Take startups for what they are - little experiments
There are many definitions of a startup. The one that I find the most relevant is by Steve Blank: “Startup is a temporary organisation formed to search for a repeatable and scalable business model”. It is that simple. You start a project. If it manages to find a business model that works, the project will be transformed into a company.
Right now we are experiencing something of a “cambrian moment”. Startups are everywhere. Everyone is building a startups, simply because they can. It is cheap to start one, the Internet gives you access to distribution networks. The know-how behind building a startup is becoming common knowledge. This knowledge is shared in posts, tweets, slides and videos. Investors are also bullish on this tech trend. We have startup schools (aka accelerators) around the world. We have platforms, which can connect us to investors. The media is pushing startups to the mainstream. The more people are involved in tech startups the more chances some monumental companies will emerge from this creative chaos.
I’m a strong believer in this tech explosion, and I agree with Marc Andreessen that “software is eating the world”. The one thing I am constantly thinking about is the “science” behind building these great new tech companies. I think Eric Ries once said that startups are like experiments - there is a slim chance it might work, but if it does, it will have a huge impact on everyone. I like this experiment analogy very much. At early stage we have very little data, so these experiments we call startups, mostly fail. A thought I would like to put forward is that maybe we should experiment more but in a controlled environment.
Costs related to starting a startup these days are very low. With so much tech infrastructure already in place, building on top of it becomes cheap and fast. This is what I would refer to as a controlled environment. Instead of building the next piece of the tech infrastructure, we focus on the implementation part.
The main goal for these experiments is to follow Steve Blank’s definition - find a repeatable and scalable business model. If we manage to keep the costs of these experiment at a very low level, it will not really matter that most of them will fail. The ones that will succeed will be able to finance the ones that failed. A similar thesis to Dave McClure and his 500.co.
This experimental model is the essence of Venture Capital. Looking at the industry today I think this is something that got lost along the way. VC’s are morphing into bank-like institutions, looking for proven business models. No one really wants to enter the dirty-ugly-smelly world of pre product-market fit startups. We need to take risk in order to create impact and generate return. If we skip the risk part, the whole equation will not make any sense.
This gap in pre product-market fit financing could be an opportunity for the government to spark up innovation in any country. Most countries show some sort of startup activity. As the Israel example shows, this can be done. The European Union is a strong believer in this thesis. Poland received grants in the billions of euros for starting innovative new companies. Only time will tell if this thesis was right. My intuition tells me that we could do more if only we would learn not to over analyze the subject. Let startups be startups - experiment and fail fast in order to succeed.
Emerging business models for creating global tech companies
There are more and more voices that the Venture Capital industry is changing. It used to take a lot of money to launch a tech startup in the ‘90s. It takes a lot less to do the same nowadays. This puts a lot of strain on the classical venture capital model. The VC model goes a long way back to Arthur Rock and the early days of Silicon Valley. Since its origins, pretty much everything has changed. The challenge today is not in the starting up but in scaling the thing that has reached product-market fit.
Looking at the whole startup/vc industry I see many new business models emerge in the early stage of financing tech companies. The same goes for building tech companies in general. A group of founders has a lot to choose from, as to how they want to raise their first round of financing. So what are some of the new possibilities? (no particular order)
Kickstarter (or any of the other crowdfunding platforms)
Was probably the first crowdfunding platform that got really popular. It started in 2009 and it allowed companies or people raise money from the general Internet population in order to finance a new product. Kickstarter is a very simple idea but with an immense power of creation. Utilizing its network effect and a broad Internet audience of innovators and early adopters it is a great tool for testing demand for new products at an enormous scale. Kickstarter numbers look really impressive. 70 000 projects successfully backed. Backers have already allocated more than a billion dollars on the platform. By any standard - these are huge numbers. Kickstarter has yielded many interesting products so far like the Pebble Watch, Zortrax 3D printer (a Polish project) and recently SherlyBox (our portfolio company). When Kickstarter finally goes global we might see those number explode 10x or maybe even 100x.
