I’m feeling particularly blessed today. And it’s not just because it’s Good Friday.
Nancy has been traveling a bunch the last month. I think she was gone 14 nights in the past 30 days. It was pretty tough with my own travel schedule, but we got through it and am really glad that she’s back for a while. I’m grateful that we have great help and support through my in-laws and our au pair who allow us to handle these sorts of life fluctuations.
My daughters have been amazing, and I’m shocked at how quickly they are growing up. Yesterday, I was knocked out with food poisoning. I was in rough shape. But the girls were really sweet. They brought me food and drinks. They checked in to see how I was, but didn’t try to pull me out of bed to take care of them. A couple times, they would just come in and hang out with me without really saying or doing anything. It was good for my soul.
On top of all this, the snow is mostly melted and we had our first really great day of spring yesterday. I dragged myself out of bed for a walk and felt refreshed.
My cup runneth over.
I found myself giving a couple different personal care companies a try recently. One was Harry’s, and the other was Walker & Co. These experiments stemmed not from my dissatisfaction with my current product (a Gillette Fusion pro-glide), but my general interest in disruptive innovation.
I am coming at this question from an interesting perspective. My wife is an alum of Gillette, and was around to see the transition of that company as it changed hands and became a part of P&G. As a result, I have a couple unique POV’s.
1. I happen to be pretty indifferent to price at the moment, given that I have a healthy supply of razors at home and my hair is such that I don’t really need to switch that often.
2. I have tremendous appreciation for the level of science and innovation that have gone into the best-of-breed Gillette products. As Jeff Raider from Harry’s remarked to me when we chatted on the phone, this isn’t like the eye-glass industry. There is real IP and decades of effort around optimizing performance that the new players need to deal with.
3. That said, I see P&G as struggling immensely to manage this business. Gillette was largely a performance and product driven company, and P&G is a mass brand-driven company. This has led to confusing market positioning, stalled innovation in product development, and a mega-mass market focus that I think make the category super vulnerable.
So, what did I think of these experiences?
I think Harry’s is a solid product, with beautiful branding. But there are a couple product issues that I know the team there is working hard to address. I believe these are solvable, and the fact that Harry’s owns their own facility gives them a shot to be a performance player over time. I haven’t tried Dollar Shave Club, but it will be interesting to see how this approach unfolds. DSC seems like the low-end player disrupting largely on price and go-to-market, and it seems to be working well given their recent market share numbers. But Harry’s is making the bet that ultimately, they can be the next-gen Gillette – a performance oriented product with a more aspirational brand (and hopefully, still cheaper prices). Will Harry’s be able to deliver on this brand promise? Will DSC need to start spending a lot more on product innovation or else see marketing efficiency and retention decline? Time will tell.
But I think the most interesting company in this category is Walker and Company. I gave their product Bevel a try, and found it really cool. When big incumbents are disrupted, the successful new company often goes after a niche market and beats the incumbent in a non-core attribute.. Walker and company is doing just this – going after the niche of men that have sensitive skin and suffer from razor bumps. Because of this, their product is completely different – an old-school, but beautiful double-edge razor.
I’d argue that the core attributes that most razor companies go after are shaving closeness (Gillette) and price/value (Schick). Going after skin irritation (which is a rampant issue for people of color) is a brilliant approach towards this market. It’s something that all shaving companies seem to care about, but is definitely not priority #1 or priority #2 when they think about their product strategy. It also allows them to make a product that feels like a luxury, precision instrument with pricing that is sort of apples-to-oranges to compare (each Bevel package includes 60 razors). It’s a total judo move.
Ultimately, I’m probably going to stick with Fusion for now, but it’s really cool to see smart companies with a commitment to great products start to get some traction in the market. It will be exciting market to see unfold. For a long time, I thought that Gillette was unbeatable. But It’s pretty clear that now is the time that this is no longer true.
I find the most successful fundraises are ones where founders treat capital as a weapon, not as oxygen.
If capital is like Oxygen, the conversation focuses on what might go wrong. Will your numbers and assumptions hold up? Will new risks blow up your model or the quality of your service? What unforeseen challenges might make you miss your numbers and run out of money sooner, requiring more oxygen down the road. What’s around the corner that will be a threat?
If capital is a weapon, the conversation tends to focus on what might go right. What will be the benefits around the corner with increasing returns to scale? What kind of game changing people will you attract, that will raise the level of all future hires? What kinds of unbreachable moats will you be able to build? What kinds of new partnerships or new capabilities will be achieved? What’s around the corner, and how can you play that to your advantage?
By the way, it’s not that those who treat capital like oxygen don’t talk about upside and results. But I notice the focus tends to be more on numbers and scale. “We’ll get to $xx in revenue” or “We’ll be profitable”. When capital is a weapon, the milestones tend to be different.
Capital as a weapon can backfire. If you read my last few posts, you will see that I’m totally wary of that. Some companies I know use capital as a weapon, and I think of them as enormous cannons sitting on top of a house of cards. Some funds I notice fund companies like this systematically. It’s kind of scary, but if a solid foundation is actually built for these companies, it will pay off.
Regardless, when you go out to raise capital, you should ask yourself if you can credibly talk about how the capital will be a weapon that will help you win, and keep winning. If you can’t, that will be a problem when you talk to investors.
