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Thinking of UX work as a search for new experiences

At the end of yesterday’s post on Android and Amazon Forks Benedict Evans wrote:

Amazon has never been a user experience company in that sense – it thinks about user experience the way Fedex does, as something to focus on ruthlessly, but not as a playground for new experiences.

I’ve been long on Amazon for ages now (and hold some stock), but this got me thinking.

When I look at the companies we’ve been investing in recently they are all delivering new experiences and their success is predicated on delighting customers. We love it when there is a real ‘wow’ moment. That’s what happens when people get their book from Lost My Name or when they’ve swiped 10,000 pairs of shoes on Stylect, to take two of our most recent investments.

I think those ‘wow’ moments are increasingly important for Amazon and other large companies too. Existing user flows should still be optimised, of course, but these days that’s table stakes. It’s the ‘wow’ moments that get customers excited, makes them loyal, generates word of mouth marketing (the most important kind), and gets free press.

I’m skating slightly ahead of the puck here, but given that everything is changing and commoditising with increasing pace these days all companies (large and small) will have to deliver those wow moments to stay relevant. And that means thinking about UX as a playground for new experiences.

As a side note, I see this as another reason to be long startups.

Om Malik on why valuations defy metrics

Yesterday Om Malik reminded us that predicting the future is hard. That’s true, but in the startup industry we have to do it every day. Both as investors and entrepreneurs.

When companies attract high valuations their investors are predicting the future too – either that the business will trade in M&A at a ‘strategic multiple’ or that they will generate big cash flows. For larger valuations it is the latter. Om had this to say on why predicting cash flows has become difficult:

Today we live with new realities and new technology companies, which end up with opportunities and growth curves that can’t be predicted (in either direction.) A lot of traditional metrics of business don’t account for the changed metabolism and velocity of business due to presence of the network and, more lately, the concept of anywhere computing.

The most important of the ‘new realities’ that Om refers to are that products are digital rather than physical, allowing them to grow friction free and that computing is now ubiquitous. Put those things together and the possibilities for never-seen-before growth and equally rapid collapses.

Investors are left with the exciting prospect of betting big on highly uncertain outcomes. For those that get it right the rewards are rich. But predicting the future is hard, and many more investors will get it wrong than get it right. Moreover, as computing becomes more ubiquitous and software eats the best companies will grow ever faster and their future cash flows will be even harder to predict. There are no new metrics or valuation methodologies on the horizon, so expect to see more hard to understand valuations. Even in the absence of a bubble.

 

Growing wealth inequality should be addressed now

In my news feeds today I read that twice as many British households are in poverty as 30 years ago and saw Alex Payne’s letter to Marc Andreessen which calls bullshit on the assumption that tech development will solve our social problems.

I couldn’t agree more.

As well as being plain wrong from an ethical perspective growing wealth inequality will ultimately undermine economic growth. We’ve already seen increasingly frequent riots in London and Paris, a big increase in the popularity of protest parties, and a rising global protest movement generally. If these trends persist economic growth will either be choked by social unrest or by the election of radical politicians.

Unfortunately the underlying drivers of wealth inequality – globalisation and automation – are both accelerating. Like Marc Andreessen, I believe that ultimately developments in tech will create enough wealth that inequality will cease to be a problem, but those days are some way off and the prospect of dark times in the interim is very real.

Many tech enthusiasts are also neo-liberals and have a strong tendency to gloss over the dark times as something ‘the market will fix’. That’s probably true over the long run, but is likely to come at an unacceptable human cost.

Wealth inequality is partly of the technology industry’s making and I would like to see us advocating policies designed to alleviate the problem in the short term. I quickly get out of my depth here but I would expect them to include significant increases in retraining and back to work budgets and measures designed to promote social mobility.

And the time to act is now. The underlying drivers are exponential in nature and if problems come they will come on us in the blink of an eye. We need to take steps in advance of that.

 

More on understanding your customers: 3 keys to virality

These three conditions for creating virality were listed on Founders Notebook a month or two back:

The most powerfully growing products do three things at once:
1.They make you look smart to the people you invite.
2. They give real value to you when the people you invite join.
3. They give real value to the people you’ve invited once they sign up.

As with my post yesterday, these are all about understanding and respecting your customer. Respecting that they will only do things if it makes sense for them and understanding what will make them look smart, what will give them value and what will give their friends value.

There’s no substitute for understanding customers.

