Tag Archives: Twitter

Monetize early and often

A common, long-running theme in Silicon Valley is that companies will get started with no sense of a business model.  The common ethos is this: “we’ll get lots of eyeballs, and then we’ll monetize the eyeballs later.”

And certainly if you look at a business like a Twitter or an Instagram, neither were ones where a business model from day 1 made much sense.  To succeed at scale, they needed to establish themselves as very broadly adopted, broadly used services.  Indeed, not so long ago, many were hand-wringing over whether Facebook would ever be able to generate sustainable revenues.  Given that $FB is now pulling in well over $1B / quarter, no one’s really harping on that anymore.  So I think it’s safe to say that for the foreseeable future, we’ll continue to see tech companies that grow first and monetize later.

At the same time, I’m noticing a trend of companies that are starting to monetize earlier in their life cycles.  Companies like Evernote, AirBNB, and Uber are examples, where they were generating revenue really early and growing from there.  My sense is that we will see more of these, for a few reasons.

First, the breadth of endpoints is massive.  Over the last 5 years, we’ve seen the explosion of smartphones, tablets, Kindles and other e-readers, along with the continuing growth of the PC market.  The increase in nodes (or screens if you prefer) and endpoints where a service can be offered and a transaction consummated is staggering.

Along with this rise in endpoints, distribution is now becoming increasingly accessible, if you can pay for it.  If your company can prove that it can generate gross margin on a per unit basis, then it’s going to be possible for you to invest a good portion of that margin in acquiring new users via a broad range of promotional and advertising offerings.

A third reasons is that a broader range of business models–freemium and in-app purchases, for example–have matured over the last several years.  This gives tech startups a path to offering users a low-friction, try-before-you-buy value proposition on the one hand, while offering a path to monetizing from early in the lifecycle.  This is a great thing for startups.

I think all of this bodes well for startups.  Getting revenue in the door at any level is a great validation of product-market fit.  It’s also a great way to keep the doors open and retain equity.  If I were starting a company today, I’d be looking for a path to get revenue in the door from as early on as possible.


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I Second That Emotion

Image representing Mixpanel as depicted in Cru...

There’s a management aphorism attributed to Peter Drucker that goes something like this “If you can’t measure it, you can’t manage it.”   This was on my mind, as I read Liz Gannes’ great article on AllThingsD today covering Mixpanel founder Suhail Doshi‘s call for an end to Bullsh*t Metrics.  His basic point is that technology companies have not innovated enough on how they think about measuring their businesses.  He’s calling BS.

Pageviews, installs and total installed base are out.  Engagement and retention are in.  This makes a lot of sense.

When I meet with very early stage startups, as I did last week at AppNation for VC Office Hours, I find myself repeating a few of the same points again and again.  Very early stage companies (i.e., pre-product or pre-product-market fit) tend to want a sense for how many installs or pageviews they need to attract an investor.

My answer heads a different direction.  To me, the first thing I want to see is evidence of what I think of as early product market fit.  Rather than showing me installs, show me that any small number of users that truly, with concrete evidence, really want your product.   This is actually more difficult to do than you might think.  It requires that the startup can show engagement and retention over a period of time.  And it requires that the startup is thinking about what how it measures user engagement in a manner that’s specific to that specific company.

This perspective seems aligned with Doshi’s feedback.  One thing that I liked a great deal in his post was his recommendation that startups focus on One Key Metric (OKM).  The idea is that tracking 1 actionable metric that “they can literally bet their business on.” Companies picking OKM have to deeply understand their business and what is driving growth and success in order to do so.  This reminds me of discussions that I’ve read of Facebook and Twitter‘s early growth, where FB started to realize that if a user added 7+ friends, that the likelihood that that user would become a retained user went up dramatically.  Similarly Twitter found some number (I don’t recall what the number was) of followers where, when attained, a user would be much more likely to be retained.

This mode of thinking and focus on OKL is smart–it focuses the leaders of a company on understanding, deeply, what users are doing on their service and what drives value to the user.  Hard to argue with this.

BRV portfolio company, Thumb, where I serve on the board, has been drilling in on it’s on OKM.  (I can’t disclose what the metric is.)  It’s been exciting to watch how the focus is leading to increasing retention and engagement, which as publicly reported is already quite high.

In any case, if you’re a startup in the tech space, I recommend reading Doshi’s post and contemplating what your OKM is.


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WTF! CFO Loses Job for Facebook & Twitter posts

From today’s WSJ, Gene Morphis, CFO of Francesca Holdings was let go because of his use of Twitter and Facebook to make company related posts.  The posts don’t appear to disclose anything all that juicy, else I’d expect the WSJ and other business journalists would be decrying the insider secrets that the CFO was exposing, pulling the business equivalent of ‘the Weiner.’

Some of Mr. Morphis’ offending posts: “Cramming for earnings call like a final. I thought I had outgrown that…” or “Earnings released. Conference call completed. How do you like me now Mr. Shorty?”

I think that this firing — for cause — is exactly the wrong step for this corporation and indeed for Corporate America writ large.  Facebook and Twitter open up society and connections, indeed they are freeing up information and societies.  Given the corporate scandals and failures that have rocked the US over the last decade–WorldCom, Enron, Madoff, Bear Stearns, Lehman, etc–the business community should be pursuing more openness, not less.  

