Monthly Archives

February 2015

Everyone should be a writer

By | Startup general interest | 4 Comments

Blogging has been great for me over the last eight years. It’s helped build my profile, get to know many great people, stay in touch with many others, and maybe most importantly sharpen and deepen my thinking on numerous topics.

These benefits are open to anyone who writes well. We love it when we see entrepreneurs who promote their companies through effective blogging and we encourage everyone at Forward Partners to get publishing.

Yet there are many more people who try and write than are successful with it. A big part of the challenge is simply getting started. Knowing what to say and finding a tone of voice before you have an audience is difficult and time consuming. And writing makes you vulnerable.

Publishing platforms like LinkedIn and Medium make finding an audience much easier these days, but it’s still daunting.

Simply starting is the answer. And then sticking with it. I remember my first weeks of blogging in 2006 – they were painful!

Next up is writing effective content. The reason I’m writing on this subject this morning is that I’ve just read six great tips for effective writing:

  1. know your audience (once you have one…)
  2. write for skim readers – spend time writing great headlines, divide the content into short sections and make your important points stand out (I could do more of this)
  3. don’t show off (a little bit is ok, but don’t over do it – look for the right balance)
  4. keep it simple – short words, short sentences (again I could do better here)
  5. spend time making your sentences easy to read (it’s hard, but worth it)
  6. inject voice and personality into your writing (another thing on my ‘must improve’ list)

It’s been quite therapeutic writing this post! Do go the source material for more detail.



Assessing businesses’ viability requires careful attention to the fundamentals

By | Startup general interest | 3 Comments

Bill Gurley just published a good post about the $100m rounds that are going on. His overarching point is that the rounds are dangerous for investors who don’t understand the companies as well as IPO investors coming in at similar valuations and for companies who lose the discipline of profitability.

This warning that investors should make sure they really understand the viability of a company caught my eye:

In order to overcome such risks, [that the company has not found a profitable business model] the onus is on the investor to dive deep and unpack the actual unit economics in the underlying business. This requires analyzing the “true” contribution margin of the business; not simply looking at gross or net revenue and the proper contra-revenue treatment, and not even looking just at gross margin as defined by the company. Many companies embed costs that are truly variable (for instance customer support, marketing, credit card processing) below the gross margin line. If you want to know if the business model truly works, you must pay careful attention. Otherwise, you may have simply found a company that is simply selling dollars for $0.85.

Amen to that. Margin structure is critical but boring to understand. I think that, combined with the competitive pressures of winning deals explain why late stage investors don’t look at them as thoroughly as they might.

But they are important, and we work closely with our partners companies on the fundamentals of their businesses. Get them right early on and success will come more easily, but ignore them until later and you risk building a house of cards. That can fall apart at a late stage as Fab did, or, much more commonly it will collapse before the business gets through it’s Series A or Series B.

Ultimately this is all about having a viable business, and ideally a business that everyone can see is clearly viable from as early a point as possible. For us the key elements to get right early on are finding a big market, connecting with a deep need, building a product that resonates with customers, getting the team and culture right, and finding a path to scale with a positive contribution margin.

It’s interesting to note that by the time companies get to raising $100m the aspect of their fundamentals that troubles Bill Gurley is the contribution margin. I guess that’s the one that companies which are great at fundraising find easiest to put off getting right.

Selling benefits not features – explained

By | Forward Partners, Startup general interest | 2 Comments


The graphic above is from an awesome post from Buffer titled People don’t buy products, they buy better versions of themselves which sums up how businesses should sell. It’s a cliche, but customers don’t care about features, they care about what what products can do for them and/or why they matter. Marketing messages, therefore, should focus on benefits rather than features.

If you read the full post you will find numerous examples of companies that sell on benefits rather than features. For those of you that want a quick fix I will give you the best two. Firstly, Apple made the iPod successful with the slogan “1,000 songs in your pocket” whilst other MP3 vendors pitched memory sizes. 1,000 songs in my pocket feels great. 1MB storage doesn’t make me feel anything. Secondly, Evernote’s slogan is “Remember everything”. Their product is a place to write stuff and doesn’t remember anything so that isn’t a feature, it is, however, a benefit to the customer who doesn’t forget stuff they’ve stored in Evernote.

Breaking it down, features are what a product does and benefits are why your product matters. (Remember Simon Sinek’s Getting to why.

Here at Forward Partners we have been working on how to describe ourselves for over a year now. It’s been a slow, iterative, and sometimes painful process that I plan to write up fully when we are done (not that we will ever be done-done) – but looking through this lens what we are selling is success. Work with us and you will be a successful entrepreneur and your company will reach great heights – that’s our benefit. The money, our amazing team, our methodologies and our office space – these are our features.

Digitisation shrinks markets by two thirds – music industry data

By | Startup general interest | 4 Comments


I pulled this chart from Business Insider. As you can see it shows that adjusted for inflation US music spend per capita has dropped 64% from $71 to $26 since the beginning of the century, a change largely driven by digitisation.

