Discovery Distribution and Engagement

Standing on the shoulder of giants – how startups get distribution done faster

The whale shark is an unusual fish. It travels an incredible 5000 miles off the cost of Caribbean each year. It does though help a lot more fish when it makes this journey. Many small fish and other sea animals live on its back and travel with it.

Intellectual pursuits have been similar. Issac Newton is quoted saying:

If I have seen further than others, it is by standing upon the shoulders of giants.

That’s one of the key items I have learned about distribution and growth hacking over the years. If there is a large “installed based” of practically any product, it is possible to jumpstart your new startup idea on its back.

Startups cannot help other startups. Except for giving advice, which is practical and practitioner-led, there’s not much a small startup can do to help other smaller startups.

The new “large” installed based in technology lead themselves to help new startups more than previous ones. While SDKs (Software Development Kit) and API’s have existed for a long time, the new age companies are helping bring their installed based to new innovations lot quicker by exposing their customers to new technologies via 3rd party solutions built on their solution. Some of them are doing so with the intent of being a “platform”, but many dont have a choice but to grow and build relationships via API’s.

I was talking to an entrepreneur yesterday about how they can improve discovery and distribution for their SaaS application.

The first part of the problem is just discovery – people getting to know about their product.

The second part of the problem is distribution – people trying their product.

The last and most challenging part of the problem is engagement – people using their product frequently.

Discovery Distribution and Engagement

Discovery Distribution and Engagement

The 3 problems are distinct enough to have different people responsible for them at your startup. Typically, the discovery is a “marketing” effort, distribution is a “sales” effort and engagement is a “product” effort.

New startups, especially consumer (eCommerce) are finding that being on the app store alone is only solving the distribution effort, not the discovery or the engagement problems.

SaaS companies are finding that discovery can be solved by SEO and SEM, and distribution with “freemium” pricing, but engagement is their toughest challenge.

Finally games have always found that engagement is their biggest challenge.

Depending on your company, and the market, there are some criteria to keep in mind when you are trying to decided where to “spend” your time and energy. Then using a large company in the space to solve that problem is the best way to grow fast.

So, if discovery is a problem, then I’d suggest listing on multiple marketplaces and directories and getting the word out via customers. If there is a large company in the space and they have an API or marketplace, list your product on both. The rising tide of customers will lift your boat as well.

If distribution, however is the problem, then ensuring easy “provisioning” on the larger company’s platform will help the most.

Finally, to solve the engagement issues, making API tie-ins to a larger company’s product – e.g. using Line’s API for new stickers or in app purchases will help.

If you have examples of how you have leveraged a larger company to make it easier to discover, distribute or get user engagement, I’d love to hear from you.

Ventures Logo

Goodbye Microsoft Ventures, 3 years of fun comes to an end

3 years ago to the month, I was at the crossroads. Having moved back to India and grown, then sold BuzzGain, I had founded my next startup and found a way to grow a new business.

I was spending more time helping entrepreneurs and was interested in starting a new company, but I realized that having a bigger impact is what I was seeking.

I met with Amaresh, at an event called Think Next in May and he was a very nice, humble and wicked smart guy was my impression. When he started talking to me about the Microsoft Accelerator program, I was keen to help. He then offered to get me on board full time and I was (as was everyone else) very surprised. I agreed because I thought the money and resources that Microsoft had, directed at the right places to help the startup ecosystem would go a long way to help India.

At about the same time, Rahul, Neda and David started the Bing Fund, with similar interests – to help entrepreneurs by investing in startups. Similar initiatives were started by others in other locations. A small, but passionate crew at Microsoft were keen to engage the startup community and help entrepreneurs.

Microsoft Ventures was formed in March 2015, when we brought all the startup resources into one single organization. We announced it in June 2013. It was going to comprise of an ecosystem program – BizSpark, accelerators to help startups grow and a fund to help startups scale.

From 2012 to 2014, I was in India, and built some great relationships there with investors and entrepreneurs. Microsoft Ventures was name the #1 accelerator in India by Economic times.

Microsoft Ventures and American Family Insurance presented 10 inMicrosoft Ventures and American Family Insurance presented 10 in

Microsoft Ventures and our demo day

Late last year, I decided to move to Seattle to take on a bigger responsibility, but also to bring the startup culture to the large corporate Microsoft entity. After Satya became the CEO, it was more acceptable than before to be entrepreneurial at Microsoft.

