It’s our slightly-more-than-annual investor event brings together our industry’s most forward-thinking VCs, LPs, and founders.
When we were asked to curate a list of our favorite PreMoney talks, our first response was, “BUT THERE ARE SO MANY GREAT ONES!”
Painful as it was, we were able to whittle it down to 5 essential talks.
Below, you’ll find nuggets from CB Insights’ Anand Sanwal, SoftTech’s Charles Hudson, Diishan Imira of Mayvenn, Shauntel Poulson of Reach Capital, Sean O’Sullivan of SOS Ventures, Scale’s Kate Mitchell, and Dan Rosen from Commerce Ventures.
This is just a tiny taste of what we’ve pulled together for 2016’s PreMoney SF, which includes cameos by Bill Draper, Aileen Lee, Dave Morin, Danielle Morrill, Jason Lemkin, Arielle Zuckerberg, Aaron Batalion, Tomas Tunguz and lots more.
The takeaway: If you keep saying there’s a tech bubble, you’ll eventually be right. But for now, Sanwal goes by the facts, which suggests otherwise. After all, CB Insights’s motto is “In God we trust. All others must bring data.”
The takeaway: Be who you are, and be where you’ll succeed. Although Mitchell was initially drawn to early-stage investing (“You get to wear jeans, not dresses!”), she realized she brought the most value to companies that were just about to scale.
The takeaway: The financial industry is ripe for disruption, and fintech is ending banking, insurance, and “Wall Street” as we know them.
For additional insights into the future of venture capital, don’t miss PreMoney SF, 500’s one-day, investor-only conference featuring the most disruptive strategies, models, and technologies in VC.
Hear personal anecdotes and tactics from Aileen Lee(Cowboy Ventures), Anand Sanwal (CB Insights), Kate Mitchell (Scale VP), and Jason Calacanis (Inside.com), as well as speakers from AngelList, Mattermark, Y Combinator, KPCB, Techstars, Greylock,EquityZen, and more.
And, if you read all the way to here, then you deserve a reward.
Many founders in the beauty and fashion spaces mistakenly think growing a successful company is all about having a big following. They think the first step to a million dollars in revenue is having a million followers on Instagram.
That’s not the case. Some fashion entrepreneurs have amassed massive followings, but as a result of their work building a great business, not as a prerequisite.
Whether you’re building a name brand or a revolutionary piece of technology, the business model and the product always come first. But getting those right is not easy. Fashion and beauty are uniquely challenging verticals—they’re all about inspiring feeling, about capturing a sense of magic, about conveying a certain charm. You’re often not competing on cost or efficiency, traditional startup differentiators, at all. You have to do things differently.
There are two particularly difficult things about building a company in these spaces that founders thinking about going into beauty and fashion urgently need to know.
You Need to Test Monetization Early
When you get 1,000,000 Instagram followers, a zillion likes on your Facebook page or tons of traffic to your blog, you get great at content and branding. The problem is that you’re merely good at what everyone else is also good at. And you’re no closer to turning that traffic into sales.
The real gap and opportunity for fashion entrepreneurs today is in figuring out how to monetize your audience. That’s one of the most powerful ways to take a business to scale because it lets you grow revenue without large increases in operating cost.
Testing monetization early—even as you continue fast growth—forces you to understand what your audience is really worth. A couple of considerations:
Growing your following first can turn follower count into a vanity metric that encourages spammy tactics and results in low engagement from your following. Low engagement means it will be difficult to monetize your audience.
Testing monetization forces you to build a loyal following, which is based on delivering an awesome experience and creating real value.
Curate the audience that you target from the very first day. That audience may be much smaller, but if it’s very, very active, you’ll have the foundation you need to scale. And quickly figure out the business unit metrics behind this audience so that when you turn your focus to product and sales later, you’ll already have a strong sense of what to sell.
Why Glambot Built a Product
500 Startups alum Karen Horiuchi started her company Glambot (Batch 13) around the offbeat idea of buying and selling pre-owned makeup.
Amazon and eBay had policies against preowned makeup. Craigslist and random web forums were sketchy and full of fake or unusable makeup. You can imagine that, to disrupt the supply chain by circumventing middlemen like big e-tailers and department stores to sell used makeup straight to the consumer, you would need to build a considerable social media following.
Karen started by building Glambot as a separate site. When you’re building a marketplace, you can’t outsource your audience to Instagram or Facebook, because that’s at the very core of what you do. Over time, she built its reputation into that of a trusted dealer of used goods, not an easy feat for something as personal as makeup.
That she built her own marketplace and network totally separate from Instagram or Facebook is the key to her high margins and non-linear revenue growth, and it’s what makes the revenue she does have all the more valuable.
“Although an impressive following on Instagram is nice to have and gives the appearance of success,” Karen says, “what really matters is money in the bank. An ecommerce start-up needs to focus on revenue through conversion. Survive first then flaunt later.”
That attitude is precisely what’s given her a foundation for blowing past the $1M to $2M ARR ceiling that other beauty startups, built on top of flimsier distribution, hit.