There is something so funny and also so appropriate about all this talk about Unicorn companies.
I’m not the first person to say that the proliferation of $1B+ valued startups is a signal of an overheated late stage market. Yet, there continues to be so much fanfare and excitement about all of these unicorn companies.
Unicorns are a great metaphor and a brilliant meme – just excellent marketing. But what I find so funny is what is so obvious:
UNICORNS DON’T EXIST!
Unicorns are mythical creatures. And guess what, the unicorn-ness of many of these companies are equally mythical. Moreover, all the excitement around these unicorn financings are IMHO pointing entrepreneurs and the whole market in the wrong direction. In particular, I feel a few things really strongly.
1. $1B private financings do not equate $1B of company value. These are private sales of a minority position in these companies, not IPO’s or acquisitions. It’s what one investor was willing to pay to have a small position in a company. Not a measure of true underlying value. I think Fred Wilson had a post on this a year or so ago, but I couldn’t find it, so I’ll leave my attribution at that
2. The goal for a great company isn’t to get to unicorn status as quickly as possible (or to be on that trajectory as quickly as possible). It’s to build a great company that creates huge value for users or customers and will keep doing so for a long long time. I wish there was more excitement about great, durable businesses instead of unicorn financings. I’d rather read more thoughtful reflection on what made Etsy a fantastic, thriving marketplace vs. the next company that raises a unicorn round.
3. Sometimes, great companies take time. It takes time to build a durable foundation for a great product or scaleable growth. This can be true in all sectors, even consumer-social. I loved Hunter Walk’s quick post on the “Slow Graph” as he talked about Meerkat. No commentary on Meerkat itself, but the post points to choices focused on durability, not just the fastest rise possible. Tumblr’s user growth wasn’t actually very fast in the early years, but over time, the community became incredibly rich and robust.
4. There is a shocking disconnect between public market valuations and private market valuations, and it’s not because the public markets a) don’t know how to value these companies accurately or b) great companies find the public markets too much of a burden vs. private financing. Keith Rabois wrote an excellent post here on Quora going into more detail. Read it.
5. Some of these unicorn companies will be (or already are) wonderful businesses that will be around for a long time. My point isn’t that these companies are bad, some are great. But in this market, unicorn status is becoming less and less of a real indicator of actual greatness (or accurate value).
I wish I could come up with a clever label for these rapidly scaling, great companies aside from unicorns. I kind of like the idea of Alligators or Sharks. Both are pre-historic and at the top of the food chain. But I guess they aren’t rare enough. Maybe a good marketer out there will have better ideas for a good unicorn replacement.
When entrepreneurs think about approaching VC’s to cultivate a relationship for a round, they often try to match their company with what the VC has funded in the past. It’s pretty rational. That investor should both know more about the sector than the next person, and should have an inclination to invest in that sector as well.
I’ve tended to find that this doesn’t always work. Often, a VC that has invested in a sector has a particularly high bar for their next investment in that same space. Once you have gone deep in an area, you are exposed to all the non-obvious challenges and hardships associated with that market segment, which makes you very very pessimistic and picky. Sometimes, it’s easier to invest in an area that you have some knowledge in, but don’t know all the gruesome details – after all, it’s nice to have some level of ignorant optimism.
There are quite a few examples of this. I think this is particularly true in the ad-tech space. You see investors dive deep into ad-tech, make some investments that are pretty successful, but then pull out just as someone else enters to take their place. The same is true for e-commerce. Both markets are obviously ones where success can be found, but they are also very competitive and have particular challenges (eg: capital intensity of ecommerce, bad exit multiples, etc).
So, I think it’s sometimes tough to pattern-match based on sectors. But I do think it’s pretty successful to pattern-match based on founders. When an investor has success with a particular profile of founder, they tend to be enamored by founders of a similar ilk. I have multiple conversations with investors that say something like “I really like this company, the founder reminds me of <insert name> when he/she started <insert successful portfolio company>. Investing in startups is a very personal business, and as someone who is going to be spending a lot of time with a founder, investors tend to gravitate towards similar profiles of people.
What this means is that getting to know the founders that an investor has backed gives a really strong clue as to what kind of people that investor will gravitate towards. It also means that the best way to get introduced to an investor is often through the founder of another one of their portfolio companies, and it’s even better if you have similar attributes to that founder at the time they started their business.
For me personally, I tend to be obsessed with what I would call deterministic, design-focused product founders. This is driven by my experience working with Pierre and Jeremy at Sunrise, and by watching the success (and joy) that my old colleague Bijan had in working with folks like David Karp when I was at Spark. There are some other personas that I tend to gravitate towards as well, but that’s an example.
By the way, this also lends a bit of a clue as to how you might want to shape your founding team. You can look beyond just the founder/CEO to what the first 2-3 people on a team looked like at the time of funding. You can’t really change who you are, but you do have influence over who you found your company with and who your first 1-2 team members are. Again, I don’t think you should ever make hires or shape a team for investors, but I think this is an area where past performance can be an indicator of future performance.
So if you’re doing you are thinking about how to best approach investors, don’t automatically just pattern-match based on sectors. Try pattern-matching based on the profiles of founders and their founding teams. It’s a people business after all.