Nic Brisbourne's view from London on technology and startups

Startups are built to learn, large companies are built to execute

By | Startup general interest | 4 Comments

How large companies innovate is an increasingly hot topic these days, and Steve Blank penned some thoughts on the subject yesterday. This piece I found particularly interesting:

A startup is a temporary organization designed to search for a repeatable and scalable business model.

A company is a permanent organization designed to execute a repeatable and scalable business model.

In other words, large companies find innovation difficult because they are set up to execute, not to innovate. That was fine from the industrial revolution until the last five to ten years, but now the pace of change is so fast large companies have to innovate as well as execute. The problem is that there are no good models of how to do that.

The first answer for many was M&A, and that remains a good route, but is very expensive.

Those in search of cheaper solutions tried skunkworks projects but found they usually get killed off by the mothership. They are now turning to partnering with the startup community, sponsoring accelerator programmes and making acqui-hires.

I don’t think we’ve found the final answer yet, but I suspect it will lie in taking best practices from the startup world and adapting them for larger companies, which are, for example, less resource constrained. It will also require large company executives develop some new modes of thinking about experimentation, and failure and success.

Learn what your best users are doing with your product

By | Startup general interest | No Comments

In a good Founder’s Notebook post on setting priorities in product development Ben Yoskovitz recommends that founders:

learn as quickly as you can what your best users are doing in your product

That’s great advice. Having a core group of passionate users with a well understood use case is a great sign that a company is on the right path and will make investors love you. Hence it makes sense to understand whether you have such a group and what they are doing. Sounds obvious, yet few entrepreneurs who talk with us can articulate their core user stories clearly.

The reason, I think, is because it’s a tough thing to do. At the early stages most companies haven’t yet got good enough analytics to easily see what different groups of users are doing there’s a strong temptation to focus on growth on the basis that so long as growth keeps coming everything will be ok. There’s truth in that, but focusing on growth alone won’t get you to your full potential.

Hacks for learning what your best users are doing before great analytics are implemented include eyeballing activity on a user by user basis and looking for patterns amongst the most active users, and interviewing a selection of your best customers. The insights gleaned will help shape the product roadmap to maximise the size and engagement of that core user group.

Yoskovitz’s post also advises focusing the whole team on one product development priority at a time and not getting spread too thin. Also great advice. I love it when I hear that a company has identified one metric it wants to improve and will drive change in a short period of time – say six weeks – before moving onto the next priority. Do it that way and the top ten metrics will all have improved significantly in just over a year and overall progress will be rapid.

Investigating a business idea? Go analogue hunting

By | Startup general interest | No Comments

Rob Johnson, who I got to know when he was CEO of our partner company Makers Academy wrote a great answer on Quora yesterday. The question was “How do I know if my business will generate value?”. Rob suggested a good four step process:

  1. Identify the (burning) pain point
  2. Hunt for analogues [more on this in a second]
  3. Customer development work [I’ve written about this before]
  4. Sell it to 10 people as a service

All good advice. I’m going to focus in on the hunt for analogues. In more detail Rob says:

Go analog-hunting. Find some examples of other products / services people are paying for right now to solve this problem. Your product / service can be completely different, but you want to know that people are willing to open their wallets to solve this problem. (There are a lot of problems that are “nice-to-solve” but not “must-solve.”) An example of an analog would be if I had an idea for a one-time paste that I could apply to my teeth and they would be clean, white and healthy for the rest of my life without having to brush again. The problem is: health, whiteness and cleanliness. Our analog: toothpaste.

The process of hunting for analogues delivers a lot of insight and we do it all the time, often using the question “if someone buys XYZ new product, what will they not be buying instead?”. Taking Rob’s one-time toothpaste example – the analogue with toothpaste tells us that people care enough about having clean white teeth to spend money on the problem, and gives a user experience benchmark that our new product has to beat. In this case ‘you only ever have to brush one’ is clearly much better than ‘you must brush 2-3 times every day’ so the idea sounds good. (Although there is an obvious question about the revenue potential for a one-time-use product.)