Angel List Syndicates (tech applied to an old angel coinvestment model)
Marc Andreessen’s Software is eating the world is also valid in the VC business. Naval Ravikant has hacked the system by creating a platform for connecting startups with investors and allowing them to invest fully online. With Angel List Syndicates startups can raise their initial rounds very quickly. Gil Penchina (investor in one of our portfolio companies) runs the biggest Syndicate with $4,3M under management from almost 500 backers. Angel List Syndicates are currently available only in the US. I hope to see those Syndicates available in Europe very soon as it would allow more EU companies to access US investors. There are more than 17 000 Europen companies listed on the platform.
Ycombinator (leading the pack with thousands of other accelerators following around the world)
In 2005, Paul Graham started a summer experiment in Boston. Paul asked himself a question - what would happen if you would fund a couple of teams so that they could work on their startup idea over 3 a month period. That was the first batch of Ycombinator and the beginning of what we now consider as the best acceleration program for startups on the planet. That experiment led to the creation of some of todays most important and monumental tech companies like Airbnb and Dropbox. Since then some 700 companies went through the program run in Mountain View. Many of them very successful and in the tens, hundreds of millions and even billions of dollars. Today YC attracts some of most talented and promising teams from around the world. If Sam Altman (YC President) has his way, we will see close to 1 000 companies graduate Ycombinator each year. Estimote (a Krakow, Poland based company) is also a very successful YC company leading the contextual computing revolution with their BLE beacons.
Rocket Internet (the ultimate company builder)
There is a corporation which dominated the business model of growing startups on a massive global scale. That corporation is Rocket Internet with Samwer brothers behind the steering wheel. The Brothers have specialized in scaling business models which have been already validated. In most cases these business models come from the US. The organization behind Rocket Internet has mastered to perfection how to deploy a company in multiple geographies at the same time. With a particular focus on ecommerce, the Samwers have managed to build a global empire, which is now valued at more than $3B with rumours of a potential IPO heating up.
Each of those four business models is unique in its own way. We will definitely see more and more billion dollar companies created using these new methods of supporting high growth tech companies. What does it mean for traditional venture capitalists? I think that the shift towards supporting the growth phase of startups not the creation will continue, with new growth (or opportunity) funds emerging. Only time will tell but I’m really bullish on this.
I started blogging early 2013 as a way to share my thoughts on startups and the venture capital business in Poland and Europe. My goal was to expand my network. I wanted to connect with other early stage VCs scattered around the EU and of course Silicon Valley. During this time I’ve also managed to grow my Twitter following to what seems as a meaningful number. Twitter has definitely been a good distribution platform.
As you probably noticed my blog is hosted under the Innovation Nest domain (ms.innovationnest.co). This was a decision we made among the partners with the intention of driving more traffic to our fund’s website. This has worked to some extent. Even though our blogs (Piotr and Marek also have their blogs hosted the same way) are a part of our website, they still remain personal in terms of how and what we publish.
As contributors to the Innovation Nest brand we have decided not to publish any content on any other medium, like a blog with a separate domain name. The reason behind it is that we believe you can only focus at one thing at a time to do it really well.
Recently I’ve noticed that some of the other blogging VCs are contributing their content to multiple mediums. A personal blog (building a personal brand), Medium, Svbtle, Quora, Twitter, in some cases Tumblr and Slideshare. This seems like a lot to handle. Each platform engages in a different way, has its own “code of conduct”, network of users. On a positive note, the more places you reach with your content, probably the bigger the impact and dealflow at the end of the day.
An underlying trend which might be the push for this allround publishing activity is that more and more VC firms are turning to content (marketing) as a way to reach entrepreneurs. USV, a16z, First Round, might be leading this new trend in the VC industry. Their websites look more like content sites than a typical VC website. USV is also building a community around its site, which is sort of second nature considering their investment thesis and their dedication to building network effect businesses.
I am really excited about this explosion of content among VCs. It brings more transparency to the industry. It makes it is easier for entrepreneurs to screen potential investors for their added value. In some sense it also enables an open dialogue between investors in different sectors or geographies. As a result, more know-how on building startups is available to everyone.
All this content which is being created by VCs around the world, would never reach broader audiences if it wasn’t for distribution platforms. As a general observation, most VCs use Twitter to expand the reach of their content. Robert Scoble has created many useful lists for the tech community like this Tech Investors list with 500 names on it and close to 4 000 subscribers. If you are interested in finding out who are the Top Tweeters in the Entrepreneurship and Startup Ecosystem, make sure to check out a list put together by Peerindex. It is very US centric but as I was told by Peerindex they are working on a similar list for Europe.
