Recent Posts

Archives

Categories

Kids don’t care about cars

I’ve been writing a lot recently about how fast new markets are created and old ones are dying. Here’s some more. I just finished reading Kids don’t care about cars which is an ode to how fast things are changing.

It opens by making the point that baby-boomers choose cars for how they make other people think about us rather than their functionality:

You mean I need a bigger engine and a swoopy style to get laid? I just go on Tinder!

Then notes that these days cars just work, making them more like a utility, and argues that for younger generations cars represent nothing more than a method of getting from A to B. In an era when you can connect with your friends and escape the world from the comfort of your bedroom the car is no longer a symbol of any of those things.

In this world car ownership will be less important and rental might take off. Uber will replace car companies just as Spotify is replacing record shops. As pointed out in the article “you don’t see kids clutching to their MP3s”.

Generalising from this for a second and reflecting on an email exchange I had over the weekend, I think rental trumps ownership when it’s better from both a cost and convenience point of view. That’s clearly the case with music streaming and may or may not turn out to be the case with cars.

A big industry is born and peaks within 13 years

It’s been widely reported this morning that music downloads are now in decline. If you take the launch of the first iPod as the date when music downloads started to become a meaningful market then the time from inception to decline is a meagre 13 years.

As an indicator of the significance of the download market, remember that it was the iPod that saved Apple after Jobs returned to the company – according to Wikipedia iPod revenues peaked at $4bn in Q4 2007 and were 42% of Apple’s sales in that period (I imagine that there was an Xmas boost and that iPod sales were a lower percentage over the whole year, but I don’t have the data).

Apple, of course, came up with the iPhone and has prospered in spite of the declining significance of music downloads, but this story shows how quickly new markets spin up and down these days and how fleet of foot companies have to be to survive and prosper. This is why Google is launching driverless cars and Facebook is bought Occulus Rift – the pressure to come up with significant new innovations gets greater and greater as the pace of change increases.

Yesterday I noted that the desktop advertising has also peaked. There’s a similar story there. If you take the 1995 Netscape IPO as the start of the internet advertising market then that industry went from inception to decline in 19 years.

New markets spinning up creates opportunities for startups and when they spin down it’s because a new industry is spinning up, with more opportunity for startups. The faster this happens the better it is for those of us in the startup world.

 

Desktop advertising in decline

Latest research out from eMarketer predicts that the US desktop advertising market will shrink by 1% this year.

Desktop advertising in decline

The other side of the coin is of course continued rapid growth in mobile, which is forecast to surpass desktop advertising by 2016.

The future is smartphones. Full stop. eMarketer predict that the average US consumer will spend 2 hours 51 minutes per day with on their phones this year, excluding voice.

Are economists to blame for growing wealth inequality?

A couple of weeks ago I wrote about the dangers of growing wealth inequality and suggested that governments take action to promote social mobility and increase back to work training budgets. The unstated assumption behind that post is that growing inequality is an inevitable byproduct of modern capitalism and politics is the only source of redress.

This article from Stephen Denning argues that rising wealth inequality is the byproduct of 20th century economics, citing Milton Friedman’s 1970 theory that the responsibility of firms is to maximise profits and Meckling and Jensen’s 1976 paper Theory of the Firm which argues for incentivising senior managers with stock options as two examples.

Like many others I grew up viewing these theories as self-evident truths. My thinking was that companies are owned by their shareholders and should therefore organise themselves to deliver what those shareholders want – typically profits. At one level I still have a hard time shaking that idea – shares in a company are owned like money, or property, or cars, and it seems only right that they do what their owner would like them to do.

The problem, however, is that this widely held view is delivering bad results for society. The short term dynamics of stock markets are as much to blame as the economic theories, but Denning’s article raises the alluring prospect that new economic theories might give us a path out of our current predicament. More likely, new economic theories might provide the intellectual underpinning for politicians to take action. At the moment many politicians feel helpless in the face of market forces (largely because capital is highly mobile).

