A Case of Uncreative
Destruction
Why isn't there innovation in government? Meet
two entrepreneurs who wanted to help the U.S. Postal Service digitize mail.
Some local postmasters liked it. Washington didn't.
By Bari Weiss in the
Wall Street Journal
In my mailbox several
days ago was a bill from Time Warner Cable, a West Elm furniture catalog, a coupon for a
cleaning service and letters for three previous tenants who moved out years
ago. The only piece of mail I didn't throw away or put back in the box with a
passive-aggressive note for the postman was the New Yorker.
Like many Americans, I
have developed a careful strategy for dealing with the U.S. Postal Service: Use
UPS or FedEx whenever
possible. A few years ago, Evan Baehr and Will Davis decided to do something
moderately more productive: They founded Outbox, a company with a digital
solution to simplify—or eliminate—mailboxes across the country.
For $4.99 a month,
Outbox would collect your mail and scan it. The company could unsubscribe you
from unwanted catalogs and shred junk mail. A smartphone app allowed you to
categorize and file bills with the swipe of a finger. Outbox could also forward
wedding invitations and Christmas cards back to your home. Call it snail mail
for the 21st century.
Too bad the postmaster
general shut it down.
The Outbox story
begins in 2011, after Messrs. Baehr and Davis graduated from Harvard Business
School. They started testing the concept of digitized mail in Cambridge, Mass.,
collecting letters and bills from acquaintances and scanning them "on a
flatbed scanner in Will's trunk," as Mr. Baehr recalls. Within weeks, Mr.
Baehr called Sheryl
Sandberg at Facebook, where he
had accepted a job offer. He told her that he wasn't coming to Silicon Valley
after all.
Venture capitalists
including Peter Thiel (a former boss of Mr. Baehr's) and Mike Maples soon
backed Outbox as Messrs. Baehr and Davis focused on two post offices in Austin,
Texas, where they had moved. Forging personal relationships there was key, Mr.
Davis says, because "some postmasters do have some autonomy and they actually
will take a little bit of a risk." They found one risk taker in Austin,
who, they admit, "maybe didn't see the full weight of what was going on
here."
The concept was
simple: The two young men would ask letter carriers to set aside their
subscribers' mail in a designated box in the post office. Each day the duo
would pick up the mail, scan it at Outbox's downtown office, and then deliver
it digitally. "By 3 p.m. our customers had their mail. And that's when the
cool stuff happened," says Mr. Davis.
Cool thing No. 1: They
were able to unsubscribe users from junk mail. But the Outbox founders also
quickly learned that "not all junk mail is created equal. Some people
wanted their Pottery Barn," says Mr. Davis. "We could test what we
call the holy grail of advertising, which is intent, brand affinity,
understanding what people like—that's really fascinating."
It's also potentially
lucrative. Today companies like Pottery Barn know only whether their catalog is
delivered. "Imagine if Google only knew that an ad was shown, they have no
idea if people clicked on it. That's the situation the postal service is in
with the mail," says Mr. Baehr. It isn't hard to imagine how valuable that
information would be.
But wasn't the goal to
get rid of paper spam? " Williams-Sonoma was
not the enemy," says Mr. Davis. "The enemy is giving you
Williams-Sonoma every single month without you ever asking for it. Our goal was
to figure out through your choices what brands you wanted. To give you perfect
control."
Building their own
version of the postal service, Mr. Baehr adds, "wasn't just so that we
could scan mail." It was to build a new type of "digital-physical
hybrid communication company." In other words: Start by taking pictures of
mail. End up as an essential portal where users consume content and ads.
The two business
partners felt it would be a great deal for the USPS. "In this new model we
could save them money, increase customer engagement, and be better for the
environment," says Mr. Davis. So when the postmaster general's office
called the Outbox founders in May 2012, they were cautiously optimistic.
"I was thinking maybe this can be a great example of how private
innovation can be married with government." You would think so, especially
given the postal service's $100
billion in debt and unfunded
employee benefits.
But you would be
wrong. In a windowless conference room at USPS headquarters in Washington,
D.C., Messrs. Baehr and Davis presented their ideas to Postmaster General
Patrick Donahoe, who is also the postal service's chief executive officer, and
to the chief operations officer, chief legal officer and chief innovation
officer. "Our goal for the meeting was get to a productive partnership,"
says Mr. Baehr. "We wanted to share with them a lot of data about how
people interact with mail, because that's information they don't have right now
about their customers."
Mr. Donahoe didn't see
it that way. "Those aren't my customers," he said, in Mr. Baehr's
recollection. "My customers are several hundred volume mailers, and my
product to them is the guaranteed delivery of their mail onto the kitchen
tables of Americans." As for the postal service adapting to the Internet
age? "Digital is a fad. It will only work in Europe," said the chief
innovation officer, according to Mr. Baehr.
Overnight, their model
was shut down.
That's when the Outbox
guys decided to go to the mattresses. "The only way we're going to be able
to do this is by taking the $2 million and the 10 smart people that we'd
recruited and literally going out and making a better postal service. And
that's where the whole 'take mail out of the mailbox' came in," says Mr.
Davis.
Without cooperative
postmasters and letter carriers, Outbox hired "unpostmen," gave them
white Priuses with big red flags on the side, and sent them out into the
streets of Austin and San Francisco armed with smartphones and lots of keys to
subscribers' mailboxes. Several times a week, they'd "undeliver" the
mail.
