Monthly Archives

February 2016

Challenges for conversational commerce

By | Startup general interest, Uncategorized | One Comment

I’m excited by the prospect of conversational commerce. Accessing the services we want from inside the messaging apps where we hang out is a powerful proposition. No downloads, easier registration, more context, fewer clicks – what’s not to like?

The problem we’re wrestling with is how the vision will be realised.

I wrote before that service discovery will be a problem for startups, and now having read this post from Betaworks investor Matt Hartman I’m mindful of a couple of other issues:

  • The most exciting part of the conversational commerce vision is bots conversing with users on messaging services. At a minimum that will take learning a set of commands and some people are talking about ‘command line interfaces’. The issue is that I can’t see mainstream users learning many commands, let alone any syntax. Matt talks a lot about this and rightly notes that the value of a service deteriorates rapidly with the number of commands a user has to learn. He also points out that services may be able to pull data from the phone which reduces the need for the user to remember commands or answer questions, and that they will be able to use their conversation history to remind themselves of commands they have used in the past. I’m not sure either of these is enough to make services easy enough for users outside of techy early adopter groups. None of the successful services I know ask users to learn anything analogous.
  • The conversational commerce meme is more driven by developers and investors than consumer demand. When suppliers generate hype around a new idea that is designed to make them more money I call it ‘vendor push’, and it often ends with a whimper. Cell broadcast and 3DTV are two examples that spring to mind, but there have been many others, mostly in software and telecoms for some reason.

I’m optimistic by nature, which is one of the reasons I’m excited by conversational commerce, but as an investor you have to look for reasons why things might not work. In this case the growing number of issues is starting to dent my optimism.

Mixed strategies don’t work for startups

By | Startup general interest | 2 Comments

The CEO of one of our portfolio companies asked me some time ago to write down why I believe that mixed strategies don’t work for startups.

Good examples of mixed strategies are combining direct and channel sales, focusing on product expansion and geographical expansion at the same time, or hedging bets by working on two products. Anytime there is significant effort applied to more than one method to achieve the company’s goal there is a mixed strategy.

Before I go any further, a couple of caveats. When a startup is in the exploration phase at the very beginning mixed strategies can make sense, but only as a method of rapidly exploring multiple options in the search for one that works. Additionally, once a company gets past the true startup stage it might have the scale and maturity to pursue multiple strategies at the same time. That might be when the company has 30-50 people or more.

Between these points it’s much better to focus on a single strategy. Here’s why:

  • To succeed startups need to do something really well. Doing one thing well is hard. Doing more than one thing well at the same time is exponentially harder.
  • Clarity and focus are what generate excellence. They bring the attention to detail, dedication and obsession which begets success. It’s impossible to be obsessed about more than one thing at the same time.
  • Mindspace amongst the senior team is one of the limiting factors.

Many startups opt for mixed strategies because choosing to focus means giving something up, running counter to all our instincts about loss aversion. The challenge of focus is made more difficult by the inherent uncertainty in small companies – what if the choice of focus is the wrong one?

If you believe, as I do, that excellence is the best path to success it’s best to take this challenge head on. Do the work to figure out which strategy has the best chance of success and then double down. You can always return to the other option later.

Update: The CEO in question just emailed saying “most people will probably learn this lesson only by trying to get mixed strategies work 🙁 It’s tempting.”

Embracing ambiguity

By | Startup general interest | No Comments

In my first year in my first job (way back in 1996…) my mentor advised me to “embrace ambiguity”. I was struggling because the details of the project I was working weren’t clear and it was affecting my work. I wanted certainty so I could deliver on my corner of the project better. That’s understandable, and very human, but also impractical. At the time it seemed to me that the project lead could spend a few moments sorting a few things out and make my life and everyone else’s run more smoothly. What I didn’t realise was that if he could have he would have, but it wasn’t that simple. There were things that our client hadn’t yet made up their mind on for reasons that were outside his control.

