Gut -> Data -> Gut

I usually split decisions into ‘reversible‘ and ‘irreversible‘ (or very hard to reverse) decisions. For reversible decisions, it makes sense to experiment and test things out incrementally but for irreversible decisions I really like the gut->data->gut framework which I first heard nicely articulated by Sukhinder Singh Cassidy here.

Whenever I’m at an irreversible decision, I always write down my gut instinct at the beginning of the decision making process. I then come up with a structured framework to collect any data and rank order options against each other along the relevant dimensions. At the end of this process I put aside the analysis and then go with my gut.

The data gathering and analysis phase is really to make sure that there are no big gaps in my thinking and to make sure that one option is not clearly better or worse than another along more objective measures.

As I’ve gotten older and applied this framework over and over again my gut instinct at the start and and the end is usually much more consistent.

This same framework is also useful when deciding what to build and prioritizing as a product manager and having to trade off features against each other.

Insight from independent sources

In my opinion, one of the hardest parts of product and general management is drawing insight from the right sources to determine ‘product health’ to identify where to focus, especially when managing multiple product lines.

In my experience I try pull data from three independant, uncorrelated sources to inform where I should focus my effort – the data, the team, and the users:

  • Data: Design dashboards that give you the metrics at the right level of detail on a daily/weekly/monthly/quarterly basis. Be able to translate data into concrete hypotheses and insights. 
  • Team: The general manager (GM) or product lead of the business is your main source of information, but make sure to spend time with team members and other functional leads as well, so you can validate/invalidate what you hear from the GM. The broader team is also an incredibly strong resource for ideas for new features. 
  • Users & Customer Service (CS): It’s important to maintain empathy/understanding of your customers, even when you’re a step removed from the product.
    • On a regular cadence (e.g. weekly), spend time reading user reviews, blogs, forum posts etc.
    • Get quantitative and qualitative information from the CS team about what users are saying about your products over customer service channels, either through a short meeting, or a list of top 5-10 issues each week.
    • Spend time actually interacting with customers, and responding to them (directly or on forums for example).

Investor updates for startups

I’ve invested in about 30 companies over the last 6 years and received a lot of different investor updates. Some companies send few, sporadic (often too detailed), updates whereas others send updates with a fixed structure and on a predictable schedule.

I think the sweet spot for many micro vcs with a portfolio is quarterly updates which arrive on a predictable schedule – e.g. 2 Mondays after the end of Quarter. Founders who update investors on a predictable schedule generally build better companies, in my experience, as there is a correlation with discipline and organization.

Here is my suggested template for sending updates, although this is not meant to be prescriptive and more to summarize the bases covered:

Many startups often miss the ‘Metrics’ section and I think this is the area where most could benefit for improving their reporting.

Template (Quarterly)

Summary

  • Key milestones hit/missed
  • Important takeaways

Highlights

  • Limit to <5 bullet points
  • New customers, product wins, critical hires, geographical expansion

Lowlights

  • Limit to <5 bullet points
  • Lost customers, product failures, lost employees

Metrics

  • Consumer: DAU/MAU, Revenue, Retention/Churn Metric, Employees, Cash, and Burn Rate
  • Enterprise: # of customers, Revenue, New customers, Sales pipeline, Employees, Cash and Burn Rate
  • I recommend showing the same metrics in a table Quarterly and then highlighting YoY and QoQ growth

Product

  • New features or products shipped and a short summary of their impact / future impact

Team

  • New hires / team changes

Other

  • Anything that is not covered by the sections above e.g. Press coverage

Fundraising

  • If fundraising add this section to show progress / any key milestones
  • Also useful for converting existing investors for additional funding

Help

  • Specific intros to investors or potential customers generally yield the best results

I know some founders feel like these updates don’t get noticed but I read every single one of the updates even when I don’t reply.

New Products in Remittances

The current business model for remittances will become obsolete in the long term – margins from transfer fees and fx is going to decrease as both the underlying payment rails get cheaper, competition intensifies and new technology (e.g. blockchain) creates new mediums for international money transfer (e.g. Telgram ICO, Sureremt RMT tokens)

Customers will switch if cheaper, faster, secure alternatives emerge that can gain consumer trust. I hear from remittance providers that they have extremely good customer retention, but most have been the services that customers are switching to because they provide a step function better customer experience.

Existing remittance businesses are not going to cover operational costs at super thin margins and entrants like messaging apps with no customer acquisition cost and no requirement for profit beyond retention in their apps (Whatsapp, WeChat) will kill all small remittance startups as well as inefficient, expensive incumbents (e.g. Moneygram, Western Union)

In order to grow revenue existing remittance firms will need to leverage their unique knowledge of the sender->receiver relationship to retain their customers better, and make higher margins per dollar transferred. I think this will require significant product innovation – e.g.

