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8 posts tagged startups
8 posts tagged startups
I have become increasingly bullish on the future of e-commerce, particularly because I think we’re about to enter a period where social shakes up the industry. There are a couple of emerging trends we’ve seen over the past year: content & curation first, commerce second (Fab); celebrity endorsements (Beachmint & Shoedazzle); subscription models (Birchbox); flash sales (Gilt Groupe); and innovation in the peer-to-peer marketplace (SideTour/Vayable/Gidsy). As we see innovative companies emerge across these different models and create new ones, we are just beginning to see them utilize the power of social.
Social has disrupted many industries from publishing and gaming to advertising and the news, but we’re only at the tip of the iceberg when it comes to the impact of social on e-commerce. Pinterest is a massive step in that direction, providing an incredibly powerful curation network and social layer across the “things” on the internet.
Another company that’s pushing the boundaries is Fab. They have been crushing it, literally launching a new product almost every other week for the past two months. Their pace of innovation is astounding. Just look at this timeline:
For a site and business that’s still so young they’re shipping product and growing remarkably fast. One thing I love is CEO Jason Goldberg’s insistence that “Social is a fact, not a feature.” We’re beginning to see that belief spread across all of Fab’s products, especially the Live Feed. I’ve never seen a commerce site incorporate so many sharing and communication elements. It’s beginning to look less like a storefront and more like a network of design lovers. What began as a flash sales site driven by daily emails has gradually morphed into a social commerce site where direct traffic from Pinterest, Twitter, and Facebook has outpaced email referrals. That’s not a feature, that’s a fact, and that’s just the beginning.
Kudos to Fab for being bold, experimenting, innovating, and pushing the envelope on social commerce. What’s inspiring is that this is only just one example of one company bringing social elements to, and building a network on top of, their commerce business. Many others are in the same boat. It’s going to be a wild ride watching this space grow over the course of the next several years.
This past week’s tech journalist public smack down has been interesting to watch. The public exchanges got me thinking about something we’ve always practiced at GroupMe, which is to never talk negatively about competition, individuals, or other companies.
Since we launched GroupMe we’ve been part of a very competitive space. Between messaging, group messaging and private social networks, we’ve seen a whirlwind of activity from new startups to incumbents launching products in the arena. We were also fortunate enough to have amazing press coverage during a lot of the early storm. One of the things that would always bug me was when I saw people take direct shots at GroupMe publicly and through the press. It’s always a gut reaction to defend yourself and shoot back, but I’ve found it’s always best to take the high road. Keep calm and carry on.
Last year around SXSW we were asked every other day what we thought about specific competitors. Our messaging was and is succinct around the key differentiators between our company and the rest of the space, and we never have to cite “competitors” to get our points across. No one wins in a public fight, and your company has more important things to worry about than trash talking. Being negative is also a huge waste of energy that can be better spent doing something positive and productive for your startup.
If it drives you mad when your competition publicly talks negatively about you, it probably drives them even crazier when you don’t acknowledge them back.
I recently spoke with an entrepreneur who was asking for guidance on a rather large syndicate he was putting together (a syndicate is the pool of investors a startup assembles for a round of financing). At GroupMe we had a big syndicate: 15+ investors participated in our Series B, most of whom were individuals. Big syndicates take time to put together, and they take more time to manage. To do more financings and corporate deals you’ll need to collect signatures, circulate documents, build consensus, have people vote, etc. A lot of people think the more people they bring on board, the more help they’ll get.
In my experience it’s nearly impossible to keep all investors and advisors involved and up to date. In fact, it’s sometimes more of a burden than it is helpful. You need to spend time building your product, company, hiring, and making sure the gears are grinding, not reporting to and hand-holding all of your investors. Big syndicates are good (and a champagne problem) in that they allow you to pick and choose who you want to keep involved. Out of our pool of 15-20 GroupMe investors, we probably only kept 3-5 completely up to speed on a regular basis. I think 3-5 really active investors is manageable, and most productive. After that, you hit diminishing returns.