It’s become a bit of a cliche that digitisation shrinks markets by two thirds, and it’s good to see the rule of thumb corroborated by hard data.

It’s the shrinking of markets that makes it so hard for incumbents to respond and explains why new entrants often take so much market share. We have yet to see a large company CEO embrace disruption of her own industry to shrink her company by two thirds.

The interesting question of course is which markets will be the next to be digitised. To date the digitisation has been of hardware products – CDs are disrupted by downloads and streaming. The next wave will be about the digitisation of labour – people are disrupted by robots and artificial intelligence. In a sense this disruption has been happening since the the industrial revolution as manufacturers and companies everywhere spend money on technology which makes their people more productive so they save money by employing less people. That’s why the luddites smashed textile machines in 19th Century England. What’s different this time is that the disruption will be more pervasive – it won’t be some people’s jobs at risk, it will be everyone’s jobs.

At the macro level this trend will play out over decades – I would guess 40-60 years – but at the level of individual industries and products things will move much faster. Insurance, haulage, and large parts of the banking industry are prime candidates for near term digitisation which will see their market sizes shrink largely driven by automation of labour.

The investment opportunities are as exciting as the societal implications are worrying. It’s incumbent on all of us to think about both.

When partnerships should pursue partnerships (hint: rarely)

By | Startup general interest | 13 Comments

I wrote about the challenges of partnerships last year and I’m going to have another go at it today. Over allocating resources to partnership deals is one of the easiest and common mistakes that startups make.

This is from the A Founder’s Notebook:

Startups should say no to 99% of partnership opportunities. Most partnerships never go anywhere and don’t make sense for the startup to invest significant effort into the relationship due to being time and money constrained. Partnership opportunities do make sense when there is significant skin in the game on behalf of the partner (e.g. large up-front fees) or a super minimal way to work together (e.g. less than 20 hours of work to get something out the door that is useful).

You might be thinking, ok, that makes sense, but BigCo A wants to partner with me and it could be big. They won’t have any significant skin in the game, but their people are dedicating a lot of time to our discussions, so I’m sure it will be ok.

I’m afraid that it probably won’t. The important point to note here is that big companies are resource rich and spend a lot of time looking for new opportunities around the edges of their business. That’s in stark contrast to startups which are resource poor and hopefully laser focused on the core of their operations. This asymmetry leads many small company leaders to over-estimate the significance of senior large company execs spending time with them.

Big company partnerships are a bit like big game hunting. They promise massive returns on little work and the thrill of the chase is fun too. But relying on closing a big partnership is like making a big kill – it may take years and years or may not come at all. Moreover, it’s hard to remember that the hunter or company you know who landed their prey was probably just lucky.

Emotional resonance: the essence of great product

By | Forward Partners, Startup general interest | 2 Comments

As I ran this morning I was imagining a conversation with a good friend of mine about us investing in his next startup. He has a technical background, but like many great techies has taken commercial roles to broaden his knowledge base. I think he’s also pretty good at product.

It’s this last point that I want to unpack a bit this morning. It’s important to Forward Partners because helping founders build the right product, including making the right choices for the MVP, is a big part of what we’re about.

Specifically, I was wondering what it means to be ‘good at product’ and how much value we add to founders who have this capability.

To set the scene generally for those not too familiar with Forward Partners, we work with companies from concept to Series A with a combination of investment, proven methodologies, support from our in-house team and office space. Our team is there to help as required, sharing any of the challenges of building a business that the founder wants to share. Most founders are strong in one or two areas and lean on us in others so they can get moving quickly. For example, I’m looking at one across the office right now who is super strong on marketing and is leaning on us for product, design and dev and recruitment.

To address the product question I turned to the internet and found a 2011 post on Mind the Product that does a great job of describing the role of a product manager. The whole post is worth a read, but in summary it encompasses setting a vision for the product, defining product releases, and then optimising and requires an understanding of business, the customer (including UX), and of technical feasibility.

Interestingly the subject of understanding the customer doesn’t get much coverage. That is perhaps the difference between being a product manager and good at product per se. In other words product managers are sometimes good at managing products but don’t understand their customers well enough to build products people will love.

That’s where we can help. If a founder has good product management skills but isn’t experienced in really connecting with customers to find the emotional hotspots that can generate real resonance and super fast growth then our product team can fill the gap. We are now helping our sixth and seventh companies with this part of their journey and have developed a range of tools that help find the strong buckets of feeling a product can tap into. It sounds simple, but there’s a lot that goes into working out what it is about a product that will make people love it.


Critical thinking and hope in startups

By | Startup general interest | 3 Comments

There are some people at startups who are cynics. They see everything that might go wrong and assume it will. Sometimes they even list all the things that might go wrong and assert you would have to be crazy to believe that their company might survive all these potential disasters. These people are often smart and talented in the narrow area of their job, but they are poisonous for the company overall.

