Finding a big pie

In startups, we often hear “X for Y” in terms of business model, “Airbnb for backyards” or “Duolingo for Music”, but it’s also common for market locations. Examples include, “The Knot in the Middle East" or "Amazon for Australia". Great businesses in the US haven’t spread everywhere, and sometimes for good reason. The market may not be big enough to make sense. 

Australia, for example, has 23 million people. It’s a large country but population-wise, it’s dwarfed by neighbors like Japan with 125 million people. And even though there are large populations there, it may not make sense that the market demand there are the same as market demand there. 

Understanding the size of the pie first is important, especially when thinking about raising venture capital. It’s very easy to think: I want this product so everyone will too. It’s worth doing some quick analysis of what that pie looks like to avoid the “someone like me” problem.

Potential Customers matter

I’m a New Yorker, 8.3M other people belong to that group too, but that’s only .1% of the 7.14B on this planet.  

Well, being a New Yorker means I’m also an Urban Dweller, which makes me part of the 50% of the population (as of 2010) that lives in a city. And that number is increasing. So maybe catering to city dwellers, not just New Yorkers is a big pie. 

That pie is big by population, but not necessarily by potential customers for your product.

Around 1.29 billion people (18.4% of the world population) live in extreme poverty, subsisting on less than US$1.25 per day; approximately 870 million people (12.25%) are undernourished. 83% of the world’s over-15s are considered literate. In June 2012, there were around 2.4 billion global Internet users, constituting 34.2% of the world population.(Source: Wikipdedia)

There are big problems for big populations of people. Those are pies worth thinking about. If your mission is to serve 10% of all internet users, that’s roughly 244 million people. That’s a big pie to shoot for, but it may be spread across different countries with different languages. 

What other requirements about your product need to be true? Do customers need to speak English? Be a tech early adopter? Have a smart phone? Travel? College educated? Parent? Tech savvy? Know your market. 

Spending matters

If you want to serve every mother living in New York City that makes over $100,000, that’s a smaller pie but maybe a bigger opportunity to sell a higher priced product. 

Margins matter

You could build a big business selling 100M widgets with a $1 profit on each. Or you could sell 1M widgets with a $100 profit margin on each. What the market will allow matters, think about the margins and how they will change over time. It’s easy to sell a $5 coffee when you’re the only game in town, but what happens when competition moves in and you need to cut prices to maintain sales? Goodbye margin or hello decrease in customers. You could do either, but you’ll want to think about that before you start. 

Even large, well funded companies sometimes choose to give up their own margins to drive more business. Sometimes they do this because they have the volume to maintain a profit, or sometimes they do it to squeeze their competition, driving competitors to cut prices too.

Pie ownership matters

Is this a winner take all market? Could many companies build big businesses in this space?

Walmart, Target, and local convenience stores co-exist. Walmart and Target have built massive businesses, they each own enough of a very large pie. It’s a massive market, so it doesn’t matter that they aren’t the only owners of the pie. Not winner take all, two winners take most. 

Android and Apple are winner take most in operating systems. It’s a slightly different story in handsets, it’s Apple, Samsung, Nexus and a number of manufacturers competing for share, especially in the US. 

For a good read on the US Brewery industry only having room for 3, not 4 big players, read 'How to Blow $9 Billion: The Fallen Stroh Family'

Big businesses can be built without venture capital

The majority of businesses are not venture backed. There are a number, especially those recently making their way to the public markets, but that doesn’t mean every business needs to shoot for venture funding. 

If there is a big pie that could benefit from a large amount of growth capital, that’s worth discussing. If it’s a business that can grow on it’s own revenues, that’s a great way to get there too.

If you look at the big picture, you can own 100% of your business, take 1% share of your market and build a $100M business. You could also own 10% of your business, take 10% share of your market and build the same $100M business. The goal would be to take 10% of a market that pushes your business to $1B+.

Go with the market

Markets move quickly, but if you understand the ceiling, it’s easier to be realistic about how to get to 1% of the pie and grow it from there. 

Scale your perspective to lead

A superior leader is a person who can bring ordinary people together to achieve extraordinary results. Remember this if you are lucky enough to manage a team. 

