“In contrast, waiting until you ship a product to embark on traction development usually results in one or more additional product development cycles as you adjust to real market feedback. That’s why doing traction and product development in parallel may slow down product development in the short run, but not in the long run.”—Traction Book
“The value capture in the private markets has also led some hedge funds and other major non-private-market investors to become late-stage VCs. Many of these investors lack the skills, focus, experience and temperament to make great, patient, long-term, private-market investors. Trying to shoe-horn a hedge-fund mentality into venture capital markets cannot portend a happy outcome. Marc Andreessen captured some of this sentiment in his recent “10 Ways to Damage Your High-Growth Tech Startup” Tweetstorm.”—Venture capital is changing — and not necessarily for the worse
“Don’t invest in “pedigreed” founders, with startups in hot sectors, that have lots of “social proof”, located in the Bay Area. Everyone wants to invest in those companies. So, as we saw in Angel Gate, valuations in these deals go way up. Instead, invest in a wide range of founders, in a wide range of sectors, before their startups have much social proof, across the entire US. Undoubtedly, these startups have a lower chance of succeeding.”—Moneyball for Tech Startups: Kevin’s Remix | Possible Insight
“The first part of our modest insight was to face the fact that, at the seed stage, most of the value is option value not enterprise value. Any approach based on trying to work backwards from some hypothetical future enterprise value will be either incredibly expensive or little more than a guess.”—Valuing Seed Stage Startups | Possible Insight
“We can now begin to see that the new style of management is not a fad. The knowledge-based part of the economy demands flat hierarchies, mission orientation, above all a sense of direction. Not five-year plans. We can also fathom the mystery of what I’ve alluded to as re-everything. Much of this “re- everything” predilection—in the bulk- processing world—is a fancy label for streamlining, computerizing, downsizing. However, in the increasing-returns world, especially in high tech, re-everything has become necessary because every time the quest changes the company needs to change. It needs to reinvent its purpose, its goals, its way of doing things. In short, it needs to adapt. And adaptation never stops. In fact, in the increasing-returns environment I’ve just sketched, standard optimization makes little sense. You cannot optimize in the casino of increasing-returns games. You can be smart. You can be cunning. You can position. You can observe. But when the games themselves are not even fully defined, you cannot optimize. What you can do is adapt. Adaptation, in the proactive sense, means watching for the next wave that is coming, figuring out what shape it will take, and positioning the company to take advantage of it. Adaptation is what drives increasing-returns businesses, not optimization.”—W. Brian Arthur, in Increasing Returns and the Two Worlds of Business
“The ultimate hack is unlocking data to create a service experience that is about me, the customer, not what the chef and manager dreamed up before opening for business. The more you know about what I want in the moment I want it, the more orders you’ll get from me. A huge opportunity for your bottom line. I’m not suggesting overhauling your menu for each customer every day. I am thinking about all the ways you interact with a customer- the email newsletter, social media, how well you understand my order history to remind me of what I love about you. Maybe the food too. Find me where I am online and let me order- don’t force me to come to you.”—Unlocking Data to Create a Better Customer Dining Experience
“When founders are starting out, partnership inquiries sound really exciting. In theory, a successful partnership with a larger company could help your company get more customers. What you realize, though, is that partnerships are rarely a real thing. When you work with another company, either they are your customer or you are their customer. Anything other than that usually just eats up time and energy.”—I sold my startup for $25.5 million. Here’s how I did it.
