Nic Brisbourne's view from London on technology and startups

Make sure you have discipline and flair in your startup

By | Startup general interest | 6 Comments

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Running a startup requires flair and discipline. Flair gives you the big vision, a great story, the ability to close big deals, to woo employees and to get great press. Discipline enables you to get the small stuff right so the business scales well and is optimised in areas like marketing and supply chain.

Fans of HBO show Silicon Valley which follows the story of a company called Pied Piper might recognise these skills in characters Ehrlich (flair) and Jared (discipline). I’m only up to episode 5 of the first series (late convert) but already Erlich has saved the day with an off-the-cuff speech to a key investor about the company’s vision and Jared has implemented a scrum development process without which they would have missed a key deadline.

Most entrepreneurs have a clear strength in either flair or discipline and but to have both is rare. It’s human nature to value the things we’re strong at and that can lead to entrepreneurs with flair seeing discipline as something that gets in the way, and entrepreneurs who are disciplined viewing showmanship and flair with suspicion. Erlich and Jared don’t get along.

The best companies embrace the need for flair and discipline and manage the inevitable tensions that arise. Founders who do this well hire for the skill they don’t have and let their vision and values determine when they should let themselves be over-ruled.

Advice on changing organisational culture

By | Startup general interest, Uncategorized | 3 Comments

I’ve written a lot in the past about how smart entrepreneurs harness company culture as a tool to drive success. Most of that work has centred around being clear on vision, mission and values and it’s never too early for founders start thinking about these things. Sometimes things go awry though and the culture needs to be changed. That’s a difficult thing to do and I’ve just come across a brilliant 2011 post by Steven Denning which sets out the problem and provides a framework for finding solutions.

If you’ve got time, go read the whole thing. For the attention starved amongst you, what follows is a summary.

Culture change is hard and often fails because culture resists change. Here’s why:

an organization’s culture comprises an interlocking set of goals, roles, processes, values, communications practices, attitudes and assumptions.

The elements fit together as an mutually reinforcing system and combine to prevent any attempt to change it. That’s why single-fix changes, such as the introduction of teams, or Lean, or Agile, or Scrum, or knowledge management, or some new process, may appear to make progress for a while, but eventually the interlocking elements of the organizational culture take over and the change is inexorably drawn back into the existing organizational culture.

But if the culture isn’t working then the company won’t work until it’s fixed, and this framework lays out the tools at a manager’s disposal to create a solution.

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The best approach is to start at the top and systematically work down, only using the pure ‘Power Tools’ of coercion, threats, fiat and punishments as a last resort. Common mistakes are to use the ‘Power Tools’ too early and to articulate a new vision without putting in place the management tools to get buy-in and re-enforce the message.

Those mistakes are common, but so easy to make, particularly as an investor. Just writing these sentences is bringing back painful memories of working with CEOs to articulate a new vision, strategy, or direction and then watching as months rolled by and little changed. With the benefit of this diagram it’s clear to me that when things didn’t work it was because I didn’t do enough to make sure the management tools were in place, particularly those designed to ensure top-to-bottom buy-in. That contrasts with companies where we successfully used OKR type structures to get full alignment.

YC follows a well trodden path for investment firms: drifts later stage

By | Venture Capital | 2 Comments

If you read this Techrunch post profiling 50 of the current YC companies you will notice that many of them are up and running with customers and revenues. That marks a shift in the YC investment strategy which used to focus on younger businesses. In the words of an alum from the 2006 cohort:

Companies are joining YC at a much later stage.  When I started YC, most companies wrote their first line of code in the first week in the program.  Today, most new YC companies have been operating for a year or longer and have customers and revenue before starting.  If the companies in my batch applied to YC today, I doubt that any of them would get in.

That relates to a second change he observed:

Companies are much more ambitious now.  In 2006, getting acquihired by Google for a couple million buckets was considered a fabulous outcome and basically the goal of every company.  Today, there are six YC companies worth over a billion dollars, and as a result new startups aim much higher.

I think there are three inter-related reasons for these changes.

