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If there's one thing we've basically figured out in the digital world, it's marketing. There's no more well tread aspect of building an online business than marketing. We've got more channels, tools, and analytics to tell you weather or not it's working than you can shake a stick at.
It's table stakes. You spend some dollars to get more dollars out. It's not complicated.
That's why I care much more about engagement--do people like what you built, versus whether or not more people used it today than they did yesterday. Plus, the startup world is littered with companies that grew exponentially without becoming successful--Fab, Turntable, Dailybooth, etc.
If people engage regularly with your product, but you can't get more people to use it, you've got a marketing problem. Marketing problems, for the most part, are solvable by a very distinct set of best practices. You've just got to figure out why the current set of people like it, and find more of them. Now, maybe there just aren't that many people out there, but for the most part I see a lot of low hanging fruit ways that marketing could improve.
On the other hand, if people are coming, but they're not engaging, you've got a product problem. Sometimes, it's easily fixible. Other times, you're just so way off on product/market fit that you've fallen into "bad idea" territory, and there's really no timetable for fixing a bad idea.
On top of that, there's another problem that startups have more trouble figuring out than marketing--scaling. What do you do when you actually start getting people in the door? How does your sales support staff change? Where's the first bottleneck? Does the experience in your marketplace suffer at all because you've got an influx of too many sellers, or buyers?
In a seed round, I think it's safer to prove engagement and the ability to create a scalable process, than to load up on customers. This way, you know that you've got enough in place not to fall apart when you do grow.
That being said, I'm tired of companies saying "And we haven't spent any money on marketing." The fact that marketing is a commodity, to me, means that this is a box you should have already tested in some way. If it's not 100% obvious why someone would use your product or how they could be marketed to, not doing any market testing is like saying "I ran the marathon with one shoe!"
Why would you do that, let alone why would you be proud of it? If anything, it just confuses an investor. Do you not know how to market this company? Are the channels for acquisition unclear? No one says you have to spend tons of money on this, but to spend zero seems bewildering.
You could spend it on Google ads, Facebook, PR, content marketing, referral programs... really, anything. While marketing isn't a secret magic sauce that will turn your startup successful, it's certainly going to tell you a lot about whether your product resonates.
You need some minimum amount of people coming through the door to tell whether you've got something.
So let's recap this meandering Monday morning post:
Early on, engagement is better than growth.
People have figured out how to do marketing--you should go learn what everyone else knows.
It's a basic part of running a business, so don't skip it entirely either.
I'm excited to share that goTenna, a Brooklyn Bridge Ventures portfolio company, has launched the presale of its point to point communications device.
Have you ever texted anyone in the same room and thought about the infrastructure behind it--about where that message travels to, the great distances it gets bounced around, all to travel ten feet, in just milliseconds.
It's pretty magical.
It's also pretty stupid, technically speaking.
When you can literally see someone else's phone, even a three year old would suggest that the message should go from point A to point B on a pretty straight line.
There's a lot of other things about telecommunications that a three year old would probably agree with--that no one should ever be able to read your message, except the person who sent it to you.
And if you go on a remote camping trip and one of you gets lost on your way to the hole in the ground behind a tree, you should be able to contact each other if you both have phones.
These situations--the lack of coverage in emergencies, the need for privacy, and the ability to offload point to point communications--make goTenna a pretty handy device to have around. It is a small piece of hardware that syncs up with your phone, freeing it from the carrier network and enabling point to point communication.
But handy isn't why I backed it. Handy is the first step to gamechanging.
I met Daniela Perdomo over a year ago at SXSW. I was scanning the SXSWSocial network for anyone that had tagged themselves "Brooklyn". Daniela's profile came up and I noticed that she was involved with NYC Resistor, the hardware hackerspace that Makerbot came out of. I tweeted at her in response to a post about cheese.
@danielaperdomo That is serious! BTW... Putting together a little dinner of folks Sun night. Would love to meet a Bklyn maker/Resistor.— Charlie O'Donnell (@ceonyc) March 9, 2013
We agreed to meet up and she told me what she was working on. I had no idea she was a founder with a startup. I just wanted to meet the hardware hackers from Brooklyn. When she told me she was working with her brother Jorge on disconnecting phones from the network, and reconnecting them directly to each other, I was intrigued. We met back in NYC and after another meeting, I agreed to give her terms and lead the seed round.
Fundraising wasn't an easy road. She pounded the pavement for months looking for other investors who also wanted to take a shot at a first time founder team on a towercutting project. To get there on goTenna, you had to believe in the near term usefulness of the device, but also be excited enough about the possibilities around mesh networks. You have to understand how decentralizing the system makes it more resillient. No longer should anyone in a city as dense as NYC should ever go without the ability to communicate with their phones in an emergency--not when the nearest device to you is likely within a mile of you.
Whether she got better at pitching or the tides turned in the hardware space in general, I'm excited that some investors eventually did step up--and when they did, the seed round became oversubscribed, totalling $1.8 million. It's been great to work with Karin at Bloomberg Beta, Alberto at Collaborative Fund, and Brett from MentorTech, and to have supporters like A16Z and NY Angels. I'm really proud of the work of the people behind the company--Daniela, Jorge, John Levy, who has been with them from the very early days, and their whole tech team.