Look closely, and you’ll see that most fashion and beauty startups are really just Shopify stores. That can be a problem if the shopping experience is critical to your user experience.
The best companies in the beauty and fashion space look a lot like their fellow tech companies—they’re 100% focused and obsessive about product, because they want to deliver a unique user experience that delights customers. They:
Build their own tech. If you have no full-time technical people on your team and you’ve outsourced your technology, how can you iterate quickly based on customer feedback to build a product that people love?
Lead with a demo. It shows your focus is on product, not customer acquisition, and that’s what you need to build a novel product that people will try.
In fashion and beauty, it’s in creating an original product and changing consumer behavior that you find massive opportunities, because people still buy and sell clothes pretty much the same way they did 30 years ago, and this needs to be disrupted.
Despite the rise of online shopping, most people still prefer brick-and-mortar shopping for all kinds of reasons. They like seeing clothes in person, touching them, seeing how they move and putting outfits together. The startups that win in this space incorporate that experience into their products.
How Glam Street Built on Bbrick-and-Mortar
Glam Street (Batch 13) cofounder Agustina Sartori started off her Demo Day presentation with a slide that explained her company’s value proposition in one image—a drugstore’s makeup aisle. “Imagine trying to find the right makeup,” she said, “In this place.”
Glam St is a B2B beauty company with a simple yet powerful product: virtual makeup try-on.
The app lets users virtually try on a number of different kinds of makeup via webcam, while Glam St’s main business model involves using brands to get that app onto huge e-commerce sites and onto tablets in the hands of in-store stylists.
Glam St is a great example of a company that recognizes the power of the brick-and-mortar experience and doesn’t try to fight against it. You can use their app at home, and in that case you’re getting what’s valuable about the brick-and-mortar experience—the process of trying makeup on and seeing what it looks like—while ditching the drive there, the parking, and the crowds.
When you use the Glam St app in-store, it’s just a layer of software on top of a traditional brick-and-mortar experience. It augments normal shopping, but it doesn’t try to replace it.
There’s very good reasons to work with, rather than against brick-and-mortar. Buying beauty products is an inherently participatory and social act—you touch, you feel, you try things on. Instead of trying to completely change the way people shop, what Glam St is doing is simpler and more valuable. They’re using software to improve the way people already shop.
That’s part of the reason that coming out of 500, Glam St was doing over $400k in annual run rate with 60% margins. That’s in an industry—beauty—worth a global $50 billion.
Despite the value of that market, a lot of people still believe that you simply can’t sell high-margin goods online. Or, they say that the brick-and-mortar experience is static and unchanging. Both are wrong. You just have to understand what you’re selling.
Beauty isn’t something you can sell the same way you sell USB cables. You won’t win if you use technology simply to make something cheaper or faster. You have to use technology to actually improve the experience and deliver value.
Some people look at beauty and fashion companies and just see vanity, surface, and gloss. They see celebs lending their likenesses to market-clunky, Pinterest-clone apps and think that the whole field is just backwards.
But in reality, beauty and fashion are incredibly difficult verticals to crack as a startup, and the people that are doing it are some of the most ambitious and intelligent founders out there.
Some companies can grow on the merit of one competitive advantage, but beauty and fashion startups need to combine structural efficiencies with the kind of effortless cool that their customers expect. They have to understand in equal measure two things that couldn’t be farther apart—the cold logic of achieving non-linear growth and the emotional desire that drives fashion.
In 2011 we raised $2M from some of the top investors in Silicon Valley. Our startup, SocialWire (later renamed Manifest), helped online retailers instantly personalize the shopping experience when their customers signed in with Facebook. However — we soon learned that it was hard to convince the big retailers to add our product recommendations to their websites which they’ve been optimizing for years. We also found that not enough customers wanted to sign in with Facebook while they were shopping online to get a more personalized experience.
With most of our $2M still in the bank, and a technology that was good at matching Facebook users to the right products, we decided to pivot on the problem we were solving for the same customer and rebuild our product. Instead of generating product recommendations using Facebook — we would dynamically generate personalized product ads on Facebook. This new direction resonated with online retailers and the company was eventually acquired by Rakuten.
Searching for Product Market Fit
Finding product market fit is hard. Most companies fail while searching for it. Marc Andreessen, in his 2011 essay, introduced the term as a moment in your startup’s journey where things start to work. More and more customers demand your product and you achieve sustainable growth.
Most successful companies go through several pivots to find product market fit. What makes it work is usually not one major pivot, but a series of experiments across customers, problem, product, technology and growth channels. Is there a process for entrepreneurs to experiment across these areas of their business in an efficient way?
Growth marketers already figured this out. Great growth people are not necessarily the most knowledgeable marketers — they approach marketing like scientists. They have a thesis on how their idea (e.g. new advertising channel) will lead to growth, they run the experiment, look at the data and if the experiment is successful — they make it repeatable. I strongly suggest you read this by Brian Balfour, check out this talk and spend time on growthhackers.com to understand the growth experimentation process.