  • Now that the YC portfolio is worth over $30bn (a number they put on their homepage) acquihires don’t move the needle. The work of investing and mentoring only feels worth it if it can impact the $30bn figure, and returns of less than around $1bn aren’t significant in that context. Note that these returns are from the value of YC’s stake in the company, not the total valuation. Hence they back companies with more ambition. Much more.
  • Because Sam Altman & co have enjoyed a lot of success good entrepreneurs and investors alike are rushing towards YC in the hope that the magic will rub off on them. This creates a virtuous circle of demand and enables YC to invest in better companies than before. Better often means less risky, and hence more mature companies.
  • Assessing the potential scale of an opportunity is one of the hardest things to do for startups and the earlier you invest the harder it is. To have more confidence that their investments match their new found levels of ambition I imagine the YC partners are drawn towards companies that have more validation of their market size.

As I mention in the headline this is a well trodden path for successful investment firms. The usual VC path is slightly different to YC in that it’s also linked to fund dynamics, but the flow from initial success to larger fund to targeting larger exits has been seen many times over. Perhaps the best example is Apax, from here in the UK who started out as one of the first venture capital firms and over time morphed themselves into a private equity company doing multi-billion dollar deals.

Strategies for seeding marketplaces

By | Startup general interest | 9 Comments

I just read a VersionOne post from May about seeding marketplaces. They identify four strategies (there’s more detail on each in the original post):

  • Identify unique inventory – sellers who don’t otherwise have an online outlet will list on your site (provided it’s easy to do) and you can use their product to drive demand. If you are lucky the sellers will bring some customers with them. Etsy is a good example.
  • Bring inventory from another site – hacking and scraping are common grey area tactics. AirBnB is a good example – see case study.
  • Pay for inventory – I think this only works at the very earliest stages, and even then I’d be careful. Apparently Uber did this in Seattle, paying drivers to sit idle whilst they built demand.
  • Aggregate inventory from other sites e.g. through affiliate programmes – scale comes quickly with this strategy, but adding enough value to become sticky can be challenging.

I would add another, and this is my favourite, and that’s ‘Using demand to acquire supply’. Our portfolio company Lexoo used this strategy, first finding companies that needed a lawyer and then calling up lawyers offering them customers if they register on the site. It’s brutally simple and highly effective. Only works in services marketplaces where customers don’t expect an instant quote.

My other observation is that in most cases one side of the marketplace comes much more easily than the other. On Lexoo supply comes more easily whereas on Appear Here, a marketplace for short term lets on the High Street demand is the easier side. The trick then is to build the easy side to make the marketplace super attractive for the more difficult side.

Keep it simple: Maintain an irrational bias against complexity

By | Startup general interest | One Comment

I’m currently dealing with a complex situation where the complexity itself is starting to affect the outcome, and not in a good way. People and companies avoid complex situations because they take time to understand and because they’re afraid of getting the wrong end of the stick and making a mistake. That’s what I’m seeing now.

The challenge is that complexity is beguiling. Clever tricks and hacks can add to a company’s story and the benefit vs complexity trade off for each one can be well worth it. The problem comes over time when new tricks are added to the old ones to keep the story fresh. The complexity builds up all the time whilst the story only gets incrementally better because the older tricks are forgotten or not worth talking about any more.

Then over time telling the company story well becomes more about simplifying the complexity than anything else.

Nightmare.

Much better to avoid complexity altogether, or rather only accept it when the benefit vs complexity trade off is hugely compelling. Hence I say it’s best to maintain an irrational bias against complexity and keep it simple.

This is a lesson I’ve learnt before and now I’m learning again. I’m hoping that writing it down will help me remember it better this time.

 

The average musician gets $23 for every $1,000 of music sold

By | Startup general interest | 5 Comments

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I used to write a lot about the music industry but it because less interesting once Spotify became dominant and everyone accepted that streaming is the future. This chart got me excited again though. Pop stars regularly complain about how little they get when their music is streamed, but they are mistaken in blaming the streaming services. It’s the labels that have the biggest take.

The $1,000 we are talking about here comes from music sales – e.g. CDs. As you can see the label takes $630 from that $1,000 and the band gets $230 which is then shared with their advisors leaving band members in a typical four person band with $23 each.

I saw the chart on Techdirt, a site dedicated to exposing old media rip-offs and BS. It’s great to see them still going. After the chart they go on to explain how even $23 is recoupable against any advance the band might have had, so the true situation is even worse.

Remarkable.

Good middlemen in most modern industries have a 10-20% stake. AriBnB, eBay, Booking.com, TripAdvisor and many others are in this range. Companies that take a 63% cut are open to disruption and it’s hard to see how the labels have held onto their position, much less how they will sustain it.