Who will own content distribution on the web and mobile
Since the early days of web 2.0, content has been on the rise. I would even argue that content is what got WWW started in the first place. It comes in many different forms - text, images, video. Now with social media and the explosion of content marketing we are constantly flooded with it, from every possible source.
Many “old” technologies around content are increasingly becoming obsolete. Print media, radio, TV - the are all being challenged by the greatest content distribution network ever invented - the Internet. Nobody wants to wait for anything anymore. Content should be instant, on demand, delivered via a seamless, personalized experience.
With so much new content being created every day, and a strong shift towards the Internet for distribution of that content - I think there is a huge multi billion dollar opportunity just around the corner. The opportunity lies in the distribution itself. There are few questions which I think are still unanswered:
how do you make sense of all this content? Which is valuable and which will just waste your time.
how do I find content of interest to me, without going to Google where I am constantly under attack by Adwords and SEO results?
if I am an author, how do I reach people interested in the topic I write about?
how can I experience content without ads and interruptions? Who offers the best reading/viewing/listening experience?
which business model works for content?
Although these question might still remain unanswered there is a lot of activity in the distribution space. But before I dive into that I want to go back in time, to the early days of RSS (Rich Site Summary or Really Simple Syndication). The protocol for distributing information from websites goes back to as early as 1995 and Apple, where the Meta Content Framework was created. The First version of RSS (as we know it) was developed at Netscape by Dan Libby. It was a very simple (but powerful) idea. Instead of checking various websites for updates of content, you could subscribe to its feed, and read the information in your RSS reader.
RSS in its simplest form meant that, the actual website was irrelevant - content became the true value delivered via this new distribution protocol. As time went on, RSS never really picked up with the general Internet population. An average Internet user has no idea what RSS is and how he could benefit from using it.
On the other hand, because RSS is such a great technology, many businesses have been created around it. Feedburner which was acquired by Google, for a rumored price of $100M is probably a prime example. After Google discontinued its Reader service, many startups tried to capitalize on that opportunity. Feedly.com is one example of an array of RSS readers which were created at the time.
Smartphones opened a new market for RSS, with an explosion of reader apps for mobile devices. I couldn’t find any numbers on RSS readership on mobile devices but I imagine it is very high among the more savvy users. Especially with apps like Flipboard. My personal favourite is the Reeder app. It offers a seamless experience on web, phone and tablet.
Even with all this “infrastructure” RSS still hasn’t hit the mass market. There is an ongoing discussion whether it is the end of RSS or just the beginning. Some experts say that Twitter might replace it. I think that there is a huge untapped potential in RSS. If we consider RSS as the distribution layer of the Internet, the one part that is sort of missing on a mass scale are the connectors/outputs. What I mean is that if someone figures out how to use this protocol to connect authors with readers in a seamless experience, it just might spark mass adoption. To get this spark, I think that RSS needs to get more social. It needs to have a great experience of sharing content once it is curated by a user.
If you are working on something around RSS, I want to talk to you. If you want to jump into the discussion around RSS, I recommend to Quora topics:
RSS (Really Simple Syndication): Is RSS becoming obsolete?
RSS (Really Simple Syndication): If RSS is dead, what's next?
Virality in B2B SaaS products - what can we learn from Product Hunt
Last couple of weeks I have been reading a lot about Product Hunt. The site which lets you discover (hunt) new products and services has gone absolutely viral. It has been covered by all the major tech news sites. It went through Ycombinator, and it raised a $1M seed round with Google Ventures among the investors. As Jason Calacanis noted, Product Hunt is the new Silicon Valley darling.
The story behind Product Hunt is very simple. It started out as a mailing list. After picking up some interest it has grown into a website with a vibrant community behind it. The rate at which Product Hunt is growing is amazing. Just a couple of days ago they went into mobile with the release of their iPhone app. This will probably draw even more fans to Product Hunt as the go to place for finding hot new products.