8 Wharton MBA lessons that stood the test of time

Part of scaling as a leader is knowing where you belong.

First you belong at the top, you have the vision and the skills to get things started. You hold the information and spread it down within a small team. The team is flat and they all look to you for what’s next. 

Then, the grass roots begin. You have to evolve so that you’re highlighting other people. Sharing their strengths. You are still the keeper of the vision but you lead by showing the work of others not your own. Expertise bubbles up, not just a trickle from the top.

Next, you have area expertise, whether it’s marketing, technology, design or data, but are slowly building a team of better experts around you. They may be better than you at the skill that you’re leading them in. That’s what you want. The real way you lead is from way behind. The message is shared through the experts, let them share with the company what’s going on, what’s worked, and what is up next. You lead the vision but it’s told through the people building towards it. Leadership is spreading up and down. 

Then you become a leader of people who are leading teams. You’re leading leaders. You are less into the mechanics and more on the showroom floor. Leading with the vision and passing off the vision to the leaders in your company to lead their teams. Everyone has ownership and is expected to lead, title or not.

In order to grow a company, you have to change along the way. There aren’t hard and fast rule to when things change, but it can work out better to move onto the next step earlier rather than later. You have to work to be better at letting others lead.

It won’t be like it used to be, but that’s not where you wanted to stay, now is it? 

Universal skills to land a startup job

Working with the USV portfolio means I get to meet a lot of outstanding candidates looking to join one of our portfolio companies. Here are a few characteristics I’ve found to distinguish the great candidates: 

Curious
You need to be curious to create things that never existed. You don’t necessarily have to be curious about something related to the job you’re taking on, but you have to have curiosity for something.

What do you love? If you can’t think of anything, it will be hard to build a product out of love. You have to understand it to get better at building it.

Show Hustle
Now, this is not just, “I got one ‘no’ so I’m going to give up.” That’s persistence, but hustle is more that that. Do your research, put your heart into it, cater to that company that has an open position, then don’t stop at one “no”. Understand what they need and work to become the person the company needs.
This is not, let me send my cookie cutter resume to every startup (even when they’re not hiring). Do the work to understand what you’re applying to and why it would be a good fit. There are other candidates doing this, some with outstanding backgrounds too. Don’t get lazy where it’s important. Do the work. 
Be Smart
Being smart is beyond just intelligence, it’s working to raise your knowledge, not just what you’ve been given. Logic works. Learning works. Do your research. What don’t you know? What aren’t you good at? Everyone has strengths and weaknesses, understand your own. Then be smart enough to push to the edge of your potential. See what exists there. 
Level Up
Become a mechanic. Understand the what, how, who. You don’t need to know everything but you should be excited enough about your industry that you want to know as much as possible. If you want to work as a Product Manager, learn SQL. If you want to work on Design, learn Javascript. If you want to understand social media, start with a side project just focused on promotion. Be hungry for more. If you’re not hungry in the beginning, it’s a long road.
This is why people preach about passion. If you don’t have an interest about something, a let me wake up first thing in the morning and read the news on this topic - then look in a different industry. Every day, ever dinner party, every taxi driver (in SF or Chicago) will want to know what you do. If you aren’t excited about talking about it, keep on moving.
Care
Love to solve problems? Think scaling is challenging? Be excited about that, the thing you do on the day to day. Love talking to people, maybe sales, or customer support. The industry doesn’t matter as much as the mission of the company does. Find what moves you. Serve that purpose in what you do and the mission the company solves. 
- Kickstarter, VHX, Soundcloud, Shapeways, Wattapd and Splice empower creators. 
- Meetup believes people should build offline communities just like they do online.
- CircleUp, LendingClub, Funding Circle, Coinbase and Dwolla are revolutionizing the way money and banking exist. 
- Firebase, Twilio, MongoDB, CloudFlare and Sift Science are creating the best tools to empower developers. 
If you’re looking for your next move, we’ve got quite a few jobs worldwide looking for good people. Check out all of the USV portfolio company jobs here.
If you have any additions or questions, happy to discuss in the comments. 

