Startup general interest

Being a VC isn’t about having all the answers

By | Startup general interest, Uncategorized | One Comment

This tweet really hits home for me. As VCs and board directors we’re often assumed to have great knowledge about startups, and that’s fair enough given we’re there to help. However, we end up feeling under pressure to live up to the assumption, i.e. to look competent and to be able to help.

As I remember all too clearly, that pressure is particularly intense for younger VCs who are building their experience. We all know that sometimes the only route to success is to ‘fake it till you make it’ – and that applies just as much in venture as in other industries.

None of this is to say that it isn’t great being a VC, it is. Just not great all the time.

So what should we all do?

  • Investors: take Steve Schlafman’s advice and realise that going and finding an answer from someone else is almost as good as knowing it yourself, and a lot better than guessing. CEOs can usually tell anyway. Believe me.
  • CEOs: instead of asking for opinions or advice ask investors for examples of similar situations to the one you’re facing.


Knowing your customer is key to conversion rate optimisation

By | Startup general interest, Uncategorized | No Comments

Conversion rate optimisation is a hot topic these days. Google Trends identifies it as an official “breakout” term meaning searches for that phrase are up over 5,000% over the last few years.


We’re looking at an arms race here. Most of these people searching will be improving their conversion rates which will enable them to pay more for traffic and still hit their customer acquisition cost targets, and unless you match them you will find it hard to compete.

The chart above comes from an article I was reading this morning with nine principles for conversion rate optimisation. They are principles you can use before you have enough traffic to run meaningful AB tests.

  • Speed – Amazon estimates that for every 100ms increase in page load time there’s a 1% decrease in sales, and more generally page load times over 2-3s leads to massive customer drop off.
  • Singularity/Simplicity – pages with only one goal and no clutter convert much better. A Whirlpool email campaign improved clickthrough by 42% when they reduced the number of calls to action from four to one.
  • Clarity – meet your audience’s expectations with a plain language statement of how the customer benefits from the call to action and clear design
  • Identification – know your audience’s aspirations, lifestyles and opinions and reflect them in your design and copy
  • Attention – sites have eight seconds to grab a user’s attention. Headlines are the most useful tool and should generally be less than 20 words.
  • Desire (a subset of attention) – show the user what’s in it for them. Likeability, social proof, hero images and customer logos are good tools.
  • Fear (a subset of attention) – show the user what they lose by not taking the call to action, particularly effective when the pain of the customer problem has been made clear. Urgency (order in 40mins to get delivery by Wednesday) and scarcity (only 5 left in stock) fall into this category.
  • Trust – people trust sites that look good, show customer service contact details, and have customer testimonials. They make their minds up on trust in 50 milli-seconds.

The eagle eyed amongst you might have noticed there are only eight items on the list, that’s because I combined a couple. There’s much more detail and lots of good examples in the original post, which is well worth a full read.


Six of these eight tips (singularity, clarity, identification, attention, desire and fear) require that you know your customer, yet a remarkable number of founders start building their products and sites without developing that understanding. Your intuition probably isn’t good enough. What’s more remarkable still is that every entrepreneur we talk to knows that understanding their customer is important and most of them have done some superficial research, but only a minority have a deep enough understanding to make the calls that will give them the conversion they need to kickstart their business. That’s one of the reasons many businesses founder just after launch.

The tools to get the understanding are available to everyone so there’s no excuse. All it takes is well some well structured customer interviews.

Questioning WeChat as a model for conversational commerce

By | Startup general interest | No Comments

WeChat is often held up as an example of where conversational commerce could work here in the west. It’s a messaging app with huge numbers of users, many many of whom interact with services and buy things without the inconvenience of leaving the app. Ergo Messenger, SnapChat, Whatsapp, Telegram, Kik, etc. etc. could do the same and cue a tonne of excitement about how that might happen.