“The way that my team initially looked at this question is: if it’s interesting for a local, it’s going to be really, really interesting for a traveler. That means that it’s local and interesting and unique and that’s what travelers want. If it’s good enough for a local, it’s going to be good enough for a traveler.”—Why Airbnb Is Interested in Local Search
“It appears that we are at the early stage of the emergence of digital commerce businesses that have no precedent in the physical world, and which take full advantage of the native capabilities of the internet platform to reinvent and reinterpret retail in a digital environment.”—Michael Zeisser
“The single most important lesson we learn from the short history of the consumer internet industry is that winning internet business models are engineered around consumers. In fact, consumer internet businesses must be designed, architecturally, to be more consumer centric than their physical world equivalents. This is because, fundamentally, the internet increases transparency and information availability to reduce friction, and thus shifts market power to users relative to physical world models. Therefore, competitors can and will exploit every opportunity to be more consumer centric, a dynamic fuelled by the quasi absence of barriers to entry into the industry.”—Michael Zeisser
“But each mobile app is it’s own silo, and the signals of links between content and services is lost. App discovery is broken; app content is locked within each app, and each app creates its own “walled garden”, in a way. Links and data does not get passed through apps, and thus the usual signals we can use to track user intent, ad performance, and other metrics that create the currency behind the desktop web aren’t as prevalent or as valuable in mobile.”—Why Deep Linking is Back
“Mr. Grimes seems to have lost none of his passion for a deal. Mr. Goetz of Sequoia called him at 1 p.m. on the Saturday of Valentine’s Day weekend. Mr. Grimes was out of town with his wife for the weekend. Mr. Goetz told Mr. Grimes only that he was needed for a deal. Mr. Grimes got in his car, drove to Menlo Park, Calif., and was at a meeting with the founders of WhatsApp and Mr. Goetz that evening. “He basically camped out with us for the next five days,” Mr. Goetz said.”—In Silicon Valley, Morgan Stanley Reigns - NYTimes.com
“Google, Facebook, and presumably Expedia are now able to use search, mobile and social media to create unique identifiers for consumers, and then online travel agencies and hotels can pair these identifiers with the abundant information they already have about a user’s booking habits or loyalty allegiances to offer small groups of travelers highly targeted offers that may undercut rate parity provisions.”—
“I would like to make a billion dollars. I’m not going to limit myself as far as how much I can make. But I’m not going to create a convoluted structure that forces me into this position where I have to have 3,500 employees running around with their heads cut off, not aligned, not focused on creating sustainable value, if I don’t have to. I don’t believe I do. I feel it’s both intuitively and rationally obvious that I can do quite well – way better than the average – with a small team. I don’t have to hire a CFO. I don’t have to have a 50-person human resources department.”—A walk on the California coast with Eric Schiermeyer, the cofounder and former analytics expert at Zynga (interview)
“Nothing has really changed: Twitter continues to know a lot about me and other heavy users, and is figuring out how to monetize that, but there just aren’t enough people like me. I know Twitter is trying to spin MoPub as giving them access to a billion users, but without the data derived from Twitter usage, those billion users and the ad impressions they see are just more undifferentiated inventory; there’s a good reason display ad companies are worth a lot less than social network ones.”—Twitter’s Marketing Problem | stratechery by Ben Thompson
At the seed stage, there is essentially one data point that matters when looking at a possible investment: the founder. Everything else comes from him or her. The idea and the company strategy show how the founder thinks. The team shows if he can convince others to follow him. Any traction…
“In D.C. alone, where the service was launched this month, Sosh uses between 500,000 and 1 million sources (blogs, reviews, event listings, ticketing websites, tweets, Facebook posts, Instagram photos) to complete an algorithm that finds new recommendations.”—
“However, historically, we’ve not found it hugely valuable yet, simply because we have such a challenge in front of us already with 25 million active, engaged small business pages and only a million advertisers. We already have the touch point with the business, and for us it’s about trying to continue to prove the value to get them to engage more deeply and become advertisers, whereas I think a lot of the value of the channel is actually kind of getting out to reach those businesses. That is a fortunate problem that we don’t have right now.”—Facebook’s Levy: ‘No Singular Event’ Triggered Decline in Businesses’ Organic Reach | Street Fight