  • Bill Pay – will drive customer retention because of the monthly payment cadence for bills, will improve monetisation as receiving companies (e.g. tv company or water company) will often pay a commission of a few % and the remittance provider can also batch transactions to pay many bills at the same time reducing the cost of each transaction
  • Credit – remittance companies can use historical remittance data to lever up a remittance in shock – e.g. family death or a medical bill, and then the sender can pay the remittance business back over time vs. the receiver who would not qualify or credit or get credit on much worse terms (note: this requires lots of new licenses which is a large barrier to entry)
  • Savings – if remittance companies know what receivers are going to buy and when they plan to buy the product, they can monetize it through referrals or asset finance

The remittance companies that are best placed to execute on this already have users in their platform. They will need to track retention of customers to make sure they are not losing these customers to alternatives, and then invest in new products and transfer methods to drive retention and better monetization.

Better consumer banking and investing

Almost everyone I know has too much of their assets in cash sitting in bank accounts relative to their risk profile. It’s generally hard to figure out how to get started as an investor and most people just don’t know how to go about it. Financial advisors are typically fairly expensive (2% management fees) and it’s fairly complex for people without proper finance training to buy a range of assets (stock, bonds, currency, commodities, natural resources etc). Banks benefit greatly from this, as they take savings from your bank account and invest them making 5-10% returns on your money and pay you a fraction of this in interest (0.5%).

I really like what Wealthfront has done to simplify the process of investing – they make it very easy for you to assess your risk tolerance and then automatically allocate your funds into different assets. They’ve built technology to automatically reallocate when it makes sense and built other tools for investors to optimise their tax burden (tax loss harvesting being the main one). I think this is a great start, but it still requires you to decide how much you are comfortable investing in public markets.

What if we had a new kind of online bank that took in your cash and got you to set your risk profile, and then allocated your investments based on this profile and your liquidity preference? It’s basically a combination of Wealthfront and an online bank like Simple. You could then manage all your finances from one account, figure out how much you want to keep as a cash buffer, how much to invest in fully liquid investments, and how much to invest in illiquid investments.

A system like this gets rid of a lot of middlemen and unnecessary costs like bank branches, financial advisor middlemen, and gives me better overall return on my assets with much less hassle. I hope banking evolves into something like this soon.

Future of wearables

I don’t really like the current set of wearable offerings. I’ve used the Nike Fuel Band, Jawbone Up and the Basis. Initially, the novelty is cool, but in the end they all fall short as none of them are really accurate enough or fully featured enough to be anything more than a gimmick.

In the future, I think wearables should make the assumption that you already have a smartphone in your pocket, and so they can communicate with the smartphone directly for the majority of the day. This way, design of the wearable can focus on capturing information that a smartphone can’t capture as well (like movement or heart rate). The wearable can then send this data to the phone to do the number crunching and get increased accuracy by combining similar data that is captured by the phone or other wearables. If you combine multiple sources capturing similar things, you can vastly increase the accuracy of the data. It’s how mobile location data become so much more precise – gps, cell tower and wifi data all combined together.

The one health tracking tool I actually really like is the Withings scale. I like having a historical view of my weight and how it wirelessly syncs to a server somewhere so I never have to think about inputting the data, but can access it and use it in conjunction with other apps such as Lose It as I find useful. I think it does a good job of focusing on being a sensor and a display for weight without trying to do too much.

Once we improve the quality of the data from wearables and increase the number of types of sensors (breathing, heart rate, sleep, movement, weight, food intake etc) then we’ll be able to draw really awesome insight by combining information from lots of different sources to get a better picture of overall health and track changes over time.

It could be interesting if my doctor had a dashboard with all the inputs from my wearables and can see long term trends as well as use this information to help diagnose current or future conditions based on what’s happened in between visits.

Mobile software technology (primarily OS)

I spent some time writing down some of the things that bother me about using my mobile phone, and thought I would share some improvements that I think would make using my phone even better. Apple’s IOS 8 and Google’s Kit Kat are addressing much of it.