As a B2B SaaS focused investor I look at Product Hunt with envy. Especially at its growth rate - something that is very hard to achieve in SMB or Enterprise software. Of course Product Hunt is a consumer facing product with a very high viral coefficient. In software we more often see a slow ramp of death. There is a great video of Gail Goodman (CEO of Constant Contact) explaining the subject. Pawel Chudzinski (PointNineCap) also wrote about this topic a while back.
If B2B software is “unviral” in nature, is there a way to change its DNA so that a high viral coefficient can be achieved? I would argue that this “distribution” problem can be solved if we make B2B software more social. Let’s look at LinkedIn. It is a professional social network, but if we change our perspective a little bit, we can also call it a communications tool - software that enables professionals (B2B) to interact with each other. Growth of LinkedIn has been phenomenal. I think that this logic can be applied to any type of business software. Instead of building closed systems which are predominantly aimed at giving a tool to one person at a time, we should be creating platforms and networks, which are open and in consequence viral. Fred Wilson wrote an interesting post on business software titled The Dentist Office Story which sort of reflects the closed vs open analogy.
With B2B software being more and more consumerised, we might be on a good course to achieving hyper growth in a shorter period of time. Buffer, software which allows to schedule posts to various social platforms might be a good example. One can argue as to what extent Buffer is a B2B product, but I think it is mostly used in a professional regard. Joel Gascoigne is pretty open about the numbers behind Buffer. The company has grown to more than 1M users, with close to $4M run rate in about 3 years. There is still a long way to go for Buffer to become an +$100M annual revenue business, but the growth curve looks very promising.
In order to achieve virality in B2B software, product owners have to come up with new ways how to engage users. Instead of viewing software as a tool, it should be more often viewed as a platform or a network. With a little bit of luck (I hope) we might see a new breed of SaaS startups mimicking Product Hunt’s growth.
Age of context - beacon powered contextual computing
Introduction of iBeacon by Apple and the emergence of BLE (Bluetooth Low Energy) technology definitely created a new market. I think that in the coming months and years we will hear the term “contextual computing” more often. For those of you who are not yet familiar will all the buzz around beacons - they are these little devices with Bluetooth powered radios which can signal a device (smartphone) to give it location context. Applications of this solution are probably only limited by our imagination.
There is a Polish twist to the beacon market. Estimote, a company based in Krakow, Poland is the pioneer of beacons. They were the first company to have a beacon set on the market after iBeacon launched. Not to mention, they are also a YC company which might have had a slight impact on their PR and traction they gained after the launch of their beacons to developers.
A year after launching their original beacons, Estimote came out yesterday with Estimote Stickers - coining the term “nearables”. If your are in any way into tech, you have probably seen the announcement on numerous tech sites. So what are these stickers? 3mm thin BLE radios with the addition of sensors: temperature and motion. Estimote has prepared a short intro video, which shows the possible use cases for this new gadget. The device itself is only an enabler. The real magic happens on the software/app side. Estimote reports that it has more than 25 000 developers on its platform, who are building contextual apps. This is probably the biggest asset in Estimotes pocket. With so many people hacking away, we might see a flood of solution for the newly launched Estimote Stickers.
I wrote about a Polish twist to the beacon market. Well it gets even more interesting. It turns out that Estimote is not the only beacon contender coming out of Poland and making headlines. We have two more companies in this space. The second company is called kontakt.io and is also based here in Krakow. They have a similar technology to Estimote but maybe a slightly different market strategy. The third company is called Ifinity and it is based in Warsaw. This beacon company has taken yet a different approach with their beacons. Ifinity wants to give context to the cities around the world making them smart.
All the companies - Estimote, Kontakt and Ifinity are venture backed in the millions of dollars. It seems that all three are building a huge market but each one with its own special sauce. Which one will come on top? As sceptics say it is too early to tell, but on the other hand analysts are proclaiming beacons as the biggest innovation in retail since the mobile credit card reader. However this market will play out, I am pretty confident that we are entering a new era in computing. A more context aware, more personalised experienced with our mobile device in the center and “smart” things around us. I hope that these three Polish companies will be the leaders of this contextual revolution, placing Poland on the world tech map.
One company out of the last YC batch which really got my attention is Traction. The startup is trying to build a marketplace for freelance marketing professionals. It already has picked up some traction of its own with companies like Yahoo, Sony or CBS using the service.
