Monthly Archives

June 2017

How to beat the behemoths

By | Startup general interest | One Comment

I just read Andrew Chen’s Growth is getting hard from intensive competition, consolidation, and saturation. His argument is that we are at a point in the cycle where distribution is controlled by a small number of companies who limit the opportunities for differentiation via marketing. He mentions Google, Apple, and Facebook, and I agree wholeheartedly. Facebook’s growth in revenue per use shows just how successful they’ve been in extracting value from the system and I’m sure we could find similar charts for the other two.

Amazon is the other company that is dominating distribution, and for me most impressive and therefore ultimately the most scary of the lot.

All four of these businesses have monopolistic tendencies that make it hard for startups to compete and get noticed. Chen identifies six trends which continue to make life more difficult:

  • Mobile platform consolidation – The App Store and Google Play dominate, and they are in turn dominated by Facebook and Google apps
  • Competition on paid channels
  • Banner blindness = shitty clickthroughs (now extending to blindness for referral programmes)
  • Superior tooling – makes it easier for companies everywhere to be data driven
  • Smarter, faster competitors – copying successful new product ideas more and more quickly
  • Competing with boredom is easier than competing with Google/Facebook – the bar for new products to gain traction gets ever higher

Against this background, a great product is a startup’s only weapon. Great product gets companies heard above the noise and gives them good conversion rates which in turn allow them to out spend competitors on Facebook and Google. Being data driven and first class at exploiting paid marketing channels is now table stakes.

And the only way to reliably build great product?

To understand your customers better than anybody else.

In our experience the three best ways to get that experience are:

  • Work with customers in your target market for years before starting your company (the founders of all three of our last investments have done this)
  • Do “Mom test” style interviews with target customers before building your product (not customer surveys or focus groups)
  • After you’ve launched build processes that keep you in constant communication with customers and pump them for insights

 

 

 

Authenticity cannot be achieved solo

By | Startup general interest | No Comments

I’ve been thinking a lot about authenticity recently.

The first thing to say is that it’s a woolly concept. As an individual I am clearly me, and therefore of undisputed origin and not a copy. In common parlance then to be authentic is to be genuine, to be truly what we say we are. The problem with this is that most of us are, in fact, many different people. The person we are with our kids might be different from the person we are with our partner, which might again be different to who we are at work, and we might even be a different person depending on which group of friends we are with.

There’s a tempting notion that the true person sits somehow at the middle of these different external facing people, but if you subscribe to the view, as I do, that we are no more than the sum of our actions, then it follows that we are really just a collection of different people. That’s born out for me by the tension we sometimes feel between our different personas. I often suffer from inner conflict because I genuinely want to do more at home and at Forward Partners, but there’s no time for both. If there was one inner person governing everything then it should be possible to resolve the issue, but I find that when I’m in family mode my desires are different from when I’m in work mode.

All that said I am a firm believer that, generally speaking, if we can be more authentic we will be happier and more effective in our lives. Firstly, from a selfish perspective, maintaining multiple personas is tiring. We constantly have to remember where we are in order to remember how to behave and there’s cross over between the different areas of our lives that threatens to expose the differences. For most people this is a low level stress that’s eminently manageable, but it’s there and it impacts performance. I was discussing authenticity with a friend recently who partly thought of it as being able to say what he genuinely thinks. Many of us censor what we say a lot of the time, and that becomes exhausting after a while.

Secondly, the more authentic we are the easier it is for other people to trust us, making us more effective as friends, partners and leaders. The more knowable we are, the easier it is for people to rely on us, which means they can spend less energy worrying about whether we will do what we say and whether we will look after them.

Bringing this all together, it follows for me that the first key to being authentic is achieving an alignment between our different personas. The more aligned we are the more we have one true self, which makes us more genuine by definition.

However, there is a caveat. If we are successful in achieving an inner alignment, but there’s is a lack of alignment between what I want and what my friends, family or colleagues want, then being true to what I think all the time might make me feel better, but can put a burden on others. In most of our relationships we find a shared space that works for both parties. That space defines what we talk about, the topics we avoid, what we expect of each other, and a whole host of other things. The process of getting to know somebody is in large part a process of defining that shared space. If we unthinkingly change our behaviour to be more authentic then we unthinkingly change that shared space with each of our friends, colleagues and partners. That can be a jarring experience for them and could well be a selfish thing to do. You might be able to think of someone you know who has achieved a good degree of internal alignment but comes across as selfish. I know I can.

Which brings us back to alignment. The journey to authenticity is ultimately a shared journey towards alignment with everyone we share our lives with. Writing that sentence really made the penny drop for me, so I’m going to repeat it. The journey to authenticity is a shared journey towards alignment with everyone who shares our lives. Full alignment with everybody will be out of reach for most people, but the more aligned we can get the more authentic we can be and the better everything will work.

