Monthly Archives

March 2018

Structured customer dev – not to be missed.

By | Startup general interest | No Comments

In our experience, structured customer development work is right up there amongst the most valuable things a founder can do in the early days of their startup. Once you have an idea that feels strong, it’s imperative to speak with customers about it. But good customer development is tough to do. It takes a long time, think 10-20 hours of interviews plus preparation and digest time, and conducting structured interviews with strangers is outside the comfort zone of many founders. So lots of entrepreneurs skimp on this vital piece of work. That’s a bad decision. It leaves you flying blind when with a little hard work you can be seeing clearly.

Let me use the Jobs To Be Done (JTBD) framework for product development to explain why.

Reams have been written about the JTBD framework. I will give you a high-level summary here, but if you are building products then I recommend spending some time with Google to find out a bit more.

The core idea of the JTBD framework is that customers use products or services to do a job for them (in the US many people say they “hire” the product or service to do the job, but that doesn’t translate too well into UK English so I prefer “use”).

For example, I used my bike to do the job of getting from home to work this morning. I could have used a bus or a tube, but I used a bike.

That job breaks down into component parts. I have to access the mode of transport, pay for it, travel, dispose of the mode of transport at the other end and maybe get from the disposal point to my final destination. With my bike that breaks down to getting it out of the bikeshed in my front garden, no payment, cycle for 15 mins, put it in the bike rack in our office garden, and then walk five metres to my desk. If I was getting the bus the breakdown would be walking to the bus stop, paying with my iPhone, sitting on the bus for 30 mins, getting off the bus, and walking 200 metres to my desk.

Each of those component parts has associated outcomes that I’m looking for. Some of those are functional and others are emotional. Taking the travel component of the job, the functional outcomes I’m looking for include speed, comfort, exercise and predictability whilst the emotional ones include safety, anxiety, and consistency with my identity as an active person.

Those component jobs could be broken down further and then there would be outcomes associated with each job at the next level of detail down the stack. Part of the art of using the JBTD framework well is picking the right level of detail to work at.

The work I’ve described so far is a desk exercise. That’s valuable, but the real insight comes from talking with customers to discover what’s important to them, how satisfied they are with their existing provider, what needs to change and how much they would be willing to pay. The focus should be on the outcomes they want and their answers will tell you what features you need to build and where the opportunities for differentiation lie.

Before you start you will probably have a gut feel for the answers customers will give you to these questions. I originally titled this post “Two compelling reasons to do structured customer dev” because unless you do it you won’t know whether you are right or wrong until you’ve invested the time and money it takes to design your MVP, build it, release it and find some customers. Now that we all follow lean development methodologies mistakes are much cheaper than they used to be, but they are still a hell of a lot more expensive than 10-20 hours of customer dev.

Common mistakes which lead to wasted effort include building a feature to drive an outcome that isn’t important to customers and not realising that an outcome provided by competitors is important for customers. This second one is particularly dangerous as it will result in low conversion and might lead you to the erroneous conclusion that your point of differentiation isn’t resonating (a false negative).

The second reason to do structured customer dev is that the interviews can yield insights which drive marketing. An example from Photobox. They sell personalised photo gifts, photo books, mugs, calendars etc. Using the JTBD framework they established that one of the jobs they do for their customers is help them remember when a birthday or anniversary is coming up and they need to give a gift. Through the customer interviews they discovered that remembering and not forgetting had very different emotions associated with them. Remembering something is nice, but not remarkable, whereas not forgetting means avoiding all the anxiety associated with forgetting something important and letting someone down. They used this insight to change the subject line in some of their reminder emails. The message moved from “remember XYZ” to “don’t forget XYZ” and the response rate was much improved.

I could go on for ever about the importance of customer dev work. It really does make a huge difference. The reason many founders skimp on it is that the benefits often seem a bit nebulous. I hope they seem less nebulous now.

A quick shout out to Dave Wascha from Photobox who was kind enough to spend time with the Forward Partners team on Monday educating us about the JTBD framework. His talk was the inspiration for this post.

European tech: Which way to the exits?

