A few of us from Upstart made it down to the LAUNCH event this week in San Francisco. This was the 3rd year for Jason Calcanis' high-profile startup-a-looza, which obviously competes a bit with SXSW (which starts the same week). Here's some of what I took away:
It's definitely getting a bit "frothy" - but that's not necessarily bad
A recurring question (onstage and off) was "So, does it feel like 1999 again?"… to which most of us old enough to have actually been a part of the boom-and-bust of 1997-2001 said "no way".
And that's a good thing. Back then, the "promise" of the emerging web was so massive and pervasive that it seemed inevitable that it would disrupt/affect every aspect of life and business. Which, of course, it has… but it has taken more than a decade (so far) for those shifts to take place. Back then, the lack of clarity about how - and how much - the web would affect a given industry made it very difficult for people to accurately predict the resulting value creation and value capture… which is what good investing hinges upon.
Today's environment is different in two important ways. First, we have the benefit of 13+ years of watching the effect of internet (and social, and mobile)-driven innovation on various industries and sectors. Collectively, we have a much better sense for how things tend to play out. Second, the capital required to bring an idea to market to "test for fit" is often much, much lower today (staggeringly lower, really… $25K - $250K today vs. several million back then)… which makes for far fewer "big, bad bets".
So, yes - there's a lot of activity. There were more than 5,000 people at the (sold out) show, 40 new companies launched on-stage and over 100 more were competing for attention in the "demo pit". (I know it's not "enterprise SaaS", but I do want one of these skateboards: http://www.boostedboards.com/ ). But fundamental changes in 1) the way investors evaluate opportunities, and 2) the way companies bring their ideas to market for validation (see: Upstart Labs) are making for a higher-quality, lower-ridiculousness environment.
Facebook & Twitter are the most common "role models" - but not the best ones
When asked about what startups should be focusing on most in terms of growth and market capture, several long-time investors talked about the fallacy of Facebook and Twitter as good role models for business plans.
Many entrepreneurs invoke the early viral growth of Facebook and Twitter - in the absence of any obvious business plan or revenue model - as supporting evidence that if they just build a great product and make it available to the world, the rest will take care of itself. Several speakers cautioned against such a "build it and they will come - by the hundreds of millions!" approach:
- Facebook and Twitter (and maybe Pinterest) are about the only examples of such massively organic growth in the current wave, and we're unlikely to see another one in the near future. In any case, it's not wise to base your business plan on the hope that you'll be "the one".
- Investors, in order to feel confident about the value creation/capture opportunity mentioned above, need to see a predictable approach and model. While this is most true of B2B companies, it applies to consumer plays as well - gone are the days when "and then we'll just monetize the eyeballs somehow" is a strong enough plan.
- On the consumer side, just acquiring users isn't enough anymore. To paraphrase one of the panel discussions: "When it comes to users 10 million is really the new million… until you've got 10 million people actively using your service, you can't be sure you that you've got something."
All this underscores the need for 1) a deliberate strategy for creating & capturing value, 2) a strong understanding of your target market, and 3) a Go-To-Market approach that allows you to test & tune your solution to achieve product/market fit - quickly
Bring on the Big Ideas
There was also some prevailing sentiment that investors (and consumers) are tired of ideas that seem largely derivative versions of the current solutions ("Facebook for schools", "Pinterest for sports", etc.). The market is eager for new, bigger ideas about the next wave of social/mobile/content/business platforms.
Monday's agenda included a "fireside chat" with Chamath Palihapitiya (Facebook, Social+Capital Partnership, NBA Owner)… whose comments about his $275MM fund I found pretty inspiring. As an investor, he wants to back ideas that address fundamental challenges of our time (healthcare & education came up a lot) - and put money to work in a way that could truly "change the world". It was a rousing perspective (several outbursts of spontaneous applause in the session) that reminded me that yes - the "return of the portfolio" must be measured in dollars… but as part of the rapidly evolving industry that is technology investing, we should all make sure our returns can be measured in "good for the worldness" as well.
Joe Stump is what you'd call a growth hacker. Our newest Upstart Labs partner is a serial entrepreneur with experience in marketing and development – and almost more importantly, fusing the two together. Joe recently led a seminar on growth hacking at Upstart Labs. Over thirty folks from various companies and startups in the Portland-area joined us to learn more about Joe's success tips. So what did we learn? From tracking people to tracking data, here's a glimpse into his go-to growth hacking toolkit:
- SurveyMonkey – Create and send free web surveys.