There are other people who are eternal optimists. They like to focus on the big picture “we are on a mission to make the world a better place by ….” and naively assume that potential problems will work themselves out by themselves. Sometimes they hate to acknowledge that there might be problems and don’t like it when others address difficult issues. These people aren’t much better than the cynics.

The dichotomy between hope and cynicism is, of course, present in all walks of life, not just startups, and this quote from brainpickings sums it up nicely:

To live with sincerity in our culture of cynicism is a difficult dance — one that comes easily only to the very young and the very old. The rest of us are left to tussle with two polarizing forces ripping the psyche asunder by beckoning to it from opposite directions — critical thinking and hope.

Critical thinking without hope is cynicism. Hope without critical thinking is naïveté.

Successful startups embody both hope and critical thinking at the right times and in the right places. The ability to dream big and hope for massive success is essential, as is the ability to honestly confront challenges. Hope should be mostly for the medium to long term and should be grounded in reality. Critical thinking should be more about the short term and should remain positive in outlook.


Good startup hypotheses must be falsifiable

By | Startup general interest | 3 Comments

Karl Popper was perhaps the pre-eminent philosopher of science of the 20th century and central to his work is the notion that for a theory to be useful it must be falsifiable. Benedict Evans posted this quote on Twitter yesterday in a debate about the applicability of Clayton Christensen’s innovators dilemma theory to the iPhone. I’ve reproduced it here because it’s useful for startups generally.

Astrology did not pass the test. Astrologers were greatly impressed, and misled,by what they believed to be confirming evidence_so much so that they were quite unimpressed by any unfavourable evidence. Moreover, by making their interpretations and prophecies sufficiently vague they were able to explain away anything that might have been a refutation of the theory had the theory and the prophecies been more precise. In order to escape falsification they destroyed the testability of their theory. It is a typical soothsayer’s trick to predict things so vaguely that the predictions can hardly fail: that they become irrefutable.

The Marxist theory of history, in spite of the serious efforts of some of its founders and followers, ultimately adopted this soothsaying practice. In some of its earlier formulations (for example in Marx’s analysis of the character of the “coming social evolution’) their predictions were testable, and in fact falsified. Yet instead of accepting the refutations the followers of Marx reinterpreted both the theory and the evidence in order to make them agree. In this way they rescued the theory from refutation; but they did so at the price of adopting a device which made it irrefutable. They thus gave a “conventionalist twist” to the theory; and by this stratagem they destroyed its much advertised claim to scientific status.

Steve Blank defines a startup as an organisation built to search for a repeatable and scalable business model that starts with a series of hypotheses about pieces of their business model. Best practice is to quickly test the hypotheses and move the company around the build measure learn loop as efficiently as possible. Doing this well requires a lot of discipline, and Steve Blank has talked about many aspects of that at length, especially having the discipline to get out of the room and test hypotheses by speaking with customers.

One element of discipline that doesn’t get talked about much is to making the hypotheses falsifiable. Popper had to write about this in the context of science because it somewhat goes against the grain of human nature. To make a hypotheses testable is to invite failure and that is difficult, even for those with the best of intentions, as can  be seen from the example with the Marxists above. Moreover, the older and more established a hypothesis (or company) is the easier it is for proponents to slip into vagueness.

With startups the challenge of maintaining falsifiability is more difficult than it is in science. As well as the having the discipline of regularly looking failure in the eye founders have to operate in a fast moving world where the evidence base and hence hypotheses are anyway continually evolving. The laws of physics are the same today as they always have been whilst founders change their hypotheses in real time as they learn about their market.

In practice maintaining falsifiability means defining targets for things like conversion rates, CPAs, and even positive responses from customer interviews and committing to re-examining key hypotheses if the numbers come in below target. At Forward Partners Right from the earliest stages we encourage companies to have a broad range of targets, and we define success as making good progress towards all of them, or maybe nailing half of them and giving up on the other half, all the while staying in constant dialogue and being prepared to switch out targets or change the levels as we learn. Failure is, of course, the inverse of success.

Music labels: a rake too far

By | Startup general interest | 2 Comments

In 2013 Bill Gurley wrote a blog post titled A rake too far: Optimal platform pricing strategy. It’s an amazing guide to how much middlemen take in different industries and leads to the conclusion that if you’re taking more than 10-20% out then you are ripe for disruption. It is one of the top two posts that I refer entrepreneurs back to (the other is Fred Wilson’s Employee equity. How much?).

I’m thinking about that today because I’ve just read that music labels keep 73% of the money paid to them by music streaming services Spotify and Deezer. The artists and songwriters get just 27% between them.


That is definitely a rake too far. Bandcamp and others have been after this market for a while, but labels are ripe for disruption. Have been for a long time.