This weekend we commemorate the 70th anniversary of the end of the Second World War and in a lovely bit of history the BBC dug out this note that Churchill received from his Home Secretary when he asked whether there would be enough beer for people to celebrate!
Steve Blank gave us this now famous definition of a startup:
A startup is a temporary organization designed to search for a repeatable and scalable business model
At Forward Partners we are in full agreement with this definition (although we spell organisation with an s…) but have found that it is a bit confusing for startups in their first weeks and months.
I’m writing this post today having just read a Venturebeat post by Blank, which talks to one of the points of confusion. He titled it ‘Build, measure, learn’ doesn’t mean throwing things against the wall to see if they stick.
If you read the post above or Blank’s books (The Startup Owner’s Manual or The Four Steps to the Epiphany) he does write about what entrepreneurs should do at the very beginning of their startups. He advises to start by generating hypotheses using Ostevald’s Business Model Canvas and then build the minimum amount of product necessary to test the most important assumptions.
We have gone a step further.
Like Blank we advise entrepreneurs to be explicit about their assumptions and their hypotheses and we use the Business Model Canvas as a tool (part of our idea stage due diligence is to thoroughly analyse the Business Model Canvas in a workshop format), but then we insert a new stage.
We think the best next step is to find a point of emotional connection with customers.
The beauty of this step is that it’s simple to understand and easily actionable via a good customer development process. Lean aficionados will know that ‘Customer development’ is a Steve Blank concept, so credit where credit is due. What we’re doing differently is making it more prominent and defining the objective as finding that point of emotional connection.
The reason for the difference is that we are laser focused on early stage ecommerce companies and that’s where our thinking is targeted and where emotional resonance and the authentic relationships that follow are key to building a great brand and a large, sustainable business. Blank is writing for all sectors and across more stages, and his advice is necessarily more general.
Once a point of emotional connection is found then it’s time to jump onto the build-measure-learn loop and begin the search for a repeatable and scalable business model (i.e. we re-join Blank).
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:
- provide concrete help with hiring, fundraising, and intros;
- encourage you to figure things out without pressuring you to expand prematurely;
- share what’s working from their other startups;
- ask great questions that you wouldn’t otherwise have thought about; and
- 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…
Last week I was on a run of hopeful posts inspired by folks from the Singularity University and this is another, although today’s topic is food rather than energy. As you can tell, I’m very optimistic about the future. We have big challenges ahead sustaining the world’s growing population (on an exponential curve and forecast to grow from today’s 7bn to nearly 10bn by 2050) but technologies under development give us a strong chance of solving them. That said, I’m nervous about the social repercussions of all the change that’s going on, as growing wealth inequality and automation of great swathes of jobs are undermining our social contract. Without strong government the next 20 years we could see a lot more social disruption in the developed and developing world alike.
Back to the good news on food, courtesy of Peter Diamandis.
First consider this chart:
Amazingly, food production per capital has increased by around 30% over the last fifty years despite a near doubling of the population. (Caveat: not all calories are created equal, and it would be interesting to see fast food broken out in this chart.)
Going forward here are three new technologies that should help maintain this trend:
- Genetically engineered crops: In 1996 there were 1.7 million hectares of biotech crops in the world; by 2010, the number had jumped to 148 million hectares. This 87-fold increase in hectares makes genetically engineered seeds the fastest-adopted crop technology in the history of modern agriculture. And not a single case of a GE induced illness.
- Bioprinting meat: firms like Modern Meadow are developing meat manufacturing techniques which require 99% less land, 96% less water, 96% fewer greenhouse gases, and 45% less energy than land animals (of which there were 60bn in 2012 to feed our 7bn population)
- Vertical farming: companies like Aerofarms are growing crops in tall buildings where one acre of skyscraper floor yields the same as 10-20 acres of soil based acres. Moreover, they employ cleanroom technologies meaning no herbicides or pesticides and no agricultural run-off, and the fossil fuels now used for plowing, fertilizing, seeding, weeding, harvesting, and delivery are gone as well.
I don’t know what all this modern food will taste like, but if we can keep up the pace of innovation we should, at least, have enough of it.
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.
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.
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.
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.
I’ve just read YC Partner Jessica Livingston’s Subtle Mid-Stage Startup Pitfalls. The whole post is a great cautionary read, but I want to elaborate on one of her pieces of advice:
Don’t for a second be in denial if things are going badly or growth is flat. If you’re vigilant about diagnosing problems like these, you’ll be more likely to nip them in the bud. The sooner you acknowledge that growth is flat, for example, the more time you’ll have left to fix it.
This advice is easy to give in the abstract general case, but harder when you see it happening in practice – nobody likes to be told they’re in denial. Much better to catch yourself first then, because it happens to all of us from time to time.
The key is to be paranoid. Look for signs that things might not be working and acknowledge them. That doesn’t necessarily mean react to them or change anything. It means think about them and have an explanation and a plan. Often that explanation will be short term volatility driven by something out of your control and the plan will be to wait, but look at it, acknowledge that it’s a concern, and then keep an eye on it. Have a position on when it will bounce back and be wary of giving yourself more time if the bounce back doesn’t come as expected. Have this discipline for everything from metrics (revenues, engagement, etc.) to progress in deal and partnership discussions to hiring and employee issues.
As an investor I love it when entrepreneurs have great data and a great feel for their business and they point out the issues to me, including little ones, with an explanation of whether they have taken action or are waiting to see if a trend develops. Then we can have a discussion. If I have to point out the little slips and downturns then it niggles at the relationship and I wonder why the entrepreneur isn’t bringing it up – have they noticed? or, are they in denial? Neither of these are good.