I'm buying a pair of goTennas because the next time I do the Ragnar running relay, and I roll my ankle at 2AM on the side of a deserted highway, I want to be able to text the van down the road to come see if I'm ok.
I'm investing in goTenna because the grand experiment of untethering from the cellphone tower is a worthwhile one.
There's been some writing about how VCs and founders interact with each other and it inspired me to take a step back and reflect on what my role is supposed to be with regards to the investments I make and the founders I deal with.
Here's what I came up with...
First, I have a fiduciary responsibility to my investors who entrusted me with money in the first place. If I don't do right by them, then I have no money, no fund, no career, full stop. They count on me to be a good steward of their capital, and to take reasonable and appropriate risk with the expectation of a certain level of returns.
That also means that I need to act in a way that ensures my ability to get future opportunities to invest their capital in attractive deals. Rather than using my investors as an excuse to be short-sighted and screw over the first entrepreneur that works in the door, I need to balance their need for return with the long term viability and reputation of the fund and the firm. I believe that ethics and opportunity for investors will go hand in hand over the long term--and opportunity drives returns.
It also means I need to be really careful about how I'm spending my time. I want to be helpful to a lot more people than I'm able to spend time with, but I can't distract myself too much from this clear and primary mission.
Second, I am a provider of capital--so my check needs to clear and I need to be transparent about when and if I plan to invest, or if entrepreneurs should look elsewhere.
Third, I try to help my teams be the best company managers they can be--because ultimately, no matter how much help I can be, it's up to them to do most of the heavy lifting. That does not mean telling them how to run the company, but to help them create a management discipline--a framework for thinking about problems and solutions. I am there, along with other investors and board members to audit their thinking--to make sure they were considerate about the plans *they* came up with, not me.
Fourth, I am highly incentivized to provide assistance to my portfolio companies in any way that I can--whether it means connections to talent, PR, other capital, customers, etc.
Fifth, as I intend to be a long term participant in the innovation ecosystem, I have a role to support and champion the community at large. This means that it's important to me to be supportive of everyone's success, not just those I back, since it's not a zero sum game. I, along with my investors and my portfolio, will have the best chance of success when the ecosystems we participate in, especially the geographic ones, fully support high growth entrepreneurship.
Here's what I am not:
I am not necessarily an entrepreneur's friend. Granted, over the course of working together, we can become friends--and sometimes I might actually back a friend--but just because you invest money in someone's company doesn't make you friends. This is a professional relationship and we're here to grow an enterprise.
I am not an expert. Maybe ten years from now, when I've got lots more exits under my own watch, you can call me that, but for now, I consider myself a really ambitious student. I'm learning everyday and I count on founders to be the ones that bring the best insight into the problems they face in their industry. If I can provide helpful context about some of the seed stage startup best practices, great, but they know their company best.
I am not anyone but myself, or the next anyone. I'm not trying to be the next Fred Wilson, Josh Kopelman, Marc Andreeson, etc. I am creating a lifestyle and a firm that works best for my strengths and how I want to spend my time, and who I want to spend it with. I am not trying to build a big firm, employ a lot of people, or manage the most money possible. I just want to do my thing for as long as my investors and the future founders I have the opportunity to back will let me.
Just to be clear, Reservationhop--the line jumping fake name reservation making most hated startup idea on the internet right now--is not a particularly good idea.
- It's too small of a market with too little monetization per transaction.
- It's rather easily foiled by ID checking.
- It doesn't provide restaurants with any value.
It is not, however, any more morally bankrupt than what a lot of other startup people fawn over. I'm finding all the ethical hemming and hawing over this to be rather inconsistant.
Napster was totally cool because you got free music, which all us regular people and poor college kids love, while sticking it to The Man (record labels). Totally illegal, but I don't remember too many internet people questioning its ethics.
YouTube was totally cool because "Look, video! And no plugin!" Remember all those things you haven't seen in forever? Yeah, all here. Yay free copyrighted material! Did I miss the ethical posturing at the time?
And when affordable housing advocates complain about Airbnb, they're just standing in the way of innovation, right? Screw the law!
Tor's cool, right? Go Tor! IP masking FTW! Because it's not like we're all using it to watch things we're not legally allowed to because of broadcast rules.
And damn that Supreme Court for forcing Aereo to pay for TV rights the same way all the other TV providers need to!
But, God forbid anyone should mess with Opentable. Jesus, Mary and Joseph! People are up in arms over Reservationhop--the service that sells off hard to get reservations made under assumed names. It's ruining the restaurant business! How dare they!
Ok, let's get something straight. No one funded this thing. There's no board. It's just a guy poking holes in a system testing out demand.
We normally ok this kind of startup tactic. "Don't ask for permission. Ask for forgiveness."
We tell startups to poke the bear and become a thorn in the side of big companies so that they have to buy you or at least bring you into talk about deals. Maybe Reservationhop becomes so annoying to Opentable that they talk about a deal?
Or is the ethical issue with auctioning off a place in line?
