Category Archives: Uncategorized

Matching product solutions with problem spaces

By | Startup general interest, Uncategorized | One Comment

We held our monthly office hours yesterday morning, meeting with twenty idea stage founders over a period of two hours. It’s a a high octane set of fast paced meetings that I look forward to very much. It’s great meeting lots of great people and learning about lots of great ideas so quickly.

The last one I met had identified a large and fast growing market riven with inefficiency. The more we delved into it the more excited I got. Big markets with lots of opportunities for improving things are great places to start new companies. Then, when we got to discussing his company’s product/service, I knew that he wasn’t yet at the point where we could have a serious investment discussion. He knew that existing products in his market were of inconsistent quality and that consumers go to extreme lengths to buy them anyway (often gathering in groups to buy wholesale on AliExpress), but was only just coming to the conclusion he wanted to build a product company and had a feeling that the best opportunity lay at the premium end of the market but couldn’t articulate what his product differentiation would be or how he would price it.

That’s fine. We will keep talking and help him through that process, but right now he has identified a great problem space but hasn’t matched it with a compelling product solution.

That contrasts with another company we are talking with where the founder started selling a product to his friends and family because he loves delivering it and they love buying it. In this case the product solution is already defined in great detail and we have been working with him to work out how big the opportunity is.

In other words he has built a compelling product solution and it’s unclear whether it’s in a great problem space.

The best business opportunities match great problem spaces with compelling product solutions. Most businesses start with one and then work to find the other. “Technology looking for a problem to solve” is a cliched way of describing interesting solutions with poor problem spaces, and perhaps more common but lacking a common descriptor is companies in interesting problem spaces constantly ideating in search of a product people want.

Entrepreneurs who know their problem space but not their solution should, with discipline, be able to ideate, research and iterate their way to a compelling product. Entrepreneurs with a compelling solution are in a more binary situation – either their problem space is interesting enough or it isn’t.

 

Ecommerce companies’ team requirements in the first six months

By | Uncategorized, Venture Capital | No Comments

What follows is a generalised model for startup team building. Every company is, of course, different, but using this model as a starting point will, I hope, be helpful.

Team structure in early stage ecommerce and marketplace companies is a function of manpower and skills necessary to build the company and the founder(s)’ skillset(s). Companies with lots of cash sometimes add people more quickly, but that drives the burn rate up, often without a compensating increase in the chance of success..

In the first couple of months the focus should be on making sure the idea is valid, requiring the following activities:

  1. Development of the company vision and strategy
  2. Search for a point of deep emotional resonance with customers – research work
  3. First iteration of the product vision
  4. First iteration of company messaging
  5. Design and development of landing pages and prototypes
  6. Finding the first few customers

Items 1 and 2 should be done by founders and require generic business skills. Items 3-6 are more specialised and can be done by founders if they have the necessary product, development and marketing experience, otherwise they need outside help. The development requirement might be full time, or approaching full time, but the product, design and marketing requirements are part time. As a guide, the companies that we work with at this early stage generally need around 10 hours per week of product work, 20 hours per week of design and 5 hours of marketing, but there’s a lot of week on week volatility.

The minimum team to move quickly for these first couple of months is a full time founder, a full time developer (or FTE), and part time product, design and marketing support. Bigger teams move faster but overall efficiency can suffer.

The next few months should then be about the product – proving that the idea can captured in a product that resonates with customers. The key activities at this point are:

  1. Develop version one of the product – strong enough to scale
  2. Build deep understanding of early adopters
  3. Develop brand values and core messaging
  4. Build version one of the visual identity
  5. Get into the habit of month on month growth
  6. Start tracking key metrics and build a company dashboard
  7. Operational activities to support growth

The man hour requirements for this product step will be the same as for the idea step, but with another 0.5-1 developers, double the marketing time (now circa 10 hours per week), and then sufficient interns and customer service people to cover the operations. A lot of the operational activities will fall to the founder, but it’s common to have 1-2 interns or early hires at this time. It’s important by this point to have someone numerate on the team. Also, early hires should be capable of dealing with ambiguity and fuzzy role definitions.

I’m writing this post in part to get my thoughts straight ahead of a conversation with a founder we’d like to back who is weighing up the pros and cons of working with Forward Partners vs building her own team. As a reminder, we bundle talent and office space with cash when we invest in companies, allowing the founder to spend more time working on the company and less time hiring. One of the other benefits is that companies can dial up and down the time they need from us more easily than they can with freelancers or employees. And the quality of our team is awesome.