Those of you that think that politicians are never any help and that political theory is a waste of time might be interested in the following quote from Keynes that Denning dug out:

The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually slaves of some defunct economist.

Looking back it’s fair to say that I was a slave of Friedman and Meckling and Jensen. In many ways I still am.

Warning for smart people – beware invalid rationalisations

A decade ago I worked in the venture capital team at Reuters, a company then famous for only hiring smart people, and I saw first hand the dangers of only working with clever people. The smart folk at Reuters would embark on projects that they thought were in the company’s best interests and make strong arguments why they should get more funding and keep going. They were also smart enough to get themselves invited to all the key meetings that might effect their project so they were present to make their strong arguments when it counted. The problem was that there were lots of smart people doing exactly the same thing, with the result that there were loads of projects protected by their clever sponsors and the company could never rally around the best ones. Sclerosis set in.

There’s a good post up this morning about the Curse of smart people which explains this problem more generally:

Smart people have a problem, especially (although not only) when you put them in large groups. That problem is an ability to convincingly rationalize nearly anything.

Rationalisation is a powerful tool, but it gets dangerous when used to justify decisions or opinions that are in fact made for emotional or intuitive reasons, particularly when there is a lack of data. In my next venture capital job after Reuters I saw this first hand from a colleague who I still rate as one of the smartest I’ve ever worked with. He knew he was smart too. However, in the heat of one deal, which he wanted to get done for emotional reasons he let his intelligence get the better of him and rationalised the deal in a way that he wouldn’t have let anyone else get away with. When I pointed it out to him he got emotional and started questioning my ability.

I’m now of the firm opinion that smarts without a high degree of self-awareness and emotional intelligence can be very dangerous.

Researchers find cognitive bias in monkeys

I love it when scientists find human characteristics in monkeys. I’m not sure if that’s because it’s fun to anthropomorphise or because it tells us that those characteristics are embedded deeply in our DNA. Probably both.

Perhaps the best known example is that monkeys have a keen sense of fairness, many studies have now shown that they get upset if rewards for tasks are not equal (one here).

The new news today is that monkeys share the human predisposition to see patterns where none exist – the clustering illusion. Monkeys suffer from cognitive bias just as we do.

This tells us why cognitive biases are so hard for people to overcome and reminds us that we should factor them into our business plans. Here are a couple of examples:

  • Once someone is invested in a service the sunk cost fallacy will make them hard to shift/easier to retain – upshot: encourage customers to invest time/money/reputation in your service
  • Due to the clustering illusion people will irrationally expect winning streaks to persist – upshot: raise money when you have momentum
  • Once someone’s mind is made up the confirmation bias makes it hard to change – upshot: invest heavily in making a good first impression

 

Exponential growth in US lawsuits

Chris Dixon posted this chart on Twitter yesterday.

US patent lawsuits

Growth this rapid is highly remarkable. I know that the US government is onto the issue of patents. They’d better do something soon.

 

Labelling Forward Partners as an ‘Ecommerce investment studio’

One of the exciting things about Forward Partners is that we’re blazing a trail in the investment world. Our model of backing entrepreneurs and then also investing heavily in a team and co-working space to support them is new. I like that about us. Our bet is that the investment in support will pay dividends when our companies exit, and if we are right our entrepreneurs will win big and we will win big.

Being new comes with a challenge though, and the challenge is that there is no easy way to describe us. We are a bit like an accelerator programme, a bit like an incubator and a bit like a straight early stage fund, yet we are also different to all of these things in crucial ways. When entrepreneurs hear the word ‘accelerator’ they think classes of twenty startups on three month programmes. We invest in 1-2 companies per quarter that join us for a year long programme, and we invest in late-seed stage companies too. The word incubator reminds people of 1990s incubators that invested cash with one hand and then took it back with the other by forcing their companies to spend money on their real estate and other services. We definitely don’t do that. Finally, we are different to early stage funds (and many of them are great early stage funds) because we spend much more money supporting our portfolio.