Let anyone who has never hired a Taskrabbit to buy a cronut or a Shakespeare in the Park ticket cast the first stone.
Restaurant reservations are a totally bullshit process. If you were Jennifer Lawrence and you walked into any hard to get into restaurant at any time, there would undoubtedly be a table for you--almost immediately.
In fact, I got pitched by a startup that told me nearly a quarter of all peak reservations at top places get cancelled the same day. People are already doing Reservationhop--but they're doing it giving their real name, using their assistant. The system is already full of fake reservations that are just placeholders.
Plus, these are places where there's probably an hour and a half long line of people not in the Opentable system that are just waiting at the bar for an opening.
So instead of dismissing the idea with such disgust, you could have just as easily said, "Hey, this doesn't work at scale, because restaurants will just start checking IDs."
But that doesn't mean it isn't worth doing.
Maybe it exposes something really potentially valuable to restaurants that they don't have: A list of the people who want to eat at that place so badly that they're willing to pay extra money.
Wouldn't most restaurants want that list--not to charge them but to make them their best regular costomers?
There's a pony in there somewhere--and it isn't charging the customer $5 extra bucks. Actually, money probably isn't even the best currency. What about someone with half a million Twitter followers. Is it wrong for a restaurant to open their doors to that person ahead of others because they need the marketing channel? Let's not dismiss the idea of even asking the question and lambasting experimentation around it.
Reservationhop isn't messing with the restaurants so much as it is messing with a monopolistic middleman that has long overstayed its welcome. Restaurants deserve a better, more economical, way to distribute tables, and customers deserve more transparency and fairness.
Opentable is a near monopoly in the reservation space--and most of the restaurants don't even like it. They have to pay a ton of money for each customer when their margins are already super thin. It deserves to be messed with just like the music publishers or TV broadcasters who have taken too big of a cut for too long.
Fairness, you say?
Yeah. If you told me I could get a reservation now for $10, I'd call that fair. Douchey? Sure. But, at least I know what I'd need to do to get it. Right now, I need to tell my assistant to pre-book three months in advance and cancel every day that I don't use it--because that's what everyone else's assistant is doing. Or, I need to be some reality show celeb on whatever the current hot reality show is. That's less fair than the $10 in my mind.
I wouldn't fund Reservationhop because it's probably not a big enough problem worth solving. Most places you can get into just fine--and the really hard to get into places--well, there just aren't that many of them to create a big enough marketplace to get into them.
But, I'd never fault the entrepreneur for the act of trying something where no one really gets seriously hurt--and I'm just not seeing a lot of hurt here.
The tactic is questionable, but *more* importantly, it's just not scalable. That's where it breaks down first for me--not because the reservation is fake. A huge number of them are fake--because tons of people have no intention of really eating there at that time. Perhaps if you poke around this broken system enough, you find a real solution. You don't get there, however, without some experiments.
Sometimes, those experiments mean building arrays of little antennae and going to court. Other times, it means offering up your apartment, uploading videos, or putting taxis on the road while you're being taken to court. We tell startups to break eggshells all the time. Let's at least be consistant about it.
Plus, if anyone really did find a way to take down Opentable, I'd be all about that.
When I turn down the opportunity to invest in a startup, I really turn it down.
I try and say exactly what I don't believe will happen, or why I don't believe in what you're doing. In essence, I'm setting myself up to either be spectacularly wrong or to be right.
The last thing I want is to not have a view on the space. My job is to have views--because not making a bet is making a bet. If I don't have clarity on something, it means that I don't think the space and the opportunity size is big enough to get clarity.
What I never say is "I love what you're doing, but...". Sugarcoating isn't helpful to entrepreneurs. You never want to get a rejection and scratch your head over why the person turned you down.
I'll tell you right now that I don't think a new form of video messaging is either a) something that consumers really want or b) a great way to make money because monetization just creates friction in the communication process.
I could be 100% wrong about that, but that's my bet. We'll know in a few years if I was right or wrong. In my mind, uncertainty should never be a reason for an early stage investor to turn a deal down. The world is uncertain and making bets in an uncertain world is what risk is all about.
So, I'm certain that I'll either be certainly right or certainly wrong--but I'm always certain.
I've been helping to syndicate a few opportunities lately and what has really surprised me was how wishy washy the turndowns were. Entrepreneurs are sending me back notes saying "They turned it down, but I'm not sure why." It's unclear what piece of information they were lacking or how someone could have gotten them over the hump. It doesn't help them improve their pitch or adjust their model. It just feels like the VC wasn't that interested in the first place and so they're not sure what the interest was in the first place. If you take a smart home pitch, and you turn it down because you're not certain how the smart home segment will play out, what you should have done was tell the entrepreneur this, but offer up the opportunity to shed some light. This way, they know there's a low chance of investment, and they can choose whether or not they want to spend their time educating you.
If an entrepreneur is going to invest their time pitching me or having a meeting--I'll do my best to invest my time to have an opinion.
It may sting a little when you get a direct pass from me with specific feedback, but you always know where I stand. At the end of the day, my bet is that you'd rather get that. You'd rather know exactly why I didn't do a deal than scratch your head over some opaque "VC speak".