I live in London in the UK so I can’t use WeChat, but I’ve just read a post by Dan Grover, a man who does. More than that he’s a product manager on the platform. Not only does he have intimate knowledge of WeChat he’s also schooled in understanding how customers behave and why.

His conclusion is that WeChat evolved into the all-singing, all-dancing behemoth it is today not because there’s a natural evolution from messaging to conversational commerce, but because they had lots of users and they exploited that strength to move into commerce and other adjacent spaces. Moreover, most of the services on WeChat work by firing up a card inside the app which functions like an app or mini-web page – in these examples the commerce simply isn’t conversational.

As Dan sees it (and he was there watching) WeChat was mostly successful in capturing the commerce opportunity because of  “enhancements [to the app] made running counter or orthogonal to the idea of conversational UI”.

If you want more of this go and read his post. It’s a long one, but the examples of how WeChat works and how conversational commerces is being developed in the west will really ram the point home.

I don’t like writing negative posts and I’ve written a couple now that are down on the bot/conversational commerce opportunity but I wanted to summarise and capture this info about WeChat for posterity.

As an aside, it’s terribly easy to see success in a different country and incorrectly assume it can be copied. It’s an easy mistake to make because the intoxicating success is highly visible, but it’s hard to find out the detail of how it was delivered – that’s why posts like Dan’s are so important. However, building a deep understanding of the customer is the best way to avoid building a duff copy-cat, and has the added bonus of being the best way to start a company more generally.

Short term clarity vs long term upside

By | Startup general interest, Uncategorized | No Comments

We’re all happy in the Forward Partners office this morning because one of our partner companies has just sent an update showing they’ve been growing at 30% per week for the last fourteen weeks. That’s quite some growth and I couldn’t be happier for the team there. It’s well deserved.

But it got me thinking about the trade off between short term clarity and long term upside in seed stage investing. Every business that’s successful raising venture capital has a plan that gets them to a massive exit, or at least that’s the way it should be. That plan will show short term activities that generate value and significant revenues in the out years. The interesting thing is that all the plans I can think of are noticeably stronger at one end or the other. Either there’s a lot of clarity about the short term plan but the upside story is hazy, or it’s clear that if they nail it the upside is huge, but there’s uncertainty about how to achieve success in the first six to twelve months.

To be clear all this is a matter of degree. Good companies that get funded have good answers to the short term and long term questions, they just don’t have excellent answers to both. Not when they’re at the seed stage.

Deep tech investments (think Palantir) tend to be stronger on the long term than the short term, whereas ecommerce and marketplace businesses (think Amazon or ebay) are generally stronger on the short term. People are successful investing on either side of this trade off, but in our seed stage experience companies with relatively more clarity on the short term have better chances of success. They are more likely to generate momentum in the short term which gives them the platform to raise more money so they have time to develop clarity on the big picture. Conversely I’ve seen too many companies with amazing upside stories fail because they didn’t make enough progress after their seed round. Momentum is everything.

All of this is part of the reason Forward Partners focuses on transactional businesses in fashion, healthcare, travel, fintech and so on. We’re invest very early and these types of companies are able to quickly generate momentum and get the proof points they need to raise their next round of finance, as we’re seeing with our partner who’s growing at 30% per week.

Hyphen-tech – a trend that bodes well for London and New York

By | London, Startup general interest | No Comments

I just came across the concept of ‘hyphen-tcch‘:

the numerous sub-sections of startups that align themselves with various industries: fintech, fashiontech, mediatech, and so forth

I think this is the big opportunity right now that much of the pure play internet opportunities are behind and explains why many of Forward Partners’ investments are pushing the internet out into the four corners of the commerce. Recent examples include Appear Here (property), Thread (fashion), Zopa (finance), Live Better With (health) and Patch (homewares). In all these cases the founders have to work closely with existing players in their industries making ‘hyphen-tech’ a good name.

London and New York are good places to build these businesses because we combine strong startup ecosystems with world leading financial services, fashion, media and so on.