Microsoft is big, large and great at many things, and is learning to be nimble and move quick, is my sense, after being here for a year in Seattle.There are many folks who have been here for over 15-20 years who are resistant to change and many folks who are very open to change as well.

Nonetheless, I had a lot fun, I think we had some impact and we certainly made a lot of friends. We helped many entrepreneurs and not a day goes by when I dont get an email from someone who wants to work for Ventures or be funded by the organization.

I think I will miss the entrepreneurs I interact with daily, the most, as part of Ventures, but I suspect I will continue to work with startups. Mostly I will miss working with an entrepreneurial team of folks who care deeply about startups.

The Modern App

The modern app developer

Two interesting things came to my attention yesterday. The rise of coding schools (NYTimes piece) and the most popular languages used at hackathons.

As I had written before, coding schools are graduating close to 20K students in the US – almost 1/3rd of the # of graduates from all computer science programs. Most of these students are from fields outside of programming, computer science or engineering. Many studied political science, history or literature and were pizza delivery folks, baristas and even Uber drivers.

While many of their starting salaries are about $60K, even 6 figures are not unheard of salaries for “data scientists”.

Over the last 6 months, I have noticed that these students make up nearly 10% of startup development teams. Many are hoping to get 1-2 years of experience to either a) go independent or b) get a much better paying job (read $150K) at a hot startup with stock options.

The modern apps have 3 characteristics that is changing the way apps are developed.

1. First, since there is a rise of Dev Ops and No Ops, many more developers are developing apps purely on Javascript and some Swift, with Python, Java and C++ taking the back seat. With the simultaneous rise of Javascript libraries and frameworks, it wont be too long before we see more Javascript only developers who focus on building interfaces quickly with little backend code.

2. The rise of composers instead of coders. Many app developers focus a lot of effort on coding skills and writing monolithic applications that are self contained. The future of apps and hence app developers is microservices which use many 3rd party API’s. This will result in coders and developers becoming more composers who snag code snippets from other places and spend more time building an experience end-to-end and less time on systems programming.

3. Finally given the rise of consumer apps and their influence on enterprise apps, many app developers will start to incorporate images, video, and other media elements (voice) into their apps and have “voice enabled” assistants in their apps to replace the standard productivity and ERP / CRM apps that are developed for the enterprise. Many enterprise apps are expected to have a “longer” life cycle than games and consumer apps, which are constantly in fashion and out, but the shelf-life of enterprise apps will reduce thanks to consumerization of work-apps.

The Modern App

The Modern App

Increasingly the skill that is needed more than architecture and coding is identification of key API’s, rapid prototyping and experimentation and very few people who are going to help “scale and grow” the apps.

I wonder if you are seeing the same?

Startup Ecosystem Ranking 2015

Global Startup Ecosystem Ranking, 2015 #Seattle and #Bangalore

The global startup ecosystem rankings at out. Since we had a chance to partner with the team putting together this research I had a chance to learn the methodology a lot more this time. There are three observations I have regarding he overall report and a follow up to an early comparison of the 2 startup ecosystems I have the most experience with – Seattle and Bangalore.

First, the two ecosystems are not that different in many aspects – the criteria used by compass were:

1. Performance (exits, valuations, etc).

2. Funding access

3. Market reach

4. Talent

5. Startup experience

and finally Growth index.

1. Growth: Bangalore is growing dramatically, at 2.5 times Tel Aviv’s growth and more than 3 times Seattle. It will be a matter of time before the total number of startups from Bangalore will be more than that of Tel Aviv or Seattle combined. Likely in 2018.

2. Spread: Seattle’s ecosystem of startups is more broad based – a few eCommerce (Zulilly, Expedia and Amazon), some cloud and a few SaaS companies. Bangalore’s ecosystem of startups is fairly shallow – eCommerce rules, followed by a few in Ad tech and B2B.

3. China: I am shocked that Beijing and China were out of the top 10, much less not even on this report. My first hand knowledge of Seattle and Bangalore and secondary knowledge of China, indicates that they will be #2 even higher than where LA is.

I would agree that market access / reach and startup experience,  expertise will put Bangalore slightly behind Seattle, but that’s more than made up for with Bangalore’s better funding availability and overall acquisition track record.

