Revolution or Evolution – Did Apple give us a post-mobile future this week?

tl;dr Context for WWDC - the big tech players want to own your user experience and the evolution of the browser. Heading into WWDC this week I’m eager to hear Apple’s vision for the future of mobile.  We’ve come a long way since the advent of the smartphone which moved us beyond the web page, browser, mouse and keyboard. The iPhone opened up an entirely new technology and business model but it has reached a saturation point. Benedict Evans and Mary Meeker highlight this slowing growth. The industry needs to evolve. Smartphones are on a replacement curve, not an adoption curve. This has enormous implications for the big tech players and the startups we invest in. Discovery and engagement on mobile is harder than ever. Distribution and retention is tough. People don’t engage with new apps. The average user downloads zero apps per month. SurveyMonkey uses their panel data to Continue reading "Revolution or Evolution – Did Apple give us a post-mobile future this week?"

Gboard — Google’s brilliant strategy to leapfrog Apple, Facebook and iOS messengers

Google’s new iOS keyboard seeks to own the key mobile use case — messaging.

gboard Last week, Google launched the Gboard to stellar reviews. It’s a 3rd party iOS keyboard that allows for searching and sharing in context on the phone. It’s a brilliant strategy for ensuring that Google is central for information discovery. It has the potential to be more strategic than the default search deals Google has previously struck with iOS Spotlight and Safari. To top it off, after nearly a week of playing with it, I love it. It’s a strong keyboard and has a slew of delightful features like emoji autocorrect [search pizza], predictive searches [text want to get a drink tonight], and of course the core search and share card metaphors. Up until now, first class keyboards that have done well on Android have had a hard time replacing the primary keyboard on iOS. It’s not an easy Continue reading "Gboard — Google’s brilliant strategy to leapfrog Apple, Facebook and iOS messengers"

Seed Startups – Business Model Experiments

tl;dr Seed startups are business model experiments and should apply the scientific method.

In 2011, my co-founder and I set out to build PrimaTable. Our vision was to bring yield management to local businesses. Our belief was that mobile technology had the potential to unlock local inventory, providing value to both consumers and small businesses. Revenue management techniques, previously seen in travel and ads, would now be possible. While PrimaTable didn’t become a stand alone business, it was a successful seed. We rapidly tested our assumptions for the business and market. We iterated through a series of products and models. There were a handful of testable hypotheses wrapped up into our vision. Our seed round was used to test these hypotheses, mitigating risk, as fast as possible. As a startup, we sought rapid growth and were predicated on the belief that smartphones represented a market dislocation that newly enabled Continue reading "Seed Startups – Business Model Experiments"

Seed Startups – Business Model Experiments

tl;dr Seed startups are business model experiments and should apply the scientific method.

In 2011, my co-founder and I set out to build PrimaTable. Our vision was to bring yield management to local businesses. Our belief was that mobile technology had the potential to unlock local inventory, providing value to both consumers and small businesses. Revenue management techniques, previously seen in travel and ads, would now be possible. While PrimaTable didn’t become a stand alone business, it was a successful seed. We rapidly tested our assumptions for the business and market. We iterated through a series of products and models.

There were a handful of testable hypotheses wrapped up into our vision. Our seed round was used to test these hypotheses, mitigating risk, as fast as possible. As a startup, we sought rapid growth and were predicated on the belief that smartphones represented a market dislocation that newly enabled Continue reading "Seed Startups – Business Model Experiments"

The Booking.com Marketplace Playbook

tl;dr Marketplaces extract value when they generate demand. The Booking.com low rake plus bidded auction model is the playbook modern marketplaces should follow.

Background

People know Booking.com as a behemoth in the travel industry but it wasn’t always the case. Priceline’s purchase of Booking.com in 2005 looks brilliant with Booking.com driving > 2/3 of PCLN’s revenue and accounting for a large portion of their $60B market cap.

