This tweet really hits home for me. As VCs and board directors we’re often assumed to have great knowledge about startups, and that’s fair enough given we’re there to help. However, we end up feeling under pressure to live up to the assumption, i.e. to look competent and to be able to help.
As I remember all too clearly, that pressure is particularly intense for younger VCs who are building their experience. We all know that sometimes the only route to success is to ‘fake it till you make it’ – and that applies just as much in venture as in other industries.
None of this is to say that it isn’t great being a VC, it is. Just not great all the time.
So what should we all do?
- Investors: take Steve Schlafman’s advice and realise that going and finding an answer from someone else is almost as good as knowing it yourself, and a lot better than guessing. CEOs can usually tell anyway. Believe me.
- CEOs: instead of asking for opinions or advice ask investors for examples of similar situations to the one you’re facing.
Facebook has just posted another impressive quarterly result, and that comes on the back of relentless innovation in their consumer facing and advertising products. Bots running on Messenger make the headlines, but the speed and regularity with which they release new services to help advertisers target better is breathtaking. It’s good for startups too, because it takes a while for larger companies to wake up to the new tools. With Instagram, Whatsapp and Oculus they are also building up a track record of visionary M&A.
So there’s lots to admire about Facebook.
But most impressive of all is the way they pivoted from desktop to mobile in 2012 – you can see the results in the chart above. Desktop to mobile is a massive shift, and not only did Facebook transition their audience, they made the product better, as evidenced by the increased amount of daily usage. Most companies fail to make the switch entirely but for Facebook it was the catalyst for a 5-6x increase in revenue.
The wires this morning were full of stories about Apple’s Q2 results. iPhone unit sales were down 16% on the year ago quarter and there is widespread speculation that the growth might be over. We talked about it a bit in the office earlier on and whilst a few of us think the iPhone 7 might have something cool about it that could revive growth none of us think there’s much further for the iPhone to go. It’s already been improved through nine versions since 2007 and there simply isn’t much left to do.
iPad and Mac computer sales were also down and there’s little reason to hope for a return to growth in either of those two product lines.
Alphabet and especially Microsoft, the world’s second and third most valuable companies have been in this position for a while. They have responded by pushing into whole new areas to generate revenue growth, but with patchy success. Microsoft had massive hits with the Xbox and enterprise software, but missed with Bing, MSN, and mobile. Google has a similar record with Android and Google Apps counting as big hits, but repeated misses on social. Meanwhile both companies have newer projects aplenty.
Facebook, the world’s sixth most valuable company has arguably moved into a similar position recently and is making big bets like Oculus and Whatsapp (although the latter is arguably an extension of its core business).
Historically Apple hasn’t made many big acquisitions, which is why the world was surprised when they bought Beats for $3bn. Going forward I expect their M&A strategy to become more like the other tech giants, because without bold plays their revenues and profits will decline and their share price will suffer. Badly.
If I had to guess I would say many of these acquisitions will fall into their ‘services’ category, which is Apple’s one area of growth right now. It’s where Beats sits and cross selling services to their loyal customer base is a very obvious thing to do.
Conversion rate optimisation is a hot topic these days. Google Trends identifies it as an official “breakout” term meaning searches for that phrase are up over 5,000% over the last few years.
We’re looking at an arms race here. Most of these people searching will be improving their conversion rates which will enable them to pay more for traffic and still hit their customer acquisition cost targets, and unless you match them you will find it hard to compete.
The chart above comes from an article I was reading this morning with nine principles for conversion rate optimisation. They are principles you can use before you have enough traffic to run meaningful AB tests.
- Speed – Amazon estimates that for every 100ms increase in page load time there’s a 1% decrease in sales, and more generally page load times over 2-3s leads to massive customer drop off.
- Singularity/Simplicity – pages with only one goal and no clutter convert much better. A Whirlpool email campaign improved clickthrough by 42% when they reduced the number of calls to action from four to one.
- Clarity – meet your audience’s expectations with a plain language statement of how the customer benefits from the call to action and clear design
- Identification – know your audience’s aspirations, lifestyles and opinions and reflect them in your design and copy
- Attention – sites have eight seconds to grab a user’s attention. Headlines are the most useful tool and should generally be less than 20 words.
- Desire (a subset of attention) – show the user what’s in it for them. Likeability, social proof, hero images and customer logos are good tools.
- Fear (a subset of attention) – show the user what they lose by not taking the call to action, particularly effective when the pain of the customer problem has been made clear. Urgency (order in 40mins to get delivery by Wednesday) and scarcity (only 5 left in stock) fall into this category.
- Trust – people trust sites that look good, show customer service contact details, and have customer testimonials. They make their minds up on trust in 50 milli-seconds.
The eagle eyed amongst you might have noticed there are only eight items on the list, that’s because I combined a couple. There’s much more detail and lots of good examples in the original post, which is well worth a full read.
Six of these eight tips (singularity, clarity, identification, attention, desire and fear) require that you know your customer, yet a remarkable number of founders start building their products and sites without developing that understanding. Your intuition probably isn’t good enough. What’s more remarkable still is that every entrepreneur we talk to knows that understanding their customer is important and most of them have done some superficial research, but only a minority have a deep enough understanding to make the calls that will give them the conversion they need to kickstart their business. That’s one of the reasons many businesses founder just after launch.
The tools to get the understanding are available to everyone so there’s no excuse. All it takes is well some well structured customer interviews.
WeChat is often held up as an example of where conversational commerce could work here in the west. It’s a messaging app with huge numbers of users, many many of whom interact with services and buy things without the inconvenience of leaving the app. Ergo Messenger, SnapChat, Whatsapp, Telegram, Kik, etc. etc. could do the same and cue a tonne of excitement about how that might happen.
I live in London in the UK so I can’t use WeChat, but I’ve just read a post by Dan Grover, a man who does. More than that he’s a product manager on the platform. Not only does he have intimate knowledge of WeChat he’s also schooled in understanding how customers behave and why.
His conclusion is that WeChat evolved into the all-singing, all-dancing behemoth it is today not because there’s a natural evolution from messaging to conversational commerce, but because they had lots of users and they exploited that strength to move into commerce and other adjacent spaces. Moreover, most of the services on WeChat work by firing up a card inside the app which functions like an app or mini-web page – in these examples the commerce simply isn’t conversational.
As Dan sees it (and he was there watching) WeChat was mostly successful in capturing the commerce opportunity because of “enhancements [to the app] made running counter or orthogonal to the idea of conversational UI”.
If you want more of this go and read his post. It’s a long one, but the examples of how WeChat works and how conversational commerces is being developed in the west will really ram the point home.
I don’t like writing negative posts and I’ve written a couple now that are down on the bot/conversational commerce opportunity but I wanted to summarise and capture this info about WeChat for posterity.
As an aside, it’s terribly easy to see success in a different country and incorrectly assume it can be copied. It’s an easy mistake to make because the intoxicating success is highly visible, but it’s hard to find out the detail of how it was delivered – that’s why posts like Dan’s are so important. However, building a deep understanding of the customer is the best way to avoid building a duff copy-cat, and has the added bonus of being the best way to start a company more generally.