“The classic telco arbitrage story was long distance and international. Long-distance and international connections used to be very expensive, no longer are, but telcos pricing had not fallen to match, and first calling cards and then Skype arbitraged the difference between the list price and the real economics of long-distance or sub-sea fibre. Mobile messaging apps do something similar for data, arbitraging the gap between the economic cost of a few K of data and the price charged for SMS. As cellular data speeds go up, we should expect voice apps to take off in a big way as well: the pricing gap is not as big but things like on-net/off-net call pricing will also go away (with both positive and negative margin effects for telco, for reasons I won’t go into here).”—
“The challenge with the full stack approach is you need to get good at many different things: software, hardware, design, consumer marketing, supply chain management, sales, partnerships, regulation, etc. The good news is that if you can pull this off, it is very hard for competitors to replicate so many interlocking pieces.”—Full stack startups
When I first started my blog, I was tempted to write about the latest marketing tactics, those which would immediately grab people’s attention and give them an advantage in the quickly-changing industry. But each time I considered these types of posts, I felt they lacked depth and purpose. They…
“I’ve seen safely 30 percent inflation on early-stage deals in the last year. And we continually ask ourselves, “How big can this get?” And for a lot of things that don’t seem like they can get that big, it’s not a rational conversation to have with the entrepreneur to say, “We think you’re worth less,” when someone else thinks [he or she is] worth more. It’s not only uncomfortable for us, but I fear for what some entrepreneurs are going to have to deal with when they set really high expectations for their seed or A round and have to go back and deliver, in theory, some sort of appreciation to their early investors. There’s no way around that ending badly.”—Sunil Dhaliwal, Founder and Managing Partner of Amplify Partners
“While the company isn’t likely to offer continental breakfasts and spa bathrobes with an Airbnb logo handstitched on the breast, Chesky does hint that “there might be an opportunity to democratize a lot of the services that the Four Seasons provides.” To that end, a source familiar with the company’s plans indicates that Airbnb has tested an airport-transportation service similar to Uber. One top industry researcher, who asked to remain anonymous so as not to alienate any traditional hotels, said that it’s not a stretch to imagine what might come next. “Once the guest has made a decision where to stay, [he or she] may need a dry cleaner, or a restaurant in the neighborhood, or transportation service to and from there. Airbnb could become a travel agent for the people who are staying with its hosts.””—Inside Airbnb’s Grand Hotel Plans
It took me six years to realize that during my first company, I saw only the first 50 days of the business. That is, I only saw half of what the business could have become, maturing to a 100 day organization.
Across a scale, startups begin at day 0. Established businesses, often those that are public (and those that aren’t reinventing themselves), are at day 100.
A founder begins with an idea or a problem that needs to be solved. Sketches and scribbles fill notebooks. At this time, the idea isn’t fully realized or tested. It’s just a thought with the potential to become a passion later on.
More research goes into the idea. Discussions with close friends begin, checking if the idea has legs. The single founder who started the idea likely finds a close a friend to go deeper into the problem and begins to evaluate the market potential.
A team forms to focus on what now becomes a base or minimum viable product. Early stages of sales begin, identifying paying customers in a target vertical.
For example, this is the stage where Diapers.com had a website but founders were running to Costco to purchase diapers in bulk while processing orders manually, with the help of their dads.
Employees join the original team. Either sales are growing very well or not growing aggressively as planned. A brand around the idea cements. The organization is fairly flat, with the founder still performing generalist tasks. Early attempts at paid marketing begin and a basic understanding of core unit economics emerges.
A critical inflection point occurs. The founder realizes, at this day, that building an idea and building a business are two different skills. “Am I [insert specific skill, i.e. sales, product, etc.] person or am I CEO and a manager?” the founder asks. The team is much larger and specific functions are created for employees but growth may slow - where too many inputs occur and therefore, the challenge shifts to managing. The core product expands in hopes of generating more sales.
The creation story of Twitter is relevant to highlight in this stage, where the original product mind behind the service, Jack Dorsey, stepped down and a more business oriented leader came in, Dick Costolo. Braintree, a payments infrastructure company, experienced a similar transition where founder, Bryan Johnson, stepped back and recruited an experienced manager, Bill Ready, to lead the business to an $800m acquisition by EBay.
Today is the most important day in the company’s life-stage, where the founder must choose a hard right or a hard left for business direction. Should the founder turn right, the company continues to sputter along with associated headaches of re-accelerating growth. However, should the founder turn left, hard realizations come to light: “I’m not cut out to serve as CEO. Should I step down and find a replacement?” The founder accepts reality - the world of black and white - and decides the organization is ready for evolutionary change.