Current online marketing landscape is changing very rapidly. With the emergence of platforms which act as highways for content distribution, the marketing mix for an online marketer is getting pretty complex these days. There is a lot of marketing software out there already, with new apps popping up constantly. To see just how complex the marketing landscape is you can check out this supergraphic by Scott Brinker.
There is close to 1 000 companies providing tools for marketers to address many if not all marketing processes. This is a lot. Marketers are a very smart bunch, always on the lookout for the next cutting edge tech which will increase the marketing ROI. With so many possibilities it begs the question: can anyone be an expert in all the different channels, techniques, apps and so forth? I doubt it.
When you think about it, there is probably more marketing software than there are marketers capable of using it at an advanced level. Such a common tool as Google Analytics is barely touched on the surface by most people, so how can one person master 50 or a 100 different applications. This is probably the question, founders of Traction asked themselves.
Now imagine this. A highly specialized workforce of marketers with very niche but deep knowledge of a given process. A marketer specializing in content distribution, another in content creation, going even deeper - a Twitter marketing ninja. Each one verified and ready to work for you on a secure platform. I hope that Traction will populate its marketplace with the best marketing talent available today. Many startups I’m talking to these days would benefit from such a service. It is hard to find great developers but it is even harder to find great online marketers.
Ycombinator Demo Day - graduation from a university
Venturebeat.com published a post today with a list of seven YC backed startups that want to make our life easier. After reading a short description of each company I got the impression that most of these ideas are targeting problems of people living in San Francisco or the Bay Area. Of course these companies are just starting out and their target market is narrowed down to a small niche which can be quickly dominated. If we look beyond the early adopters phase on the technology adoption curve, things might not look that rosie anymore.
I have great respect for Ycombinator. Paul Graham has probably built the best “startup school” there is. The thing is that with YCs position, influence and resources they should be solving really big problems. Instead, sometimes they back startups which seem... well, solving not so challenging issues.
So what are the lucky seven companies doing? I will talk about three of them.
1. You can order a custom tailored shirt from your phone.
This is a great concept, but let’s get real. How many of you have ever ordered a tailored shirt? How many of you even thought that this would be a service that you would like to use? What does this “innovation” bring to the market? Ok, I think you get my point.
2. A service that you can outsource the process of selling your car to.
So far, I had 3 cars in the past. When it was time to say goodbye to each one of them, the process was pretty straight forward. There are plenty of sites where you can list your car. Most of them have enormous traffic so, you get potential buyers contacting you almost instantly. In my case the process never took longer than a couple of weeks. Second hand cars is a huge business, but is outsourcing of the selling process what this industry really needs?
3. Making your parking tickets disappear.
You are probably going WTF. Well this company claims that around 50% of parking tickets have mistakes on them, making them invalid. Service the company offers will save you money and time you would have to spend on fighting to invalidate the ticket yourself. The company as you might imagine operates in San Francisco. I haven’t recieved a parking ticket in more than 6 months. Maybe there are people who have this problem constantly - who knows. I got the ticket in Redwood City. On the ticket itself there was a step by step instruction how to pay the fine online. It took me less than 3 minutes to do it. Even if I would turn to my evil self, I cannot find anything wrong with this process.
The point I want make is that, either we are running out of real, global problems to solve or founders are taking it easy and going after trivial ideas. There might also be a third option. YC is turning into a Startup University, where students have to complete a project in order to graduate. From a macro perspective this might be a good thing - more experienced founders, who will tackle bigger issues in the future. On a macro scale - we might not see a next Airbnb or Dropbox anytime soon.
Anyways, good luck to all the YC founders who went on stage at Demo Day. Out of all the things you will also need luck, because now you have to show that your business model can actually scale.
A topic that I lately think about a lot is investing in startups in a pre traction phase. Most pitches we hear at Innovation Nest are made by first time founders, who just started working on a problem. There has definitely been an increase in the number of such startups over the past 12 months. From an ecosystem point of view this is a good thing. It means that all the effort that has been put by many people and organizations into building the startup community in Poland is paying off. On the other hand from a VC perspective this is still a very early phase of the market.