But growth experimentation is the tip of the iceberg — that is your startup. How can entrepreneurs apply this process of experimentation to other areas of their business, and pivot to find product market fit?
Introducing the Pivot Pyramid
Enter the Pivot Pyramid. It is a visual guideline to help founders make changes and run experiments in different areas of their business to drive growth. As investors, this is similar to how we ask questions and evaluate your startup. As founders, you could use the same guideline to come up with ideas or pivot your startup.
Customers are the foundation of your startup. The problem you solve, the product you build, and the technology it’s built with — all depends on who your customer is. You may change and pivot your customer, but when you do, you will need to re-evaluate everything above in the pyramid.
Maybe you have identified the right customer, but you are solving a problem that doesn’t exist or doesn’t matter that much. You can pivot here, but you’ll need to re-evaluate and change your solution, tech, and growth strategy. If you have the customer and problem right — you have a market.
You’ve identified the problems that matter to your customers. Now you have to build a product that resonates with your customers better than existing solutions in the market. Like any other changes in the pivot pyramid, changes you make in product must target quantifiable growth.
Your technology is just a means to build your solution. Even if your product resonates well with your customers — your technology choices may be hindering your growth and retention. For instance, one of the main reasons Friendster failed as the first mainstream social network was because they couldn’t keep their servers up with demand.
All changes in the pivot pyramid must lead to growth. But some experiments do not require any significant change in your product or technology. These changes reside at the top of the pivot pyramid. A great marketer should frequently experiment with new growth tactics. This is needed because most growth channels get saturated or become too expensive over time.
Famous Examples of Pivots for Each Stage
Key Takeaways from the Startup Pivot Pyramid
Frequency of Experiments
Changes you make at the bottom of the pyramid won’t be frequent. For instance, you can’t change who your customer is the problem you are solving often. The pace of experimentation increases at the top of the pyramid. This is especially the case as your startup matures and you find product market fit.
Start with the customer and problem
A common mistake entrepreneurs make is that they start with their product and technology without truly understanding who their customer is. If this is broken — nothing else works. That’s why you shouldn’t focus too much on marketing before you nail the customer, problem and solution. First, you have make something people want. You don’t want to put jet fuel in a car with a broken engine. Fix the engine first.
Pivoting below, changes everything above
The changes you make at the bottom of the pivot pyramid, will impact your decisions above. But the changes you make at the top, don’t necessarily require you to change things below.
For example — if you pivot on your problem, you will need to change or re-evaluate your product, technology and marketing channels. On the other hand, if you changed your technology stack, your customers may not notice any changes in your product. Similarly, experimenting with a new marketing channel may not require any changes in product or technology.
You can’t have multiple types of customers
A common mistake that kills early stage startups is focusing different types of customers at once. The changes you make at the bottom of the pivot pyramid will impact the decisions you make above like product, technology and marketing. So if you focus on more than one type of customer, you are literally building multiple startups at once. As you mature as a company and achieve product market fit — it is to have more than type of customer (e.g. SMB and Enterprise). As an early stage startup, you can’t afford to do that.
Marketplaces (e.g. Uber, Airbnb) are an exception to this. Marketplaces have two types of customers from day one: Sellers and Buyers. But that’s why building marketplaces is really hard.
All experiments must lead to GROWTH
One of the most important things founders can learn from growth marketers — is the scientific process for experimentation. That is also the foundation of the pivot pyramid. If you have an idea for a pivot like “testing a new marketing channel” or “implementing a referral program” (GROWTH) or “migrating your servers to AWS” (TECHNOLOGY), make sure it is closely tied to a measurable goal to help with growth. Have a thesis, run a low cost experiment, measure the results, and if it works — implement change.
What is your Pyramid?
So, what is your Pivot Pyramid? Tell us about your pivot stories and how they made an impact in your business.In the mean time, be sure to follow us if you want to hear about real examples of successful pivots from companies in the 500 Startups portfolio.
Startup founders with intense expressions pace back and forth while others sit alone, their heads slightly bowed as they focus like a laser on the next two minutes.
Clothing is adjusted, hair is combed. This is the culmination of 3+ months of startup pitch prep.
A boisterous group of founders crowds around a monitor blaring a live feed of the proceedings in the auditorium next door. There’s a tournament vibe in the air, but each participant will tell you that they aren’t competing with each other.
They’re competing against themselves.
Among the general public, people are more afraid of public speaking than they are of death.
Startup founders, however, are a different breed of cat; out of twenty-two I spoke with, only two admitted to being nervous immediately before giving their pitch. Then again, “act as if” is the entrepreneur’s credo.
Demo Day has a weird vibe: sort of like a mash-up of a science fair and the NFL draft. #500STRONG
One man delivers a sincere pitch about his startup to a window overlooking a parking lot, complete with hand gestures and pauses. Another founder walks in small circles, occasionally stopping to bounce to the music streaming through his earbuds. A woman with a thousand-yard stare stands in a disused kitchen area and breathes deeply. High fives, daps and hugs are exchanged.
