It’s immensely easier to get a company going successfully when the wind is at your back. I’ve heard a number of different investors say something akin to this, and I totally agree.
Some quick disparate thoughts:
1. Building a company with the wind at your back does NOT mean you aren’t being contrarian. Contrarians can see positive tailwinds when others miss them, or think that markets will shift differently from conventional wisdom. This is something that I’ve actually had a hard time understanding, because I am by nature one who tries to think differently.
2. Building a company with the wind at your back does NOT mean pouncing on emerging trends. I sometimes see founders highlight now their company is in lock-step of big trends, and then point to successful companies that are leading those trends as evidence. That does not make me think that the wind is at your back. Actually, it makes me think that the wind is in your face. If someone else is doing something similar, it probably means that there are dozens of others doing the same thing too, which creates a bunch of different headwinds.
3. Building a company with the wind at your back DOES mean that you spot the underlying shifts/behavior changes/opportunities that will drive future trends. For example, the “1099 economy” isn’t a thing as much as it’s driven by the trends that fuel it. That’s also why I think there is a big difference between having a “thesis” vs. having “themes”. Theses are forward looking, and themes are more about stitching together what one observes about the present.
4. What does “wind at your back” look like? It could be a bunch of stuff. High level things include:
- Emerging new engines for user acquisition
- Demographic shifts
- Underlying shifts in user behavior
- New technologies that make the previously impossible possible
- Regulatory changes
I had a meal with a friend of mine a few weeks ago who had been in a bit of a funk for the last year or so. He has two young kids that take up a lot of time and he does great but emotionally exhausting work (he’s an oncologist). I noticed that he was in a much lighter mood, and I asked him why that was the case. He said that a few months ago (in the dead of winter) he decided to take stock of many areas of his life, big and small, and just make changes. This included both mundane, routine stuff (what he did first when he got out of bed) to work behaviors (where he decided to focus his research efforts) to personal stuff too. It wasn’t so much that any particular change was necessarily better, in fact, some were pretty random. But the point was just to do something different to expose himself to different stuff and shake him out of his funk.
I’ve had a couple phases when I’ve done something similar to varying degrees. I’ve always been surprised by the unexpected benefits of shaking yourself out of your routine, and the new learnings that such changes provide. When I was in high-school, there was a year when I made a resolution to essentially say “yes” twice as often as I normally would. Yes, a scary sentiment for a teenager growing up in a large Asian city, but it actually changed my life trajectory quite a bit.
Recently, I’ve made a bit of a change in how I’m spending my time at NextView. Historically, I’ve been somewhat thesis driven around certain types of markets or businesses. Even though there is always room for serendipity in venture, I had a sense of what I was looking for, and would spend a fair bit of time just focusing on the areas that were of interest to me.
More recently however, I’ve been struggling in this regard. I think it’s because I tend to enjoy digging deep into markets with less froth and attention, and today it seems like there is a ton of enthusiasm everywhere. I’ve been learning about drones and AI recently, but while I have found the areas fascinating, I don’t have a strong thesis about where things are headed and what needs to exist.
So I made a bit of a change the last few months. Instead of focusing on areas or sectors, I’ve been trying to formulate a thesis around people. In particular, I’ve thought about personas of founders or early-stage operators that I think are interesting and am trying to meet as many people as I can that fit so I can expand my own knowledge set. These two personas are 1) deterministic product designers and 2) early stage growth marketers.
Most of the meetings I’ve had have had a very different agenda than my typical meetings. I’m mostly taking the time to introduce myself and to learn. It’s been a lot of fun and I’m developing some unexpected theses that I wasn’t really looking for but I think will make me a better investor and allow me to help portfolio companies better in the future. I’ve also met some terrific people along the way who have been generous in sharing their time and knowledge with me with little in return, and that’s been super valuable.
Very quick follow-up post to my article on Techcrunch.
There was a discussion between @joshelman and @pingupceo who brought up a question that he was recently asked that goes:
“What have I not asked that I should be asking?”
Josh mentioned that this is something that he asks often, and my partner Dave asks this question occasionally as well.
The question can seem a bit tricky because it’s so open ended. You don’t want to say the wrong thing, nor do you want to evade the question. How does one handle this?
The question becomes much easier when you think of it as an opportunity, not a trick. The opportunity is to do one of the following:
1. Show off something great about your team or your business that hasn’t come up yet. Usually, something that isn’t obvious, but is totally to your advantage.
2. Bring up an obvious challenge that hasn’t come up yet but almost certainly will with any level of due diligence. It’s better to get in front of the obvious difficulties than shy away.
As Josh put it in one of his tweets, the way he is thinking about the question is: “we are getting to know each other – what have I failed to ask that is awesome to know?”
Finding an investor that is the right fit is hard to do. People are complex, and many times, both the founder and investor have far too little time to really get to know each other. So use these sorts of questions as an opportunity to do this.