Just seeing Levar Burton prompts…

"Butterfly in the sky, can go twice as high, Take a look, It’s in a book. 
A Reading Rainbow
I can go anywhere, Friends to know, And ways to grow,
A Reading Rainbow
I can be anything, Take a look, It’s in a book
A Reading Rainbow, A Reading Rainbow

I loved Reading Rainbow as a child so I’m super excited that the Bring Reading Rainbow Back for Every Child, Everywhere Kickstarter has surpassed it’s original $1M goal. 

Even more exciting, with 4 days left, they are close well over $4M funded with a pledge from Seth MacFarlane to match up to $1M of the funds raised over the $4M mark. So if you love reading rainbow, singing theme songs from PBS shows and providing reading programs to children - go pledge now! (Kickstarter ends July 2nd).

Long term commitments on mobile

If I hear about a great new app, I immediately download it to check it out. This leads to two outcomes: discovery of a great app that I will continue to use for a long period of time that slowly creeps closer to my home screen or an orphaned app that was opened one time and then filed out of the way until I need more space and delete it. 

According to Fortune Tech, I’m not alone. 

"The rate at which web users consume and discard new apps is accelerating. Proof of that is clear: Chatroulette was popular for around nine months before users lost interest in its often-lewd content. Turntable.fm, which exploded in the summer of 2011, peaked that fall before people tired of its novelty interface. It was popular for long enough to raise $7 million in venture funding before finally shutting down late last year. Draw Something, a game which took off in early 2012, climbed the App Store rankings for just six weeks before Zynga (ZNGA) acquired its parent company, OMGPop, for $200 million. Almost immediately after the deal, the app began losing users. Recent viral hits which the jury is still out on include Snapchat, Vine, and Frontback, a photo-sharing app which gained traction over the summer but has been quiet since. The moral is: The majority of viral apps and companies have ended up as losers." 

How long can you keep a Secret? - Fortune Tech

On my desktop it’s very different. I can save applications or files in what seems like infinite space, so there is less need to discard things often. 

Phone capacity has a different constraint than the web never had. Not only from the development standpoint of the libraries you can ship into app stores for approval, but for the storage footprint on the phone. I’ve take advantage of Dropbox’s mobile sync features for photos but I still feel like space is precious on my phone more so than on my laptop.

I’ve never been a fan of iCloud, perhaps because of my existing membership to Dropbox or early sour experience with ‘sync’ through iTunes, but that’s the supposed promise. Endless space, but the price can get hefty to hang onto useless data if you’re paying per GB per month. 

If iCloud were free and unlimited, what would change? What would you have on your phone if space weren’t a constraint?

When I visited Budapest and Berlin I had two data heavy apps that kept data cached locally. It worked great while on the move but was dumped when I got back to make room for new apps with unknown utility. 

With the web, we were always restricted on speed of information but not limited in which webpages we could visit based on their data needs to run properly. Data was free as long as you had a connection.

With mobile, data hoarding is taxed. If you want to visit 100 different apps, that all need to be downloaded locally for performance, you either need to pay up or narrow down your choices. Only the best apps last, but what makes an app worth keeping? 

There will always be space in my phone for utilities: Mail, Kik messenger, DuckDuckGo, Duolingo, Meetup, Sonos. The places I go to transact on a regular basis.

With entertainment apps, I think I’ve been more fickle. Most entertainment apps expect you to put time, content and energy into them but give nothing back. You don’t gain anything from using them. All of the drawings in DrawQuest go there to disappear. Snapchat too. Twitter updates are quickly swept away in the feed. It’s sizzle then burn. Some of these apps were built to avoid the data storage tax, to keep their footprints small on purpose. It’s a feature, not a bug, but how long can they really stick around if they don’t create any lasting value over time?

I could feed DrawQuest, SnapChat and 2048 for 6 months straight and have nothing to look back on. Nothing to show for the time spent.  Just an app that looks exactly the same as the first day I downloaded it. So switching costs to a new entertainment app are easier. 