I understood then that in many situations it is better to accept that important things are unknown, that nothing can be done about that, and proceed accordingly. Sometimes that means making best guesses and being ready to change tack if things turn out differently than expected. Other times it means waiting or changing the order of the plan.

This advice made such a difference to me that I still think back on it all these years later, sometimes to help myself and sometimes to help others, particularly in the startup world where so much is uncertain. It makes most people uncomfortable when something important is uncertain, but sometimes living with that discomfort is the best way forward.

There is another type of ambiguity which I’ve been thinking about lately, and that is ambiguity deliberately created to secure an advantage or allowed to continue through laziness. This second type of ambiguity is poisonous to productivity and should be called out. In a nice way.

Unpacking creativity

By | Startup general interest | One Comment

Most interesting jobs require creativity these days but the understanding of what makes people creative, or how they can be more creative, is limited. Understanding which behaviours correlate with creativity, and maybe enhance it, is one way to think about improving ourselves on this dimension and improving our ability to recognise and enhance creativity in others (important for recruiters and managers).

After reading Secrets to long haul creativity, and musing on the topic myself I think there are three keys:

  • Inspiration – Creative ideas nearly always come from the fusion of other people’s work. Creative people should therefore dedicate time to reading and otherwise soaking up ideas that form the basis of their own. As a venture investor, making the time to read is critical to long term success, and easy to overlook. My daily reading habit is tied to my daily blogging, and is one of the reasons I write every working day.
  • Imagination – Once inspired the creative mind needs time and space to dream up new ideas. Meditation, long walks and leisurely reading are good ways to encourage the imagination. A lot of my best thinking comes when I meditate and when I read books (note books, not blogs).
  • Focus – New ideas need to be polished, and it takes intense focus and attention to turn the rough product of the imagination into something the world can use and digest. Most great creatives (programmers, designers, authors, you name it) love getting their head down and entering a state of flow. Once in a state of flow they hate to be interrupted.

Note that none of these are easy. Creativity takes work, and the notion of the brilliant but lazy creative is, I think, a myth. That’s why passion is so closely linked to creativity. Without passion doing the reading to get inspired is a grind and it’s hard to find the energy required for intense focus.

It’s tough building a startup in your evenings and weekends

By | Startup general interest, Uncategorized | 3 Comments

Deliveroo founder Will Shu was interviewed by CityAM and gave a piece of advice that is close to my heart:

Unlike many higher flyers turned entrepreneurs, Shu doesn’t advocate seeing your startup as a Saturday project – if you’ve got an idea, you need to go for it. “Guys from finance are taught to hedge themselves – ‘I’ll work at Goldman, do my startup on the weekend or advise a couple of good ones and see if I can get in on that’ – but it’s important to be irrational, actually. Unless you give it 100 per cent, it’s very hard to succeed.

This advice mirrors what we’ve seen over and over again. Some people do manage to really get their startups moving without giving up their day job, but they are definitely the exceptions. Much more common is that founders find they can only develop their idea a small way without diving in full time. That was the case with Luke McCormick, the founder of Edge Retreats who we backed at the beginning of last year, was the case with Ben Furber of The Gifting Co who we backed in September last year, and is the case with the founder of what I hope will be our next investment (we’ve signed terms and are in exclusivity now, so I can’t reveal who it is).

Luke started Edge Retreats over a year before we invested. He did the evenings and weekends thing, and got a friend to code his first site, also in his spare time. He got his first few customers during that period but it wasn’t until he left his job at Secret Escapes that the business took off. It was at the same moment that we invested and our team became his team so there were multiple factors at play, but Luke’s full time commitment was the key that unlocked our investment and therefore everything else. Twelve months on from there he closed his next round of investment and is properly off to the races.

Conversely, we’ve been talking with one founder who has been doing the evenings and weekends thing, used his bonus money to get an agency to build the first version of his site and start transacting, but he won’t leave his job and is struggling to raise funds to keep the business growing. There are lots of other people in this situation who struggle to get their business past first base, mostly because potential investors and employees don’t want to follow founders who aren’t sure enough of their business to commit full time. These companies also have two related problems; progress is slow because the founder is only part time on the project and building great product with outsourced development is very hard.