- Wufoo – Form builder that creates contact forms, web surveys and invitations so you can collect information, registrations and payments.
- Gooogle Forms – Send surveys or collect other information in an easy, streamlined way.
- Intercom.io - Customer relationship management and messaging tool for web businesses.
- Mixpanel – Advanced analytics platform for mobile and web.
- Sailthru – Analyze Big Data to generate informed, personalized communication with consumers across all digital channels.
- KISSMetrics – Online software for business analytics.
- Sprintly – A project management tool; like Salesforce for software developers.
- Optimizely – Website optimization through A/B testing.
- HubSpot – An all-in-one tool for in-bound marketing.
- Rapleaf – Provides marketing data including demographics and lifestyle data on consumer email addresses.
- FullContact – API that turns partial contact information into full contact information. FullContact provides data enrichment, de-duplication, normalization, and more.
- Mailchimp – Online email marketing solution to manage contacts, send emails and track results.
- Rapportive – Provides rich contact profiles inside your email inbox.
Joe's talk at Upstart Labs was just a taste of the tactics he dives into in his "Growth Hacking for Everyone" class for The Next Web. The next class is held online on March 19, so you don't have to be in Portland or the Valley to join in. This two-hour presentation will cover the essential techniques to enable rapid growth. Go ahead, sign up. You won't be disappointed.
It has been an exciting start to the year here at Upstart Labs. Here's the news:
Expanded Funding, Team & Investments
Earlier this month, we announced a partnership with Rogue Venture Partners and two initial co-investments – Measureful and Juked. We also welcomed Kevin Tate to the team as General Partner, and added Joe Stump as Venture Partner.
You can read more about our announcement at Gigaom, VentureBeat, TNW and GeekWire – as well as the Oregonian and Portland Business Journal. It was great to see such enthusiasm for our hands-on approach to working with early-stage companies and their investors. We've heard from all sides are that we are addressing a legitimate need in the startup funding landscape.
Funding & Launches for our Upstarts
We’ve also seen some excellent momentum already this year from our existing portfolio of Upstarts, which reached 10 total company investments this month:
- Celly received $1.4M in funding for their mobile social networking platform, and launched a new iPhone app, which garnered some nice coverage in TechCrunch & VentureBeat.
- Measureful launched the public beta of their analytics dashboard this week, helping digital marketers quickly analyze multi-channel activity data.
- Chirpify was named one of the “7 Social Networks to Watch in 2013” by CNN Money, received great press around a campaign they powered for Keith Richards, and just this week, confirmed Facebook integration by kicking off a new campaign with Tim McGraw.
- Menuish launched their iPhone App. They were picked as a Gizmodo Daily Deal and quickly became a Top 50 Food & Drink App in the App Store.
- MoPix launched their online distribution platform for independent filmmakers.
Portland’s on a Roll
It has been a blockbuster start to the year for the local tech community, and we’re proud to be a part of the rising tide. The current combination of resources and talent in Portland presents incredible growth opportunities – not just for the tech sector, but the entire region. It’s going to be a great year.
I spend a lot of time explaining the Upstart Labs model to people I meet. Our portfolio is small – just seven companies to date – and you won’t see us packing an auditorium for a demo day twice a year. As an early-stage investment fund, we’re more likely to be found behind the scenes than introducing our latest crop of companies.
Upstart Labs is different because we invest in the form of professional services rather than cash. We provide access to a team of 13 – developers, designers, project management, marketing, business development and sales – in addition to mentoring from our executive team and business services such as legal and accounting. Rather than giving startups a pile of cash and waiting for them to hire employees, our portfolio companies hit the ground running on Day One.
When pitching investors, startup founders try to cut right to the chase with their “ask” – how much money they need, and what, specifically, they’re going to use that money for. One of my favorite things about the model that we’ve established at Upstart Labs is that it gives founders the ability to modify the specifics of that “ask” during their time with us, as conditions dictate.
Hiring employees is expensive; hiring creative and development agencies is even more so. We’ve heard angels complain that a quarter of their investment (or more) is “wasted” by startups on contractors and other pricey purchases. Companies in our program avoid those expenditures during their tenure, and get more time to refine their model – and generate revenue! – before pulling the trigger on long-term expenses.
