Category Archives: Uncategorized

Trust moving from individuals to systems

By | Startup general interest, Uncategorized | 7 Comments

Trust decline Screen Shot 2015-04-21 at 14.50.11

I just saw this rather depressing chart in the Washington Post. I guess there are a bunch of things that used to be commonplace that we don’t do anymore because we are worried about bad people – hitchhiking and letting our kids play on the street are two examples that spring to mind – so maybe it isn’t a big surprise. Not good though.

What’s curious, though, is that the sharing economy has exploded whilst trust has been declining. How can it be that we are more afraid to hitch-hike, but more willing to stay in a stranger’s spare room? As the Washington Post points out the explanation is that we are moving our trust from individuals to systems.

In other words we might no longer be willing to trust a random hitchhiker, but we have learned to trust a rider’s average 4.9 star review on BlaBlaCar.

“Reputation is everything” is an old cliche, but maybe it will be increasingly true. As more and more people find employment and suppliers through marketplaces from ebay to Uber maybe it will become true that those of us without a good rating will start to find life more difficult.

Perhaps more interesting is what new companies can do to leverage these trust systems. Free delivery or maybe point of sale credit to customers who have good ebay buyer ratings is one such idea, on the basis that these customers will have higher life time value and/or will be less likely to make returns. Generalising, we get to the question of what a good rating on service X implies about how a customer will use service Y.

Are accelerator programmes backing more mature companies?

By | Uncategorized, Venture Capital | 3 Comments

This tweet from YC’s Sam Altman was in my feed this morning:

You can see why he’s pleased. Lots of his companies have got a $1mm revenue run rate which is a sign they are valuable.

It takes a while to get to a $1m run-rate and I’m wondering if YC is trending towards backing more mature companies and fewer true startups.

Here in the UK it seems to me that Seedcamp and Techstars have made a similar shift in strategy. It makes sense, they get similar equity positions in businesses with more proof points that are therefore more likely to be successful. On top of that the introductions these programmes can make to potential investors, customers and advisors are more valuable to companies that have product and revenues.

That leaves a gap for true startups. Which is where we play :-)

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.

The two reasons early stage investors should be active investors

By | Uncategorized, Venture Capital | One Comment

I’m on a panel at an investor conference tomorrow discussing the merits of active investing, which will be a debate about how much investors should do above and beyond the provision of cash. I’m writing this post to get my thoughts straight.

As you probably know, Forward Partners bundles help from our startup team, our proven methodologies and office space with our cash investment so I will be talking my own book tomorrow and hence here. Forgive me for that, but I do think we are in the vanguard of a trend towards ever more active investing.

This is, in fact, a trend that has been underway for some time. Twenty years ago 3i dominated venture capital in the UK with a very low touch model. I’m told their sell at that time was ‘here’s some money and we won’t bother you as long as you hit your numbers’. Then, when I joined the industry in 2000, people started talking about ‘The Silicon Valley model’ of venture capital where partners took board seats and actively hustled for their portfolio companies. Over the last fifteen years that has become accepted best practice.

Now we are part way into the next change, which is to an even more active form of investing where investors employ teams of people to help their investments, as we do.

The first reason for this change is that the investment world is increasingly competitive. It used to be that access to money was restricted to a few privileged individuals and simply getting money was an achievement, even for the best companies. That’s still true in less developed parts of the world, but in San Francisco and increasingly in London there are multiple sources of venture capital working very hard to find good investments and entrepreneurs sitting on quality opportunities have lots of options. Transparency provided by the internet makes this true at all stages, but it’s especially true at the earliest stages where capital requirements have declined precipitously. If you need less money there are more people you can get it from.

The second reason is that entrepreneurs looking to rapidly build traction without raising much money need more help. In the 1990s when companies needed £2-5m to get a product to market they had money to hire a team of people to help them. These days most startups need only a fraction of that to launch – our idea stage partners get to significant traction within a year on a £250k investment – which means there isn’t much money to hire a team and the founders have to cover a lot more of the bases themselves. Big picture this increased capital efficiency is great for entrepreneurs because they suffer less dilution, but it does mean they have to do things they aren’t skilled at.

The opportunity for investors is to help fill the gaps. For example, if an entrepreneur is skilled at marketing but not design then if the investor has a good designer who can help the entrepreneur doesn’t have to spend hours reading blogs and having coffee with friends to figure out what good looks like and hire a freelancer. Moreover, if that designer is very good the result for the company will probably be be better. The company will eventually need to bring design skills in-house and if the investor’s designer is smart she will combine a focus on the job in hand with helping the company build a strong capability in design. That’s partly about educating the founder, partly about helping her employ a great designer when the time is right, and partly about supporting the new hire when he starts.

The gaps that we most often fill are product, development, design, marketing, recruitment and fundraising.