On the other side of the wall, in a room packed to capacity with investors, Silicon Valley notables, media, friends and family, each founder will have 120 seconds on stage to pitch their idea — to show why theirs is a worthy investment. Two minutes to persuade a room full of strangers that they’ve created something unique and valuable. Two minutes to explain what they’ve been doing with their lives.
Founders from around the world, but “Silicon Valley style” pitch
Batch 16 is 500’s largest Accelerator group ever, but its participants aren’t representative of Silicon Valley; they’re much more diverse. Of 51 companies, 25% are founded by women, 14% by African-Americans, and 8% by Latinos. International startups comprise 37% of the total.
Before taking the stage, each founder stands still long enough for Batch 16 staffers to attach wireless mics and transmitters. Next, the door to the auditorium swings open, classic rock power chords rush into the green room, and they’re off. Moments later, they rematerialize on the monitor in a corner, and everyone who’s not rehearsing their pitch gathers around to watch.
When they return, they’ll be greeted with deafening cheers and applause from their team members and other Batch 16 participants. (Due to the noise, I abandon plans to record a podcast and pivot to writing a blog post featuring interviews with several Demo Day participants.)
Ethic is a sustainable asset manager, so we’re bringing sustainable investments to the mainstream. We were one of the first companies to start working on our pitch. We sat down with [500 Startups Entrepreneur-in-Residence and pitch coach] Andrea Barrica as soon as we could. She’s a godsend, and everyone who can work with her should. We spent about two months working on it, about once every two weeks for the first month, and then once a week for the last month.
Andrea got us very ready. She made sure that we had 10 practice pitches, 3 preview days. We were ready because Andrea got us ready.
Practice, read Talk Like TED, which is an amazing book, watch Obama talk, work with Andrea as much as you can, and just relax. It’s got to be natural and enthusiastic.
I just stared off into the abyss and hoped for the best. — Jay Lipman, Ethic.
We’re a pain-free way for companies to source packaging online. We started prepping our pitch probably too late, much later than most.
500 does a really great job on making sure that you’re prepared months in advance, having at least a day a week dedicated with mentors being there to support you. I held it off probably until three weeks before the day, and then from there just made it my Number One priority.
You need to know what you’re talking about in the sense that you go and study what it is that you want your company to do for as long as possible, but there’s a difference between executing and strategizing. When it comes down to it, the most important thing about your company are its users. My advice: start yesterday, and talk to your users as quickly as possible that doesn’t just mean, grow, grow, and make money. You need as much feedback as possible, so don’t think you know what your users need; they’ll tell you.
How’d I sleep last night? Not well. (laughs) — James Norman, Pilotly
We enable people to make better decisions around their video through viewer data. We spent probably the past month on the pitch — it takes time to hone a message into two minutes and make sure that you not only explain how great your product is, but how big the opportunity is.
Normally, I black out while I’m pitching, because I’m in the zone, I’m feeling the crowd, and that’s where I’m at. Today, I somehow was able to impact the crowd and still be conscious, so I could be a little bit more impulsive but still direct with my movements, which pleased me.
On stage, I look at everybody. I try to catch people’s eye in the crowd, find people who are in between looking their phone and looking up at me, and speaking loudly so I can grab their attention.
I think that the best outcome is people come and join our seed round and help us achieve the change that we’re looking to make in entertainment.
I’ve interviewed 11 founders so far, but none of them would cop to being nervous before giving their pitch. #500STRONG
We worked on it for the 16 weeks that we were in the 500 Startups program, but we really started to ramp up in the last three weeks; really getting down the pitch, cleaning up the jokes and making sure all the deliveries and punch lines were on point.
It came down to the fact that my co-founder and I felt that as CEO, I should be presenting. At first, I wasn’t that excited about it, but I got over my fear of speaking in public and really enjoyed myself. If I’m in a room with 20 people, I can hold the room and tell jokes. But there’s something about being the center of attention on stage. If I’m not prepared, I don’t like it, but in this case, I was so well prepared by the 500 folks that I really enjoyed it.
People spend a year plus working on these companies before joining these batches, so don’t be nervous about giving a two-minute speech about something you’ve spent years of your life on.
We are an automated savings platform built around behavioral design aimed for millenials, people in their 20s.
We started working on the demo probably about halfway through the batch and spent probably 20 – 30 hours over the last month and a half. I have a love/hate relationship with public speaking; sometimes I really enjoy it and being up on stage, but every time, there’s always those butterflies. It’s actually easier up there on stage with the lights in your eyes, because you can’t see people all that well.
We’ve all seen each others’ pitches so often that we know them by heart, and we’re all rooting for each other. We started out with a pitch that was pretty rough and I think we’ve come out with one that we’re really proud of through the combination of help from the 500 team and putting in the practice.
I’d like to come out with making some connections with potential investors.
We’ve been in business for two years. We’re based in San Francisco, although we operate in 12 cities with 200 nightclubs using BottlesTonight to fill their unsold table inventory.
