Stealing Signs - Issue 31
Kindle and Fire, Digital Antibodies, Lessons from Shutdown Startups, The Great Re-Opening, Aces of the Web, & Trade Hounds
Worth Reading
The Kindle and the Fire
Casey Winters, Chief Product Officer at Eventbrite
There aren’t that many fire strategies. Those that involve network effects are generally the best. Sales, paid acquisition, virality, and user generated content with a scalable distribution channel are the most common ways to create sustainable loops to either scale a network effect or scale a product that doesn’t have network effects. This is sobering when I tell entrepreneurs this. There just aren’t that many ways to scale, and almost all involve having extremely good retention as well. Otherwise, you won’t have the profit in the system to invest in sales or paid acquisition, or you won’t get enough users to invite or create content to attract more users.
Startups have two kinds of growth strategies at their disposal: 1. kindle strategies — non-scalable strategies to get to scale, and 2. fire strategies — scalable strategies.
Kindle strategies can be unsustainable, but it’s more important that they work quickly rather than sustainably or effectively. Best kindle strategies sequence the company into a fire strategy — this is critical. Without sequencing into a fire strategy, kindle strategies lead startups down dead end paths and can even be lethal.
Casey’s framework reminds me Sarah Tavel’s “Marketplace Tipping” framework, which often consists of kindle strategies to acquire supply and demand to reach a critical mass, which leads to “marketplace tipping,” or sufficient marketplace liquidity such that the network effect flywheel gains momentum and the marketplace sees significant organic growth, a fire strategy.
“Risk-On” And Digital Antibodies
Semil Shah, Haystack VC
…maybe this June snapback in the Bay Area will be short-lived. I have no idea, really. I am frankly shocked I’m even writing this piece, it is surreal compared to the darkness of March and April. But, what do I know? The assets valued today are digitally native. Tech equities are all the rage, they’re mostly immune to the pandemic and lockdown. This was hard to see a few months ago. I got it wrong and, well, here we are, back in full swing. Buckle up!
Semil suggests that as of June 2020, at least in the world of Bay Area early stage venture, it’s almost as if there is no pandemic. Competitive series As and Bs are coming back and rounds that should be small and pre-seed are being pursued by the biggest funds.
He identifies 6 trends in society and the investing community contributing to the seeming return to normal in Bay Area venture capital. I suspect his observations are reflective of the broader shift in the venture community throughout the U.S., not just the Bay Area, because we’re seeing the same behavior shifts in the Midwest.
Being outdoors in small groups is an acceptable risk for many. This is absolutely the case in the Midwest, too. Anecdotally, many people I know both personally and in the VC community are beginning to break quarantine and hang out in small groups. One could argue this is happening more often in the Midwest than the Bay Area
Few COVID-19 deaths in the Bay Area. Western states seem to account for far fewer COVID deaths than the Midwest, but it appears deaths in both regions are trending downward. This certainly contributes to the perceived risk of contracting the disease and group gatherings
Limited re-opening in the Bay Area. Re-opening is arguably happening faster and more broadly in the Midwest than the Bay Area. Illinois appears to have the most significant re-opening restrictions of the Midwestern states, but has more lenient re-opening policies than California. More rural states like Wisconsin and Michigan have been open for quite some time
Large firms have capital to deploy. While “large firm” has a different meaning in the Midwest and there are fewer of them than the Bay Area, this absolutely holds true in the Midwest. According to PitchBook, Midwestern firms have done 82 early-stage deals since the beginning of May compared to 438 deals from Bay Area firms. Adjusted for capital, VC firm, and startup count, this feels roughly even
Firms are adapting to remote work and wiring funds to people they’ve never met face to face. Anecdotally, this holds true in the Midwest as well. We’ve offered four term sheets in the last two weeks
“Shift in public market comps for digitally-native companies is shining a light on the scale of the opportunity ahead for tech startups and the VCs that fund them.” This is more clearly a geo-agnostic trend, but certainly feeds into the uptick in activity from Midwest firms, especially since major cities like Chicago have close ties to public markets and significant LP dollars come from public equities investors (both institutional and individual)
Lessons Learned From Shutdown Startups
Greg Isenberg, Head of Product Strategy at WeWork
One way to look at shutdown startups is, there is a reason these products no longer exist, so why bother?
Another way to look at it is, catching lighting in bottle is so rare in successful communities, it's worthwhile to dissect what went right and what went wrong. Understanding that magic helps us truly understand people's motivations and allows us to build better products in the future.
Greg profiles eight shutdown startups and extracts insights about product strategy and community building as well as identifies opportunities for new products built on what these startups did best.
My favorite example is Rdio:
It was like walking into an infinitely big music store. Instead of recommendations from store clerks, Rdio gave recommendations from people you know.
There are huge opportunities for personal recommendations to take off in other verticals. Pinduoduo is executing this to perfection in eCommerce with their group purchase feature, which allows any user to promote a product to their friends to create a buying group, which qualifies them to receive a bulk discount. What’s most impressive is that they’ve successfully executed this across many different product categories, like clothing and produce.
Greg also suggests Yelp is ripe for disruption by a personal recommendation-driven product — I think Tock can do this. Tock started with restaurant reservations, moved into food delivery, and are now working directly with farmers and vendors to connect them with consumers — all in a matter of months. As they build a robust supply side, restaurants and vendors, they’re attracting a large and diverse demand side, the consumers. Once they reach a critical mass of consumers they could build a vibrant community and implement a powerful restaurant and vendor recommendation feature.