So Will is right, it’s important to take the leap of faith and give 100%. Otherwise it’s very hard to succeed.

UPDATE: A couple of you have pointed out that it can work to do the research and analysis piece of starting a company in evenings and weekends, including building prototypes and first product, and that it’s only when you start ramping up that it’s important to fully commit. I agree and wasn’t trying to say anything different. That’s what Luke did.


Startups strategies should work in good times and bad

By | Startup general interest, Uncategorized | 3 Comments

Startup founders should expect that it will take seven or more years to exit their company. Some get lucky and the exit comes more quickly, but it’s foolish to plan for luck. Over seven years it is almost inevitable that the markets will turn bad at some point. If I think back over the sixteen years I’ve been investing in startups the market for private company investing was tough from 2000-2004, from 2008-2011 and is getting tough again now. At no point have we gone more than four or five years without hitting a tough point when investor sentiment goes south.

To quote Foundry Group partner Seth Levine, when the markets turn:

the growth imperative shifts to a profit focus, [and] companies with high burn and weak operating metrics can get stuck in the lurch

Moreover, as Seth also notes, when the shift comes, it comes quickly, and there’s little time to adjust. Hence the smart thing for founders to do is not to get stuck in the lurch. Where there’s a trade off to be made, and there is in most companies, that means opting for stronger operating metrics at the expense of growth, boring as it may be.

It’s complicated in practice of course and every strategy needs to be adaptive, but however frothy markets are, they always turn at some point and if the plan is to build a big sustainable business it’s more important to be able to survive the transition than to maximise valuation and growth while the going is good.

Be helpful, not right

By | Startup general interest, Uncategorized | 4 Comments

I’m very excited about our FP50 mentor network which we launched last night with a dinner for mentors and a couple of our portfolio companies. wrote about it under the headline Tech leaders unite to support UK’s fledgling e-commerce start-ups, and that’s about right. I was humbled by the quality of our guests.

We put a great deal of thought into making sure FP50 will be really helpful to our startups. We asked CEOs and founders what they want from mentor relationships, asked mentors what works for them and looked extensively at other mentor schemes in operation.

What we learned boils down to two things:

  • Long term mentor/mentee relationships deliver the most value
  • It’s crucial that FP50 adds value to mentors as well as mentees

So those are our two objectives.

One of the ways we can add value is to help people be better mentors and mentees, so at the dinner we had a talk from startup coach Richard Hughes-Jones on how best to give advice. It was his thoughts on the difference between directive and non-directive coaching that provoked the most discussion on my table afterwards.

When mentoring, the first instinct of many of is to jump into solution mode and try to fix problems by suggesting solutions. Often the advice is framed as “I’ve seen this situation before and you should do X”. That’s a direct coaching style and is appropriate in some circumstances, particularly in the very early stages of a company where there’s lots of things to do and the founder doesn’t have much time to think about any of them. A non-directive coaching style helps the founder to think through the problem and come up with their own solution. It takes more time, but is often more powerful, particularly if the situation is complicated and the match with the mentors previous experience not perfect.

It was in this context that Richard said “It’s better to be helpful than right”, which is my takeaway quote for the evening.

Simply giving the right solution to a founder is no use if they don’t understand it or internalise it well enough to implement it properly, or it hasn’t been explained well enough for them to tweak it to their precise situation. In these scenarios it’s better to help founders think through the problem a little bit, even if they don’t get to a final solution. Best of all is for them to have the right solution and be fully ready and able to implement it, but that isn’t always possible.

The next step with FP50 is to get those long term relationships started. The Slack group we set up is busy with people introducing themselves and hopefully that combined with direct introductions will be enough to get the ball rolling. Our next event will be in three months.