Two months in, we began startup pitching on a weekly basis. The last six weeks, it’s gone from once a week to twice a week, and in the last few weeks, every single day. The 500 program has really helped me get the pitch where it needed to be for today.
I was more nervous for Preview Day and our prior pitch sessions just amongst our batch. Today was just all excitement, and I think part of that is the trade show floor outside with all the companies, investors coming up to us being genuinely enthusiastic about what we’re doing. Everyone here has great camaraderie, everyone’s rooting for one another. It feels like playing sports with your friends.
I’m the CEO, so I’m usually unlucky enough to be called on stage. As you go up you essentially black out for 2 to 3 minutes, then you walk off stage and ask yourself what the hell happened.
I think I did OK. I’m hoping to impress some people, generate some buzz and have a good time with my team. I started working on today’s demo about two to three weeks ago. The ability to distill a message into two minutes is an extremely difficult thing, but it definitely helps with solidifying the core value proposition.
Worthix is a software that combines econometric algorithms and cognitive systems to uncover what’s behind customer decisions. Basically, we explain why people buy.
I’m the guy that usually talks. The geeks, they don’t like to talk that much. — Gui Cerqueira, CEO Worthix
We always have that feeling of butterflies in your stomach before a presentation as important as Demo Day because it’s something that happens once in a lifetime as an entrepreneur. Basically, I try to concentrate, with very strong breathing before, but the problem is, they called me sooner than was expected. There were three more companies before me, but somehow it was good because I wasn’t expecting it to be my time to go on the stage.
Bond with your batch mates as soon as possible. A lot of entrepreneurs when they consider joining 500, they think about the opportunity to meet investors, but once you’re in the program, you realize that your batch mates are the strongest resource you have.
For those that don’t know, GOAP is an invite-only tour for startups, investors, and executives to learn about high-growth technology markets worldwide.
To kick off the Tokyo leg of the tour, I gave an ecosystem overview presentation while we cruised through the Tokyo waterways on a yakatabune (Japanese style boat). Many followed up with me afterwards asking whether I could share the slides, so I decided to write a quick blog post on what I shared.
I knew getting people to pay attention after a long trip would be a challenge, so I kept it short and sweet.
#1 Venture investment in Japan is small.
If you combine angel investment, venture capital, and crowdfunding, the difference between capital available to startups in Japan and U.S. is roughly $1.2b vs $75b. Granted, Japan is a smaller economy, but it is still about 1/3 of the U.S. in terms of GDP. Japan has a lot more room to grow.
#2 There is not that much M&A activity for Japanese startups.
Despite having a lot of cash on their balance sheets, Japanese companies historically have not been very active domestic acquirers. In most cases, they strongly prefer to build products and services in-house rather buying.
The very general rule of thumb for exits is…
#3 The bar to IPO for Japanese startups is low.
About 70% of companies that IPO in Japan have a market cap of $30m or less. (U.S. is 8%)
Fortunately, companies can go public at a market cap as low as $10 million, and listing on the Tokyo Stock Exchange is relatively cheap. Some people jokingly call the Japanese IPO the “Series B,” since that tends to be how many companies raise growth capital.
#4 Corporate venture capital is KING.
As I wrote on TechCrunch a while back, venture capital in Japan is fundamentally corporate capital, not only in the form of CVC, but also in the form of limited partners for independent firms. Japanese institutional investors tend to be much more risk averse, and venture capital is widely considered too risky an asset class to place money. And, unfortunately, Japanese venture returns haven’t quite reached Silicon Valley altitudes to get over this aversion. As a result, most of the money is deployed for strategic reasons rather than financial.
Which is why there is another general rule of thumb: 20% of startup investment in the U.S. is from corporates, 80% is from independent firms. In Japan, it is roughly the opposite.
#5 Smart people in Japan are finally joining startups.
Historically, students from the best universities in Japan would go straight to big, brand name companies like Mitsubishi, Toyota, or Sony. That’s changed a lot. The students now coming into the workforce grew up in the lost decade(s), and never saw an era where these large corporates seemed invincible. They grew up in a world where the enormous wealth creation came from startups like Facebook, Uber, and Airbnb.
#6 There’s a lot of COOL SH*T being developed.
A common criticism of Japan is that there are not enough great startups here. I think the bigger problem is that Japanese startups are not very good at marketing to a global audience. Elon Musk is often compared to Ironman, but Cyberdyne literally created an Ironman suit. The terrifying videos of robots from Google often feature technology from SCHAFT. Euglena cultivates the euglena microorganism for food, beverage, and fuel. All of these are Japanese startups, yet all of them are likely unknown by most of the global startup community.
#7 The hammers are pulling out the nails.
There is a common saying in Japan, “the nail that sticks out, gets hammered.” In other words, keep your head down and don’t stand out. The mentality has changed. There is more top-down support than ever before. The government is providing funds, support programs, and office space to encourage startups. All we hear about from our Japan LPs (who are mostly large Japanese corporates), is how they can engage with startups. It seems as though the hammers are now pulling out the nails.