A problem that I often see founders and investors make is to project their opinion on new products and ideas without really giving them a shot themselves. I see this happen in particular when something comes out that is threatening to one’s own efforts or one’s way of seeing the world.
I do this myself. I’m actually not naturally an early adopter, and I’m pretty comfortable trying to mentally analyze a situation, and make conclusions of how things will unfold without needing to try stuff first hand. Sometimes I’m right, but I’m also often wrong. I think it’s a weakness of mine that I try to over-think a situation rather than just learning by doing.
I made a resolution a few months ago to push myself to suspend judgement and just try new stuff more. This includes using new services and technology, but also to “launch” stuff more often and more quickly when we have an idea or an initiative we are thinking about. I think that living in an academically-minded part of the world (Boston and Cambridge) you get into a lot of theoretical discussions about unknown things. But in areas of uncertainty and change, I notice that there is no good replacement for the real thing.
It turns out, this is true in a lot of different avenues, and I think is part of a broader trend or set of best practices. A couple random examples;
Mythbusters: It’s one of my favorite shows, and what makes it so cool is that they do a great job of creating a hypothesis and then developing a series of tests to see what actually happens. Sure, it makes for good TV, but the best part of the show is when sound theoretical expectations are proven wrong or are shown to have more complications when translated into the real world. I love it.
User Acquisition: I’ve been on a bit of a quiet campaign to meet a bunch of really strong user-acquisition folks at different startups in Boston and New York. One thing that is surprising (that I’ll blog more about later) is that many of these people have limited marketing experience. What they do have is a highly analytical background and a mentality around experimentation. On the flip side, more experienced marketers often enter a startup setting wanting to employ an older playbook to stick to things they know work, which sometimes isn’t a fit for what an early-stage startup really needs.
Hiring: When I dig into the hiring practices of world-class organizations, you see a very obvious trend. The best companies tend to use tests in their hiring. Capital One has been doing this for a long time, and this is common practice among technical organizations as well. But increasingly, you are seeing this become common in a much broader set of companies and types of roles. I recently spoke with an interesting company called Prehire that is making this process much more seamless through software, and they’ve had great early results. There is nothing like the real thing, but the next best thing is to simulate the real thing and see how people respond. It’s a lot better than judging people based on a resume, their pedigree, or how cleverly they answer interview questions.
Enough for now. Time for me to go give my Apple Watch a try!
I hosted a group of HBS students in a tour of startups in downtown Boston a couple weeks ago. It was a fun trek, that had us visit Dataxu, Localytics, and near-unicorn DraftKings. We ended the trek chatting with Paul English, the co-founder of Kayak at his venture foundry Blade.
It was great to hear the inside story of some really interesting companies, including two that have just raised substantial dough and are looking to expand their business and teams significantly in the coming years. Some of these companies have extraordinary growth rates and are poised for really great things. Most are looking to have teams that will be over 200 people over the next year or two, probably quite a bit larger in some instances.
But what I was most struck by was a stat that Paul English shared. When Kayak went public, the company had one of the highest revenue/employee ratios of any business. Here’s what Kayak looked like when it went public:
IPO Market Cap: $1B, Revenue: $225M (2011), Employees: 185 (July 2012), Rev / Employee: $1.2M (Paul has quoted $1.5M, which makes sense given growth of the business in 2012)
Compare that with a couple other recently public companies.
IPO Market Cap: $8.4B, Revenue: $98M (2013), Employees: 628 (2014), Rev / Employee: $156K
IPO Market Cap: $2.6B, Revenue: $331M (2012), Employees: 886 (2013), Rev / Employee: $374K
IPO Market Cap: $967M, Revenue: $64M (2013), Employees: 534 (2014), Rev / Employee: $120K
IPO Market Cap: $1.7B, Revenue: $124M (2014), Employees: 972 (2014), Rev / Employee: $127K
IPO Market Cap: $1.9B, Revenue: $137M (2013), Employees: 680 (2014), Rev / Employee: $201K
IPO Market Cap: $990M, Revenue: $134M (2013), Employees: 342 (2014), Rev / Employee: $392K
Throwing in Etsy now that the data is available:
IPO Market Cap: $1.7B (e), Revenue: $195M (2014), Employees: 685 (2015), Rev / Employee: $285K
These are pretty fascinating comparisons. Of course, these businesses are very different, and that has an impact on this metric. But it’s amazing to think that Kayak went public at a $1B valuation with less than 200 people, when all of these other companies had 300 people or more. Some of the mid-stage startups that I visited that day will have more employees in the next 12 months than Kayak did upon IPO. Pretty extraordinary.
It’s a reminder to me of something that my partner Dave often encourages us to focus on: technology leverage. We are seeing more and more companies out there that are largely based on the time and effort of people or are about making or moving around stuff. Those could be pretty interesting companies, but their value will be largely based on how much leverage they are going to get out of their technology to fuel attractive growth and profitability down the road.