With costs under control, the company is no longer flat as resources have been realigned. Clear hierarchy and structure guide the work day with defined processes. Operating groups and mid-level divisional managers are put in place. A new acting CEO focuses on the original product and begins to optimize sales. Growth begins, and more importantly, predictable and recurring revenue emerges.
Words like “efficiency” and “accountability” become part of the vernacular in the office(s). Management continues to zero in on key performance indicators (KPIs) and cost drivers to the business. The entire company is a significant multiple greater in headcount from the early days. Instead of revenue and growth problems, the business suffers from communication and culture hurdles. Investments in people management and retention begin.
Sales are at an all-time high. Profits are near and more importantly, strength of will set forth by the founder is now displaced by strength of financials. The company continues to build in unison, extracting value per employee as never before seen. Depending on expectations from the private market, that is, if the company took venture capital, now is a good time to consider a liquidation event (i.e. M&A or IPO).
Disruptors, like HotelTonight, a last-minute hotel OTA (online travel agency) or, Airbnb, a rental home marketplace, not only changed an entire and entrenched industry, but continue to grow faster than their peers.
Today’s company is no longer an idea but a tangible business, with products, profits and people. The public market welcomes a successful startup transformed into a burgeoning organization.
“For now, it isn’t that simple. Apps are walled off from one another. Many developers haven’t included links. Even when they do, Google must strike deals with app developers individually to examine the content, rather than unleashing spiders that crawl the Web unimpeded. Google hopes to surmount that obstacle by allowing app developers to submit their apps themselves to Google to be crawled.”—
“Meanwhile, many tourism companies do not offer online booking, and these days, nobody wants to call, leave voice mail messages and wait on hold, she said. Peek will provide these businesses with a Web page with photos, a description of the service and availability, and a way to book reservations and pay.”—
“You also have to be really good at context switching, depending on the size of your portfolio, switching every half hour to an hour from one company to another to another, always on the lookout for portfolio value add [like new hires]. You have to be happy to work 10 to 12 hour days, then do email and still go to bed feeling like you’ve accomplished nothing because it’s so varied that having a sense of achievement and success is nearly impossible.”—Jeff Clavier of SoftTech VC
“Unbundled, single-purpose apps are the way to expand share on the homescreen and Facebook is pulling it’s core desktop experience apart as their audience moves to mobile. The acquisitions of Instagram and Whatsapp are part of this strategy, yet while this strategy makes sense, it comes with execution risk.”—#Homescreen2014
“Beyond the business class lounge neither readers nor advertisers seem to have a massive appetite for a new form of delivery. Vogue sells 192,763 print copies compared to 8,314 digital ones, Good Housekeeping 410,981 compared to 3,561. TV Times only sold 217 “copies” on digital compared to 254,376 on paper. It’s not the only title that can’t decide whether to stick or twist. Look at it from the publishers’ point of view. Are they moving from one format to another or contemplating a future where the complexity increases but the revenue doesn’t?”—
“Among the various considerations, menu availability is the most important decision-making factor for consumers in at home (their city) while proximity (near me now) is the most important consideration to travelers. Both at home consumers and travelers say that mobile is a critical platform to help make decisions about where to eat.”—Report: Mobile Apps More Likely to Impact Dining Decisions than Online
“If you cannot get an entrepreneur to listen to you objectively and rationally, then you have lost your greatest hope of postively impacting that investment. And that is a tool that VCs should not throw away lightly.”—A VC: The Perception Of Conflict Is Conflict
“But when it comes to buying, many of these same social curation sites have traditionally returned customers to third-party brand and retailer sites to complete their transactions, often leading to checkout abandonment. “Because the quality of our partners’ checkouts vary widely —between the good and the bad there’s sometimes a 10 percent difference in conversion — and because consumers are [being asked to leave] their current environment — there’s potential for a disconnect,” says Morton.”—One Cart to Rule Them All
The use of data has always been an asset in the travel industry. Airlines were pioneers in the use of data to optimize seat pricing, crew scheduling and flight routing. Similarly, hotels employed data to manage room inventory and optimize pricing. The travel industry was also one of the first to capitalize on the value of customer data by developing products such as customer loyalty programs. Historically, this data has largely been transaction-based, such as booking reservations, recording account balances, tracking points in loyalty programs. Today, analytics-driven business intelligence products are evolving to further and better utilize available data to help travel companies make decisions, serve customers, optimize their operations and analyze their competitive landscape. Technology providers like Sabre have developed and continue to develop large-scale, data-rich platforms that include business intelligence and data analytics tools that can identify new business opportunities and global, integrated and high-value solutions for travel suppliers.