So there you have it. 7 things to know about the Japanese startup ecosystem. If you just learn these 7 things you’ll have a general understanding of what is going here.
If you have any questions, please tweet me @james_riney.
“I don’t think there was a hesitation that it was the right thing to do, it was just that the person wasn’t a great fit in terms of their skills and culture,” she said.
It’s natural to have doubts and think emotionally before letting someone go, said Tsai. “You never know people’s circumstances or how this impacts them personally, even in a good job market like this.”
“It’s OK to think those things, but don’t let that prevent you from making the right decision,” she added. “It’s just a sign that you’re still human.”
“Maybe people who are really ruthless about it just don’t care,” said Tsai, “but hopefully, we never become that type of company where we just don’t give a s*** about people.”
“The first person I had to fire we did because of cultural reasons,” said Ethan Appleby, founder and CEO of Vango, an ecommerce startup for art purchases. “They did some blatant things — acting up at one team event, being really inappropriate.”
When the time came to drop the hammer, “they had the idea that it was coming and were pretty cool about it, so it wasn’t as hard as it could’ve been,” said Appleby. “With engineers, I knew he’d land on his feet pretty quickly.”
If you’re thinking about it, definitely do it. It’s hard for it to work out if you’re even wondering. — Ethan Appleby
But what if he’d had three kids and a Golden Retriever depending on him? “I don’t think that would have changed the decision,” said Appleby, “it just would have made it more difficult to do.”
“I was incredibly nervous the first time I had to let someone go,” said 500 Startups Partner Sean Percival. “The employee/boss relationship had already deteriorated and they were very antagonistic in just about all of our conversations.” As a result, “I was expecting a blow-up and my stomach turned for days as I prepared to deliver the news.”
As is generally the case with events we dread, reality did not meet Percival’s expectations. “The final meeting went incredibly smooth, and as it turns out they were already close to accepting another job. Obviously they knew the end was coming.”
So all my worries were really for nothing. When it was all said and done, I felt a huge relief. — Sean Percival
“It’s better just to power through these tough decisions so you can get back to working on what really matters: building your business,” said Percival.
Long hours, the ongoing pressure to deliver and working in close quarters are just a few factors that shape startup culture. When someone doesn’t fit into the general flow — or steps out of it entirely — many entrepreneurs want to take corrective action.
“That can be a little bit harder to determine,” said Tsai, “because in some cases, if a person’s not performing, you give them the benefit of the doubt and some milestones or feedback, then see if they improve.”
Letting someone go is never fun. But if it is the right decision, you’ll feel a huge relief after doing it. — Christine Tsai
“If it still doesn’t improve over some amount of time, it makes sense to fire them,” said Tsai, “but that’s hard to make a decision on” if a founder can’t articulate exactly why someone needs to go, particularly in larger teams where one monkey can’t stop the show.
“Sometimes someone needs to do something really egregious, like if they went so far as to harass someone, or people by and large can’t work with that person,” she added. “In the cases where it’s not so obvious, it’s harder.”
It’s important to establish your culture, but it can’t become too rigid, said Tsai, especially in large, diverse organizations. “Our company is much bigger, so people don’t get along all of the time, and that’s fine as long as they can work together,” she said.
When the time comes, “be transparent about why the termination is happening,” said Tsai. “If you did things right, it shouldn’t be a surprise to the person.”
It’s not personal, it’s just business. — Sean Percival
Percival said he had “very little preparation or advice” before he separated an employee. “I leaned on my boss at the time but mostly to ensure we were compliant and reducing our liability. Since we had previously given the employee a written warning, the issues were already well documented,” he said.
“In the actual meeting where you break the news, sometimes it’s a good idea to have another person present,” said Tsai, who recommended tapping another co-founder or senior employee. “A lot of this depends on the relationship with the person, or what are the grounds for termination, or if you think the termination is not going to go over well,” she added.
To prepare for his first firing, “I thought of the key talking points that I wanted to make and wrote it out,” said Appleby. “I actually went home and was by myself for an hour thinking about what I was going to say, trying to be as clear and concise as possible – to give them a sense of why.”
Once you’re in the room, “keep it really short,” he advised. “Don’t talk too much, just get right to the point. Let them ask questions if they have them.” Ignore popular convention and “don’t do it on a Friday, so you can see if the morale of the team is ok and people can get their questions answered,” said Appleby.
“Over time and many more firings I learned to not make it emotiona,” said Percival. “It sounds bad, but you need to approach it like a machine; say as a little as possible, and stick to the absolute facts.”
Even though most startups are too small to have a dedicated HR role, founders can still step up and become effective managers, Tsai said.
“It’s prudent to address stuff right away, but especially on a smaller team, you have to act faster,” she advised. “In small companies, where founders and CEOS are wearing a lot of different hats, it varies on how people handle it.”
Instead of a formal review process, find organic ways to stay connected to your employees, said Tsai. “If there’s some basic reporting structure, it’s worth doing individual meetings, and they don’t have to be heavy-handed,” she said. “It’s just a time to check in individually.”
