Why Humane Was Doomed from the Start
Lessons from Startups 101
I know it’s been a little while since Humane released its AI Pin, which was bashed on by many users of the products, but recently, the company admitted defeat immediately after launch and is looking for a buyer.
The company reportedly was last valued at $850 million after raising about $230 million from investors. It is looking for a buyer willing to pay $750 million—$1 billion.
For those who don’t know, the Humane Pin is a wearable pin you attach to your shirt that essentially acts as an iPhone replacement. It flashes information like texts and calls onto your hand, and you can use it to search for something or take a video just by talking to it.
In theory, that sounds really cool, but in practice, it did everything it was supposed to do poorly.
Let’s get into why this product was doomed from the start by failing Startups 101.
Build Something 10x Better:
The problem for any company trying to do the impossible task of being the “iPhone killer” is that the iPhone has 17 years of being an exceptional consumer product that is not far from being a physical extension of a person based on how many people rely on it 24/7.
It’s more than possible that someone could create an “iPhone killer,” though I wouldn’t recommend it, nor would I invest in that company. Regardless, that company would have to be far and away better than the iPhone, a product about 1.5 billion people use daily.
If you’re going to do it, though, like Humane attempted, you can’t come out with a clunky beta product. Before the iPhone came out, the Blackberry was the iPhone of the early 2000s, and everyone thought that it was an unassailable product. Apple followed the key rule of disruption, though, which is that a new product has to be 10x cheaper, better, or faster, and the iPhone was certainly 10x better, so it disrupted the Blackberry. (I highly recommend the Blackberry movie, by the way).
Even if Humane’s Pin was twice as good as the iPhone, it still wouldn’t be enough to steal significant market share because, again, it’s hard to change 1.5 billion people’s minds. After all, WhatsApp makes far more sense as the de-facto messaging app, but every iPhone user still uses iMessage because it’s just what everyone else does. WhatsApp is better than iMessage, but not 10x better.
Unfortunately, Humane performed many tasks much worse than the iPhone.
So, if you plan to take on a large incumbent by creating a better product, make sure it’s 10x better.
Start with a Small Market:
All great companies started with a small market: Facebook with Harvard students, Amazon with books, eBay with Beanie Babies, and so on. This is startup strategy 101, and Humane is another example of a startup that skipped that history lesson.
As Peter Thiel said in his presentation, Competition Is for Losers, many cleantech companies failed in the mid-2000s because they were minnows in a vast ocean—small startups in a multi-trillion dollar market.
Now, Humane somehow raised about $230 million before even releasing a product, so they were anything but small in terms of size and capital, but their revenue was nil. Zero. In other words, very, very small. So, even though they seemed big, they were very small.
The smartphone market is obviously huge, around $600 billion, so anyone competing with that has to have a unique angle. Even Google can barely compete with the iPhone, but they did so by making their phones much cheaper but with awesome features that integrate so well with Google Search. That’s a way to compete with the market because, even though they aren’t starting small, they’re building a product that’s maybe 2x better and 2x cheaper. That won’t take over a market like Apple did, but it will certainly secure a comfortable spot in the market.
Startups, however, without Google's capital, must be scrappier. If an AI pin wants to win in this market, it can’t compete with smartphones; it has to be something else. This is why the Fitbit worked. It was a new device that didn’t require your phone and tracked data that, at the time, couldn’t be tracked well on your phone.
I’m not sure what that will be for an AI wearable. I’ve heard great things about Meta’s Ray-Bans, which is probably the best way to go about this. They’re sunglasses, so they solve one problem, protecting your eyes from the sun; they’re stylish, which solves another problem or at least is another feature; and they allow you to do certain tasks like talk on the phone, listen to music, or search what’s right in front of you, all for the price of a nice pair of sunglasses: $300.
Even if Humane had ambitions of building the product they did, it would’ve been MUCH better to go to market with a cheap beta that tested their most important hypotheses. Would people use a projection to control things with their hand? Just add a Bluetooth feature to a small projector that flashes what your phone says on your hand. That can’t be too hard to build and wouldn’t be too expensive, and it would test the core thesis of whether people would like the UI. Then, you can get feedback and work on the other features if you’d like.
This is partly the Humane team’s fault for, once again, skipping Startups 101, but it’s also the investors's fault for just flooding this company with money so they could build whatever they wanted without any concern for what the customer would want. By starting with a small market or building a niche product, Humane could’ve tested their thesis to understand the market, what their customers want, and what they could build. Unfortunately, everyone bought into the AI hardware hype, which leads to our next lesson.