  • Web links over email and text – There should be a way for the OS or browser to detect whether or not an app is installed and try to open up the app (deep linked), resorting to the web view only if opening up the app fails. This would provide a better experience for user as well as an opportunity to increase app engagement, and should become standard very quickly. I think this could work by the browser going to the website and the website creating a custom deep linked url that it tries to open through the app; if it fails, then it goes to the web view. There might be a cleverer way to do it though. It’s surprising to me that apps like LinkedIn don’t work this way – I often get a link to someone’s profile and it’ll never redirect to the app – this should be the defacto, not a crappy mobile web view that requires login, etc.
  • Method of for applications to talk to each other – IOS and Android need to define an app API with a common set of things as well as custom calls that can allow apps to talk to each other in real time and share data. This would allow aggregators to become much more powerful on mobile and other apps that pull in data from multiple apps in real time, and will open up a whole new class of application. This may currently be solvable by creating server APIs, but it’s less easy than apple or google creating a common format that can be shared locally.  An example of a use case would be getting transport from A->B and an aggregator showing me the best option from uber, lyft, taxi, bus etc.
  • Search in-app content – I should be able to search on my home screen for content embedded within apps / over search. I.e., Searching on my phone should be much more powerful and personalized than it is now. It’ll be a little complicated to figure out the balance of showing content that is local vs. online or layering in additional data (e.g. what apps I use most) in the ranking system, but these are likely solvable problems. e.g. I should be able to search for ski trip and the results are a combination of texts, email, evernote, etc. Google is far ahead of Apple here but IOS 8 is starting to bridge the gap
  • Wearables as an input/sensor – The future of wearables is collecting data that your phone is ill suited to collect and then either having its own ability to transmit data to a server or using the phone/internet connection on the phone to crunch the data and transmit data to the user through the wearable in a format that makes sense. The synergy between the 2 devices (phone + wearable) is where I think things get very interesting because then the size of wearables can go vastly down (lower power consumption, less high tech, smaller size).
  • Seamless transfer from web<=>mobile Products that have websites and apps should have a common backend that allows you to pick up on your app where you left off on your computer and vice versa. Examples are yelp or google maps. Again I think android is far ahead of iOS if you’re a power user of google products.

Investing Responsibly

The inspiration for this post was my Business at the Base of the Pyramid class at Harvard Business School and it’s something that I have been pondering as I consider being an early stage investor in East African technology businesses.

There are two main kinds of capital deployed to emerging markets to stimulate economic activity for small businesses:
  •  Social(Not for Profit) Capital – This kind of capital is usually issued by governments, charitable foundations or entities like the World Bank/IFC and makes up the majority of investment capital to small businesses from abroad
  • For Profit Capital – Investors looking for returns which are as high as possible from emerging markets to compensate them for the high risk of their investments
I think the best model for emerging markets is a hybrid form of for profit capital from socially responsible investors. i.e. Investors who are looking to make a reasonable return on their investment without exploiting the recipients of their capital. 

One of the key problems of investing in social (not for profit) enterprises is that it does not create the incentives for these businesses to scale into self-sustaining entities. If businesses are accountable to their investors to yield positive unit economics and positive returns they are less likely to operate in a lean and efficient manner. Commerical enterprises are just better designed to create long term value for their shareholders, employees and (hopefully) customers provided they are ethically run.
I think that initiatives such as Root Capital and the Grass Roots Business Fund are trying some extremely interesting innovative models and hopefully we’ll see some positive results from them.

Figuring out a more effective way to deploy capital to emerging markets is a huge problem and I really hope that such innovations make strides towards solving it.

Education and Entrepreneurship in Emerging Markets

I’m a believer in two key methods to alleviate poverty and stimulate long-term economic growth for developing countries:
  •  Education – Out of all children in Kenya about 85% of children attend primary school (but <50% finish), 24% of children attend secondary school, and 2% attend higher institutions. At this level of attrition more than half the population has not even completed primary school, which is typical of developing African countries. Access to knowledge and information is a critical part of opportunity creation for people in Africa.
  • Entrepreneurship – This is Africa’s (and Kenya in particular) ticket to stimulating the economy from the ground up. Governments are corrupt and policy is extremely slow and ineffective. Creating and facilitating an entrepreneurial mindset and ecosystem for people in these countries with the drive to create businesses which solve fundamental issues has got to be the way to sustainably get these countries out of poverty.
This is such huge topic and my paragraph above does not really even scratch the surface, but I want to write more often, in bite sized chunks going forward. For each of these issues, work needs to be done at both an infrastructural/country level and at a grass roots level. I believe that we will see quicker more effective results through bottom up initiatives so long as we are able to find and fund the scaleable and effective solutions at this level.

Next post will be about what type of investment could work for developing countries at this level.

Digital Sky Technologies – The Mini Exit

Digital Sky Technologies (DST) have created a new class of investment in the western world that has caught both the entrepreneurial community and investment community by surprise. They have purchesed significant minority stakes in extremely high profile pre-IPO technology companies such as Zynga, Facebook and Groupon.

They take long positions on these companies by buying large amounts ($100M+) of common stock at relatively high valuations. Traditional investors (venture capital and private equity) would look to invest for preferential equity, board representation and sometimes controlling stakes but DST seem to be happy to take minority common stock with no board representation. Basically, they trust the market leaders with capital to keep doing what they’ve been doing and it’s working out well for them so far. Their $200M investment in Facebook at a $10Bn valuation is already up by 4x, and their $180M investment in Zynga is probably between 2-3x up as well.

I think that the key benefit they are providing to the founders and early employees of these companies is the option to partially cash out without having to prematurely exit or IPO. This has never really been an option for the founders and early employees of these successful technology businesses and it seems to have been mutually beneficial for both DST and the early stage founders.