Talking software companies as an example, the analogue is often potential customers hacking together custom solutions for the problem you are solving (customer development guru Steve Blank highlights custom solutions as a great sign customers will buy a product, although he doesn’t mention the word analogue). This ‘custom solutions’ analogue was important when we decided to invest in Dataloop last year. At the time I wrote “From a market perspective we liked the fact that companies everywhere are building their own custom cloud monitoring solutions using open source software”.

 

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.

 

 

 

 

Why I moved from Android to iOS

By | Startup general interest | No Comments
Regular readers of this blog will know that I’ve been a long-time Android devotee. My Android phones have included the Nexus 4, the Nexus 5, Samsung Galaxy S Series devices and an HTC One. I also had a couple of Android tablets, although they were never as good as our iPads.
I loved the phones though. Parity because I have a strong affinity for open systems, and partly for certain features, most notably swipe keyboards.
Recently I have only wanted to own stock Android devices. I’ve had too many bad experiences with the bloat-ware that other manufacturers put on their devices in what I believe is an important futile attempt to differentiate.
That has me waiting each year for the new Google Nexus phone to be released, but last year I was disappointed when the Nexus 6 was announced. That thing is almost as big as an iPad mini! I get that lots of people like their phones huge, but not me.
So I stuck with my Nexus 5 longer than I otherwise would have, and even got a Moto 360 smartwatch to go with it. But last month the battery life started to decline precipitously and annoying software glitches started coming more regularly.
So time to get a new phone.
I looked a bit at other Android devices, and I think there may be others running stock Android now, but I pretty quickly figured I wanted an iPhone. Over the years the reasons I went for Android have slowly eroded. Apple has been getting more open whilst Android has been getting more closed to the point where there isn’t much to choose between the ecosystems. Also, and importantly for me, since iOS8 you can swipe keyboards on the iPhone. On top of that most startups release on iOS before Android and with an iPhone I would be better able to test new new apps.
So when I got my iPhone last week I was curious to see how the switch would go. The overall conclusion is that there isn’t much difference between using an iPhone and an Android. Despite all the tribalism the hardware is largely commoditised.
Turning to the detail, there were some switching pains. It took me a while to find a Twitter client that would let me quickly access my Twitter lists and save to Instapaper, but then I found Tweetbot. I also spent a bit of time finding a mail client that was as good as the native Gmail app on Android. I’m using CloudMagic now, and so far it’s been pretty fast.
And some things have been better. Most notably my whole family is now on Apple devices and that means FaceTime is super convenient for us all. Additionally, over the first few days a couple of the apps are a bit better ( e.g. the calendar app Fantastical). Finally, I’m away skiing with the ICE group of entrepreneurs this weekend and one of us made the lookbook and itinerary into an app, only for iOS.
There were some things that are better on Android too. I loved having my calendar as a home screen widget and the way apps are organised works better for me on Android than on iOS.
That leaves me happy with my iPhone, but there isn’t much in it.

UK venture investment up 57% to £1.5bn

By | Venture Capital | No Comments

Screen Shot 2015-03-03 at 16.02.24

I’ve written before that over the last year or so it has felt like we are approaching critical mass in the UK startup ecosystem. This data from corporate finance firm Ascendant shows why: investment grew a whopping 57% to £1.5bn last year.

The true test will be whether we are able to sustain this level of activity in 2015 and beyond. Absent a big macro-economic shock I think that we will. It certainly seems like there is more money coming into the market – viz the Google Ventures UK team making their first investment with a $60m injection into Kobalt.

Jeff Bezos says to align yourself with your customer

By | Amazon | 16 Comments

I just saw this quote from Jeff Bezos on A Founder’s Notebook:

Another thing that we [Amazon] believe is pretty fundamental is that the world is getting increasingly transparent—that information perfection is on the rise. If you believe that, it becomes strategically smart to align yourself with the customer. You think about marketing differently. If in the old world you devoted 30% of your attention to building a great service and 70% of your attention to shouting about it, in the new world that inverts.

Just about everything I read from Bezos is on the money and this is no exception. The big driver of increasing transparency and information perfection is social media. Everyone has a printing press these days and it’s no longer possible for companies to control the message. Hence it makes sense to invest more in product and correspondingly less in sales.