Most of those great first time founders will fail. Out of the hundreds of startups founded in Poland each year maybe just a couple have a chance of finding a repeatable and scalable business model. As most companies on the Polish market today are pre traction it makes it very hard to invest. How do you pick the right idea or founders with just the right mix of skills, talent, experience and luck? At a stage where all these startups have very little to show, very few numbers you can look at, it is almost impossible.
To make it even more difficult, The Valley is evolving and raising the bar even higher for alien startups dreaming of making it big in the US. Venturebeat.com published a piece on this changing landscape of Silicon Valley. As long as I can remember The Valley was always a synonym for starting tech companies. You had access to people, resources, investors. Now as Venturebeat reports, Silicon Valley has shifted towards the growth phase, focusing more on scaling companies into millions of users or billions in valuations. This shift, came as a result of the world going crazy about startups. New tech communities being formed in all major cities. Everyone wanting to build the next big thing. As a consequence, the product which demand is constantly on the rise is a post product-market fit company. Silicon Valley VCs are no longer interested in building products, their main focus is on scaling businesses.
This shift in Silicon Valley’s perception of a great investment means more work for founders in Europe. It also means that European VCs have to pick up their game in order to spot the winners really early on and lead them to the promise land of traction and product-market fit.
Is picking those winners only a game, or is there a science to it making the process an educated guess rather than just a simple bet? After three years of investing in early stage startups I am still not sure of the answer. More and more I think it is a science of reading people reinforced by great intuition. When considering an investment I always ask myself, what is it about this company that makes me want to put money in it. I’ve been burned by visions of a huge market, by founders street cred, by vanity metrics. The only thing that has never let me down is a great product. If you are amazed by the awesome experience you get from using something, the chance is that others will feel the same.
But wait a minute what about, the whole lean movement and building simple MVPs in a really short time? Well maybe great things need more time to be built. I might not be the only one who thinks this way. Couple of weeks ago I’ve watched a video of Shana Fisher at Startup School NY 2014. Shana gave a talk about her investment strategy. One of the things she talked about is spending more time and nailing the product. If you think about it, it makes a lot of sense.
We live in a world where people are starting tech companies every day. It has gotten so easy to start a company that you might get the impression that everyone is doing it. This creates a lot of noise, especially for the customer. Which product should I use, why is this better, why should I pay for this if something similar if offered for free. The customer (be it the end consumer or a business) is confused and often times disappointed of the product. If you go on angel.co or recently producthunt.com, you can see a lot of crappy products. This creates a false impression of a competitive landscape. The market wisdom is to launch fast, so every startup is rushing the product to get out on the market as early as possible. Usually, customers reaction is negative. People do not want crappy products.
This is even more so in B2B. If a startup is developing software for a specific business process it has to nail it the first iteration. Business do not have the luxury to wait for a better version. The first version should be the best at a given time, because the better product always wins.
As summer in Europe is coming to an end, and people are back at their desks coding and designing the next big thing, I hope to see more great products in the coming months. A great product might just be the only thing you have in a pre traction startup.
Software is one of the key markets for VCs, there is no doubt about that. With the explosion of SaaS and Software eating the world, it would probably be very hard to find an industry vertical not pursued by startups. Sites like Getapp.com or Bestvendor.com list thousands of applications disected by industry or a specific business process. You would think that there would be an array of apps dedicated for VCs themselves, right? Wrong!
Couple of weeks ago Nicolas Wittenborn (Investment Associate @ Point Nine Capital) wrote a post on Medium about Point Nine’s tech stack - explaining what software they use in their workflow. Software listed in that post resembles a lot what we use at Innovation Nest and that got me thinking - why there are virtually 0 startups building software specifically for the VC vertical?
I went on Quora to check if there was any interest in software dedicated for the VC industry. I found a couple of questions:
“What software do VCs use to track private companies for deal flow?”
“What software do angel investors (and early stage VCs) use to track deals?”
“Venture Capital: What online tools do VCs and angels use to do research?”
“What software tools are used by VCs and angels to assess or screen startups?”
