Category Archives: Startup general interest

Successful marketplaces evolve away from transaction revenue

By | Startup general interest | 5 Comments

Hand crafted goods marketplace Etsy recently filed for IPO and Techcrunch has a great analysis of it’s S1. As you can see from the chart below much of the recent growth has come from seller services.


The post also looks at Homeaway, Grubhub, and Shutterstock, three other marketplaces that have similarly diversified away from transaction revenues to drive growth and profitability.

You have probably guessed where I’m going with this by now. Startup marketplaces should take note and think about how they can build non-transactional revenues in the future. There are two main reasons:

  • Non-transactional revenues enables more aggressive pricing for transactions which will grow the market and make it more difficult for competitors
  • Seller and buyer services increase switching costs making it more difficult for new entrants (again) and increasing life time value

In the early days – at least the first year or two – the focus should be on driving transactions, which are the lifeblood of any marketplace. After that non-transactional revenues should become part of the focus, particularly if there are any questions over the size of the opportunity.

The hustle of being more generous than you need to be

By | Startup general interest | 7 Comments

Back in January Seth Godin wrote about Two kinds of hustle:

  1. The hustle of always asking, of putting yourself out there, of looking for discounts, shortcuts and a faster way.
  2. The hustle of being more generous than you need to be, of speaking truthfully even if it delays the ultimate goal in the short run, and most of all, the hustle of being prepared and of doing the work

This is a great breakdown. As Seth goes on to note hustle type 2 is largely unused. That’s a shame because it’s this second kind of hustle that makes the world a better place and is more effective in the long term.

It’s interesting that hustle type 1 is often associated with entrepreneurs, and saying XYZ has ‘good hustle’ is a common compliment. Dave McClure even went as far as saying that the ideal startup founding team of has a hacker, hustler, and hipster. I buy into the notion that entrepreneurs should have hustle, but some take it too far. We all know people who hustle too much, and their constant search for quick wins can be wearing and undermine relationships.

Most startups hit tough times at some point, and in those moments when survival is the only imperative there can never be too much of  hustle type 1. At other times there should be a balance, and the more a company grows the more the balance should tilt towards hustle type 2.

Not all businesses can be a habit

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Nir Eyal’s book Hooked has become the go-to manual for anyone wanting to build a habit forming business, and who wouldn’t want to build one of those? Businesses that are part of our regular routines profit hugely from regular custom without marketing spend, and many of today’s biggest businesses have habits at their core. Want to know something? You probably reach for Google. Have some time to kill? There’s a good chance you go to Facebook (unless you’re a millennial…).
But not all businesses can be based on habits.
Habits are, by definition, part of our routines, and most of our routines are daily. When you think about it, it is only a small fraction of businesses that we use daily. The others we find each time afresh each time we need them, or maybe remember them if they have a powerful brand. On the desktop we find things via Google and we also use Google to help us remember the brands we only half recall, and that has worked fine. Booking holidays, buying clothes, fixing up our houses – these are all examples of things we spend big money on but don’t interact with regularly enough to build a habit.
Apps are changing the game for these non-habit forming businesses on mobile.
Habit forming businesses are able to get an icon on our home screens and maybe lure us back via notifications. Non-habit forming businesses, which you could define as those which we don’t want to download an app for, are challenged by the fact that traffic is now predominantly on mobile and skews more that way each month (Baby2body, one of our partner companies, gets 91% of it’s traffic from mobile), and that within mobile an increasing share of time is spent in apps.
The solution to this problem is not yet clear, although there are some hints. What we need is a mobile equivalent to Google search, including paid marketing (these things exist on mobile, but the user experience isn’t equivalent). I suspect the answer will lie in a combination of services being surfaced through contextual app platforms, of which maps, messaging and maybe calendars are the most obvious, and a much smarter notification stream.
Facebook’s new Messenger Platform is a sign they are thinking this way about the future and in China Baidu maps already acts as such an app platform for millions of users.
How this plays out, and how quickly, is critical for the mobile strategies of most ecommerce companies, including many of our partner companies.