The gearbox moment – when your startup clicks into gear

By | Startup general interest | No Comments

When I saw this Tweet earlier today I thought ‘yes – I know that feeling’. It’s amazing when a team has all the elements of a business working beautifully together. You can see their pride and their confidence and of course the results flow.

My next thought was about how can we all get our companies to that moment more quickly. The following four step guide is a mechanistic perspective on building a business that glosses over all the emotional context and sweat and tears that go into startups, but I hope it will help people get to that gearbox moment a little quicker.

Step One

Start selling something and growing. If you’re strategy is to build an audience first and monetise later then start building your audience, but for the transaction focused businesses we invest in, step one is most definitely to start selling.

Step two

Identify your growth engine. This definition of growth engines from our Head of Marketing Tom MacThomas is the best I’ve seen:

A growth engine is a set of activities that you can systematically undertake to drive growth. This could be as simple as running an AdWords campaign or blogging and sharing your content. Typically though, these are more complex constructs made up of lots of moving parts. Lots of parts usually means that the engine can be iterated on and optimised well by tackling each part at a time.

Read Tom’s Path Forward article on the subject for an in depth explanation of growth engines.

Step 3

Model the business in a spreadsheet. Spreadsheets force you to make the relationships between the elements of your business explicit and to put values on key variables (cost of traffic, conversion rates, average order values, margins, repeat customer rates). These are like the ratios between the gears in an engine – when they are in harmony the engine purrs, but when they’re not the engine falls apart…

Step 4

Get all the variables to reasonable levels. The engine is now purring, and you have your gearbox moment.

From here on in it’s about fine tuning and rapid growth. Until something breaks and you have to start again….

Startup compensation: flat salaries and equity/options work best

By | Startup general interest | No Comments

Earlier in my career I was a proponent of incentivising management teams with a quarterly bonus structure based on hitting KPIs that would be established at the start of each quarter. We had some success with this system, most notably at Zeus Technology, which was a good exit for my old firm Draper Esprit, but these days I recommend flat salaries with upside coming from options or founder shares. Here’s why:

  • Quarterly goal setting is still best practice (now called OKRs) but linking them to compensation creates a misalignment of objectives – the startup wants big goals, the employee wants achievable goals so he can get his bonus
  • Linking targets to compensation encourages gaming  and sometimes unethical behaviour. (This is also a danger if missing targets is perceived to damage reputation or chances of progression. Employees should be held accountable for effort and doing the right thing but not punished for failed experiments.)
  • It’s tough to define short term measures that will lead to long term success, particularly at a fast changing startup, so flexibility is important, however, It’s hard to change someone’s targets half way through a quarter when it’s linked to a bonus.

On the softer side, an increasing number of studies show that fixating on performance impinges on creativity and can weaken intrinsic motivation – and in startups you need creativity and intrinsic motivation in spades. Otherwise life gets very difficult.

The only exceptions to this flat salary rule are routine work which requires no creativity and sales where commission structures remain the best way to motivate a team.

With those caveats the best structures are flat salaries and a share of the equity. The share of equity only pays out a small percentage of the time and is far in the future which makes it imperfect as an incentive, but it is great for aligning everyone around building value and for creating a shared sense of ownership.

Finally, for those of you thinking ‘that’s all very well, but how do you motivate people without bonuses’ consider whether you are better off hiring people who are intrinsically rather than extrinsically.

Hat tip to Gail McManus of PER, a recruitment firm for private equity professionals. She stimulated this post by emailing me a link to an LBS article: Why CEO pay should be 100% fixed.


Define your target customers narrowly

By | Forward Partners, Startup general interest | 3 Comments

I just read an interesting article about a startup called Silver Concierge that took Steve Blank’s entrepreneurship course in Stanford. The whole thing is well worth a read, but the killer section for me was “Startup Lesson #1: Know your customers — and why they need your product”.