A company should, of course, get it’s own team pretty quickly. We help with the tough problems of finding developers on day zero and resourcing part time roles with varying time requirements. And then we help with talent acquisition too (recruiting is difficult!), so companies get started fast and become self sufficient within six months. We’ve also seen our companies able to save money by hiring for talent over experience and leveraging the experience in our team to bring people quickly up to speed.

_____

Shout out to Matt Buckland, Head of Talent at Lyst for his comments on an earlier draft.

The shrinking digital divide

By | Uncategorized | No Comments

Screen Shot 2015-07-13 at 10.41.59

A certain amount of inequality is essential to the functioning of the capitalist system under which we all toil, and which is, for now at least, the best system available for organising the world’s resources. However, when there’s too much inequality a strong sense of unfairness kicks in and markets stop functioning well, as those who feel a strong sense of injustice vote for politicians with radical policies or turn to violence. Examples in history abound, with the French and Russian Revolutions being best understood as resulting from unsustainable levels of inequality.

More recently we’ve seen this play out with riots and public disturbances within advanced economies like the US, the UK and France and arguably on a global scale with widespread anti-American feelings in parts of Asia and Africa. This points to the relatively new development that extreme inter-national inequality is emerging as a problem in the same way that extreme intra-national inequality has been for some time. It’s a new development, but one that’s perhaps unsurprising given the massive increases in international trade and travel (including migration) and the way technology is shrinking distance.

The digital divide contributes to the economic divide and so it’s great to see the pace at which mobile internet penetration is growing. 94% of the world’s population now have access to a mobile signal, 48% can access the mobile internet and 28% are subscribed to a mobile internet service, and you can see from the chart above that penetration is growing fast. Barriers still remain and there’s plenty of work to be done, not least in bringing costs down and bringing local language content online, but those with internet connections have a better chance of rising out of poverty than those who don’t.

Film and TV distribution startups please roll up

By | Startup general interest, Uncategorized | One Comment

I’ve just read an awesome description of the disruption going on in all the major storytelling media by one Hugh Hancock. I haven’t come across Hugh’s writing before, but he gets right inside the worlds of film, TV, games, prose, virtual reality and comics, with an insider’s knowledge and a light and witty style.

It’s the TV and film pieces that got me the most. In both cases production is changing at an unbelievable pace with new technology driving down cost and opening up new possibilities. This paragraph from Hugh’s post gives you a good sense of what’s going on:

Cameras are becoming cheaper, sure, but they’re also becoming lighter. At the same time, brushless motors and cheap IMUs mean that robot camera stabilisers are taking over from Steadicams for stable moving shots. And all of that means that a shot which used to require a guy who’d trained with a Steadicam can be done to 90% of the same quality by some untrained muppet (me) with a basic knowledge of how to walk smoothly and a magic box that does the rest of the work. And that magic box means that directors can rethink the rest of their shoot too, changing dolly shots (big pile of kit, couple of big hairy grips to work it) into a shot with a gimbal and a $200 self-balanced scooter. But all that might be irrelevant too because who the hell needs to wobble about on a scooter when you can probably just get a drone to do the shot?

And I could have chosen a couple of other paragraphs describing a similarly dazzling but very different array of changes.

So far so amazing. But the problem is that distribution hasn’t changed and we are now in a world where it is apparently a cliche to say:

There’s never been a better time to get your movie made, and never been a worse time to get anyone to watch it.

That’s a situation that can’t persist for very long, hence the title of this blog post.

That said, media distribution startups aren’t easy. It’s been obvious for some time that the legacy world of TV channels and movie studios is ripe for disruption and lots of entrepreneurs have had a crack at it, yet the old world remains largely unchanged. The biggest reason for that is money. TV and film makers need money to fund their production and the people who control distribution are in the best place to cut those cheques precisely because they control distribution. New distribution platforms have faced the catch 22 of needing to cough up lots of money to get good content to get an audience and needing an audience to get the money to cough up for good content. Netflix cracked the code by building a big DVD rental business and using the cash from that to fund rights acquisition but others have found it more difficult, including many startups that used VC dollars to buy rights and try to crack the code that way.

Still, difficult problems require creative solutions and that’s where entrepreneurs excel, and the growing imbalance between production and distribution can only be making this problem space more tractable over time.