‘Startup studio’ is a fourth label that has been used to describe us, but it has been something of a catch-all term used to describe any company that is in the business of creating, or helping to create, companies, and hence of limited use.

That changed last week when Makeshift and NESTA convened a workshop to discuss whether ‘startup studios are a thing’. I couldn’t make the workshop but arrived just as it was ending so I could join the panel discussion afterwards. My first conversation was with Nick Marsh, co-founder of Makeshift, who excitedly explained that they had brought some much needed clarity to the subject by coming up with three different categories of ‘startup studio’:

  • Entrepreneur led studios that exist to help their entrepreneurs find the next idea. They pursue multiple ideas in parallel and then often settle on one. They are usually self-funded by the entrepreneurs. Examples include Obvious Corp in the US (which spawned Twitter and Medium) and Makeshift and Just Add Red here in the UK.
  • Agency led studios that grow out of creative agencies looking to exploit good ideas they’ve had and/or take advantage of spare capacity. Examples include Mint Digital and Neverbland.
  • Investor led studios that offer a very high level of service to the entrepreneurs they invest in providing them with a mix of capital, office space, developers, designers, recruiters and fundraising support. Examples include Forward Partners, Science Inc, aspects of Betaworks, and maybe Rocket Internet.

Nick sets these definitions out and provides more detail in a very helpful blog post.

‘Investor led studio’ or better ‘Ecommerce investment studio’ could be a great way to describe Forward Partners. The tagline on our website is ‘The catalyst for ecommerce startups’ and that’s great for marketing copy because it conveys the sense that we help make things happen. However, it’s less useful in conversation because it doesn’t help people understand what we do. I like ‘Ecommerce investment studio’ because it makes it clear that we focus on ecommerce, that we have an investment mindset, and that we help our companies with the services that studios provide. The residual issue is some vagueness around the services we provide, but I think people in the startup ecosystem have a vague idea and at least we’ve teed up the question.

My interview on FrenchWeb

Last Friday my friend Steph Bouchet (aka @rougefrog) stopped by our office to interview me for FrenchWeb, embedded below. It’s a good 12 minute intro to Forward Partners, the sort of companies we like, what we do here, and what makes us different. I also talk a little about the current state of the UK startup scene.

There’s a couple of minutes in French about Little Printer and then I’m on from 3.40.

Thanks Steph!

London Calling #12 by frenchweb

Saying ‘no’ is often right, but don’t leave people hanging

Creative People Say No by Kevin Ashton is a great reminder on the importance of saying ‘no’. The post starts by quoting lots of famous people saying ‘no’ to opportunities so they have more time to be creative, and then comes the money quote:

Time is the raw material of creation. Wipe away the magic and myth of creating and all that remains is work: the work of becoming expert through study and practice, the work of finding solutions to problems and problems with those solutions, the work of trial and error, the work of thinking and perfecting, the work of creating. Creating consumes.

I love this quote because it recognises that graft is at the centre of creativity.

In his post Kevin is mostly talking about artists and authors, but his message applies equally, if not more, to entrepreneurs. Great entrepreneurs say ‘no’ a lot. This won’t be new news to many of you, but I haven’t seen it explained this well before. An entrepreneur is creating a company and just like in the quote, when the magic is wiped away it’s all about working hard at learning and doing.

Later in the post Kevin recognises that saying no is difficult because it often feels confrontational or rude. I feel that a lot when I refuse meetings with entrepreneurs, and I can sometimes feel that people are worried when they say no to meetings with me. If we are saying no for the right reasons these feelings are, of course, unhelpful and we should try to get beyond them.

We can help each other in this regard by being courteous. When asking for meetings that means phrasing the request as a request and not being too pushy. When receiving requests that means answering, even if the answer is a ‘no’. Not answering leaves the asker wondering if they have been deliberately ignored or just forgotten, which invites pushiness and exacerbates the problem.