In summary, early stage investors are becoming more active to differentiate themselves from the competition and win the best deals, and because their investments need more help. Most of the best funds are embracing this trend and hiring dedicated teams so they can add more value. This post is long enough already, so I won’t list examples here beyond saying that Andreessen Horowitz and Google Ventures have taken this strategy further than other funds in the US and I think we have taken it the furthest here in the UK.

A growth engine without a profit engine is incomplete thinking

By | Startup general interest, Uncategorized | 9 Comments

UberGrowthEngine

I just saw this diagram on Growthhackers in an article explaining Uber’s success. And they have had a lot of success. In case you’ve missed it they have recently raised money at a $40bn valuation, they operate in 35 cities and have grown headcount from 75 to 300 over the last year. I haven’t seen any revenue numbers but I’m sure the growth there is strong too, and I hear them talked about all the time in London now, and not just in tech circles.

What follows is not a criticism of Uber. I’d be very surprised if they don’t have a good plan for getting to profitability.

My issue is that entrepreneurs seeing the diagram above and seeking to emulate the success of Uber might latch onto a strategy that delivers growth but not a sustainable business. Last month veteran Valley VC Bill Gurley wrote a warning to investors in $100m late stage growth rounds with the following quote:

Investors must realize that it is materially easier to take a company to substantial revenue if you generously relax the constraint of profitability. Customers will love you for giving away more value than you charge, and therefore, focusing exclusively on revenue success is a sure-fire path to risk exposure.

Looking at the diagram it’s easy to understand why Uber grew so fast and have raised so much money. Steps 1-3 are expensive to deliver, but done well they will result in superfast growth. The hope, of course, is that the quality of the experience will lead to high levels of repeat business and cheap word of mouth driven marketing in the future, which will make the business profitable. That may well transpire, but simply following this diagram you could spend a lot of time and money building a business where customers value your product at less than it costs to provide.

In addition to a growth engine, companies need to understand their profit engine. It’s simple, but critical – the cost to deliver a service must be less than customers are happy to pay for it and the cost of acquiring customers must be less than that delta. Companies using the diagram above to design their strategies should also make sure they are comfortable that customers won with a heavily discounted service will eventually pay a higher price, that the cost of customer service will decline to manageable levels as the business scales, and that they have scalable marketing channels through which they can acquire customers at low enough prices.

 

 

 

 

A common investor mistake: imagining you can fix a company

By | Uncategorized | One Comment

I just came across a post that Hunter Walk wrote last May titled Five Mistakes New VCs Make. Number three is a peach, and isn’t just restricted to new investors:

3. Imagining You Can “Fix” a Team/Product/Market

New VCs, especially those with an operating background, can see a company for what they want it to be rather than what it is. They use their own brain to fill in the blanks on an opportunity versus really understanding how the founders think. They see that the product is a little raw but imagine that if they invest and spend a few hours a week with the team, it’ll be okay because they can fix it!

Perhaps the most common flavour of this mistake is investing in a company with a fantastic market opportunity and a team they don’t fully believe in. It’s especially easy for thesis based investors to make this mistake when they find a company that perfectly fits their thesis. The usually secret plan is then to fix the the team with a couple of key hires.

In reality the only person who can fix a company is the person who is running it. Investors can help, and I certainly like to think that we do, but the key is that the founder knows the gaps and solicits assistance. If that’s happening then what we have is a company working to overcome it’s challenges and there isn’t really anything to fix.

 

Computer-based personality judgments are more accurate than those made by humans

By | Startup general interest, Uncategorized | No Comments

We’re walking personality machines but computers beat us at our own game

Michal Kosinski, Computer Science Professor at Stanford

Kosinski wrote these words in a paper which describes a study which found that computers processing Facebook likes are better at predicting personality than subjects’ colleagues, family, and sometimes even than the subjects themselves.

The study itself was not terribly complicated going on. Kosinski, Wouyou and Stillwell correlated answers to a personality test with Facebook Likes and used that to predict the personality traits of others.

Something interesting came out though, which is that computers were more intelligent than humans in a narrow but significant domain. The key to success was data – both access and ability to process – and computers will have increasingly more of these as time passes.

Ray Kurzweil and others have predicted that computers will comprehensively pass the Turing Test at some point in the next decade and this study offers a glimpse of how that might happen.

Making Forward Partners a company we are proud of: Our culture

By | Forward Partners, Uncategorized | 4 Comments

Forward Partners is a venture firm, but the size of our startup team and the way we support our partner companies makes us very different from conventional venture capitalists. One of the exciting aspects of that for me personally is that if we are going to deliver on our mission of delivering amazing help to amazing startups we need to think of ourselves as a company that attracts and retains great people, rather than a partnership of investors.

