We have just learned that over half of Google searches are now on mobile which has got me reflecting on where the company is going.
Before I go any further I should say I’m a massive fan. Google has had an amazing run as a company, built many amazing products, is pursuing lots of super interesting and brave projects, and generally handles itself well. Moreover, I’m a very happy customer both professionally and personally and I have many friends who work there.
However, the world has turned decisively in directions that don’t favour them. The Apple driven smartphone revolution has taken attention from the open web where Google is strong to apps, the Facebook inspired social media revolution has taken traffic from the open web to closed ecosystems which Google can’t access, and they are haemorrhaging search volume to Amazon.
Microsoft’s monopoly on desktop software looked unassailable until the internet came and similarly Google’s monopoly on desktop internet looked unassailable until a couple of years ago. Microsoft invested big in the internet with Internet Explorer and their MSN portal (remember that?) and now Google is investing big in Google Maps and Android and has numerous failed attempts in social. In an interesting parallel, Microsoft’s internet products were free just as Google’s mobile products are free. Both wanted to protect their core business model.
In another interesting parallel both launched lots of new projects in an attempt to build new revenue streams. Prosaically they both moved into enterprise and more radically Microsoft achieved good success with Xbox whilst the jury is still out on Google’s self driving cars and other Alphabet projects.
Despite all these similarities the companies feel very different. In the 1990s Microsoft was an aggressive monopolist and few people liked them. In 2015 Google has a mix of supporters and detractors but to my mind at least the company has many endearing qualities, as I’ve said.
It’s unclear how much that will matter though. In the arena of business profits count, and whilst feelings might buy Google some loyalty from people like me that won’t be enough to save them from being the next Microsoft. In fact, as I write this it’s difficult to see what will.
I would love for their autonomous cars to become a serious business, or maybe project Loon, but if they do they will become Google’s equivalent to Microsoft’s Xbox, thus completing the parallel.
Finally – being the next Microsoft is far from a fate worse than death. As of June 30th they were still the world’s second most valuable company, and on top of that they are now enjoying a resurgence.
This advice is from a 2008 post by Jason Calacanis (hat tip Founders Notebook):
4. Talk about what you’ve done, not what you’re going to do.
Weak startups and their leaders seem to immediately start talk about “what’s next,” as opposed to focusing on the core product. Anyone can say we’re going to add: a mobile version, collaborative filtering, an advertising network, visualizations, a marketplace, a browser plugin, a browser and a social network to their product. In fact, given the amount of open source and off the shelf software out there, combined with the large number of developers in the world, anyone can bolt these things on to their service in a week or three.
Jason was advising on how to demo a product, but this applies equally to investment pitches.
Only people with good stories can talk about what they’ve done. Anyone can make up stuff they are going to do in the future. Obviously the more mature a company is the more stuff there is in the past that can be talked about, but founders of super early and idea stage companies can still follow this advice. They should put their plans into context by talking about the things they did to inform them.
Two examples from founders we’ve backed. First was Matt Fox, founder of Snaptrip. When he told us about his plans for a last minute cottage holiday site he referenced his previous experience at Pure Holiday Homes, describing what he’d done before gave us a lot of confidence that he could do something similar again. Second was Ben Farren, founder of Spoke. The thing I remember most from our first meeting was him describing his customer service challenges in a previous iteration of the business and the insights they gave him into what men want from a clothing brand.
As regular readers will know Forward Partners invests in companies at idea stage, when there is literally nothing more than an entrepreneur and a plan. I’m frequently asked how we can do that and hope to make great returns given the risks of investing at this stage.
The answer to that question has many parts, not least that we have a product and growth team with a lot of experience helping entrepreneurs turn their ideas into great companies, but the one I’m going to focus on today is how we assess whether an idea is mature enough to take significant investment and become a business.
The following list is adapted from a post my colleague Matt Bradley recently wrote a post on the Forward Partners blog.
- There’s a great product idea – typically an exciting use case or exciting solution to a difficult problem, backed up by some objective desk research
- There’s a deep understanding of the market – customer behaviours and motivations, supply chain, pricing, go-to-market etc.
- The competitive environment is benign – competitors are properly understood and differentiation is clear (note the properly…)
- Business fundamentals are strong – there’s a clear picture of how margins, customer acquisition costs, and customer life time value will look at scale
- Basis for long term competitive advantage – barriers to entry are clear, at least at scale
- Right skills – the founder is well suited to the opportunity
- Compelling plan for the first year
It took us a while to understand the importance of this last point. Venture capital works best when execution is fast and progress is rapid. Every founder goes through a period of exploration and in most cases there are periods that I characterise as ‘meandering’ – new ideas are explored, information is gathered, connections are made, but there’s no clear progress. Then (for the lucky ones at least) the stars align, a strong hypothesis emerges and a plan naturally comes next. That’s the point when we like to invest and help companies accelerate. We will help founders on their journey up to that point, but investing before the hypothesis is strong enough to generate a clear plan creates challenges because the idea isn’t yet ready to become a business and progress won’t be rapid.
Gil Dibner just published this great analysis of Q3 venture activity in Europe and Israel. It’s very comprehensive and well worth flicking through the full 55 pages if you are investing or raising money over here.
Here are the seven points that stick in my mind.
- Investment activity is growing fast – up roughly 2x year on year (slide 4)
- UK and Israel dominate with France and Germany next at approx half the size (slides 10 and 11)
- UK saw $897m of investment in Q3 – ($622m if you exclude the $275m investment in Fanduel) (slides 10 and 11)
- The number of $100m+ ‘mega-rounds’ is increasing with 4 in Q3 and 6 in Q2
- US VCs participate in around 20% of European deals, with a heavy skew towards later rounds (slides 18 and 19)
- Consumer investments are the biggest sector – likely because consumer markets are local markets and therefore less vulnerable to competition from Silicon Valley backed startups (slides 22 and 23)
- Fintech is the largest sector, particularly in the UK (slides 36 and 41)
Last week friend of Forward Partners Douglas Squirrel published a post about Sustainable engineering on The Path Forward in which he advises founders on how to scale their engineering effort. When the focus is on validating the idea and building first versions of the product it usually makes sense to take shortcuts in code and process quality to accelerate learning, but when the focus shifts to scaling the company it’s important to shift to scalable and sustainable software development practices.
Squirrel’s advice is to eschew ‘big bang’ changes such as re-writing in a new language or framework in favour of incremental changes using techniques like ‘inline’ refactorings and ‘spike stories’. ‘Big bang’ changes nearly always come in late, over budget, and under specification whilst incremental techniques have lower risk and keep the feature set moving forward. Interestingly given he’s an experienced startup CTO himself, Squirrel says to be wary of the advice of developers who “always want to re-write everything”.
If you are in this situation, or think that you might be I highly recommend you read the full post.
Our plan is that more and more authors like Squirrel will become Pathfinders and contribute to The Path Forward. Squirrel is actually our second Pathfinder, the first was Matt Buckland, who used to work here but is now Head of Talent at Lyst. He wrote a about How to read a CV and we have more articles from him coming in the near future.
If you would like to become a Pathfinder let me know via the comments or otherwise reach out.