If more apps were built to progress you over time, maybe their life as a top app wouldn’t fade so quickly. Even CandyCrush had lasting impact because you lose all forward progress if you delete the app. It may be challenging for a UGC app to build that progress over time when it would require more data on the users phone. Those committed would have to give up storage from something else to get there. 

How different would the app ecosystem look if phones had 1TB drives and apps could ship up to 1GB of data? Would apps still go viral and fade? Would we hoard more? Or would we just wait longer for our apps to download? 

[Props: Article originally found via Timoni who speaks to the impact young users have on driving popularity but not sticking around. Then commented on by Rickwebb who takes a look at the parallels of Hollywood’s Studio model to Facebook’s app constellations.]

Closed Circuit Commons: SF v NYC

image

(Mailboxes for 20 at a downtown Hacker House. Thanks for the warm welcome Adrienne.)

At 8:30am on Market Street or Mission, you’ll see a number of people hurrying into buildings but no coffee carts selling $2 steaming cups or donuts on display. No line around the block for Starbucks or Dunkin Donuts. The commuters are on their way, unencumbered with hot coffee or an almond croissant. Why would they stop outside when there are baristas brewing Blue Bottle 30 feet from their desk, and at no cost to them? How could a cart or a deli survive when competing with free food and drinks within reach of these hard working (and well paid) Internet workers? 

Lots of community in SF is locked inside. Twitter HQ is contained within a tall building in the middle of Market Street. Facebook has a campus accessible only by car or bus. Even smaller companies are holed up in offices away from street view. From the outside, you would never know there were so many builders inside.

Visiting from New York City, a place that often requires dodging people on sidewalks or hurrying to nab the last empty bench in the park, it feels desolate. Even the neighborhoods at 7pm have stillness about them. This is not a city without people, it’s just they convene out of view.

Campus living

On Tuesday night, I attended an event at one of the Campus houses, a hacker townhouse with 20 bedrooms, two kitchens and a sizable patio. Walking up, I wasn’t sure what to expect. It was a nondescript townhouse on a quiet street. No signs from the outside. No open windows with talk wafting into the streets. I was buzzed in and immediately immersed in a bustling community of people talking, eating, and sharing inside. There were 30+ pairs of shoes by the door and numbered mailboxes in the entryway. Behind one front door was an entire neighborhood of creatives, builders and entrepreneurs.

As rent increases and demand outpaces supply for rentals, community living makes sense. The campus rent is around $1000 per room month, reasonable for a place downtown.

Cheap rent isn’t the only upside. A drone entrepreneur, living in a different hacker house, told me about the freedom community living gave him. He lived in SF for over a year but never in a permanent place. He floated from hacker houses to Airbnbs for weeks at a time. He said he kept few possessions, expect for a motorcycle. It enabled him to move on quickly and to commute from anywhere without the concern of available public transpiration. If he decided he wanted to move across town or to another city, he could decide on a whim. Own nothing, just float.

I could relate this this. I’ve done this myself as a sublet in NYC, Chicago and LA for a few months at a time, just brought a suitcase and found a sublet with furniture included. It helped me decide whether I wanted to choose that neighborhood or another. The difference was, the maximum number of roommates I’ve had at one time is 3 people, not 23. I had acquaintances at each place, not a built in community.

New York City Commons

In New York City, if I wanted to spend time with 23 friends at one time, we’d have to meet at a park, a bar or an office space that had the luxury of all of that room. Small common spaces within NYC apartments (or at least the ones $1000/per month could buy you) limit the amount of community that can be contained behind closed doors. Our personal communities spill onto the streets and public places.

Even office culture can be seen buzzing outside throughout the day. Few companies offer free cafeterias, so entrepreneurs have taken it upon themselves to develop in the commons. More restaurants, food trucks and pop-up street food vendors arrive around business districts. Even small shops that survive on delivery are apparent with delivery bikes momentarily chained up outside office high rises. More demand, more supply is created that benefits everyone who lives in that area.

Businesses are building behind computer screens but their people are fueled by the buzzing city outside their company walls. The ecosystem is easy to see from any street corner.