Spending money is like getting fat

By | Startup general interest | No Comments

“Spending money is like getting fat” is a sub-title from a great Techcrunch post about the dangers of raising big rounds. I love the analogy. As with weight, burn rates are very easy to increase but take large amounts of discipline and suffering to decrease. Moreover, just as food is hard to resist when it’s on the table in front of you, it’s hard not to spend money once it’s been raised. Not least because investors and employees will expect you to spend it.

Big rounds have their place of course, and at the margin we nearly always advise companies to raise more money than less, but radical over-capitalisation or accepting large a investment just because it’s easy and the terms are good is generally a mistake.

It sounds trite to say ‘don’t get fat, stay lean’ but it’s harder for companies to stay lean than you might think. The metaphor is with our bodies, but we can pretty quickly see fat on our bodies. That’s not always so in startups where progress is hard to measure and larger burn rates increase the sense of momentum.

The first sign that teenage social media use will stop scaring parents

By | Startup general interest | 3 Comments

I’ve long held the opinion that scaremongering about teenagers’ use of social media is more a reflection of parents unease with a new medium than anything else. There is, of course, good and bad in everything and teenagers do make mistakes and hurt themselves on social media but that’s true in the offline world too and not a reason to throw the baby out with the bathwater. To my mind it’s very clear that social media is net positive for society in a big way. And, the genie is out of the bottle now anyway.

A historical perspective is useful here. The advent of every new form of media has been met with widespread fears about the damage it would do to society before being adopted into the mainstream and ultimately regarded as normal. That was true for books, cinema, TV, and mobile phones and in time I sure it will be true for social media.

Reading an NYT write up of recent Pew Foundation research into teens social media use I’m seeing the first signs that we may be approaching that point now.

Amanda Lenhart, associate director of research at the Pew Research Center and the lead author of the report is quoted as saying:

Adults have tended to see time online for teenagers as this frivolous, time-wasting thing that’s just entertainment. But what we found is that it’s crucial for teenagers in forming and maintaining these really important relationships in their lives.

Also interesting is the thought that hanging out online is replacing hanging out offline because parents are less willing to let their children go and meet their friends in public spaces, usually due to safety concerns. This line of thought suggests that social media use by teens is good for them. Well over half of teenagers say they have made new friends online and that social media use brings them closer to their existing friends. Hence they are very happy with their social media use. Otherwise I guess they would do something else…

All this mirrors what I see in the real world. My daughter starts a new school in September and when we went to meet her new classmates the first thing they all did was jump on a Whatsapp group together. Since then they’ve been bonding virtually in a way I think will make her first day much less scary.

I think that’s great, but other parents we know aren’t so sure. With more surveys like this and the mainstream press adopting a more positive tone I think that will change.

On a side note I think that virtual reality may be the next technology to scare society. What happens when people start disappearing inside virtual environments for hours at a time? Whilst their muscles waste? That can’t be good, surely…. :ironicwink:

Three common mistakes founders make when analysing other companies

By | Startup general interest, Uncategorized | 3 Comments

Drawing inspiration from other companies is an important part of every entrepreneurs toolkit. To misquote Isaac Newton, we all stand on the shoulders of giants. It’s easy to get it wrong though, and there are three common mistakes that founders make.

1. Assuming mistakes made by competitors are because they are dumb. This is from Aaron Harris’s Presumption of Stupidity

I’ve noticed a common bias that shows up in some founders: they believe that their competitors are stupid or uncreative. They’ll look at other businesses and identify inefficiencies or bad systems, and decide that those conditions exist because of dumb decisions on the part of founders or employees.

This is a bad belief to hold. In truth, competitors in the market are usually founded and run by intelligent people making smart and logical decisions. That doesn’t mean that all the decisions they make are necessarily the right ones, but they’re rarely a function of outright stupidity.

Where companies do things that diverge from what seems smart from the outside, it’s a much better idea to ask why those companies are doing things from the presumption of intelligence and logic rather than the presumption of stupidity.

2. Assuming everything that successful companies do can be copied. Every successful company makes mistakes, and some successful companies have habits they hold out as drivers of their success which it doesn’t make sense to copy. Apple is the best example here, great as he was, Steve Jobs’ management style and his insistence on relying on his vision and not talking to customers aren’t things that will port well to many other companies.