Here is my unofficial top ecosystems ranking, which I believe will reflect a more accurate ranking of the top ecosystems for startups.

1. Silicon Valley (Separate the valley and SF and you will have the #1 and #2 positions)

2. Beijing

3. New York

4. Los Angeles

5. Boston

6. Tel Aviv

7. Seoul

8. Chicago

9. Seattle

10. Bangalore

11. London

12. Austin

13 Sydney

14. Moscow

15. Toronto

The rest of the ecosystems dont matter. Either market access, funding or performance in terms of acquisitions.

The other parts of the ecosystem that should be measured include news and media involvement, hackathons, events, training and education – early indicators of where the ecosystem is headed and I think those will show a few other cities – Tokyo and a few middle eastern countries as well.

Startup Ecosystem Ranking 2015

Startup Ecosystem Ranking 2015

Being Capital Efficient

How your investor “Story” differs from your customer “story?

I dont subscribe to the meme that says you have only one “story” as a startup. I think you need different stories based on your audience. I want to talk about one particular case based on a real world example and share how the stories might differ, the messages might change, and the positioning might be different as well.

I had a friend who is building a hardware company. Or, so he thought. The hardware unit would sit in a car and monitor driving behavior. Since it was focused on a niche (but large) use case, he was able to confidently show a large market (over $1 B) in a bottoms up market research study.

He had also done some initial customer development and spoken to over 50 of his target customers who were all willing to buy and pay for the solution, talked to 5 potential distributors who were willing to stock and sell the product and also had talked to manufacturers who could build at scale. Armed with this information, he felt he could raise a $500K round, since he had a strong team of 3 folks with him.

Being Capital Efficient

Being Capital Efficient

To build the hardware he estimated 3 resources for 6 months, so he felt $500K would give him enough cushion to tide a few mistakes.

After 3 months of trying to raise money and talking to over 12 potential targeted investors in his list, he found out that the appetite for  hardware was just not there.

Well, there was appetite for a hardware company, but only at “scale”. Not in the initial phases, meaning the target investors,  who were “early, seed and angel investors” wanted to see upwards of 500 to in one case, over 5000 units, before they were willing to to give the angel terms – $500K at $2M valuation. My friend felt he was being low-balled, but he had no other options.

Most investors he approached were unwilling to fund his hardware company.

This is not about hardware though, the same “investors unwilling to fund” anything outside known or proven models exist in other areas as well. Markets get in and out of favor. The flavors of the month are big data, anything marketplace (consumer) and most all things SaaS, etc. and cloud (B2B).

So, when he reached out to me, my initial reaction was the same as other investors. Having burned my hand in hardware companies, I was unwilling to fund anything close to hardware. Over the last 9 months we have funded 10 hardware companies and 30+ software. Except for one hardware company, the rest still have not shipped product (nearly 3-12 months after they promised to do so) and most have been unable to raise a follow on round of funding.

On the other hand, 50% the software companies have been able to secure follow on funding. I understand funding is no measure of success, but it is a key milestone.

Instead I asked him to position his product as a “Insurance and driver data as a service” – DIDDaaS (forgive me) platform and get the version 1 out with software alone, instead of hardware. Turns out that worked. After 3 weeks of meeting the same investors he did before, with a software only, asset light play he was able to get $250K committed to start.

Trends point to the fact that even software companies are forgoing being capital efficient, but if your story depends on raising a lot of capital to be competitive, I’d say change the story to appeal to the capital efficient investor, EVEN if you end up raising a lot of capital.

Double opt in Email Introduction

Double opt-in email introductions are painful, but more useful than blind intros

A typical week for me is about 15-20 introductions to entrepreneurs and VC’s. I love that part of the job, in fact. If I could do more, with less time, I would any day, but I am getting more judicious lately.

There are 3 primary reasons why I am slowing down my “warm” introductions.

First, even though I know both the parties well enough to make the introduction, turns out many things change in 3-5 months that I am not on top of. One of my friends at a VC firm, decided to focus on B2C later stage instead of B2B. After 2 introductions, which I made to entrepreneurs, I found that out and also found out that he was “forwarding” my emails to his colleague. What I thought was “helping” was actually creating more work (useless and unnecessary) for him.