By | Exits, Venture Capital | No Comments

Max Niederhofer recently published this chart showing European exits. As you can see there’s been impressive growth in sub $100m exits, but the story with larger M&A exits and IPOs is less compelling. As I wrote last week our ecosystem is making great progress, but clearly, if we are to keep growing then at some point we need to see an increase in large exits.

The good news is that we can reconcile the facts that we have an increasing number of great companies with the fact that the number of large exits isn’t going up: great companies are staying private for longer. Witness mega rounds by companies like Transferwise and Deliveroo that in years gone past would have had to IPO to raise that kind of cash or, as was more often the case, sell to a larger company that could finance their growth.

This ‘staying private longer’ phenomenon isn’t just a European thing. In the US companies are raising amounts of capital previously only possible through IPO with much greater frequency than they are here. Whether that’s a good or a bad thing is debatable (private companies have less scrutiny and therefore lower costs, but arguably the scrutiny makes them more disciplined) but the important point here is that it’s skewing the exit data. That said, if LPs are to keep making new commitments to fund, they need to get cash back soon, so this trend can’t continue forever.

A new dawn for European VC

By | Venture Capital | No Comments

This week I’ve been at the SuperReturn/SuperVenture conference in Berlin. It’s the biggest European gathering of venture capital fund managers, private equity fund managers and LPs, the institutions that invest in both types of funds. I’ve been going off and on for the last ten years and the good news is that the tide is definitely turning in favour of European venture.

That said, we’re coming from a place where there was very little interest amongst LPs in European funds. For many years our asset class, which is “European venture” was at the bottom of their priority lists. I remember vividly one year, I think it was 2012, when a placement agent (industry jargon for a broker that helps raise private equity and venture funds) had surveyed 83 LPs. He had given them each three votes to cast across about 15 different asset classes. Of the 249 available votes, only 5 were put against European venture. European VCs fundraising at that time were fishing in a very small pond…

As I say though, things have been getting better for a while. The logic in favour of European venture was always strong. VC investment per capita is lower than the US (it’s now 33% lower) and enterprise spend on technology here is much higher as a ratio to VC investment than it is elsewhere in the world. Efficient market theory has it that money should flow into that void.

The problem has been that many LPs lost money in European venture in the 1999-2000, were nervous about making the same mistake again, and wondered if there was a structural reason why venture capitalists seemed to be less successful here than in the US. Structural reasons mooted included an absence of serial entrepreneurs, insufficient venture capital to scale businesses properly, lack of ambition and the fear of failure.

However, whilst money didn’t flood into the void, it did trickle. Governments around Europe played their part, funding the EIF and domestically here in the UK the British Business Bank, and a few brave LPs were prepared to walk where others feared to tread.

And with that capital, a few entrepreneurs succeeded against odds that were much tougher than they would have faced in the Valley. They became serial entrepreneurs, attracting more venture capital into the market, enabling us to fund businesses more aggressively, which in turn drove returns higher. We entered a virtuous spiral and if there was ever a lack of ambition or too high a fear of failure nobody is talking about it anymore.

That virtuous spiral has been turning slowly for a while now and the result has encouraging growth in capital invested into European startups and raised by European venture funds. Different data sources vary, but I think the Dealroom data you see in the chart below is pretty close to the truth.

 

However, what most of us in the industry would like is for the virtuous spiral to turn faster. I think we could comfortably deploy more capital into more companies and grow them more aggressively and reach bigger outcomes without the market getting overheated.

As I wrote recently to an active investor in venture, the input metrics of funds raised and dollars deployed are very healthy, but we don’t yet have published written evidence that all this activity is translating into great returns for LPs. The fact that commitments to venture funds are rising implies that the returns are there, or at least that LPs believe they are coming, but we haven’t yet seen that in industry stats.

What we do have now is active venture LPs saying publicly that they are making good returns from European venture and that those returns are getting better every year. We heard that at SuperVenture this week, and that’s a first for me in 18 years in this game.

We also had LPs who have historically invested in private equity but not venture questioning whether it was time for them to make a change.

So I think the chances are good that the growth in our ecosystem will accelerate. I can’t remember feeling this optimistic about our collective prospects.