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Share options are key to Valley culture; the UK is getting close, but not there yet and more...

Share options are key to Valley culture; the UK is getting close, but not there yet

It sometimes seems that in the Valley that everyone is an angel investor and the streets are paved with gold. Building a startup there is, of course, still an enormously hard thing to do, but there are lots that have made it big enough to create scores of millionaires through their option schemes. Many of those newly minted millionaires go on to invest in startups themselves, which fuels the ecosystem and makes them role models for the next generation of startup employees that are hoping for a big payday from their options. That’s great for the startups because option holders are often happy to work for lower salaries.

Here in the UK the ecosystem is young and hence not yet so well developed. The good news is that just about every startup gives options to it’s employees these days, and many of our options schemes are similar to those in the US. However, my experience across over 100 portfolio companies and my colleagues experience in hiring getting on for 1,000 people is that employees often don’t understand or value those options very highly.

I think the difference comes because on this side of the pond we haven’t yet seen enough companies having enough success that their options schemes have made large numbers of people wealthy. Most people don’t know anyone who has made it big through options and that makes it hard to see value in their options.

The other factor at play is that startups here in London are often competing with banks who are offering large bonuses in the first year. That cash promise is more real and present than an option scheme.

The good news is that the situation is improving. Startup ecosystems take time to build and perceptions of options is one aspect of many that has been headed in the right direction here for sometime now. Crucially, billion dollar exits are coming through at an increasing rate – this year we have already seen, Just-eat, Zoopla and Appliances Online enjoy £1bn + IPOs, and that’s just a few of the big names. Once these businesses and others come out of their lock-up periods many of their option holders will cash in, more people will know somebody whose options have worked for them, and startup employees will place more value on those options. We shouldn’t expect big overnight changes, but continuous improvement at an accelerating rate is very much on the cards.


The fallacy of assuming obvious use cases means a big market

It is amazing how often people see an obvious use case for a piece of technology and assume that means there will be a big market.

Benedict Evans wrote about it recently in his post asking How many people really care about Google services?. In his post he says that he and others like him (including me) make a mistake by assuming that:

maps and calendars and email and so on are very important, because we use them all day, and that the tight integration of Google services is a good reason to buy an Android phone and their absence would make it unsalable.

Whilst in practice, Google services aren’t that important to most people, because most people don’t use them very often. Most people don’t go to places they don’t know very often and they don’t have lots of meetings. To whit, Google Maps only has 100m active users on iOS out of 400m iPhones and 250m other iOS devices and the average Gmail user only gets five emails per day (most of which are ‘commercial’).

I first thought this back at the dawn of location based services when any number of startups built apps and infrastructure to help us find the nearest cashpoint, petrol station or just about anything else. I probably find myself in more places I don’t know than average and I doubt if I have trouble with this problem more than once a month, and then when I do it is rarely difficult to find what I’m looking for. That was obvious to me at the time.

News aggregation and personalisation services are another good example. This is another one I’ve fallen for myself, becoming highly enamoured with various feedreader businesses over the years, but the truth is that only a small number of news obsessed technophiles have a daily problem with finding gems in an overwhelming torrent of newsflow. Most people just have a site or two that they like to monitor.

In all these examples the service in question is incredibly useful to those who value it, and because the users are held in high regard by the media and other areas of society it’s easy for them to falsely believe that many many others share their problems, or aspire to be like them, and therefore overestimate the market size.


There isn’t much movement at the top table of the internet

The Washington post just published a chart showing the most popular sites on the internet over the last eighteen years. It’s too big to reproduce here, but the striking thing about it is how little movement there’s been in the top. Only 14 companies are represented in the top 5 slots over those years, and the top slot has been held by only three companies (AOL, Yahoo, and Google).

This stability is partly down to the top companies acquiring the ones further down, but it’s remarkable given how much turmoil there is in the internet world more generally.


41% of UK ecommerce now on mobile

Screen Shot 2014-12-15 at 12.26.58I took this chart from Criteo’s recently published Mobile Commerce Report. It’s amazing to see how fast mobile is taking share from desktop and great to see the UK leading other western markets, as we do in just about all areas of ecommerce.

Other interesting points from the report include:

  • Smartphones now account for a greater share of mobile transactions than tablets (although not in the UK)
  • Android and iOS convert similarly, although Android transaction volume is about 65% of iOS
  • mCommerce works for high value as well as low value goods – fashion is a key vertical for mobile




Don’t fall in love with your hypotheses

I just read Wyatt Jenkins’ 10 A/B testing lessons I learned the hard way. Here’s number one:

1. It’s a hypothesis. Don’t fall in love. Most tests don’t turn out the way you plan them. There’s a roughly 70% chance that you are wrong. Try lots of ideas quickly and cheaply. Consider excluding difficult browsers like IE and excluding customer segments that introduce lots of edge cases. Do what it takes to get a test out fast.

In common with many people in the startup ecosystem we are big believers in keeping things lean. At it’s heart this means being clear about your assumptions and viewing the startup process as a learning journey. We even structure our due diligence process to tease out all the assumptions a startup is making and then help build a workplan to validate them.

What we’ve seen is that despite best intentions it’s incredibly easy to become fixed on a given strategic choice – e.g. which customer segment to go for, product features, company positioning, tone of voice, or elements of the visual identity. My colleague Dharmesh is fond of saying that it’s important to test every new idea within a couple of weeks because after that the brain somehow starts to see it as permanent and stops wanting to test it. I like to explain aversion to changing plans as an emotional version of the sunk cost fallacy – where the cost is the emotion we’ve invested in arriving at and supporting the idea.

It is easy to write a blog post saying we shouldn’t fall in love with our hypotheses, but in practice it’s difficult not to, constantly questioning everything is tiring, and when we pitch our ideas we want to stay consistent with them. As with many aspects of good execution the key is discipline, in focusing in on the most important assumptions and leaving the rest till later, and in staying with it even when you’d rather be doing something else. Having other people in your team to keep you honest also helps.

But even if it is hard, Jenkins is right, we shouldn’t fall in love with our hypotheses. Keeping our decision making rational massively increases our chances of success, and remember that our hypotheses are hypotheses is one way to do that.


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