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Startup CEO New Years Resolutions January 6, 2011

Posted by jeremyliew in 2011, culture, growth, HR, new years resolutions, product management.
2 comments

I asked the CEO’s of the companies that I work with,  “What are your company related new years resolutions?”. Each had a different spin, but they mostly fell into a few themes of:

  • Great people
  • Improve the product
  • Stay Lean
  • Grow fast
  • Internalize culture and values

Lisa Marino of RockYou,  a leading developer of social games and advertising solutions for social media, is focused on building a great team with more gaming DNA to improve the quality of the games it publishes:

Make RockYou the place talent wants to be.

Many of the companies had resolutions focused on their product management and development. From the social gaming companies, Will Harbin of Casual Collective, which publishers the popular game Backyard Monsters, said simply:

Mo’ money, mo’ fun

As games like CityVille have shown,  mo’ fun usually leads to mo’ money! [And congrats to Alex Le, cofounder of a prior investment, Serious Business, whose first game since the Zynga acquisition is CityVille.]

Scott Albro of Focus, a knowledge sharing community for business people, has fully embraced the idea of constant iteration for 2011, taking the best practices of social media to the business media world.

Plan big, increment small. Meaning: set big, audacious goals for the year, but understand how the little things you do every day link together so you can achieve those big goals.

Ed Baker of Friend.ly, a fun way to meet new people, is focused on driving innovation:
Encourage more product suggestions from our engineering team. Our engineers often come up with great ideas, and they are the most productive when they work on these ideas. in 2011, I’d like to encourage a culture where this happens as much as possible.

Shawn Gupta of OhLife, a personal journaling tool over email, has similar sentiments in using metrics to drive product innovation:

Make metrics a core part of our product development. It will be a lot easier for us to make improvements to our product when we have data-driven discussions and decisions.

Although the industry is in much better shape than the dark days of 2008 and 2009, many CEOs have fully embraced the continue to internalize the lean startup principles that came out of those years. Joe Greenstein of Flixster, the leading movies app on all social and mobile platforms, wants to take big risks with small dollars.

Stay hungry, stay foolish.
Steve Semprevivo of RetireEasy, a  company helping baby boomers manage their retirement, is also focused on staying lean:
Pursue our passion, build lasting strategic relationships and most importantly use our cash wisely.
Other companies are fully focused on growth. Tim O’Shaughnessy of Living Social, a local deals site, says simply:

Put the pedal through the floor.

Glenn Rogers of CarDomain, a community of auto enthusiasts, concurs:
Traffic,traffic,traffic! For media sites like ours you are either growing traffic or or you are dying. Our whole focus this year will be on finding new users, improving the user experience and increasing their engagement with our sites.

Two ecommerce companies that have seen tremendous growth are paying attention to their core values and culture to keep their organizations coherent as they dramatically increase in size. Andy Dunn of Bonobos, a vertical web retailer, will be driving attention to one of their core values in 2011:

Focus on self-awareness, the core trait of leaders, both people and firms.

We will measure our traction in three ways:

1. Knowing we are becoming self-aware as a team. Measure of success: 360 degree reviews done smartly (meaning efficiently and not dreaded by all involved).

2. Marketing who we are, not who we may want to be one day. Measure of success: more than doubling our customer base without doubling our cost per acquisition.

3. Developing products based on knowledge of our strengths and curating products based on knowledge of our weaknesses. Measure of success: sales growth and gross margin return on investment.

Brian Lee of Shoedazzle, a personalized fashion etailer for women, is also focused on one of their core values, great customer service:

Treat every client like they are part of your family.

Scott Brady of Project Slice, a stealth company helping to simplify online shopping, also has cultural values core to his new years resolutions:
Simplify – Challenge ourselves to simplify, we can strive for perfection in the next version.
Celebrate – Take the time to celebrate small wins in all areas of the company, and do it every day as they happen.
Feedback – Continue to foster an environment where everybody on the team communicates feedback, good and bad, in an open and honest way.

What are your new years resolutions?

Why Lightspeed invested in Living Social April 29, 2010

Posted by jeremyliew in Ecommerce, growth, local.
Tags: , ,
17 comments

Well, I’ve been busy since the beginning of the year! Earlier this week Lightspeed’s investment in ShoeDazzle was announced, and today our investment in Living Social was announced.

Both companies reflect our belief in entertainment commerce, or push commerce.  The traditional model of ecommerce treated buying things like a chore, crossing things off of a list. Some of the newer commerce models, the ones that are quickly growing to millions in monthly revenue, help users discover great deals and great items that they were not explicitly looking for. By manufacturing serendipity, they help create demand, rather than just fulfilling demand. Living Social falls into this category.