Don’t Let Competition Validate a Flawed Market:
I’ll start with an extremely relevant Peter Thiel quote from his book Zero to One:
“Competition can make people hallucinate opportunities where none exist. The crazy ’90s version of this was the fierce battle for the online pet store market. It was Pets.com vs. PetStore.com vs. Petopia.com vs. what seemed like dozens of others. Each company was obsessed with defeating its rivals, precisely because there were no substantive differences to focus on. Amid all the tactical questions—Who could price chewy dog toys most aggressively? Who could create the best Super Bowl ads?—these companies totally lost sight of the wider question of whether the online pet supply market was the right space to be in. Winning is better than losing, but everybody loses when the war isn’t one worth fighting. When Pets.com folded after the dot-com crash, $300 million of investment capital disappeared with it.”
This is the problem with AI hardware. In its current state, it’s a flawed market. Humane, the Rabbit r1, and many other quick copycats are trying to ride the AI wave to build something new. I respect that, but again, there may not be a market there right now. The smartphone is still one of the best inventions of all time, and its moat only continues to grow.
There’s obviously a future where this market will be validated by a winner. After all, Chewy has become a fantastic online pet food delivery service, but that was the market. The market wasn’t an online pet store in the 90s because there was no distribution network set up or any differentiation between competitors. At the end of the day, they couldn’t offer a better product, or in this case, distribution channel, than Amazon. The analogy to AI hardware devices and smartphones here is completely accurate. It’s history repeating itself.
Therefore, just because you can build something and many other people are building something similar doesn’t mean it’s worth building. You still have to analyze the viability of a startup from the first principles, which is whether this product or service solves a problem for customers.
Does This Product or Service Solve a Problem?
The final lesson that Humane failed in Startups 101 is the most fundamental lesson that no startup can achieve success by skipping: did you build something that people want?
Anyone can build whatever they want, but if you plan to start a business, you have to build something that someone will pay you for, and the easiest way to test that is to ensure you’re solving a problem for a user.
Humane is not solving a problem, full stop. No one has a problem pulling out their phone to do a task. It’s unconscious for everyone by now. The smartphone is a full extension of us. Therefore, I don’t need something else. Sure, if you make something better than the smartphone, I’m all ears, but I don’t really know what that would even be.
I think the next step is maybe something like Meta’s Ray-Bans; however, as crazy as it sounds, I wouldn’t be surprised if the smartphone is the de-facto mobile computing device until something like Neuralink combined with a contact lens is mainstream and we don’t need a phone at all.
As sci-fi as that sounds, that may be what it takes to disrupt the smartphone.
As hard as it may be for founders to come to grips with, you will never be successful if you don’t solve a problem for a customer, and I implore you to reflect and make sure you’re building something people want rather than building something you think is cool. This is something Accel’s Amit Kumar looks for when assessing founders. He once said,
“Does this person really understand the problem, and do they have an authentic connection to it? I know that sounds very basic but you'd be surprised. I think it's very easy to fall in love with a solution or a product without truly understanding the problem, and if you fall in love with the problem, you can be flexible on the solution. You can change your mind. But if you're fixed on a solution, you're probably going to go down with a ship if you didn't nail it the first time, so I think that that's like a really important part to me.”
Founders, please remember that, and investors, don’t waste impactful VC dollars on companies that aren’t solving a problem; otherwise, it will all go up in flames.
Conclusion:
Not to be too harsh, but I’d be shocked if they find a buyer near their asking price because what are you even buying? Quality employees? Many top ones have already left. I guess some interesting technology, but who would pay $1 billion for that? It didn’t work. Also, not many people can afford that price, and I’m sure a team can replicate anything Humane built within any company that could afford that asking price.
The problem with hardware is that it either works and you make money, or it doesn’t, and you lose money. Humane didn’t work, so they will lose money. I would be shocked if anyone pays more than Humane’s book value—maybe $100-200 million, but I don’t really know.
It’s remarkable that a startup went from seven years of iteration and $230 million of invested capital just to quit one month after releasing the product. What a disaster.
So, to all the founders and investors out there, make sure your company is building something 10x better, cheaper, or faster than the incumbent, not building in a competitive but flawed market, and most importantly, building something that solves a problem for a customer.
Come back this Sunday for Five more interesting things I saw this week!