Firstly, we offer a promise of inspiring work – the chance to have a hand in some amazing startup success stories, to touch the lives of founders and their employees in a very positive way, and to enjoy an unparalleled learning opportunity.

But secondly, it’s important that Forward Partners is a great place to work. To that end we’ve spent a lot of time over the last six months thinking about the sort of company we want this to be and the things we look for in ourselves and our colleagues. Last week my colleague David Norris published our Culture Deck (embedded below) and wrote a great post detailing our journey up to this point.

It’s been an interesting ride, and we are much stronger already for having been on it. Having a clear sense of who we are is immensely powerful. The journey doesn’t stop though. Culture doesn’t live in a deck or a set of values, it lives in the actions and decisions we take every day, and every week we ask ourselves if there are things we could do differently that would make us more like the company we want to be, as described in the deck below.

I’m writing all this partly for the benefit of prospective partners who can now get a better feel for who we are and what we are like to work with, and partly for entrepreneurs everywhere who want to go on a similar journey. At many startups codifying culture never makes the top of the priority list, I think largely because it’s hard to do well and because the benefits are intangible. Those benefits are real though, and having a great culture should be viewed as an execution challenge equivalent to having a great product or great sales and marketing. We started our process by identifying the archetypes we relate to (explorer and sage, represented by Indiana Jones and Yoda, hence the whip and the light sabre) and then went from there to our values. I think that’s a good process that other firms could copy, and which is explained in more detail in David’s post.

Ecommerce discovery on mobile – no apps?

By | Mobile, Uncategorized | 9 Comments

It’s been troubling me recently that at first glance the trend towards mobile and the trend within mobile towards apps mitigates against startup ecommerce companies. Amazon is one of the first apps I download whenever I change phone, but it’s the only ecommerce app that I have, and that’s because Amazon is the only place I shop frequently enough to be bothered to download an app. I’m not the best example customer because I don’t shop much, but generalising the problem I think there aren’t many categories of ecommerce where the interaction is frequent enough to merit an app. Grocery shopping is a weekly event for most people and that merits an app, and shopping for shoes is a monthly endeavour for many people, hopefully frequent enough for our portfolio company Stylect to prosper, but most shopping isn’t like that.

So it was interesting to read a great post from Intercom.io this morning about the End of apps as we know them. It’s one of the bests posts I’ve read in a while, largely because I think they may well have mapped out how mobile services will be designed in the future. The quick summary is that they believe engagement and interaction will shift from within apps to within interactive cards in a notification or ‘Google Now like’ stream. It’s a long post, but if you are involved with apps or mobile design you should definitely go read it (I linked to it twice to make it easy for you).

The idea that we will stop opening apps and live within a stream of cards requires quite a headshift, but it makes a lot of sense to me. Having pages of apps is highly inefficient and reminds me of browsing the web in Yahoo or AOL days – there has to be something better and a highly personalised and contextual stream of interactive cards sounds like a good answer.

Ecommerce discovery would then be through the cards of other services. As an example, maybe you find out about Stylect from within a Twitter card and then agree to receive regular cards direct from Stylect – that could be by downloading an app which sits in the background barely seen. Search will still play a role, but maybe a greater percentage of stuff we want is finding us rather than the other way around.

Getting discovered then requires getting a presence in cards, and to me that feels like social media advertising rather than search advertising. Perhaps unsurprisingly this muted shift from web to cards might be bad news for Google and good news for Facebook, Twitter, and whoever’s next.

Finally, for all this to work the personalisation and contextual targeting needs to be great. The cards need to be good enough that we want to read them. That’s different from some of the irritating notifications I get today.

“When the train of history hits a curve, the intellectuals fall off”

By | Startup general interest, Uncategorized | 5 Comments

When the train of history hits a curve, the intellectuals fall off

Karl Marx

Vinod Khosla wrote an article yesterday about the coming impact of artificial intelligence. In the final paragraph he uses the above quote from Karl Marx (one of my favourite philosophers) to make the point that history might not be a good guide for what’s going to happen next.

Let me explain.

Automation from artificial intelligence and robotics puts up to 40% of developed world jobs at risk over the next couple of decades. When large numbers of jobs have been wiped out in the past new jobs have been created to take their place. The transition might have been painful, but it happened without too much disruption.

This time round it might be different. History might not be a good guide because for the first time the old jobs might disappear much more quickly than new jobs can be created. Or, and this is worse, for the first time robots and computers might become better than people at whole classes of jobs and the jobs may never come back. That’s the scenario that Khosla raises.

Another thing that’s new is that we live in a global economy. Capital and people are mobile now, particularly wealthy people. As a result, national taxation systems are no longer effectively able to redistribute wealth.

Unless we do something I think we are looking at a future of high unemployment and increasing wealth inequality. At the very least that’s a plausible scenario, and it will be dangerously unstable.

As Khosla says, we may well need a new type of capitalism.

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