This is doubly true for startups for whom it is increasingly true that there is no other strategy than to win by having the best product, and often the best product by a mile. When competing with large incumbents the rule of thumb is that winning requires having a 10x better product.

Finally, think of product as encompassing the whole user experience, from sales and marketing through delivery to after sales care.

Management lessons for startups from great French restaurants – five quick reminders

By | Startup general interest | No Comments

Steve Denning, a business professor whose work I mostly value for it’s reminder that focusing on the customer is the only route to value creation, has been touring France and visiting Michelin starred restaurants. He observed the following management traits at successful three starred restaurants that have been around for decades. You can also find them at successful startups:

  • There is no complacency
  • Care is taken to make good initial impressions
  • They do the simple things well
  • They create unexpected pleasures
  • They fix mistakes

You can read Denning’s full post here.

Everyone should be a writer

By | Startup general interest | 4 Comments

Blogging has been great for me over the last eight years. It’s helped build my profile, get to know many great people, stay in touch with many others, and maybe most importantly sharpen and deepen my thinking on numerous topics.

These benefits are open to anyone who writes well. We love it when we see entrepreneurs who promote their companies through effective blogging and we encourage everyone at Forward Partners to get publishing.

Yet there are many more people who try and write than are successful with it. A big part of the challenge is simply getting started. Knowing what to say and finding a tone of voice before you have an audience is difficult and time consuming. And writing makes you vulnerable.

Publishing platforms like LinkedIn and Medium make finding an audience much easier these days, but it’s still daunting.

Simply starting is the answer. And then sticking with it. I remember my first weeks of blogging in 2006 – they were painful!

Next up is writing effective content. The reason I’m writing on this subject this morning is that I’ve just read six great tips for effective writing:

  1. know your audience (once you have one…)
  2. write for skim readers – spend time writing great headlines, divide the content into short sections and make your important points stand out (I could do more of this)
  3. don’t show off (a little bit is ok, but don’t over do it – look for the right balance)
  4. keep it simple – short words, short sentences (again I could do better here)
  5. spend time making your sentences easy to read (it’s hard, but worth it)
  6. inject voice and personality into your writing (another thing on my ‘must improve’ list)

It’s been quite therapeutic writing this post! Do go the source material for more detail.

 

 

Assessing businesses’ viability requires careful attention to the fundamentals

By | Startup general interest | 3 Comments

Bill Gurley just published a good post about the $100m rounds that are going on. His overarching point is that the rounds are dangerous for investors who don’t understand the companies as well as IPO investors coming in at similar valuations and for companies who lose the discipline of profitability.

This warning that investors should make sure they really understand the viability of a company caught my eye:

In order to overcome such risks, [that the company has not found a profitable business model] the onus is on the investor to dive deep and unpack the actual unit economics in the underlying business. This requires analyzing the “true” contribution margin of the business; not simply looking at gross or net revenue and the proper contra-revenue treatment, and not even looking just at gross margin as defined by the company. Many companies embed costs that are truly variable (for instance customer support, marketing, credit card processing) below the gross margin line. If you want to know if the business model truly works, you must pay careful attention. Otherwise, you may have simply found a company that is simply selling dollars for $0.85.

Amen to that. Margin structure is critical but boring to understand. I think that, combined with the competitive pressures of winning deals explain why late stage investors don’t look at them as thoroughly as they might.

But they are important, and we work closely with our partners companies on the fundamentals of their businesses. Get them right early on and success will come more easily, but ignore them until later and you risk building a house of cards. That can fall apart at a late stage as Fab did, or, much more commonly it will collapse before the business gets through it’s Series A or Series B.

Ultimately this is all about having a viable business, and ideally a business that everyone can see is clearly viable from as early a point as possible. For us the key elements to get right early on are finding a big market, connecting with a deep need, building a product that resonates with customers, getting the team and culture right, and finding a path to scale with a positive contribution margin.

It’s interesting to note that by the time companies get to raising $100m the aspect of their fundamentals that troubles Bill Gurley is the contribution margin. I guess that’s the one that companies which are great at fundraising find easiest to put off getting right.

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