Fundraising advice: Don’t over optimise on terms

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Everyone loves a high valuation and it’s natural for founders to want to minimise dilution. They will most probably go on to raise multiple rounds of venture capital after all. And look at what Zuck achieved…

But companies that spend too much time optimising terms end up as net losers. YC’s Sam Altman explained why in a post last year:

Startups are usually a pass-fail course — either you succeed or you don’t.  If you fail, maybe you get acqui-hired, but that’s happening less frequently and is usually little better than just getting a job at the acquiring company instead.
The important thing is to get good investors, clean terms, and not spend too much time fundraising. The biggest problem comes from chasing high valuations. Contrary to what many people think, at YC we encourage companies to seek out reasonable valuations. Valuations are something quantitative for founders to measure themselves on, and there are lots of investors willing to pay high prices, so they don’t always listen. But I’ll say it again: trying to get really high valuations is a mistake.
If you’re clearly in a position of leverage, it’s fine to push for a high valuation, but don’t jerk investors around. Just say what you want and don’t get into a lot of back and forth or term complexity. Also remember that very high valuations often push out good investors.
And don’t forget the prime directive of fundraising strategy: set things up so that you never do a down round. The badness of a down round is difficult to overstate; in fact, the threat of that is the best reason not to take a super high price when you’re offered one.  If you raise at such a price, everything has to go perfectly in order for your next round to be an up one.

We think about valuation the same way. Much better to have a smaller piece of a bigger pie and the best way to get a big pie is to get good investors and minimise time spent fundraising.

Politicians don’t understand authenticity

By | Startup general interest, Uncategorized | No Comments

One of the defining characteristics of business this century is the return of authenticity. For much of the twentieth century success for large corporations was driven more by great marketing than great product. The internet, and particularly social media, opened up communications and changed that. The truth will out now. In the days of television advertising companies could control the information consumers received by buying the airwaves. We used to rely on adverts for information about products. Now we rely on reviews and social media.

Hence product quality increasingly trumps marketing and brands worldwide are embracing the need to be authentic. That is to think about the customer first and throughout.

Politicians haven’t caught up. At least in the UK.

And it’s a tragedy.

I’ve been making this argument increasingly frequently as we head towards the general election. Here in the UK, as in much of the developed world, electorates are turning to protest parties because they feel poorly served by the incumbents. In the UK UKIP and the SNP have been the main beneficiaries.

Focusing on the UK, in my view people are turning away from Labour and the Conservatives because those parties have no authenticity. They have no conviction and they don’t stand for anything. Instead they produce policies they think will extend their appeal to new voters without alienating their current supporters. As a result the promises seem hollow and people don’t want to vote for them.

I’m writing this today because I’ve just read a BBC article titled Have modern politicians lost the art of rhetoric? which makes many of the same points.

This development has many causes, not least the collapse of the Keynes vs classic/monetarist economics, the rise of opinion poll politics, developments in modern journalism and the rise of the career politician. Those are some major headwinds, and they make it hard for the major parties to get out of the rut they are in.

I don’t have a solution to offer, beyond the obvious feeling that to recapture the hearts of the electorate it will take strong individuals whose primary motivation is to make a difference rather than to govern. They will have to be very strong to prevail because the party machinery is works to marginalise such people. We need these strong individuals though, because I believe we are headed towards difficult times when developments in technology will lead to massive shifts in employment patterns and, unless we are careful, worsening inequality of wealth. Steering the country through these shifts will require difficult trade-offs and hence strong leaders who can bring the country with them. Those leaders will need to be authentic.

Every job you do has your signature on it

By | Startup general interest | No Comments

I just read this on a post by Slack and Flickr founder Stuart Butterfield titled Rules of Business:

Every job you do has your signature on it

When I was around 10 or 11 years old, my father offered me $10 to move a cord of recently-delivered firewood from the driveway into the garage and stack it up inside (I am old; $10 was a great deal of money back then). I managed to get all the firewood inside but rather than it being stacked against the wall, it was more or less evenly distributed across the floor of the garage. I expected my payment, but instead got some advice: “Every job you do has your signature on it — do you really want to sign that?” I always remembered that and if I am going to do something, I make every effort to do it right. (I also properly stacked the wood afterwards, even though it took forever, and I got paid in the end.)