Some investors can help with specific problems, and most will always answer and help when called upon, but very few will be by your side every step of the way. My advice to those with big syndicates would be to not worry about managing everyone, just find the handful that really help and want to be most engaged and leverage that. The worst thing to do is to waste cycles trying to get disengaged people to help when you can extract more value from those that are willing.
“Everyone has a plan until they get punched in the face.”
-Mike Tyson
After we launched the GroupMe Beta at TC Disrupt in September 2010, we inadvertently stepped into another round of fundraising. It was never our intention to raise money at that time, but there was considerable interest from several VC firms on the West Coast, and so it seemed like the prudent thing to do. The opportunity to raise another round of financing was appealing as competition in the space was heating up, and we had a chance to step on the gas. So we went for it and initiated the process with two firms.
We had full partner meetings which could not have gone better. I was 50/50 that one company was going to give us a term sheet, and with the other I was 95% certain. That’s absurdly high certainty, naive certainty, but that was the case. After some very strong meetings, we flew back to NYC and waited for a term sheet to come in. The 50% firm was in touch for two weeks, and ultimately came back with a “No” because of an issue in diligence (which we solved down the line). The 95% firm went relatively silent for two weeks, and ultimately circled back with a “No” due to a conflict of interest.
What happened? The plan was to quickly close with one of these firms and then go on and grow our business. That was the only plan, and it seemed to be a sure thing at the time. When the “No’s” came in, it was a blindside knockout punch to the face.
Word had leaked that we were raising and we were convinced that we had to continue onwards. Up until that point we weren’t running a process, the process was running us. There was no backup plan because we never thought one was necessary.
Fortunately, we were able to get back on our feet fast, recoup, strategize, and quickly talk to some more firms we were interested in working with. We were lucky that several of them wanted to work with us. I’m grateful for the way things turned out with that raise - I don’t think they could have been any better and I couldn’t ask for better partners than the ones we had. Should we have had a Plan B? Yes. Was it a rookie mistake? Most definitely. But if it didn’t happen then, it would have happened somewhere down the line, and with more severe consequences.
As Mike Tyson said, everything is good until you are knocked down on your ass. This happens all the time at startups and takes many different forms. Sometimes a financing falls apart. Other times a new hire you and the team love bails at the last minute. Some features and products you pour your heart into don’t scale or gain traction like you think they would when they launch. I’ve seen plenty of sites unfortunately go down on their launch days after months of preparation. And sometimes that epic distribution deal falls apart. It happens. It’s always important to think through and cover your possible failure cases and have a backup, but inevitably we’re all blindsided at some point. When that happens, there’s nothing left to do but get back up and get revved up for the next round.
I saw something remarkable from a startup I’ve had the privilege of working with recently. The founders are in the midst of assembling their core team and they’ve been doing an awe-inspiring job at it. Steve Martocci and I have been working with them for a several months, and one of the first things we stressed most while they thought about hiring their first employees was to utilize a trial period. The trial period is something we inadvertently stumbled into when we made our first hires. What began as a series of consulting gigs transformed into a hiring practice that has worked very well for GroupMe. It has also worked well for several startups that I’ve seen adopt the practice. Putting together the right core team at a startup is one of if not the most difficult and important things in the early lifecycle, and the trial period can help you find the right people to help build your company.
At GroupMe we never had an employee #1. Instead we assembled a core team with Pat Nakajima, Cameron Hunt, and Brandon Keene. Both Pat and Cameron began as consultants in July 2010. Cameron was introduced to me through Marco Arment, who I used to work with at Tumblr. We needed a front-end developer with an eye for good design, and someone who could build for iOS. Marco, with great conviction, said that Cam was the guy. He was right. Pat was introduced to Steve through his old boss and longtime friend and supporter of GroupMe, Josh Knowles. He was in between jobs and agreed to help us get groop.ly off the ground doing some consulting work.