These increases are great news for two reasons Firstly, as we all know, solar is much better for the environment. Secondly as capacity rises, production rises, and with production increases come R&D increases which will continue to drive down the cost of solar energy. The cost of producing a gigawatt hour using solar has been declining exponentially for 20 years now, and with this sort of growth in production and R&D spend that trend is sure to continue or even accelerate (as a point of comparison, increased investment caused the cost of sequencing the human genome from an exponential decline to a faster than exponential decline).
All of this is super important because cheap solar energy is one of the best shots we have of surviving on this planet with increasing population and declining food and water stocks. Cheap enough energy unlocks large scale water desalination and hydroponic farming techniques.
Now I’m wishing even more that the UK had better weather…
Apple released their results yesterday after another blockbuster quarter. You may remember that in Q4 they reported the largest corporate quarterly earnings of all time. Without the Christmas bump last quarter was always going to be less, but it still came in as the company’s second best quarter ever.
What I hadn’t realised is the extent to which they’ve become a phone company. As you can see from the chart above iPhone revenues were 3x all their other product lines combined. I see Mac computers everywhere and would have guessed their sales were rising faster than they are.
I wonder if we will see watches on the chart next quarter..
Note: the other surprising thing for me in these results was the extent of Apple’s business in China. Chinese revenues are up nearly 3x over the last two quarters, have passed sales in Europe and are now nearly 80% of revenues in the US.
More detail on Techcrunch
The founding team sets the mould for future employees of a company. The oft repeated cliche that A players hire A players while B players hire C players is very true. So getting those first few team members right is key. And that includes the choice of co-founder.
The challenge for entrepreneurs not lucky enough to know someone who can be their co-founder is that the majority of investors will only invest in co-founding teams. This forces entrepreneurs to find a co-founder before they can do anything else when their time would be better spent working out if they have a valid idea. Sometimes that can mean compromising on quality.
- Idea validation: If you can’t convince someone else to join you in pursuing your idea, maybe it’s not worth pursuing.
- Pressure to perform: Having a co-founder makes you responsible to someone else, which in turn puts pressure on you to deliver results, probably faster than you might otherwise.
- Emotional outlet: In startups the highs can be high but the lows can be low. And the inevitable trough of sorrow can be a lonely place. Surviving the anxiety and emotion of a startup can be much easier when the burden is shared. It’s great to see much more dialogue about the emotional challenges of being a founder. One way of fighting depression and other forms of emotional distress is by having a co-founder with whom you can be open and honest about your fears, struggles and insecurities.
- Skill diversity: No one person, no matter how brilliant, has all of the skills needed to make a startup successful. Having co-founders with complementary skills can make it much easier for each person to say no to everything but the tasks most critical to achieving success.
- Hiring strength: Multiple people on the team means a broader network from which to recruit, a diversity of skills with which to evaluate candidates and a more pronounced culture for potential hires to experience. Having co-founders just makes hiring easier.
- Sounding board: Co-founders lie awake at night worrying about the same things as you. They’re just as committed to the mission as you. And they’re equally invested in seeing all parts of the company work as you. And so they will challenge you, scold you and push you (and often hug you) unlike anyone else at the company can or will.
If you are a regular reader you will know that at Forward Partners we do invest in solo-founders. We are big believers in the power of teams and strongly encourage our partners to find co-founders, but we are happy they do that after we invest.
With that context you can imagine that I was keen to read Satya’s reasons for preferring teams to make sure we aren’t missing anything. Rather than not missing anything it turned out that we are providing solutions. For every challenge of being a solo-founder that Satya listed Forward Partners is the answer.
- Idea validation: Forward Partners validates the idea by deciding to invest.
- Pressure to perform: We meet with our solo-founders weekly to help them stay focused.
- Emotional outlet: Our team is there to help founders through highs and lows, we organise socials so everyone can blow off steam, and we encourage our partners to lean on each other for further support.
- Skill diversity: Every solo-founder we partner with instantly gets a team of eight experts working on their startup covering product, design, development, customer acquisition, recruitment and fundraising.
- Hiring strength: Our partners are supported by our in-house Head of Talent, get access to all of our networks for recruitment, and use their team of experts to help interview candidates.
- Sounding board: The whole Forward Partners team is available and gets used as a sounding board. Moreover we are strong in different areas and the founder chooses whose best for any given issue.
I’m not saying that Forward Partners is a substitute for a co-founder. As I wrote above we work hard to help our solo-founders find a partner to be at the heart of their business with them, and we do that for the reasons that Satya lists. What I am saying is that we can fulfil the functions of a co-founder for 3-6 months whilst idea is validated and the business gets started.
The beauty is that after three months when it is time go find that co-founder the story is much stronger and better candidates are drawn to the company.
It’s obvious when you think about it, but Forward Partners’ focus on early stage ecommerce is critical to us being able to help our partners the way we do. We invest in companies in the first couple of years of their life, with more at day zero than any other point and because they are in the same sector and at the same stage they face the same problems. We’re still learning, but we’ve invested in 28 companies now and some patterns are emerging. It seems that we make the most difference by helping founders:
- Create a product customers love
- Build a strong founding team
- Find the path to scalable growth
And it’s not high level and general advice that we offer, rather it’s specific actionable advice coupled with the manpower to help by doing (if that’s what the founder wants).
All of which only works because we are so focused. Because all our partners started work with us when they were early stage ecommerce businesses we have gathered a roster of tools, tricks and best practices which have been tried and tested many times over. Even within early stage ecommerce every company is different, but there are large areas of overlap, and we are constantly learning and tailoring our knowledge.
Without those areas of overlap we wouldn’t be able to help in the same way.
As it is we are able to double down on the areas that make the most difference.