Living Social sends a local deal each day via email (see some examples here) to residents in 18 cities across the US. The deals are usually 50-80% off on a local restaurant, spa, bakery or similar merchant. If the deal appeals to you, you buy it directly from Living Social. Living Social makes money by keeping a cut of the revenue, and sends the rest on to the merchant.

The leader in this category by far is Groupon. Groupon has seen tremendous growth, from $100k in revenue in January 2009 to $10M in revenue in January 2010. Living Social got started 6-9 months after Groupon, but is seeing similar growth. According to Hitwise, traffic in the group buying category is up 72x since last year, with Groupon and Living Social neck and neck for traffic at around 49% each (click through to see the full graph):

Sadly they are not neck and neck for revenue, at least not yet!

There are many entrants into the local deal space, with Techcrunch reporting earlier this month:

When Yipit launched a little over a month and a half ago (!), the startup could already identify 30 daily-deal Web services. Today, the company tracks deals from no less than 66 Groupon-like websites across the United States, more than double the number it counted less than two months ago.

As you can see from the chart above (click through to see the full graph), the 66 companies are delivering 176 daily deals. Since 50+ of these deals are from Groupon, the other companies are averaging 2 cities each. This is an easy category to enter, but I believe that it will be a difficult category in which to scale. Success will depend on building the email subscriber base, which is challenging on a single city basis. The more targeted you want to be, the harder it is, whether you are relying on viral growth or buying advertising. National growth is easier, but requires a national footprint of deals to take advantage of it. That is hard to do, and expensive to do. It is an execution game which will require great management and significant capital.

I suspect some of the other 64 companies will be able to reach viable scale to join Groupon and Living Social. Both companies are well funded, and with very impressive management teams. Anyone hoping to make it to scale will need to bring the same assets to the table.

We’re excited to help Living Social continue in its growth.

Why Lightspeed invested in ShoeDazzle April 28, 2010

Posted by jeremyliew in Ecommerce, growth, subscription.
Tags: , ,
12 comments

Lightspeed led a $13m investment in Shoedazzle, announced yesterday. We are very excited to help Shoedazzle grow.

Shoedazzle is one of the companies that I was thinking of when I wrote about startups that can quickly get to millions in monthly revenue:

… are all taking advantage of one of Lightspeeds consumer internet predictions for 2010,  that direct direct response advertising is getting more efficient. A bad time to sell ads is a good time to buy ads. All these companies are taking advantage of relatively low customer acquisition costs.

If you understand your customer lifetime value, and you can acquire customers for 20-30% of the lifetime value, you are going to make money. Understanding lifetime value is hard for media companies, but it’s easier for gaming companies, ecommerce companies and subscription businesses. They have predictable customer behavior cohorts that can be extrapolated from a few months of data from a representative sample.  Running an aggressive positive arbitrage while online media is cheap has allowed all of these companies to grow revenue very fast once they get the micro-economics right.

The company is based outside of Silicon Valley (LA) and is definitely built on the back of business model innovation, as are many of the current crop of fast growth companies.

Shoedazzle has a terrific user value proposition. A member first takes a style quiz to assess her taste. Then, on the first of each month, she receives an email with five pairs of shoes that have been specially selected for her. If she likes one of the pairs, she buys it. If none of them grab her, she can either skip that month, or request a re-selection and give specific guidance as to what she is looking for (e.g. boots, or higher heels, bolder colors). Women get personal stylist advice and recommendations brought directly to them, helping them to keep abreast of the latest fashion trends.

Thematically, I am very excited about the move towards entertainment shopping, and Shoedazzle falls squarely into this category:

One of the most exciting trends in e-commerce over the last couple of years has been the trend towards “shopping as entertainment”. Traditionally e-commerce has been a chore type activity. Customers know what they are looking for (a digital camera, a new laptop) and are looking for the best product and best price with a very “research” based mindset.

This is quite unlike the real world, where a customer might walk around a mall without any particular purchases in mind, and perhaps opportunistically buy something that caught their eye in their wanderings. There is no real “intent to buy” in a trip to the mall.  It is more like entertainment time which may, or may not, lead to a purchase.

SheoDazzle captures the wonderful serendipity of finding something great as you wander the mall, and brings it into your inbox.

Kim Kardashian is one of  the co-founders of Shoedazzle, and has been instrumental to the success of the company, both through her promotion of the site, and through her fashion input into the shoe selection. But this company is about much more than Kim alone. The company prides itself on delivering terrific experiences to its members, and this has resulted in an incredibly strong and positive community, as reflected by the vibrant wall on its facebook page, the constant tweeting on twitter, and even the unboxing videos on youtube.