Barkbox’s path to 100m revenue: understanding and respecting the customer

Henrik Werdelin, co-founder of Barkbox a subscription ecommerce service for dog owners wrote a great post on Medium detailing The 6 counterintuitive ways Barkbox grew to a 100m business. It’s a great read combining high level thoughts about approach (be the place to hang even if users aren’t buying) with tactical specifics (be very active on Instagram).

There is one thread that runs through the entire post though, and that is to understand and respect the customer. Here’s a crude abbreviation of six ways designed to make my point (but do read the full post):

  1. “Give a shit [about the customer], … thinking that customers are idiots … is toxic, … elevate support as a focal point of the company”.
  2. Obsess on your user flow.
  3. Use email in a way that’s sensitive to the customer.
  4. “Let users do the talking [on social media]“.
  5. “Be the place your customers hang even when they aren’t buying”.
  6. Be pushy with sales only once intent has been established, but be polite

Each of these is about understanding and respecting the customer. In other words, the key to getting 100m revenue was customer focus.

Putting the customer first, or at the centre, is such a well worn cliche these days that it’s easy to be dismissive but it’s still rare for companies to go as far down this path as Barkbox has. Still rare, but increasingly common, especially amongst the best companies. Understanding and respecting the customer results in good product and an authentic brand, two critical success factors for effective marketing in the social media age.

Yet doing it well is still hard.

I’ve blogged this point from a number of different perspectives and my view is that thoroughly understanding customers (aka customer development) is as important as hypothesis driven development and build-measure-learn cycles. It’s one of the areas in which we are working hard here at Forward Partners, but we have yet to collectively wrap our heads around how to do it really well.

Startup employees: judge your company on the high notes it’s hitting

There’s a great thread on Hacker News this morning which offers advice to a young developer trying to figure out whether he should stay at the startup he works at. The following advice from pfitzsimmons is spot on:

“My intuition would be that functional startups are visibly functional; they feel awesome.”

It is a lot more complicated than that. The term “sausage factory” usually applies - http://www.urbandictionary.com/define.php?term=sausage%20fac…. Even very successful startups can feel very dysfunctional in the heat of the moment. First, when you grow fast and do things that have never been done before, lots of things break. Second, very often management may be absolutely brilliant about some matters, but have giant gaping holes in other areas. A CTO may have figured out a breakthrough in machine learning, but have no idea how to run an engineering organization. A CEO may be able to sell sand to a Sheik, but have no idea how to do proper accounting. As a company matures, it figures out a way to augment the leadership and compensate for weaknesses of the CEO or founder. But there are always growing pains early on, as a startup has not yet identified and fixed said holes.

You really should be evaluating a startup by the high notes that it is hitting, not by the amount of dysfunction. So it should feel awesome at least some of the time. But the startup may very well feel dysfunctional most of the time. That is ok, the dysfunction can be fixed later, but if there is no market or technical breakthrough, then the startup is probably not going to do well.

I think this is great advice, but I’m wary of being misinterpreted. Ultimate success won’t come without good execution throughout the business, and that means eliminating all areas of dysfunction. But that can come over time. Success in the early days comes from doing one thing really well, and within the ecommerce ecosystem that means having product that wows customers. If the ‘wow’ factor is there and management are aware of the other gaps and working systematically to fill them then there’s a good chance of success.

Whither patents

Elon Musk, already the startup world’s favourite entrepreneur, took a step closer to all our hearts yesterday when he open sourced all of Tesla’s patents. His thoughts about patents in general are spot on:

When I started out with my first company, Zip2, I thought patents were a good thing and worked hard to obtain them. And maybe they were good long ago, but too often these days they serve merely to stifle progress, entrench the positions of giant corporations and enrich those in the legal profession, rather than the actual inventors.

We were talking about patents in the office yesterday saying that for the startups we invest in patents are sometimes worth having because they impress large companies in partnership discussions and at exit, but that’s about it. The trick to protecting yourself is to keep innovating. Elon put it like this:

Technology leadership is not defined by patents, which history has repeatedly shown to be small protection indeed against a determined competitor, but rather by the ability of a company to attract and motivate the world’s most talented engineers. We believe that applying the open source philosophy to our patents will strengthen rather than diminish Tesla’s position in this regard.

Sharing concerns with the board – don’t scare your non-execs unnecessarily

Bad news and emerging concerns over key aspects of the business are facts of life at startups. It’s right and proper that these are shared with the board, but there’s a good way to do that and a bad way. I’ve seen both over recent months and thought I’d share my reflections on what works.