Indeed, we want and need more transparency from Corporate America, not less.  These tools provide opportunities to do this.  Having  Mr. Morphis getting into a habit of sharing his genuine and open musings across social media drives this transparency, albeit in a small, focused way.  But I do wonder whether these tools and a CFO’s participation in these communities would serve as a deterrent to corporate scandals.  Of course, there’s no evidence here, but I’d wonder.  It drives the CFO to communicate more, generally a good thing.  It also gives more information to investors, even if non-material, also a good thing.  More communication, I would think, should have a slightly positive benefit towards deterring malfeasance or at a minimum exposing incompentence slightly more quickly.  Both good things.

Having a CFO share perspective on non-material, non-insider information through these channels should not be a fireable offense.  It should be applauded.

I’m saddened to see Mr. Morphis go.


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Facebook disrupting Carrier’s SMS business

Today’s New York Times reports that “Facebook Is Killing Text Messaging.”  Cites that operators are seeing customers moving their SMS traffic off of network (where prices are very high) and are just using Facebook messaging.

It calls out specifically the Philippines, “one of the top texting nations, sent roughly 400 text messages a month each in 2011, down from about 660 a month in 2010,” according to the study.

Makes all the sense in the world: users will take the free versus the pay every time on this trade.

Expect this trend to continue and to accelerate.

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Traction Speaks Louder Than Words In Today’s Social Software Space

As covered elsewhere, I am a believer that we are going to see more social media software brands and experiences.  I think that users will want to have different social media channels and experiences to engage with depending on what type of context, which relationships, etc. that they want to engage in at that particular moment.  If I’m coming out of the gym, I might hit Fitocracy and not hit Facebook, as I don’t want all my friends to know about my exercising habits as that seems a little weird. Etc., We could roll out scenarios like this all day long.

I expect that we will see lots of efforts that try, and like many startups in a growing, well hyped market, there will be lots that flame out and some that survive.  And that’s ok, that’s the startup world.

In today’s world of software, especially in social, focusing in on nailing product-market fit has never been more important.  On the one hand, the costs of building and distributing software has never been cheaper, and these costs are dropping every day.  Add to this the large number of talented teams and the broadly available tools and resources for founders to build and manage their businesses, and you’ve got an environment where social software companies are popping up everywhere.

On the other hand, with social media services, there’s certainly no single recipe for success.  Why does Pinterest break through with its pinning and matrix mechanic, when other social services haven’t taken off?  Why does Thumb with a very simple mechanic drive crazy high engagement, when other mobile Q&A sites struggle to get liquidity in their markets?

Ahead of time, I think no one really knows–users just tend to gravitate towards certain services.  Recall many thought Twitter was frivolous and stupid a few short years ago, now its been essential in driving mass scale changes in the way the world communicates.

Like the saying ‘success has many fathers,’ once the product-market fit is established and an early path towards growth is on track, then many can start to explain why a Pinterest, Twitter, Thumb or others are working.  The impossibly hard effort, however, is getting to that early product market fit and early growth path.

This is hard, and its critically essential.  In today’s world of startups, where software can be built and launched so cheaply, one would think it’d be easier to drive to scale and funding and all that goo stuff.  I think the opposite is actually true in many ways: with the low costs of launching and iterating, the bar has been raised on startups.  Now you had better be able to showcase early traction, product market fit, and growth, otherwise there’s another startup out there that can.


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#STARTUPPROTIP — when pitching, bring 2 or 3 people

I’ve recently started tweeting fortune cookie style tips to startup founders, generally focused on pitching and fund-raising, with the hashtag #STARTUPPROTIP.

These have seemed to engage people.  As I’ve got a bunch of them, some longer than tweets, I figured I’d write about some of them here.

Bring 2 or 3 people.  The first STARTUPPROTIP blog post to tee up has to do with how many people a team should bring in to pitch a VC.  My recommendation is 2 or 3.  The solo co-founder, if unknown to the investor, is I think too few–I can’t get any sense of the team that is being built, what the chemistry is, the culture, etc.  4 or more is too much of a zoo for a pitch meeting IMHO.  That leaves 2 or 3.

As to who to bring, it depends a bit on the type of startup.  One plan is to bring one person who’s responsible for building the product and the other who’s responsible for selling.  If your startup is heavily tech oriented, its perfectly fine to show up with 2-3 engineers/developers and no one who’s involved in business/marketing.  A CFO type, in a pre Series A, not as relevant.

Give each person a role.  Now that you know who’s coming to the pitch meeting, give each person a role.  If you have a presentation slide deck and a demo, figure out a logical role in the presentation for each of the attendees to get an opportunity to present or, at a minimum, give them a role answering some question (e.g., how the tech is architected, etc.).  Giving everyone a specific role provides each team member an opportunity to present, giving an impression of cohesion.  This also enables the investor to assess (in as positive a light to you as positive) the relative strength of the team.  In the best example of this scripting I’ve ever seen, a startup that pitched a year ago had 2 founders who knew exactly which slides or areas they presented.  They were masterful in transitioning between the two of them, and it conveyed a level of teamwork and unity that was quite powerful.

Have a scribe who records all questions asked.  When  you have 2 or 3 people attending a VC meeting, I would also recommend strongly that you assign one person to act as the scribe.  The scribe’s job is to write down every question that is asked during the meeting.  Whoever is presenting isn’t going to be able to write these questions down real-time, as she should be answering the questions asked.

Writing down the questions you get asked is important.  It gives you a great source of intelligence: the questions you get from the first investor you meet are likely to have strong overlap with questions you get from other investors.  By writing down the questions, you get an opportunity to prepare for future meetings anticipating the common questinos you’ll get.

With the scribe acting as the recorder of questions, then after each meeting, you and your team should review the questions that were asked, building optimal answers to each in anticipation of the future.


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