That’s one of the reasons why great leaders place huge stress on aligning their people around a unifying company mission and why many successful couples are aligned that their relationship is the most important thing in their lives. As I think this through we have many tools for building alignment in the work place (vision, mission, company values and OKRs spring to mind) but we don’t have anything comparable for our personal lives. That feels like a gap to me.

Entrepreneur to scale-up CEO: two very different skill sets

By | Startup general interest | 3 Comments

Growing from a founder to a scale-up CEO is challenging. Thinking up game changing ideas couldn’t be more different to running a large business. Many transitions are required along that journey but the one that I’ve been thinking about recently comes when the first product starts to take off. To simplify, before then success comes from trying lots of things, but after that success comes from making one thing work.

Creativity is the main skill required in the first phase. It’s all about coming up with lots of ideas and seeing which ones have merit. It’s a time when the options seem limitless and new ones are opening up all the time. Conversations with customers and other industry players frequently go off on tangents revealing new opportunities and adding to the sense of upside. It’s all about getting a few irons in the fire and founders often have a growing belief that at least one of the ideas will work out, even if they aren’t sure which one.

Then one of the ideas starts to work. Customers are buying and levels of excitement and optimism grow still further.

We are now into the second phase. The onus has moved from trying lots of things to making one thing work, and that requires a very different mindset.

The first thing that’s required is focus. It’s difficult moving from adding irons to the fire (and feeling good about the security that brings) to taking irons out of the fire to focus on something that is promising but still unproven. For many founders giving up on the optionality of having lots of horses in the race is hard, and that’s despite the fact that ideas put on the backburner at this point can be re-ignited later. The difficulty isn’t rational. Everyone understands the benefits of focus from an intellectual perspective, but in practice many find it very challenging emotionally. Buckets of self belief play a part here too – most great founders believe they are snowflake special, which is great, but that confidence can give them the excuse to think that whilst everyone else should focus, they are good enough to keep all the options alive without compromising on delivery. I’m here to say that’s rarely the right strategy.

The second thing that’s required is discipline. The fun creative process of dreaming up new user flows and product features gives way to disciplined experimentation. For an ecommerce company or marketplace that means analysing the whole funnel from marketing spend through to checkout, looking where people fall out, and experimenting with fixes. Many good companies run regimented experiment programmes with a weekly cadence. Every seven days they identify a metric they want to move, develop a hypothesis on how to move it, implement an experiment to test the hypothesis, and then kill or roll out depending on the result.

Moving from adding irons to the fire to taking them out and from creativity to discipline is quite a shift. Writing this post has got the transition clearer in my mind. I hope it’s helped you too.

 

The devil in the detail…

By | Startup general interest | No Comments

A common mistake founders make at the early stages of a company is to put too much detail into their business plan. Sometimes we see a level of detail which amounts to spurious accuracy given the stage the company is at and the attendant uncertainty. Two concerns follow:

  1. The founder doesn’t understand how much things change in startups (or, worse, are trying to project a greater level of certainty than they feel)
  2. They may not be flexible enough to ride with the punches

This happens most often with projections about how products will work and with financial models. I won’t name companies but one we spoke with recently was building a three sided marketplace. They were pre-launch but had developed a complicated six step transaction flow they thought their customers would go through which included commission splits and transaction timelines. They had taken users through the potential flow and got positive feedback but I was left thinking that the questions they asked those users wouldn’t have passed the Mom Test and that there was a high chance that when they launched the process would bamboozle even their early adopters. For me, it would have been much better if they had focused on describing the value participants would garner from using the service and either planned to manage transactions manually in the early days or documented a very simple transaction flow. That would have shown me that they understood the inherent uncertainty in building products and would have had the additional benefit of really hammering home the value proposition.

When it comes to financial models people sometimes take false comfort from the spurious detail they’ve built in, which results in relying on the model rather than on common sense. I’m thinking now of an ecommerce company that was in its first six months post launch. Pretty much all their traffic came from Google and in their plan they had projections for growth in organic traffic and for traffic from Facebook, referrals, and other new channels. That showed they were planning to diversify their sources of traffic and understand the different options available to them which isn’t a bad thing in and of itself. However, when we asked them to explain why they believed their customer acquisition costs would reach the levels they were projecting their answer was pretty much “because the model says so”. Models can, of course, be made to say anything and their answer left me feeling that they didn’t really understand the drivers of their unit economics. It would have been better to say “We believe the major levers for reducing customer acquisition costs will be increasing organic traffic and reducing our CPAs on Google. Based on [insert justification here] we believe that X and Y are achievable.” Modelling at that level would have been sufficient too, with commentary about plans to expand to other channels in the pitch deck.

Don’t let over detailed plans distract you from the bigger picture and the flexible thinking required to navigate the startup ecosystem successfully.