Thoughts on curated marketplaces and perfect competition

By | Startup general interest, Uncategorized | One Comment

Jeff Jordan, now a partner at Andressen Horowitz, and previously CEO of OpenTable and senior exec at Paypal and eBay, has a post up on the A16Z blog about online marketplaces. He argues that all online marketplaces are fundamentally the same and hence should be managed by the same principle of “nurturing and managing perfect competition”.

Jeff offers a full definition of perfect competition in his post that’s worth reading. …. If you want the quick version, perfect competition is when the market is totally open, with full price transparency, full information for buyers and no concentration of either supply or demand.

I agree with Jeff, but only about half the time. For marketplaces like eBay, Craigslist and Etsy he is right. The more they can nurture perfect competition the stronger the proposition will be for consumers and the easier it will be for high quality sellers to rise to the top.

But there are plenty of marketplaces where pursuing perfect competition isn’t the best answer.

Uber is perhaps the most visible example of such a marketplace right now. If they were promoting perfect competition they would allow drivers to set their own prices, but they found that consumers prefer consistency and convenience over price transparency and went for a different model.

Another example is Lexoo, one of our portfolio companies. They are a marketplace connecting businesses with legal services. Perfect competition isn’t the best model for Lexoo because the services from different lawyers aren’t equivalent and buyers prefer to be connected to pre-screened quality lawyers than go through the difficult process of working out for themselves which lawyers are best.

Lexoo and Uber are both curated marketplaces – i.e. marketplaces where the marketplace does some work on behalf of the buyer and doesn’t just rely on market forces to optimise the user experience. There are lots of markets where this is the best model.

Why writing makes you smarter

By | Startup general interest, Uncategorized | 3 Comments

I started writing this blog back in 2006 when Twitter was only three months old and long form content user generated content was all the rage. Back then lots of people wrote blogs whereas today most folk rely on Twitter to share their views and news with the world. Periodically I revisit whether I should change from my pattern of daily blogging in favour of more tweeting, which would give me more reach for less effort, but I haven’t made the switch in part because of the feeling that blogging helps with my thinking.

I’ve historically explained how it works by saying that blogging forces me to complete my thoughts, but reading this Business Insider article titled Learning hacks that will maximise your memory I’m now thinking it is more accurate to say that writing makes me smarter. I always love a good listicle, and this one lists seven ways to make yourself smarter by improving your memory. It turns out that writing long form content forces you to do five of them.

  • Retrieval – remembering things before writing them creates new neural connections and strengthens the memory
  • Elaboration – connecting ideas to other ideas also creates new neural connections
  • Generation – creating hypotheses on directions of markets and startup best practice enhances learning and memory
  • Reflection – reading posts back before publishing them is a powerful tool for self-improvement
  • Calibration – feedback from blog posts and on Twitter helps immensely with learning (especially when it’s tough feedback)

The logic of this extends to all long form contemplative writing, whether on blogs or private memos. The nice thing for me about blogging is that the public scrutiny makes it easier to keep the habit of daily posting. If I was writing in a private journal I would find it more tempting to miss a day, or write notes instead of complete sentences.

Will we persist with two mobile app ecosystems?

By | Apple, Google, Mobile, Uncategorized | 5 Comments

In the Apple App Store and the Google Play Store we currently have two vibrant mobile app ecosystems. Going back a few years the prevailing wisdom was that network effects would ultimately make this a winner takes all markets and that over time users and developers would eventually coalesce on a single platform. That was the lesson we all learned from Windows in the 1990s.

Then more recently people have been saying that both the ecosystems are large enough to be self-sustaining and that Google and Apple have both ‘won’.

That view made sense to me. Both ecosystems were growing and Apple’s dominance at the high end meant that developers mostly built for iOS first giving them sustainability in the face of Android’s faster growth. That’s part of the reason I ditched my long term allegiance to Android and bought an iPhone earlier this year.

Now new data from Apple and Google compiled by Benedict Evans is an early indication that the duopoly might not be stable after all (caveat: this analysis is based on a small number of datapoints and may be subject to large rounding errors).

IOS Growth Slow

The news is that iOS growth looks like it has stopped – Apple App Store revenue has flatlined at $10bn. Meanwhile Google Play Store revenues are continuing to grow fast. Extrapolating the trend lines for the last year suggests that Play Store revenues could overtake App Store Revenues this year.

There are many more Android devices out there and hence the revenue per device is significantly lower on Android, but there too the gap is closing.