Bad news doesn’t keep and should always be communicated to the Board at the next appropriate opportunity. Usually you will do that at your next board meeting. It’s best to present the unvarnished facts, followed by an assessment of what that means for the business and a description of actions being taken as a result. If the news is that you’ve lost a major client, the statement of fact should include detail of why they went and lost revenues, the assessment of what it means for the business might be an update of forecast revenues for the year, and the actions might be to check in with other key customers to make sure they don’t have the same issue.

In the hopefully rare situation that the bad news threatens the existence of the business (e.g. the major client represented 50% of revenues and the company now expects to run out of cash imminently) then the news should be communicated within a day or two.

Varnishing the facts or dismissing the news as insignificant without sharing details can leave the Board wondering if the seriousness of the situation has been understood and whether the company is reacting appropriately. That’s when difficult questions start coming thick and fast and trust can disappear. Nobody wants that.

That said, remember not to unnecessarily scare your Board. It’s easy to take bad news to heart and erroneously feel that bouncing back will be hard, or to over-estimate the chances of a downward spiral. Take a little time to make an objective assessment of the impact on the business. As a non-exec you want to see that the gravity of the situation is understood, but not that the company is over-reacting.

When a series of small unwanted developments are leading you to question a key element of your strategy it’s important to tread particularly carefully. Remember that one of the key jobs of the Board is to agree strategy, and individual directors are often personally invested in the status quo. This is especially likely to be true of investor directors who have told their partners that the previously agreed strategic direction is likely to generate significant success. It’s still important to have the discussion, but in this case it’s hard to describe the facts themselves and their impact is often somewhat nebulous. That makes it hard to frame the debate in writing in a board pack, and it’s often best to pick up the phone or talk through the issues in person before putting them on paper.

Space; the next frontier – now at the mainframe computing moment

There were two Tweets about satellites in my newsfeed this morning. Usually there aren’t any.

The first was an Economist article about nano-satellites describing how satellites are getting smaller and cheaper. Remember what that did to the computer market? We could well be on the brink of something similarly transformational in satellites. Nano-satellites weigh as little as a few kilos and are ‘thousands of times cheaper’ than their larger brethren, and launch costs are falling rapidly too (the article doesn’t provide detail on the speed with which launch costs are falling, but I guess they correlate with weight). Nano-satellites are less capable, or course, but can still do useful tasks.

And as with computers declining cost has resulted in increased unit volumes. Around 1,000 large operational satellites are circling the earth, and in the last year they have been joined by around 100 nano-satellites. And 1,000 more nano-satellites are expected over the next five years.

In rough summary, costs have fallen by around three orders of magnitude and number of new satellites in the next five years will be roughly equal to total the number previously launched (forgetting about satellites that have been launched but are no longer operational).

If I was to map this to the computing industry I would say costs and unit volumes are comparable with somewhere in the late 1950s, the first decade of the mainframe era. In 1953 it was estimated there were 100 computers in the world.

You have probably guessed where I’m going with this - we could be on the cusp of a wave of satellite based innovation, and if so there will be startups… I don’t think satellites will be as transformative to society as computers, but it could nonetheless be powerful. It’s true that it’s difficult to envisage what that transformation might look like, but then the same was true of computers in the 1950s. It wasn’t until the 1970s that Bill Gates said he wanted to put a computer in every home, and even then people thought he was crazy.

The second piece of news was that Google has bought nano-satellite company Skybox for a rumoured $1.2bn. It seems they are thinking along the same lines I am and that space is the next frontier. (I wanted space to be the final frontier, but if space is next, then I think the human body, or maybe human brain, will be the final frontier.)

eCommerce investment growing rapidly

I’m loving CBInsights at the moment. They keep churning out great data. The latest is this chart showing growth in eCommerce investment:

Internet-ecommerce-total-funding-0913 (1)

This is a good growth story. Ordinarily I would say that the 2011 peak suggests otherwise, but 2011 was the year of the Groupon clone frenzy and we can safely regard it as an anomaly. The growth in investor interest in ecommerce is driven by the growth in the underlying ecommerce market, and that underlying growth has legs, as I’ve blogged before.

In 2012-013 the UK accounted for 4% of the global total, up from 2% in 2010-2011. That means ecommerce investment here is running at around $258m per year.