Notwithstanding Kim and the community, Shoedazzle is about the shoes.  And that is what has let the company grow through word of mouth. This isn’t the manufactured virality that works so well for facebook apps and early social networks, riding the transports of notifications, invites, wall posts or email importation. This is the real thing, with one happy member telling another about where they got their great shoes.

On the flip side, online commerce is an operationally intensive business. With physical goods, you get lower gross margins then you see in online media. In shoes, return rates can be high (Zappos’s average return rate is 35%). If you care as much about member satisfaction as Shoedazzle does, client care needs a lot of resources. And breaking through the noise and clutter on the consumer web is always difficult. Building a business like shoedazzle is not as easy as simply hacking all night for a few days and standing up a website. It requires deep knowledge of merchandising, logistics, customer care, marketing and promotion.

Shoedazzle has a terrific team of experienced, passionate people (with great shoes!) who are tackling this challenge, and at the end of the day, that is why we invested in ShoeDazzle.

Business model innovation is making Silicon Valley less important as a startup center April 19, 2010

Posted by jeremyliew in growth.
14 comments

Last week I noted some companies that have quickly grown revenues to over $1M/mth, including Zynga, Playdom, Playfish, Gilt, Hautelook, RueLaLa, Groupon, Living Social, Lifelock and Zoosk. Later I and others added Crowdstar, Cash4Gold, Shoedazzle, Second Life and TheLadders to this list.

It’s interesting to break this list down geographically, especially if you seperate the gaming/virtual world companies from the rest.

  • Gaming Companies in the Bay Area: Zynga, Playdom, Crowdstar, Second Life
  • Gaming Companies outside the Bay Area: Playfish (London)
  • Other Companies in the Bay Area: Zoosk
  • Other Companies outside the Bay Area: Gilt (NY), HauteLook (LA), RueLaLa (Boston), Groupon (Chicago), Living Social (DC), Lifelock (AZ), Cash4Gold (FL), Shoedazzle (LA), TheLadders (NY)

Given that the the Bay Area attracts the most VC funding (a proxy for startup activity), the fact that most of the gaming/virtual world companies are based here isn’t too surprising. But what is pretty surprising is that the vast majority of other fast growth companies are from outside the bay area.

One notable thing about many of these companies is that they innovated more on business model than on technology or product. While there is some core technology to each of these companies,  most of them have more people in functions like marketing,  sales, customer care, merchandizing etc than in technology. This is in marked contrast to the gaming and virtual world companies where the bulk of the headcount is in technology since the product is the game.

Many other “hot” companies in the bay area also show a bias towards product and technology in their employee mix; youtube, facebook, digg, etc.

When product and technology are core to the success of a company, Silicon Valley still dominates the startup scene, but when the innovation is in other functions, and technology is more an enabler than core to the product, other regions can be as competitive, if not more so.

What do readers think?

A rising tide lifts all boats; the importance of market selection August 17, 2007

Posted by jeremyliew in business models, growth, start-up, startups.
6 comments

The McKinsey Quarterly recently published an interesting article titled The Granularity of Growth ($150 subscription required) that analyzed the drivers of growth at 100 large companies in 17 different industries. A free podcast of the article is available here as well.

Within industries, there was very high variability in the growth rates of competitors. For example, ten European telcos saw compound annual growth rates of between 1 and 25% between 1999 and 2005 – a very wide range.

McKinsey found that there were three key drivers of the variance in growth:

1. Portfolio momentum: organic revenue growth from the market growth of segments where they compete
2. M&A: inorganic growth from acquisition or divestiture
3. Market share performance: organic growth from gaining share in a market

Interestingly, market share performance was found to explain just 22% of the variability in growth rates. Portfolio momentum explained 43% of the differences in growth rates, and M&A explained 35%. McKinsey concludes:

Simply put, a company’s choice of markets and M&A is four times more important than outperforming in its markets. This finding comes as something of a surprise, since many management teams focus on gaining share organically through superior execution and often factor that goal into their business plans.

Startups can also learn a lesson from this. Riding market growth in a fast growing market is a lot easier than trying to take market share in a slow growth market.

Its important to look at markets in a very granular way as you do this analysis. Clay Christensen observes in the Innovator’s Dilemma that disruptive technology shifts can create fast growth submarkets in industries. Often incumbents fail to make the transition across these technology shifts because they continue to focus on their dominant position in their existing markets which may be seeing slowing or declining growth. They miss the portfolio momentum that is such a key driver of growth.

Make sure that your startup doesn’t make the same mistake!

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