High Quantity Collisions

Zappos’ CEO Tony Hseih believes “the best things happen when people are running into each other and sharing ideas.” That’s where the ideas live, in people living within the same space. So much so that he’s built all of the Downtown Project on this vision, maximize collisions and accelerate serendipity. More creativity happens between diverse perspectives than in unified ones. To get involved, just start spending time in Downtown Las Vegas, the community is visible in desert daylight.

There is more of a closed commons culture in SF. The mechanism for people being together is there but it’s in protected communities. Like Twitter’s cafeterias, coffee bars and common work spaces or Apple’s mandate of only one set of bathrooms in the center, in order to encouraged people to make eye-contact and make things happen – these are taking the idea of the commons into private networks. Only Twitter employees or Apple employees will be part of that commons. Everything outside of those walls, stays outside.   

Open Circuit v Closed Circuit Collisions

Collisions are a good thing, but should they happen in a closed circuit? If you take a private car or bus to your office, eat breakfast, lunch and dinner inside, and only walk from your office door to your private transportation out, are you part of that city? You may spend more time with colleagues but is that enough to create more meaningful creative collisions? Should only company employees collide or should there be more invested in the commons like in Las Vegas & NYC? I think the former may be great in the short term, but the latter is a way to help develop great cities in the long term. 

Maybe we should have more hacker houses in New York City to help new creatives float in, even just for a little while.  In San Francisco, maybe there should be more public, street-level coffee shops supported by big company employees (even if employees drink free). Giving back to city commons helps the whole city rise. 

Lessons in Hiring: The Bar Raiser Method

(Thanks to RunofPlay for the image, with timely football theme.)

The single most important thing to the USV Network is the people who comprise the 50+ companies.There is so much value built within a single team that is only further amplified when those teams get to work with peers one degree away. The knowledge base expands beyond just USV companies because each person in the network brings the expertise from their current company and every company they’ve worked at prior.

We got a snapshot into Amazon’s ‘Bar Raiser’ method during a discussion on hiring great product managers. Thanks to Douglas Hwang, Product Manager at Etsy, who shared a few insights from his time at Amazon. [Disclaimer: These are my notes from the discussion—not straight from the source.]

A core requirement of the Bar Raiser method seems to require internalizing this core idea:

“It is better to accidentally say no to good people than accidentally say yes to bad people.”

Now, this seems easy in principle, but can come under a lot of pressure in a fast growing company. You need an iOS engineer yesterday and your current team is already working through the weekends. Yes, Jason Fried’s Rework said “Hire when it hurts”, but this is beyond that. No, this is still not a good reason to hire an okay candidate.

Let’s look at it this way, hiring a bad candidate comes at a huge cost and hiring the best candidate is the least cost. So what resources are wasted?

  • Money: compensation, new setup of accounts, desk space, equipment, free lunches, etc.
  • Time: HR’s time on-boarding, interviewers time, team’s time getting them up to speed, manager’s time of training.
  • Morale: Team’s disappointment, lowering the bar of quality, loss of faith it will get done.

Now all of these aren’t deal-breakers, as you grow, you will make bad hires. But the hit to resources will need to be compensated in other ways so just realize you’ll need to overcompensate for morale after a bad hire leaves.

The bar raiser method helps your team be more efficient at the top of funnel (candidates coming in) so that less time gets wasted with bringing on weaker hires. 

The hiring process at Amazon can consist up to (and sometimes more) of 7 interviews conducted by 7 different people, with two key decision makers. The first is the Hiring Manager;  she will be adding this candidate to her team so she is ultimately responsible for evaluating the candidate for their ability to get the work done. The second key decision maker is the Bar Raiser; who is from a different team and won’t be working directly with the candidate but is responsible for making sure “this person is raising the talent bar at Amazon.” Both decision makers must say ‘yes’ for a candidate to get hired.

The Bar Raiser has an important stake in bringing up the level of talent at the company, which removes a hiring manager’s bias to move quickly to fill a role directly on their team. This method may eliminate candidates who were a fit for the role but wouldn’t find a long-term home in the company.

Does your company have a set method it uses for more efficient hiring?

I’m interested to learn more of what’s worked or hasn’t and at what company size.