The unpostmen got
Outbox a lot of press, much of it critical of the model's inefficiencies. One
thing was clear: The cost was prohibitive. Plan B, they admit, was
"insane." Outbox announced they were shutting down in February.
Outbox isn't the only
digital-mail company that has failed in recent months. Zumbox, which had more
than $30 million in funding from backers like former Walt Disney CEO Michael
Eisner, closed in April after seven years. Hearst's digital-mailbox service,
Manilla, has announced that it is closing July 1.
Perhaps the lesson is
that users don't need a digital-mail service—that the pain point, to use
startup speak, isn't painful enough. Many Americans have switched to paperless
billing, and, anyway, is a few minutes sorting sweepstakes letters so bad?
That's not how Messrs.
Baehr and Davis see it. The reason digital-mail startups are failing, they
believe, is because taking on government is exponentially harder than taking on
a typical incumbent business. "The government has totally corrupted this
piece of the marketplace," says Mr. Davis. "It's literally impossible
to get us out of the 1960s."
In a decade where
Airbnb can challenge the hotel industry and Uber can disrupt taxi cartels in
cities across the globe, government remains impervious to creative destruction.
"You can have a thousand satisfied Uber customers show up at the Seattle
city-council meeting," says Mr. Baehr. "In taking on the federal
government, it's a 500,000-person organization."
Given Messrs. Baehr
and Davis's backgrounds, perhaps it's no surprise that the industry they tried
to disrupt was the USPS. Both are former staffers for Republican congressmen
who left Washington disenchanted with politics. They are similarly out of sync
with the digerati in that it's hard to imagine either of them in flip-flops and
a hoodie, and they are apt to talk enthusiastically about their favorite New
York City pastor— Tim Keller of the Redeemer Presbyterian Church. The still
Austin-based duo attend Redeemer on visits to Manhattan (they sat for an
interview during a recent one).
So what's it like
being conservative in the tech world?
"Everyone in
their day job is building innovation that is not part of government," Mr.
Baehr says of tech entrepreneurs. "They love seeing scale, they love
raising capital, they love seeing customers, they love driving transformational
social change. And they turn around and pull the lever and they vote for every
single Democrat down the ticket. There are certainly Democrats that like
innovation. But that it's like nearly 100% is curious," says Mr. Baehr.
Mr. Davis puts it more bluntly: "The level of communist and pro-liberal
sentiment that Cambridge has, that New Haven has—that's what Palo Alto
is."
But Messrs. Baehr and
Davis say that they can't imagine working in another industry—not if they're
going to change the country. And all the real change they see is happening
outside of Washington, particularly in startups. Still, it's hard for them to
square their fellow entrepreneurs' love for innovation with their belief "that
government is the best answer to solve societal problems," as Mr. Baehr
puts it.
He adds: "What
several early Facebook founders and the team that went on to power social media
for Obama did was creatively use innovative products like Facebook, Twitter, etc. . . . so that they could send someone to
Washington to bring a lot more power to Washington. Which is just weird. Because
the people that created Facebook did not create Facebook by going to
Washington."
Messrs. Baehr and
Davis want to create businesses that do the opposite. Next on their agenda: Able, a collaborative small business lender that
they plan to launch in the fall. Small business credit has dried up, says Mr.
Baehr. "Since 2008, the number of loans to small businesses under $250,000
has decreased 92%," and during the same period more small businesses were
destroyed than created. Thanks to banking regulations, he says, small regional
banks are "no longer really able to take these bets on small business. And
if they do take a bet that's deemed too risky, their state regulator or their
federal regulator will give them the stink eye, so to speak."
Able intends to fill
in the gap, and unlike crowdfunding (usually based on donations) or angel
investors (who take equity), it is based on small businesses taking on moderate
debt. Messrs. Baehr and Davis say they have a new model of pricing risk, one
that takes into account social-media data, like Yelp reviews and Facebook
likes. It's the kind of information, says Mr. Baehr, "that gives us
insight that a traditional bank just wouldn't look at." Critically, to
quality for a loan through Able, a business must get its
"fans"—family, friends and customers—to cover the first 25% of the
loan. Messrs. Baehr and Davis say that they have already used the Able model to
make more than 40 loans, ranging from $5,000 to $150,000, to businesses
including a hair salon, a landscaping company, a bike shop and a soap company.
"If Able
works," Mr. Baehr says, "and we're able to bring billions of dollars
of loans to the 'Fortune Five Million,' it is democratizing innovation and
moving some of that power away from Washington."
Ms. Weiss is an
associate books editor at the Journal.
Poster’s comments:
1) I
like my mail service. In my case it is rural.
2) Right
now I would say about 1 out of 5 USPS (US Postal Service) deliveries fail to
happen, like I receive it; and I went to GaTech, too, and am a retired Marine. Why I it never arrives I do not know. And just
where the failed deliveries go, I also do not know. I assume somebody is
receiving them, in the end. And I, and Amazon.com’s return policy, is paying
for it.
3) I
always thought that (mail service) was a basic government service to promote
commerce among the states.
4) It
sure seems today like we have elected people and they have hired people who
can’t even run a post office that even breaks even and is honest, to boot.
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