Silver Concierge didn’t make it through the customer dev process. They discovered that there wasn’t enough demand for what they were offering and that the area where they did find demand (taxi service for older people) they couldn’t build a profitable business. However, whilst that might be a great testament to the power of customer development and their most important learning it wasn’t the thing they found out. They also discovered the power of narrowly defining their target market.

The team started out targeting ‘seniors’ but found out that segment was too broad with the result that they didn’t learn anything from their initial customer interviews. In their words:

Successful companies solve acute needs — and acute needs don’t exist independently from living, breathing human beings. “Seniors” is not a meaningful customer segment. “Female older adults with limited mobility living alone at home” is. As we learned first-hand, everything about our business followed from our customer segment; as such, it was critical to deeply understand who our customer was and what they cared about before trying to do anything else.

When I think through our companies the most successful ones have a well understood and well defined target customer. A good target customer base has the following characteristics:

  • They are easy to visualise and create personas
  • They have homogenous needs (with respect to your product)
  • You can market to them effectively

Many of the best companies start extremely narrow and then expand from there. Our most recent investment Patch is a good example. They are building an online garden centre chasing the £4bn spend in that market across the UK, but the first target customers are house-proud Londoners with balconies. Moreover, their initial marketing campaign will target a group of 3,000 flats with balconies in Stratford. These target customers are young professional couples, want plants for similarly sized spaces and we can reach them with fliers.

Over time Patch will extend to small terrace gardens, then larger suburban gardens and then huge rural gardens.

Are bots solving any problems?

By | Startup general interest | No Comments

I woke up to a series of Benedict Evans Tweets this morning about bots and service discovery on the internet. The gist was this:

  • Everyone’s talking about bots
  • Query whether moving services to bots solving any problems or just moving them to a new UI
  • We’ve mostly solved how to get things we know we want, but not of things we don’t know we want

He doesn’t explicitly say that bots don’t solve any problems but I think that’s the implication.

Most of the excitement about bots comes from the fact that they offer an extra level of convenience. You’re using Messenger to arrange a meeting with a friend and you can book an Uber right there without having to get your phone out and boot up the Uber app. Maybe there’s an AI running in the background that recognises you might want to book a cab and works out the start and end points so you can make the booking with one click.

That is all very cool, and I’m a believer in the power of small extra conveniences, but a small extra convenience is all this is. Pulling my phone out of my pocket to book an Uber isn’t hard. If all that bots are doing is offering a small extra convenience then for the mass market the user experience has to be seamless, and that means not learning new syntax or anything that is more difficult than using apps or the web. That’s a high bar.

The bigger problem today is discovering things we don’t know we want. I say this as an investor in several new ecommerce services and products that people love when they get their hands on them, but aren’t searching for on Google. Facebook has some good tools these days which our partner companies Live Better With and Lost My Name have used to good effect, and Instagram is becoming more useful, but it’s still a significant challenge. I’ve long been fascinated by the potential of influencer marketing as a solution but have yet to find a scalable solution in this space.

I’ve had a long day and prefer to blog in the morning when I’m more positive, but all of this has me wondering if messaging is just better email and that bots and conversational commerce have a long way to go to get from hype to mainstream reality.




Remember how totally dominant Microsoft was?

By | Startup general interest | One Comment

This graph charts history beautifully and is a great reminder of just how dominant Windows was in the 1990s and early 2000s. It’s also a reminder that Apple’s position isn’t as strong as it sometimes appears.

The other story of this era that isn’t shown on the chart is the explosion of unit sales, first from growth in PC and more recently from growth in mobile. PCs were shipping c10m units per quarter in the mid 1990s, peaking at around 100m per quarter five years ago before falling to c60m last quarter. Meanwhile iOS and Android have grown from nothing in 2007 to c400m per quarter. Overall that’s a 46x growth in the number of computers sold per quarter since 1995. And the computers have got a lot more powerful too.

No wonder a lot of great companies have been created.