll see.
And regardless of where they go out, particularly once they can start showing an ability to execute across the magic triangle, and in particular deliver cars that work that people are excited about, that $80 might start looking very, very cheap. There were a lot of people when Apple was at half a trillion, 500 billion, who thought that was insane. And man, don't you wish you’d backed up the truck?
Al Ramadan: I do remember Apple when it was seven bucks a share and wish I had backed up the truck then. But I did want to speak to this issue of the IPO and perception because that's what in many cases IPOs are about, perception of what the opportunity truly is. And we were working with a company. I think we've talked about it many times before over an Uncle Dave's IPA.
It's a company called Qualtrics. And that company at the time we started working with them was valued at about a billion dollars, they were a great market research tool and product. And we built a new category or created or designed a new category called Experience Management or XM as it became known.
And SAP, ironically, because we roasted SAP in our book, came in and bought them at eight billion dollars. And there was a classic moment in this whole thing, we got called and they told us, "Hey. Right now, we're announcing that SAP just acquired us for eight billion." Now, we're about to go public, two days later. So, SAP come in at the last minute.
And someone said to me, "What do you think?" And I said, "Eight billion is incredibly cheap. I think that is a $30 billion category opportunity in a 50-to-60-billion-dollar market." And they were like, "You're crazy, mate." I was like, "I'm not." I honestly believe it, based on the problem they're solving and the scope of the problem, which of course was what kind of experience you as a company deliver to your employees, to your customers, through your products or brands.
I mean, it’s pretty much the motherlode of what's important is now a top three problem at enterprises. Anyhow, what happened? Well, SAP, it didn't work out because people were leaving because SAP is gross, not quite what Qualtrics gross was. So, they spun them back out again. And then, Qualtrics went public for $27 billion. Right?
And what was that about? That was about category potential. It wasn't about multiples of revenue or EBIT, or any of that stuff. It was holy smokes. This problem is so big inside of enterprises. I think this thing's going to be worth a lot of money. And I think they're going to generate a lot of revenue. And of course, they have, and history has proven that one.
And there's other examples that we can talk to as well. I think that's what's going on with this one. I think I'm going to buy on the day. If I can get them at 80 bucks, I'm going to be stoked.
Christopher: Thank you for that. I think what a lot of people don't realize is, for startups, for new companies, by definition, every company going public, they are creating or trying to create a different future. They're not a continuation of the past companies.
And so, their value is based on the category potential and people's perception of their ability to monetize that potential. And the companies that are not designing and creating new categories, products, and business models, they're companies, by definition, that are betting on the past.
So, when you want to look at it historically and you say, "Okay. Well, what's your growth rate normally? What's your margins normally? What are your earnings normally? What are your cash flows normally?" And we can build a very simple financial model and bada bing, bada boom. And that's what those companies are valued at because they are extending the past companies, companies that are designing a different future. You either believe in that future or not.
And the funny thing about it is, they all look like geniuses in retrospect. One of my favorite examples of this will always be Airbnb. So, context is everything. So, when Airbnb, when Brian first shows up and starts running around Silicon Valley, most venture capitalists look at and go, "Who the f*ck wants to rent their couch? And who would want to stay on the couch?" Well, that's one lens.
And then, there's this whole other lens called the point of view called, "Don't visit. Don't be a tourist, be a local." Well, that changes everything, right, and tomato-tomato, a whole new way of doing things, right? But it's that leap of faith on taking a chance on a different future that seems to get a lot of people caught up and a lot of people in the financial world caught up.
Al Ramadan: You're right. It does. And look, for good reason because some people get up and tell a story that's complete bullshit. And we’ve got to get more margins or all sorts of stuff. And those things just go by me. I don't really pay attention to it, but many financial people do. But it's the ones that stand up and imagine, to your point, a different future and imagine a different way.
And how bold is it that RJ says, "We have to design a company from the ground up with a mission to fundamentally change an industry." And he means the automotive industry and the petroleum industry, and all the other industries, to your point, are in the backward revision mirror and don't like it.
And I saw that there was a lawsuit from the oil industries against the government for putting carbon free energy creation against them and all this crap. And so, how bold is he that he didn't just stand up and say," I’ve got a better car.” I mean, that's what I love the most about the guy.
Christopher: The other thing I think from a category design and marketing perspective that's interesting is we've now started to see a different model for company building, which is long before you ship a product, you start building a community because you have a point of view that captures people's imagination and attention, and you deputize them in this community.
There's the great old line, "If you want to sell bibles, there's got to be Christians." And so, in that sense, RJ has been manufacturing Christians, so to speak, way before he had a bible to sell. And that is an extraordinary thing. And he goes out, and he does a giant deal with Bezos for Amazon trucks to get the party started, and so forth, and so on.
And so, there is this new model, where if I'm a category designer and I have a compelling enough point of view around a problem that people care about, or I can get them to care about, how long has RJ been out publicly evangelizing his point of view?
Al Ramadan: Yes, he is for sure. And the product itself showed up a couple of years ago really.
Christopher: So, it may be three, four years, right? And when did he start taking orders? Do you know, Al?
Al Ramadan: Two and a half years ago. I was one of the first.
Christopher: And so, this goes against everything that most of us have been taught, right, which is you don't market till you have a product. You have to launch the company, right? And you sure as hell aren't going to be doing sales before you have a product. And you're not going to be building community because you don't even have anything to sell yet.
Well, that's exactly what he's done here to pre-build the category. In other words, the category, if you say category design, one of the fundamental things it's about is demand creation as opposed to demand capture. He's been creating demand for two plus years ahead of shipping his product and officially launching his company.
Al Ramadan: Yeah, he was evangelizing this point of view well before he even had a product to show. And that's the power. And that's your point. And that's a little bit of where I also mentioned the brand thing. It's derivative of the category design. And for that reason, you have to create the vision. You have to create this incredible problem in people's mind. Anchor it so that our biases start to work towards it as opposed to against it. And that's what he's done. And that's what he's been doing for years.And then on top of that, that doesn't get you all the way there. Just because you did that work doesn't guarantee you're going to be successful, right? And it's the point you're making before. You've also got to do the other pieces of the magic triangle. Have a great product and have a great company. And great category design. These three things have to go together.
But there's so many companies that have done an incredible job on the product. And it's been a flop because they didn't do the category design. And most likely they didn't do company design either. So, he's just done all three. He did it in the right order, and it's manifesting in a way that's insanely powerful.
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