The time we all spent together during those first couple weeks was pure fun. Everything clicked: personalities, working styles, karaoke duets, and even taste in office music (which admittedly sometimes consisted of various Disney soundtracks at the time). What started off as Steve and I working with consultants in the office (aka Steve’s studio apartment) quickly turned into a cohesive team in a matter of days. The process of converting from consulting work to full-time work was completely organic. It was the next logical step in our relationships, and building out the core team.
The anecdote is important because it set a precedent for GroupMe in how we like to recruit and work with prospective team members. In retrospect, those early days of consulting were really a trial period to see if we were all a good fit together. The trial period is something that has worked extraordinarily well for us, and I think it’s something that’s also worked well for those that we’ve recruited. There are so many things that determine if someone is a good fit (personality, culture, skill-level, etc.), but I think the most important criteria is that you (and the person joining your company) both have a positive gut feeling about working together. It takes time and some getting to know each other before one can develop that feeling - generally speaking, I think it usually takes around 2-3 weeks.
If someone is currently a consultant, or in between jobs, we like to bring them in as a paid consultant for a 2 week period and see how things unfold over the course of that time. This way, we don’t make any rash decisions, we can see how they mesh with the team, and they have an equal opportunity to determine if our company and culture is the right fit for them. More often than not, the trial period leads to a full-time position. There have definitely been instances when someone was not the right fit, but we would have never been able to figure that out on both sides had we not engaged for those 2-3 weeks.
There are some situations when it’s difficult to do a trial-period; for instance, when a potential hire already has a full-time job. When this happens we like to bring them in after work or over multiple weekends to work on projects with the team. We’ll order lunch, and hang out and work for the afternoon and try to complete a specific project end to end. This gives both parties an opportunity to test things out in an abbreviated time span.
The trial period doesn’t just extend to engineering, but all departments: support, marketing, sales, business development, etc. Steve Cheney, our first BD hire, worked at GroupMe for 4 weeks before we brought him on full time. We were setting up for our first major brand partnerships and I was overworked and dropping the ball. Steve came walked in the front door and got up to speed in two weeks, and we went on pitches together for the rest of the month, ultimately leading to one of our most successful launches to date. Kevin Crowe and Tanuj Parikh both had full-time jobs, so we’d all meet on the weekends and run through projects and whiteboarding sessions together.
When a startup is small and growing, every employee plays a pivotal role - and it’s not just their respective job - it’s contributing towards building the culture you want to be around forever. One bad apple will bring the team down, and one exceptional person will elevate your and everyone else’s game by 10x. That’s why it’s so critical to hold to your highest and most important standards, and the trial period helps you do exactly that
The other day I asked the following question on Fred Wilson’s blog:
[There is a] disconnect between invention and entrepreneurship in universities. Aside from the obvious bureaucracies inherent in major institutions, how is this not a potentially valuable untapped market?
NYC has a tremendous academic force producing valuable research, a majority of which sits on the shelf and collects dust. Couldn’t this be a major source in helping to develop the NYC startup community?
Fred had a very simple answer:
All great companies start with an entrepreneur not a piece of research or technology.
His response couldn’t be any truer, but it doesn’t address an important aspect of my question: When do you invest in the entrepreneur and when do you invest in the product? (Obviously the perfect investment is a combination of the two, but you can’t get perfect all the time.)
Disruptive innovation does not have to come from the hands of an entrepreneur. Not all products, disruptive or otherwise, are attributed to entrepreneurs. Most academics and scientists are in their respective fields because it’s what they love. They live to hypothesize, research, experiment, and invent. A university researcher may create the next internet but not have the entrepreneurial drive to bring it to market.
So when do you hedge your bets on the product and not the company? And what happens when you discover the golden product, but it doesn’t belong to an entrepreneur? I think there’s opportunity within these scenarios (e.g. unique incubators and hands-on/managerial investments). It may be difficult to navigate, but the returns can be very rewarding.