Our team augments a startup’s existing team. With our team’s help, companies in our portfolio who have products in the market can expand their features, add platforms and services, and enter new markets. We’re investing in this way – services first – because we believe it works. Need more evidence? Just read what our Upstarts say about us.
We're always looking for our next success. Here's a quick way to learn more about who we invest in and how we do it, and how you can apply to our program.
When your startup vision is big — a suite of apps used by hundreds of millions, funded by a couple rounds of financing — it’s easy to think of an App Store launch as a small step along that road. If you hear people claiming that they can build Instagram in a week, what they’re probably thinking is that they could assemble a prototype that approximates the idea. And, undoubtedly, a talented iOS dev working from the fully-formed idea of Instagram today could be feeding captured photo data through some CI filters, uploading it to a server, and pushing it to her social streams before the weekend. If there weren’t any stylish mobile photo-sharing apps out there and I’d had the foresight of that premise, I’d be off prototyping it right now.
Products with focused feature sets tend to seduce us into thinking that success is a matter of hacking on our idea for a week. The nature of mobile UIs makes this seem all the more reasonable. But strong implementations of good ideas always tend to feel within reach, and there are reasons that 900 million people aren’t using any number of Facebook competitors to manage their personal lives.
So: we could assemble our team to build and polish our vision, and if we’re lucky enough to have Instagram-in-a-week-caliber people, then maybe we’ll be able to get our own untested idea to market in a few months. Or we can try to test our assumptions with prototypes, knowing that if we build out the whole thing and then try to iterate, our v2 might mean starting from scratch. I’ll try to explain why we think this is usually the right approach for a startup.
Iterate with prototypes
Sketches, wireframes, design comps, and interactive prototypes are all steps in our process. None can assure that our idea will work in the end: carefully-crafted wireframes need re-thinking once we see them implemented with our designer’s graphics; beautifully rendered layer comps of a list-sorting UI seem perfect until we actually use it on a tablet. We can only hope to find the problems that will keep the project from succeeding.
Put another way, our goal with the prototype isn’t to prove-by-wireframe that the product will be just what users want. Instead, we’ll hypothesize about the ways in which the product will fail and try to find the potential failure points as quickly as possible so that we can work around them. Think of it as a loose relative to reductio ad absurdum: let’s try to convince ourselves that the product won’t work as we’ve designed it; if we can’t, then maybe we’re on to something.
We’ll either get to the right product a lot faster, or learn some important lessons and move on to the next idea. This is true even when we’re totally confident in a product idea. And it’s true whether we’re spending evenings hacking in a coffee shop or have millions in funding because if nothing else, failing slowly carries an opportunity cost. We prefer to uncover our misguided design assumptions, missing features, and broken interactions as soon as possible. We’re sculptors starting our implementations with sketches and clay.
Prototypes as user testing
As a developer, I lean heavily on interactive prototypes, which may or may not implement the designs from our creative team. It’s generally easy for us to build a quick mobile web demo, or a storyboarded iOS app, or even just a set of comped images with gesture recognizers to simulate a user experience.† Prototypes like these give us the opportunity to learn, relatively cheaply, that the idea isn't right — and to make needed changes early in the process.
The kinds of prototypes I’m hinting at here are for user experiences. We work from a set of user stories and use the prototype to improve them. Along the way, we discover that features we thought critical are marginal or unnecessary; we uncover functionality we didn’t know we needed; and we’ll almost certainly find a better way to design part of the interface.
Of course, UX is rarely the whole story. If you’re a technical entrepreneur, you’re already writing spike solutions, integration tests, or other proofs of your core concept. The good news, if it’s not obvious, is that these two kinds of prototypes can be built in parallel by different teams. There’s no reason we shouldn’t iterate on the interface of a multi-player mobile game at the same time we write our API integrations and test for network problems in target areas.
The faster you can find those failure points, the better
At a talk at Urban Airship last year, Eric Ries quipped that after months iterating on a product and only then discovering that not a single user was interested in downloading it, the only thing they needed to build was a marketing page with a download link that 404'd.
Start on that end of the spectrum: focus on the biggest questions first and build as little as possible. The next step is always a slightly more-realized product; the next step is just your next iteration.
† There are dozens of tools and techniques for prototyping, and perhaps I’ll talk about some of those in a future post.