Ahead of the Great Re-Opening
Damir Becirovic, Index Ventures
The fundamental challenge for many SMBs is that their margins are low. These businesses need to pay rent and salaries and suppliers just to keep their doors open. Then, they need to attract customers and price their offerings in a way that allows them to make profits through their transaction. Many business owners are happy when profit margins are 10% but this can often be much lower if positive at all.
Damir takes a look at how small and midsize businesses (SMBs) can become more resilient and avoid the “great shutdown” caused by COVID-19. This piece serves as an effective playbook for the looming tectonic shift in SMB world: offline SMBs —> online SMBs. Two strategies worth exploring in the shift from offline SMBs to online SMBs are 1. Maximize margins, and 2. Build digital revenue streams.
It seems what Damir is suggesting in the “maximize margins” strategy that SMBs develop new revenue models, not just new revenue streams. Tock is an interesting example of an enabling technology here — they pioneered not only dynamic pricing for restaurant reservations, but the pre-paid reservation model as well. Tock enables restaurants to both dynamically price reservations based on demand (as shown in the chart above) and offer pre-paid tickets, which means all revenue is collected up front. This offering aligns with co-founder Nick Kokonas’s famous quote (paraphrasing here), “cancellations don’t kill you, no shows do.” In other words, a diner cancelling a reservation is not as harmful as a diner who does not show up for their reservation because cancelled reservations can be filled. No shows often mean the table is left unfilled, which means the restaurant almost always sacrifices the revenue from that reservation.
The “maximize margins” strategy is tied closely to the second strategy worth exploring, “build digital revenue streams.” An online SMB is better equipped to maximize margins than an offline SMB because they have more revenue model flexibility. Offline SMB’s can’t offer subscription models, pre-paid models, or dynamic pricing as effectively as online SMBs, for example. Maximizing margins is easier online.
<stuff> Weekly
LOL Weekly: VC Firms Trying to do a Deal…
LOLOLOL
Funding Weekly: Trade Hounds
Trade Hounds Trade Hounds provides a professional app for the construction industry. The app enables skilled tradespeople, companies and staffing agencies to find, connect and engage with one another to network, locate job opportunities and showcase their work through photo and video
Trade Hounds raised a $3.2M seed round led by Brick & Mortar Ventures and Corigin Ventures with Suffolk Construction Company and ccs construction staffing also participating.
Labor marketplaces are taking off. The millions of Americans out of work + tremendous economic uncertainty means this may be the best time for labor marketplaces since job boards and job hunting first went online. Below are the key features of Trade Hounds’ platform that position it well to succeed and take advantage of the current labor environment:
Post photos and videos of work: this feature can create “stickiness.” In other words, a feed of photos and videos likely increases time spent on the platform, much like a social network, and encourages engagement between workers, or employees, like we see on LinkedIn, rather than simply employee <> employer interactions.
Photos and videos of construction work also enable assessment of skills. Over time, Trade Hound can leverage skill assessment data to implement skill ratings and assign scores to user profiles like Airbnb's Superhost badge or Yelp’s restaurant rating. In Airbnb’s case, the Superhost badge encouraged hosts to increase their host performance which resulted in more quality hosts on the platform and, thus, a better guest experience (h/t Sarah Tavel). Something similar could happen for Trade Hounds — skill scores or badges encourage workers to increase their skill level leading to increased worker quality on the platform, thus resulting in a better experience for employers looking to hire.
Seek advice from other workers: much like the photos and videos feature, the advice feature encourages interaction between workers on the platform. This will help Trade Hounds become a community rather than just a hiring platform. While this also mirrors interactions on LinkedIn, there’s an important difference in the content posted on Trade Hounds. In my experience, much of the content posted on LinkedIn is subjective and narrative-driven. While some of the advice from other workers on Trade Hound will certainly be subjective, the nature of the workers and industry lends itself to objective content, like construction best practices and industry-specific requirements. This may encourage more “productive” engagement between users than LinkedIn and increase the frequency and volume of interactions between users on the platform because workers can learn methods to reach more objective goals.
Power tool surveys: This feature could help Trade Hounds build a unique data set on product reviews and a powerful affiliate model over time.
Baseball Weekly: Aces of the Web
Both Horacek and Shew already had some experience in website creation, programming and coding prior to the country shutting down, but neither had realized the trade beyond a few independent projects. Given the seemingly endless supply of free time brought on by the lockdown, they were able to develop those skills further and take them further than they ever thought possible.
Twins pitcher Mitch Horacek and Cardinals pitcher Anthony Shew teamed up to form a web development agency, In The Zone Development, to put their off-the-field skills to work during the pandemic and Minor League Baseball seasons suspension. This story hits close to home as Mitch is a fellow Dartmouth Baseball alum. He was drafted in the 9th round of the 2013 MLB draft so I didn't get the chance to play with him, but I developed a relationship with him during his frequent visits back to campus in the following years.
This story speaks not only to the strength of Mitch’s off-the-field skills, but also to the dire conditions many Minor League players face — they’re paid far below minimum wage and, as evident in the recent player <> owner negotiations to bring back the MLB season, have little power to change their circumstances. Mitch has been an advocate of a Minor League players union and offers great insights into the current conditions Minor League players face on Twitter.
Art Weekly: Home Sweet Home: Flower Pool
Mak Ying Tung 2
Mak 2’s work is not defined by any medium and is often referred to as “fun and crazy.” The aesthetic experience Mak 2 crafts is bound by the dualism of humour and intense, often dark inquisitiveness. Her recent works contemplate contemporary issues through the study of Humanities.