No matter how chill you think your office is, Tsai said private meetings will reveal hidden issues: “If you’re talking one on one, they may feel more comfortable there than bringing things up in a group setting.”
“A lot of founders tell themselves that they don’t need to be working on their team, since it’s too small, or they have a launch coming up,” said Tsai, “but you can set it up to be less bureaucratic and set the stage early on to show you do care about your people.”
Many startups don’t start working on internal communication until they’ve matured, which is a mistake, she said. “It’s much harder to insert that in later if you’re not used to it, so it’s a good exercise to start from the beginning,” said Tsai.
“The founders will set the tone for the company, and that starts on Day One.”
Roll call! Today we’re announcing Batch 17 in Mountain View – our most eclectic batch to date. With 42 companies, this accelerator cohort runs the gamut from affordable housing made from shipping containers to digital SIM cards to free birth control and alternative burial products.
Along with our 4-month curriculum of customer acquisition coaching, fundraising training, and access to 500’s massive ecosystem, we will be taking the program even further. As you may have noticed from our last batch, 500 Startups has started including vertical tracks within the accelerator program.
Batch 17 will continue this trend with TWO vertical tracks – B2B and Fashion/Beauty. B2B companies will receive additional guidance around sales, negotiating and closing deals for enterprise, and lead generation for SMB companies. The Fashion & Beauty companies will have access to special partners in the fashion world.
Diversity of the founders remains strong:
35% of companies have at least one female founder
33% of companies are international
International countries represented:
Learn more about Batch 17 below. (Note that 2 are not listed here, as they’re off the record).
Finally, applications for Batch 18 are now open. Apply here. Vertical tracks to be announced.
With our “culinary experience kits,” Hamptons Lane helps home chefs discover global cuisines and new ways to cook and entertain through our selection of the best shelf stable, artisan ingredients and specialty kitchen tools, along with recipes, delivered in a highly curated monthly themed box to the home.
Qwikwire empowers enterprises to collect payments from their customers abroad. We go beyond basic remittance and provide recurring billing, invoicing, customer dashboards, and direct client website payments via API.
Since 2010, the Mexico City office of 500 Startups has invested in 86 Startups. These companies are today generating over $40M dollars of yearly revenue and have raised over $48M USD of follow on financing from co-investors.
After months of silence and haunting rumors that 500 Startups had left Mexico forever, the truth is out — we’ve been secretly working on multiplying our activities in the region.
Not only that, but today, May 12th, the fund is opening the application process for the next batch, starting on July 18th in Mexico City.
This program will be in the brand new Mexico City offices with over 8000 sq ft — more than double the size of our previous location.
Santiago Zavala, partner at 500 Startups comments “We have really proven that this model is working for Mexico and Latin America, we started investing and supporting hundreds of entrepreneurs over 6 years ago, and we are starting to see some of the amazing results! That is why we are committed to double down in the region!”
The acceleration program consist of a $65,000 USD investment per company plus a 5 month intensive mentorship program that covers everything from legal, product development, marketing, sales, and really key preparation for next rounds of investments.
In this application process, 500 startups is looking for 20 to 30 startups, so if you’re building a business targeting Spanish-speaking Latin America, this fund could be looking for you!
“In 500 Startups we love Mexico and Latin aAmerica, and we will keep investing heavily in the region. We never really left and we are not going anywhere, and now we will be more active than ever! Welcome to round 2! We are Luchadores!”
–Famous last words from Dave McClure
We’ve just created a SPECIAL EDITION #500Luchadores t-shirt so you can have your very own Nacho Dave on your chest / belly. It’s limited edition, and yes we will be expiring this opportunity. GET IT HERE.
Today’s treat is a guest post from entrepreneur, marketing mastermind, and 500 founder Mat Braddy, founder of ROCK PAMPER SCISSORS and former CMO of Just Eat, a European “unicorn” that went public in April of 2014.
No one thinks of billboards and TV ads when we talk about “growth hacking” (we’re way too cool for that sh*t, right?), but in today’s post Mat shares his takeaways on growth fueled by brand.
Shameless plug: Mat is currently raising money for Starlight, a UK organization that helps terminally ill children fulfill a special wish. As part of the deal, he’ll be climbing Mount Klimimanjaro — yes, that is correct, the highest peak in Africa. Support him here.
I spent most of the last decade helping to build a European ‘Unicorn’ called Just Eat.
You can tell a European unicorn by its bad teeth, appetite for baguettes and disapproving glare when an American says ‘Soccer….’
For American readers; Just Eat is like Grubhub. But funnier. It’s a takeout delivery service feeding the world in 15 countries and is live in Europe, Canada and Australia. We floated on the London Stock Market in 2014, and a year or so later I left to concentrate on a new startup.
Our new app, Rock Pamper Scissors, is attempting to bring hairdresser bookings into the modern world with a focus on the talent of local stylists. I’ll save you the pitch – but we were very fortunate to be invested in by 500 Startups and invited into the 2016 intake for Distro Dojo.