Service discovery in conversational commerce – might not work for startups

By | Startup general interest | 2 Comments

There’s widespread excitement in the startup community about ‘conversational commerce’ – a new shopping paradigm where we buy things virtually through chat interfaces, probably inside the major chat apps – Facebook Messenger, Whatsapp, Snapchat, Slack, Telegram, WeChat, Line etc. Now that traffic to the top four western messaging apps now exceeds traffic to the top four western social networks it is only a matter of time before all the commerce ideas we’ve heard about at Facebook come to messaging apps (not least because two of them are owned by Facebook).

The big question for me in all of this is how service discovery will work. The video above shows how the Uber integration with Facebook Messenger works – users learn that clicking on an address will bring up relevant services, one of which is Uber. Overall I think there are three options:

  • App Stores owned by the messaging company – this is the most obvious, and WeChat in China is already making this work, with over 10 million apps (although they are not apps in the native code sense)
  • Auto suggestion based on parsing what users write
  • ‘Expansion’ buttons which users press when they want relevant services

The worrying thing for me is that in all of these scenarios the messaging platform gets to play kingmaker. Without promotion in the ‘app’ store or being chosen for auto-suggestion or the list behind expansion buttons users won’t find out about services. It seems to me that in this scenario the kingmaker takes the lions share of the upside. Not good for startups.

Some commenters have the view that we will use messaging apps as a sort of command line for our lives, summoning services by writing in code. I get that would be a way around the messaging platform dependency point, but I can’t see it myself. I know that Slack operates a bit like that, but only for some users and I can’t think of a mainstream service that has required people to learn a programming language.

Timing is another question for would be founders in this space. For conversational commerce services to work, not only do the APIs to the messaging services need to be open and the discovery problem solved, payments needs to be licked as well. It would be dangerous to launch a service too long before at least one messaging service has a critical mass of users with payment details.


New money into venture explains ups and downs in the market

By | Venture Capital | 9 Comments

There’s been a lot of talk recently about what will happen to startup financing in 2016, including here on this blog. The consensus is definitely negative, but one thing that has buoyed my optimism about the prospects for our portfolio is the number of new funds raised in London recently. A lot of them are focused on Series A investing and favour the ecommerce and marketplace sectors that Forward Partners focuses on. Moreover, most of them are only a small way into their funds and under most scenarios will want to maintain a steady investment rate through 2016.

I just saw a great presentation from Mark Suster/Upfront Ventures on the State of the Venture Capital in 2016 which explains the discrepancy between the sentiment in the market and the observation that there are lots of funds out there which need to deploy capital.

Screen Shot 2016-02-09 at 12.30.17

With this slide he’s explaining that in 2006-2007 investments into startups were equal to the funds raised by VCs, implying that only minimal amounts of non VC cash was invested in startups, but by 2014/2015 the situation had changed dramatically. In the last couple of years the ratio of money into startups to funds raised by VCs was 2.5 implying that an awful lot of non-VC money flowed into the ecosystem (the column headings in the charts are a little ambiguous, but the explanation I’ve given matches what Mark wrote here).

Mark also notes that startup valuations went up 3x from 2006-2015, and simple supply and demand logic suggests the non-VC cash in the market was important in driving prices up. He also surveyed 72 institutional investors in VC funds who said they think they will maintain their rate of commitments to new funds this year.

Pulling all this together it seems to me that any correction in the market we see this year won’t be because VC funds are investing less but because non-VC sources of capital are pulling back. That makes sense given that a lot of the froth was in big late stage deals where hedge funds and big fund managers like Fidelity were playing, and that is the sector of the market most closely affected by the downticks in public markets we have seen this year.

There will be a trickle effect down to earlier stages of investment, but most of our portfolio is still very young and the Series A market that’s most important to us in the short term is almost entirely comprised of VCs, and with a bit of luck will be less hit by any downturn than the later stages of investment. That fits with my observation about the number of funds in the London market and tallies with our experience in the first 5-6 weeks of this year, which is that our companies aren’t finding it noticeably harder to raise capital than they were last year.