Booking.com path to success is a fascinating story (see How Booking.com Conquered the World). It was started in 1996 with a revolutionary new agency model as an OTA. The agency model is much lower friction vs the previous standard merchant model driving Expedia and Travelocity’s success. Booking.com lowered the reserve rake from 25-30% to 12% and innovated on a more favorable cash flow for suppliers. This low friction model allowed Booking.com to acquire nearly Continue reading "The Booking.com Marketplace Playbook"

Dream On-Demand Marketplace

Here is an example presentation for an on demand marketplace.

Prior to the presentation introduce the founders. You want to build ethos with the audience. Highlight relevant experience to build credibility.

The goal of the pitch is draw an investor in further. You want to establish a large problem that your team is uniquely suited to fix.

  1. Intro

    This is the highest level what does your company do.

  2. Problem

    What is the problem and why does it exist?

  3. Solution

    What is your value proposition - how do you solve this problem faster, cheaper, better. Show is better than tell. Demo!

  4. Market

    How big is this problem? Is this market well suited to a new marketplace? Convey an overwhelming sense of your knowledge of the intricacies of your market.

  5. Unit Economics

    The business model. A marketplace lives and dies on this slide.

  6. Traction

    Show progress and momentum. Up and to the right!

  7. Go To Market

    You’ve established this is a big market and a real problem but how scalable is your solution?

  8. Competition

    Competition can validate a market. Demonstrate your unique value proposition.

  9. Team

    Highlight founders’ background and experience. Why are you uniquely suited to succeed here?

  10. Ask

    Summarize existing financing and investors, how much you are looking for and what will you accomplish with this capital.

  11. Appendix.

    The best pitches anticipate questions that an investor leaning in might have. The two I always care about are:

    1. Greater detail on the product and tech
    2. Customer cohort data

Code and Data

Here is a R script for simulating a simple marketplace and generating these graphs.

Startup Risk and Valuation

tl;dr Startup risk allows for the potential for reward. Valuation only increases on mitigation of risk.

“Out of clutter, find simplicity. From discord, find harmony. In the middle of difficulty lies opportunity.”

Albert Einstein

Startup are valued based on the overall market opportunity discounted by the risk associated with achieving a successful outcome. Therefore, valuation increases as the market increases or as risk is mitigated.

Successful companies level up. The team, product, business and process improve. The common successful venture backed path can look like a series of risks that are mitigated.

Stages:

  1. Seed - product market fit
  2. Series A - build team and business
  3. Series B - scale the business
  4. Series C - profitability
  5. IPO - liquidity

These phases are made up of a variety of risks that vary across companies and markets.

Let’s take a look at risks that exist, examples where the risk determined an outcome and the questions VCs ask.

Risks:

  • Execution / team risk - Google Video vs. YouTube - the incumbent with the benefit of vastly superior resources fell to better execution. Is this team uniquely able to execute on the opportunity?
  • Technology risk - OnLive. ultimately failed due to the inability to create a desktop visualization technology with low enough latency. Can the right product be built?
  • Business model risk - WebVan in 1999, Exec recently. At scale, will the unit economics support the proposed business?
  • Financing risk - Everpix and Canvas. How much capital is required to get to a positive outcome? Will this be a category that can easily find follow on capital?
  • Market timing risk - Friendster vs. Facebook. Too early and too late is just as bad as being wrong. Why now?
  • Market adoption risk - Plancast. Will the market resonate with the product? Will the company suffer from a lack of product market fit, startup competition, or strong incumbents?
  • Market size risk - Mochi Media. Is the market large enough to sustain growth and have a material impact on the fund?
  • Scalability risk - Sonar. Growth is the only thing that matters. For enterprise is there a repeatable sales process, for consumer are there distribution channels with sufficient volume to create a big business?
  • Legal risk - Aereo and Outbox. Are there IP, copyright, or other legal risks that have a material impact on the business?

Fund Raising on Risk Mitigation:

I’ve often had friends ask when to raise their first round of financing. The answer depends on the level of risk associated with the project. In many cases, former engineers and product managers with strong track records of building and shipping successful products do not need to build a MVP to generate investment interest. For Continue reading "Startup Risk and Valuation"