Category Archives: Uncategorized

Capitalism is being replaced by ‘talentism’

By | Uncategorized | One Comment

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 | 21 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 | No Comments

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…

Electricity storage costs on the cusp of a precipitous fall

By | Startup general interest, Uncategorized | No Comments

Elon Musk’s announcement of Tesla Energy and the Tesla Powercell (combined solar cell and battery) is the big news today, but it’s best understood in the context of longer term changes in the electricity industry. Two days ago I wrote about exponential increases in the use of solar energy, but solar energy only gets you so far without efficient storage to keep the lights on when the sun isn’t shining.

This ‘storage problem’ has long looked like the thing that would hold solar energy back. The cost of solar cells has been falling exponentially for some time and that has driven increased production, but if solar is ever to be more than a small percentage of the grid then storage needs to be solved, and battery technology has been advancing more slowly than solar cells (improvements have been linear rather than exponential).

The Tesla Powercell is a big step in the right direction. Ramez Naam compared the cost of electricity from the Powercell with the grid and found it to be roughly twice the price. Given that battery costs are halving every 2-3 years it won’t be long before it reaches grid parity. Meanwhile, early adopters, customers who suffer badly with outages, and countries where there’s a lot of sunshine and electricity costs are high will drive demand in the short term.

Exciting stuff. We could be on the cusp of a virtuous cycle that heralds a new era of cheap energy. This is from another Ramez Naam post from last month:

Energy storage is hitting an inflection point sooner than I expected, going from being a novelty, to being suddenly economically extremely sensible. That, in turn, is kicking off a virtuous cycle of new markets opening, new scale, further declining costs, and additional markets opening.

To elaborate: Three things are happening which feed off of each other.

  1. The Price of Energy Storage Technology is Plummeting. Indeed, while high compared to grid electricity, the price of energy storage has been plummeting for twenty years. And it looks likely to continue.

  2. Cheaper Storage is on the Verge of Massively Expanding the Market.  Battery storage and next-generation compressed air are right on the edge of the prices where it becomes profitable to arbitrage shifting electricity prices – filling up batteries with cheap power (from night time sources, abundant wind or solar, or other), and using that stored energy rather than peak priced electricity from natural gas peakers.This arbitrage can happen at either the grid edge (the home or business) or as part of the grid itself. Either way, it taps into a market of potentially 100s of thousands of MWh in the US alone.

  3. A Larger Market Drives Down the Cost of Energy Storage. Batteries and other storage technologies have learning curves. Increased production leads to lower prices. Expanding the scale of the storage industry pushes forward on these curves, dropping the price. Which in turn taps into yet larger markets.

 

 

 

Trust moving from individuals to systems

By | Startup general interest, Uncategorized | 8 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.

 

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