Similarly, an angel investor wanted an introduction to an entrepreneur who was looking to raise money a few months ago. Turns out by the time I made the intro, the entrepreneur had changed roles to be  the product guy, got a new CEO and also had finished raising money. Again, creating more work for him was not my goal but I ended up doing just that.

Second, in many cases the entrepreneur or the investor is not a good fit at all. Take a case this week. A very smart investor is a hugely sought after lady in my network. Not a week goes by, when I am asked to make an intro to her. I was asked this week by a good friend and entrepreneur to make an introduction to her. I like the team, so I was willing to help. Turns out, the investor had already looked at the company and decided to not engage because she has a competitive deal in the space.

Now, I had obligated her to find a way to “help” my entrepreneur friend in some way. That’s negative brownie points for me, even though I wanted to actually help them both.

Finally, there is a power dynamic in play with most situations. The “requester” of the introduction and the “recipient” are not sure in most cases who will actually benefit. Neither am I am very clear about who needs who more. In most cases, when entrepreneurs ask for an intro to an investor it is clear, but in many cases when I have a “hot” entrepreneur in my network, it is not unusual to have 3-4 investors seek my help for a warm introduction.

While making introductions is a critical part of the role that I play, it is becoming clear that the work that it generates for me is becoming onerous.

The best approach is to email the person who is the recipient of the introduction if they’d like the introduction, then wait for their response and then respond back to the requester of their response.

Double opt in Email Introduction

Double opt in Email Introduction

So one email introduction now becomes at least 3 if not more in some cases. Multiply that by 15 a week and I am spending close to an hour making introductions. There has to be a better way.

What do you suggest? I like the connecting and the introductions, but the work involved in doing this is getting to be too much.

Founder Dilution

Lemonade or Water with Lemon? Angel investor dilution

Compared to 2008, the average startup is going through 3-4 rounds of funding before the Venture round series A. In fact, the most important skill startup entrepreneurs need to master right now is navigating the funding landscape.

It is not unusual to see startups bootstrap for 6-9 months, then get into an accelerator, and go through another accelerator (elapsed time after 2nd accelerator from start is usually 12-18 months and then go through an angel round of $250-500K and a seed round of $500K to $2 Million.

So, instead of having lemonade at the end the founders have water with a lemon.

Lemonade and Water with Lemon

Lemonade and Water with Lemon

 

 

In some cases I have seen startups go through a post-seed round after the seed round. Don’t call it a bridge round, it is apparently bad luck :).

The biggest challenge with all these rounds before the series A is dilution.

If I assume you and a co founder started a company, then you each own 100% of the company during bootstrapping. I am going to simplify and make it 50% each.

The average accelerator takes 6-10% in return for $50-$100K. I am going to assume 10% for $100K.

So, now after two accelerator rounds (very typical), you and your co founder own 40% each of the company (minus 10% for each accelerator, or 20% in total).

The average angel investor round, is now convertible in the Silicon Valley, but priced everywhere else. Typical dilutions are 10-25%. I am going to assume you get 10% dilution for $500K.

After the first angel round, you and your co founder each own 35% of the company.

Seed round valuations are rising, but so are dilution percentages. You will likely go through a seed round of $1 Million, diluting another 10%, which values your company at $10 Million post.

You and your co founder now own 30% of the company.

The next round will be the post seed round or the Venture round (Series A).

Both these investors will expect you to set aside 10-15% of your company towards employees, for the stock option pool. For the sake of simplicity I am going to assume 10%, but it is usually 15%.

Even before your series A, you and your co founder now own 25% each of the company.

Most entrepreneurs also bring on advisors early on. It is not atypical to have 3 advisors for the company and hence, you might end up giving them 0.3 to 1% of the company each. I am going to assume 0.3% each, so you will dilute another 1%.

Assuming you get a series A, with typical Venture terms, you will raise a $10 Million round and give up 30% to 40% of your company. I am going to assume 30% for $10 Million.

After the series A, you and your co founder each own 10% of the company.

I made the math very simple and it is usually not this simple, but here is a table to show the progress.

This is an illustrative example alone, not accurate, but in the ball park.

Founder Dilution

Founder Dilution

On one hand you have both diluted a lot, but on the other hand you are both “worth” close to $6 Million on paper.