Seth Sternberg, CEO of Meebo, had a very relevant guest post at TechCrunch last week focusing on the traits of successful startups in the consumer internet business. He stresses two key characteristics:
Last night I went out to dinner with a friend who is getting the itch to start his own startup. There were two main points I tried to reiterate: establishing a great founding team and concentrating on the product. For most MBA types who come from financial/consulting backgrounds, there’s a common misconception tied to the consumer internet business. It’s the notion that all you need is an idea to create a successful online enterprise - the rest can be outsourced. I would estimate that 95% of the time, those that take this route fail. I learned that the hard way with Inside New York. Outsourcing your core product is a bad idea (good hackers usually won’t want to work with other developers’ code, especially if it’s shitty code from across the globe). Fortunately, I had a great safety net and was able to produce a successful turnaround. These are lessons that are hard to understand without getting your feet wet, but if you can learn from other people’s mistakes you’re all the better for it.
Startups need a solid founding team. You have someone with an idea (a developer or a business-oriented entrepreneur), and you begin to create. If you’re not a hacker, you need to find someone who is - someone you can work with on a daily basis who shares the same interests, values, and vision (granted your vision will evolve). Tumblr is a perfect example (and I’m not just saying that because I work here). You couldn’t ask for a much better team than David and Marco. They’re both extremely talented hackers who have shared a common goal since day one: to make it as easy as possible for themselves (and others) to share the things they love and create online.
This leads to point number two: focus on the product. When Tumblr was just an idea with nothing but a little bit of code to show for it, the focus wasn’t immediately on raising capital - it was on creating a minimum viable product, user-adoption, and iterative and incremental developments. When you are ready to raise capital, it will be driven and valued by how useful your product is. Seth puts it quite nicely:
Get your product out the door. No office. No phone system. No hiring. No press. No legal muck. No raising money. No looking for partnerships (who’s going to partner with you anyway?). The success or failure of the adoption of your product is what will create 99% of the initial value of your company. If no one ever uses your product, you have no value…forget everything else and focus on what matters – getting an alpha of your product out the door and into the hands of your friends and family. Use some URL like www.mygreatstartup.com/shhh.html. Then, once you’ve fixed the initial bugs and incorporated a feature or two that everyone requested, go live. Remember: keep it simple. The initial product you build is for you – you don’t know what features everyone else wants. Launch fast and light, and listen to your users for feedback. In the product, always have a way to ask for user feedback.
This isn’t to say that the only way to start a successful startup is to be a hacker. Seth did a good job for himself as he noted in his post. Tumblr President John Maloney also did a hell of a job and became quite the successful entrepreneur (see UrbanBaby). The difference is that initially you’ll mainly be dealing with the administrative side of things - networking, dealing with lawyers, and doing some light marketing and PR with your users and the blogosphere.
If I were to start a startup, I would find a hacker who I knew or was introduced to me by someone I trusted wholeheartedly, agree on a fair stake in the company, and develop, develop, develop. I’d also bring on another hacker with serious designing chops for a minimal living salary and a specified stake if he was deemed a good fit. The fact of the matter is that the consumer internet space is a place conducive to talented hacker-entrepreneurs, but there’s still plenty of room for those with only ideas - they just need to execute them efficiently.
Recently, there has been a barrage of articles espousing the need for startups to set out with the mission to change the world. I think this notion is backwards. The software and services that change the world solve people’s problems in a simplistic and granular manner. They don’t set out with the ambition of changing the way people do things on a global scale. Solving people’s problems is a much more tangible goal, and a much more meaningful goal than simply saying you want to institute a global change. Startups should be driven by one meaningful problem that people have and discover a way to solve it that is accessible to the average person. You can’t develop a service that only effects technologically savvy. You need to create something that’s simple, effective, and usable for the average internet user.
People say they want to see startups that want to change the world. What they really want is to see startups specialize and innovate in a certain area where a problem needs to be solved. It can be a large-scale issue (e.g. Healthcare delivery), personal (e.g. a dating service), or simply informational (e.g. real-time search). In order to change the world you need to first ask yourself, “What problem am I solving and whose problem is it?”