We had support in streamlining our KPIs, learnt how to take a experimental disciplined approach to growth, and had very valuable exercises in user experience. We left the Dojo even more motivated and confident about our prospects to grow.
The focus on experiments and rapid development of ideas is brilliant. The growth hacker has become the growth scientists, as covered in this great article. However, there is an important ‘art’ to growth that can often get lost in the science – the art of storytelling. This delivers emotional results that are very difficult to metric, yet are often crucial to traction.
The biggest success your company can achieve is becoming the first thing out of someone’s mouth when they think of your category. Need a ride? Uber. Need a book? Amazon. Need a drink? Coke. Need some chinese food delivered? Just Eat. You get the drift. This is such an ambitious big goal it seems silly to even have it as a aim, yet startups come along all the time that manage to do it.
Having built a high growth brand, I believe the recipe should include the following:
Challenge old norms
Be talkable – make customers think
Deliver an unreasonably good experiences
Let’s explore these ingredients in more detail…
Brands which succeed in cutting through the clutter these days need to hook into emotions with an authentic personality. Before you start working on your brand you have to accept the truth: no-one gives a monkeys about your startup. You are another shrug in a world of ‘meh’.
To overcome this apathy you need to develop an authentic tone of voice from within your team. Why are you doing this project? What gets you all excited? Imagine you are on a protest march as a team – what changes are you demanding to the world? These are not questions you should rely on your clients to answer for you – you are looking for what the passion is that fuels your team and then you have the start of an authentic voice.
Just Eat was founded in Denmark and had a strong ‘viking’ spirit within the company, this translated into a ‘rebellious’ voice in our marketing so when we tried to ban cooking it felt authentic with the personality we had already been building with the public. McDonald’s at the time were pretending to be a salad bar. Not very authentic and greeted with derision by the public.
Challenging brand norms
This should be an easier one for a startup – hopefully your idea is a fresh take on an old problem already. The challenge from a brand perspective is how to articulate it succinctly to potential clients.
My favourite example is one from Swatch. When Swatch launched they were challenging the belief that Swiss engineered watches were expensive luxuries. To communicate their range of great value products they hung a giant 500ft watch on the side of German skyscrapers. On the strap they wrote “Swiss. DM 50.” This wasn’t just a highly talkable marketing play, it was myth busting the ‘normal’ assumptions.
Be talkable – make them think
Millennials, or whatever horrendous label we are giving smartphone addicted consumers this week, are a chatty bunch. A whole generation is coming through that knows how to make YouTube videos, record podcasts and send each other pictures of their naughty bits. Becoming a brand that they talk about is crucial to growth. And to get them to talk you need to make them think.
Rock Pamper Scissors could just advertise “Book a hairdresser in London” on a tube poster. Or we could say “Your hair is the last thing you’ll wear tonight”. A bit sexy, a bit naughty, & we made you look and made you think. And if we get that far we hopefully have made you talk.
Deliver ‘unreasonably’ good experiences
Winning brands in the last few years have delivered fantastic experiences for less cost to the customer than ever before. You used to be happy to wait two weeks for that cheap TV, content that you had a bargain. But now thanks to Amazon you want the cheap TV delivered tonight. Customers are no longer happy to accept trade-offs.
Dating online used to require you complete a tedious registration form, commit to a subscription package, and they were actually selling commitments. Match used to claim to have created more marriages than any other service. It’s all about commitments.
Then along comes Tinder which has no registration form, is free, and is selling flirting. Much more in line with modern customers. It’s not fair, but customers want it all and they do not want to commit to get it or have to subscribe.
Did it work?
Like I said earlier – your job is to try and become the first thought for the category, and one way to KPI that is using brand awareness surveys. When the UK public was asked to name a takeaway ordering app each month throughout the campaign to ban cooking this is what happened… Spending far less cash than the big incumbent beast of Domino’s, we were able to take the top spot and head onwards to the glorious land of IPO.
These ingredients tend to build upon each other – Uber is an app that gets me a ride instantly – I no longer have to hang around on street corners with my hand up. It has challenged traditional licenced taxis in a way they feel is unreasonable, and made people talk about it all over the world. My advice is to start with Simon Sinek’s famous TED talk, work out your purpose internally and from there work out how to communicate it in the most passionate way possible.
Acknowledgements and further reading:
I’m a big fan of the author Adam Morgan and I have shamelessly poached much of the thinking above from his books Eating the Big Fish, and A Beautiful Constraint. Give them a read so he doesn’t shout at me.
About the author
Mat Braddy is an entrepreneur and founder of ROCK PAMPER SCISSORS and was formerly the CMO at JUST EAT. Mat joined JUST EAT in 2009 and set about establishing the company as the leading brand in takeaway around the world, resulting in one of Europe’s biggest tech IPOs for a decade in 2014. In 2012, Mat led the global launch of JUST EAT’s brand campaign to ban home cooking, ‘Don’t Cook, JUST EAT’. Mat is now busily building a new app; Rock Pamper Scissors where the team are striving to build the default hairstyle app for the ‘everything now’ generation. It’s like Uber. But hairy.