For developers gross revenue on the platform and average revenue per device are key numbers and if/when the Play Store passes the App Store on these metrics I expect increasing numbers of developers will choose to go Android first, which will bring users across and further accelerate the growth of Play Store revenues. That in turn will encourage more developers to switch and we may see a repeat of the Windows movie from the 1990s when the winner takes all.

And I will have to switch back to Android.

 

Capitalism is being replaced by ‘talentism’

By | Uncategorized | 3 Comments

Screen Shot 2015-05-15 at 14.26.55

This is a super interesting perspective. I’m not a big fan of inventing new words and I’m not proposing that we all start talking about ‘talentism’, but I do think we should all understand the key message here: As capital is increasingly commoditised the pace of change increases it is human talents that drive value creation.

This move towards human capital is manifesting itself in the startup and venture community in two ways. Firstly power is shifting from investor to entrepreneur, as evidenced by the rising celebration of founders, and secondly investors are increasingly bundling human talent with their investment of capital.

Forward Partners aims to be in the vanguard of both these changes.

Lean startup methodology is brilliant but confusing

By | Forward Partners, Startup general interest, Uncategorized | 22 Comments

I just read two articles which beautifully illustrate the brilliance and challenges with the Lean Startup methodology.

First up was the story of Blue River Technology an agriculture robotics company whose first product is called LettuceBot. They were part of Steve Blanks Launchpad class at Stanford and followed lean principles to great effect. Their first idea was an autonomous lawn mower. In conversations with customers they discovered that was a bad idea, but also learned that farmers have a problem with weeding fields of carrots. Through more customer development they found that thinning lettuces is a bigger problem, and LettuceBot was born. They then sold their first LettuceBots off Powerpoint and had huge validation before they started building product. Brilliant.

Second up was Dan Kaplan’s critique of Peter Thiel’s critique of lean. I’m with Kaplan in thinking that Thiel is wrong in his critique of lean, but the interesting thing is that the problem stems from Thiel’s understanding, not from any fundamental issues with lean:

  • Misunderstanding 1: Lean is only good for making small changes to things that already exist
  • Misunderstanding 2: Customer development is nothing more than listening to what customers say they want
  • Misunderstanding 3: Identifying and testing hypotheses isn’t a planned process
  • Misunderstanding 4: MVPs are half baked products

Those are Thiel’s confusions as described by Kaplan. Then as a bonus Kaplan also points out that most people misunderstand the word pivot, mistakenly defining a pivot as when a company switches from one product or business idea to another (e.g. when Stuart Buttefield switched from the failed flash game Glitch to Slack) whereas Steve Blank defines a pivot as a smaller iteration of a business model or idea (e.g. a change of channel or customer segment).

To be fair Thiel’s critique of lean is bound up in a wider critique of incrementalism and a desire to see more step change thinking, but these points illustrate that lean methodologies are hard to understand and implement. It’s interesting to note that Steve Blank was in the classroom with Blue River Technology to help them with any misunderstandings and to stay disciplined. Most entrepreneurs don’t have direct access to Blank, and maybe that’s why they struggle. At one point Kaplan says:

if more entrepreneurs understood it [Lean] and applied it rigorously then fewer startups would fail

I agree with this. The high failure rate for startups is an unnecessary source of misery and loss. The opportunity now is to do something about it by helping entrepreneurs understand and apply lean. That means making it simpler and more practical.

You will see more on this subject from Forward Partners over the coming weeks.

How great VCs add value

By | Forward Partners, Startup general interest, Uncategorized | One Comment

Vinod Khosla and others have said that 70% of VCs add negative value. I wouldn’t want to be one of those (although I probably was at one point…). How then, should VCs add value?

This is from Founder’s Notebook:

  1. provide concrete help with hiring, fundraising, and intros;
  2. encourage you to figure things out without pressuring you to expand prematurely;
  3. share what’s working from their other startups;
  4. ask great questions that you wouldn’t otherwise have thought about; and
  5. focus on real metrics rather than buzz among other VCs and the media.

We try to do all five of these at Forward Partners, whilst avoiding mistakes like these. Numbers 1 and 3 are where we are strongest.

Re 1.: Our startup team are often the first team members for our idea stage companies (albeit part-time), and then after a month or two of working faster because of our support they typically start recruiting their own full time team members. Matt Buckland, our Head of Talent, plays a key role in helping them do that.

And re 3.: Because we are tightly focused on early stage ecommerce we have a lot of relevant learnings to share with our partners. So much so that we are writing them down. So far we’ve captured them ad hoc on our blog but going forward we will start to publish them under a framework we are calling The Path Forward. More of that soon…

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