As Paul Graham wrote in a recent article advising startups that can’t secure the .com domain for their name:

There are of course examples of startups that have succeeded without having the .com of their name. There are startups that have succeeded despite any number of different mistakes.

The most common version of this mistake is to cite a habit of another successful company as justification for bad or lazy behaviour – e.g. Steve Jobs had the courage to rely on his own vision of what’s best for customers and so do I.

Another, more insidious, version of this mistake is to copy startups that have had some early success but haven’t definitively succeeded yet. Often this is European startups copying American startups that have reached the Series B or Series C stage. The problem here is that you might be copying something that fundamentally doesn’t work (as with many of the GroupOn clones) or where the reasons for the success they are enjoying aren’t apparent.

3. Success can come from copying others rather than being different (which takes more courage). In The Possibility for Outrageous Failure Max Wessel wrote:

Warren Buffet has famously stressed for folks to be greedy when others are fearful. Clay Christensen has cautioned that profitable markets face the greatest pressure towards commoditization. Even inside today’s tech landscape, we have Peter Thiel appropriately pointing out that there is only likely to be one Google, one Salesforce, one Facebook, one Uber, and so on. The next conquerors of industry are likely to arise in surprising spaces where there isn’t a clear opportunity.

Summing up, the overall message is that getting to know your competitors and what drives success at other companies is a great thing to do, but use that as the basis for your own critical and ‘from first principles’ thinking. Then don’t rely on your ability to out execute the competition, but be bold and above all seek a source of competitive advantage. Often a piece of information you have or something you believe that others don’t can be that source of competitive advantage.

Hat tip to Mattermark’s daily newsletter today which had links to the three articles I quote here. It’s a great source for content.

Three success criteria for ‘Assistant-as-app’ companies

By | Startup general interest, Uncategorized | 2 Comments

Nir Eyal recently wrote a great post speculating that ‘Assistant-as-app’ companies might be the next big tech trend. I think he’s right – it’s a trend that has legs, but it’s also a trend that has been going for a couple of years already but hasn’t yet been given a good label. Magic and Operator are the companies in this space that have made the biggest splash recently but companies like Thread.com and Big Health from our portfolio and like Native and Vida Health that Nir mentions have been pursuing variations on this theme for a while.

In another post Nir proposes the following definition:

I’ve proposed “assistant-as-app” to mean: an interface designed to enable users to accomplish complex tasks through a natural dialogue with an assistant.

He emphasises ‘natural dialogue’ because the first success criteria is that users don’t have to learn a complicated interface. Few people can be bothered to do that for anything, let alone when there’s a simple option available which will probably get you to a result faster on the first couple of times through. Complicated interfaces are in effect asking people to make an investment of learning time against a highly uncertain outcome – not an attractive proposition.

However, the key point is that there is no learning curve, so rather than ‘natural dialogue’ I would use the more inclusive term ‘easy to use interface’.

The second success criteria is that the service delivers something more than the fully human equivalent. That doesn’t mean it’s better on all dimensions, but that it is demonstrably better on at least one important dimension. For example Big Health is a therapy service for insomniacs that offers 24-7 access to an AI therapist called The Prof. Human therapists typically see their clients for an hour per week, whist The Prof checks in multiple times per day and if you wake up in the middle of the night he’s there (in his dressing gown) to help you get back to sleep.

It seems to me that the main ways that ‘Assistant-as-app’ services can be better than humans are:

  • 24/7 presence and immediate response
  • Price – high levels of automation bring some services to a price point that works for consumers (although note the third success criteria below)
  • Access more information about the user and use better analytics to deliver the service – e.g. data from wearables, activity diaries, transaction history
  • Access more components to build a customised solution – human services are limited to what the human operator knows, Assistant-as-apps can access all the inventory on the web

If you can think of more ways ‘Assistant-as-app’ services can be better I’d love to hear them.

The third success criteria for ‘Assistant-as-apps’ is that the economics work. To get to a price point that’s attractive to consumers typically requires some heavy duty automation on the back end, often leveraging AI. Most companies in this space start out delivering the service manually and initially lose money on every transaction. Predicting the extent to which those manual activities can be automated and can be difficult at the outset, but it’s critical to the business model and should be addressed early on. It’s easy to build an amazing service that will never make money and I suspect we will see some high profile companies make this mistake.

 

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