Direct Booking Concerns
Attracting and Enabling New Content in the Travel Marketplace: We are actively adding new travel supplier content to reinforce the virtuous cycle of our Travel Network business as well as generate revenue directly through incremental booking volumes associated with the new content. We have been successful in converting notable carriers that previously only used direct distribution such as JetBlue to join our GDS, and we believe there is a similar opportunity to increase participation of less-penetrated content types like hotel properties, where we estimate that only one-third participate in a GDS. In addition to attracting new supplier content, we aim to expand the content available for sale from existing travel suppliers, including ancillary revenue—a category of airline revenue that is projected to increase 18% from 2012 to 2013 according to IdeaWorks. We see additional opportunities to capitalize on this trend, including support of our airline customers’ branded fare initiatives.
Our Travel Network business is exposed to pricing pressure from travel suppliers. - In addition, travel suppliers’ use of alternative distribution channels, such as direct distribution through supplier-operated websites, may also adversely affect our contract renegotiations with these suppliers and negatively impact our transaction fee revenue. For example, as we attempt to renegotiate new agreements with our travel suppliers, they may withhold some or all of their content (fares and associated economic terms) for distribution exclusively through their direct distribution channels (for example, the relevant airline’s website) or offer travelers more attractive terms for content available through those direct channels after their contracts expire.
Travel suppliers’ use of alternative distribution models, such as direct distribution models, could adversely affect our Travel Network and Travelocity businesses. - Some travel suppliers that provide content to Travel Network and Travelocity, including some of Travel Network’s largest airline customers, have sought to increase usage of direct distribution channels. For example, these travel suppliers are trying to move more consumer traffic to their proprietary websites, and some travel suppliers have explored direct connect initiatives linking their internal reservations systems directly with travel agencies, thereby bypassing the GDSs. By enabling the shifting of costs onto travel agencies and travelers, this direct distribution trend enables them to apply pricing pressure and negotiate travel distribution arrangements that are less favorable to intermediaries. In the future, airlines may increase their use of direct distribution, which may cause a material decrease in their use of our GDS. Travel suppliers may also offer travelers advantages such as special fares and bonus miles, which could make their offerings more attractive than those available through our GDS platform. For example, in 2010 American Airlines announced its “Boarding and Flexibility” package which, according to American Airlines, provided additional benefits to travelers who book their airline tickets directly through their website.
Hotels pay transaction-based bookings fees based on rooms booked. Car rental companies and cruise lines pay transaction-based booking fees. For car rental companies, booking fees are calculated based on the number of bookings for vehicle pickup. For cruise lines, booking fees are based on each sailed cabin. These hotel, car rental and cruise line contracts contain standard representations and warranties, covenants and indemnification provisions.
Hotel Reservation Platform, a “Central Reservation System (CRS)”
Our CRS platform serves over 13,000 properties and approximately 80 chain codes globally. Historically, generating GDS hotel bookings has been the primary reason that hotels use CRS services. Based on our estimates, in 2012, we had the largest hospitality CRS solution based on our approximately 26% market share of third-party CRS hotel rooms distributed through our GDS, with our next closest competitor at 17%.
“The challenge of venture investing is that the model depends on investing in things that are laughable, because those are the only things that can make billions of dollars from zero in a few years. So you kind of want people to laugh at you and think you don’t understand the sector. You just have to be sure that you understand why they’re laughing.”—Ignorance — Benedict Evans