It’s great advice, and also easy to forget. Successful people are generally hugely productive, which means they get a lot of stuff done fast, and constantly have to trade-off speed and quality. Deciding whether you’d be happy putting your name next to a piece of work is a good test of whether the quality is high enough. As companies and individuals we are judged on what we produce and if we if it isn’t of a quality that we would put our name to then our brands will suffer.

At the same time we have to remember that perfection can be the enemy of progress and there are also occasions when we run short of time and it’s important to just ship, even if it’s something we aren’t proud of. It takes good judgement to know when ‘good’ is ‘good enough’ and when to break the rules and sacrifice quality for expediency. Acquiring that good judgement is something we should all strive for over time, and being conscious (mindful even) about our decisions as we go helps our judgement to become better more quickly.

Advice on choosing co-founders

By | Startup general interest | 3 Comments

The following advice on choosing and working with co-founders originally came from Noam Wasserman, author of the legendary book Founder’s Dilemmas:

  • Bringing in co-founders who have the technical expertise, sales background, or social connections that you lack;
  • Creating a more diverse team gives you access to a wider, more diverse network;
  • Avoiding co-founding with friends and family; the eventual conflict far outweighs the value.
  • Creating a clear division of labor helps accountability and creativity to flourish.
  • Having a plan to address problems. Don’t avoid conflict; make a plan for it.

(Quoted on a Profit Guide post, Build a team of founders investors will love.)

It’s a solid list but misses something hugely important. The best founder teams we have seen here at Forward Partners have had a deep and obvious mutual respect. A startup is a long and sometimes difficult journey and mutual respect gives relationships the strength to survive turbulent times.

Startups are built to learn, large companies are built to execute

By | Startup general interest | 4 Comments

How large companies innovate is an increasingly hot topic these days, and Steve Blank penned some thoughts on the subject yesterday. This piece I found particularly interesting:

A startup is a temporary organization designed to search for a repeatable and scalable business model.

A company is a permanent organization designed to execute a repeatable and scalable business model.

In other words, large companies find innovation difficult because they are set up to execute, not to innovate. That was fine from the industrial revolution until the last five to ten years, but now the pace of change is so fast large companies have to innovate as well as execute. The problem is that there are no good models of how to do that.

The first answer for many was M&A, and that remains a good route, but is very expensive.

Those in search of cheaper solutions tried skunkworks projects but found they usually get killed off by the mothership. They are now turning to partnering with the startup community, sponsoring accelerator programmes and making acqui-hires.

I don’t think we’ve found the final answer yet, but I suspect it will lie in taking best practices from the startup world and adapting them for larger companies, which are, for example, less resource constrained. It will also require large company executives develop some new modes of thinking about experimentation, and failure and success.

Learn what your best users are doing with your product

By | Startup general interest | No Comments

In a good Founder’s Notebook post on setting priorities in product development Ben Yoskovitz recommends that founders:

learn as quickly as you can what your best users are doing in your product

That’s great advice. Having a core group of passionate users with a well understood use case is a great sign that a company is on the right path and will make investors love you. Hence it makes sense to understand whether you have such a group and what they are doing. Sounds obvious, yet few entrepreneurs who talk with us can articulate their core user stories clearly.

The reason, I think, is because it’s a tough thing to do. At the early stages most companies haven’t yet got good enough analytics to easily see what different groups of users are doing there’s a strong temptation to focus on growth on the basis that so long as growth keeps coming everything will be ok. There’s truth in that, but focusing on growth alone won’t get you to your full potential.

Hacks for learning what your best users are doing before great analytics are implemented include eyeballing activity on a user by user basis and looking for patterns amongst the most active users, and interviewing a selection of your best customers. The insights gleaned will help shape the product roadmap to maximise the size and engagement of that core user group.

Yoskovitz’s post also advises focusing the whole team on one product development priority at a time and not getting spread too thin. Also great advice. I love it when I hear that a company has identified one metric it wants to improve and will drive change in a short period of time – say six weeks – before moving onto the next priority. Do it that way and the top ten metrics will all have improved significantly in just over a year and overall progress will be rapid.

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