Software mentioned in the answers to the questions above could be grouped as follows:
• research
• dealflow
• portfolio management
• network (contacts) management
At first glance from my own personal experience each topic is huge on its own. Today to deal with those processes most VCs use software like: Gmail, Gdocs, Dropbox, some kind of CRM, Excel, and maybe a task management tool like Trello. The more advanced VCs will probably also use some kind of a connector to connect different APIs to form a workflow. This is done by apps like zapier.com or ifft.com. Although after stitching all this software together you can get the job done, the whole workflow is not pretty.
The simple answer as to why there is so little software for the VC industry is that maybe the industry itself is a niche market and it would be difficult to build a meaningful business out of it. I strongly disagree, simply because we have a worldwide explosion of VC activity. Angels, accelerators, incubators, early stage VCs, growth funds, they are popping all over the world. One might say that the startup economy is booming on both sides of the market.
So how big is the VC market anyway? To get a sense of the numbers I’ve only focused on the data provided by angel.co. As Angle List reports, there are more than:
• 2 500 incubators
• 30 000 investors
• 300 000 companies
For the arguments sake let us threat these numbers only as a sample of the whole market. For a minimum viable segment - these numbers are big enough to make a valid hypothesis that there is a market for software targeted at VCs.
If the size of the market doesn’t look like a huge problem, than why are we not seeing more activity in this space? Maybe VCs are comfortable with the workarounds they are currently using and the pain is not strong enough. Coincidently one of my friends, Artur (cofounder of Fokus) asked Marc Andreessen a similar question.
Marc’s answer might suggest that top tier VC firms don’t see this as a problem. From an early stage VC perspective I also have to disagree with this statement. As the VC industry gets more competitive, software might be one of the things building a competitive advantage. I might not be the only one with this thinking - Sam Altman, the President of Ycombinator often talks about the inhouse software YC uses to review applications, manage their extensive network of YC Alumni, mentors, investors.
Looking at the way we organize our workflow at Innovation Nest I would say that there are 3 areas where dedicated software would be very useful.
1. Dealflow
Currently at Innovation Nest there are three partners who look at deals. Each one of us is the initial point of contact for new investments. We have implemented a specific structure, how companies go through the investment process at our fund. To manage this process we have deployed Trello as the main tool for gathering information on companies we are talking to, the tasks we have planned ahead and to mark the state of the process for each company. Trello is flexible enough to handle this process but there are a few areas where it gets really hard.
Most of the communication between us and the company, and between the partners is done through email. There is no deep integration between the email protocol (in our case Gmail) and Trello. If a company sends us their pitchdeck we have to manually add it to Drive, and then switch to Trello to add that pitch to a card associated with the company. If there is some important piece of information in the email, we have to copy it, switch to Trello and paste it onto the Trello card of the company. There is no way to associate emails with a card in Trello. The list of these “small” problems goes on and on.
I think that for most VCs the initial contact with a new company is done via email. I would also think that a great number of investors use cloud products like Gmail. As most of us spend many hours of the day in our email client - it almost feels natural that there should be a “dealflow app” that integrates deeply with the email protocol so that most of the initial tasks are done automatically. Tasks like:
• setting up some sort of a record for the company,
• pulling data about the company from publicly available sources like Crunchbase or Angel.co (maybe even Mattermark),
• pulling data about the founder (Raporrtive style),
• suggesting potential connections to the company and the founder based on LinkedIn data from our account,
• linking the email thread to the company record,
• sharing with other partners (which are predefined by the process)
These are just a couple of the most obvious examples. If you are dealing with only a few companies per year maybe you are not experiencing this problem. Once you reach a larger scale this becomes a real pain.
2. Portfolio management
One of the key issues we are seeing is to gather key data from portfolio companies. As we are mostly dealing with B2B SaaS companies, in order to monitor the performance of each company we are mostly looking at key metrics like new visits, signups, paying customers, churn. To get all of these metrics form each company in a similar standard (so we could benchmark) becomes a real pain. Each company uses a different method to gather this data and then to report it.
The second key issue is an investors update. There is also no standard in this case. As most investors have information rights, it is expected to receive regular updates from portfolio companies. Some CEO’s prefer to write emails, some have a special doc format. Again there is no structure and process how to gather these updates.
As an investor there are a couple of things which are important and which should be looked at on a regular basis (I only speak from my own experience as an early stage investor):
• key metrics (these can vary from company to company especially if an investor is not focusing on a specific market). You should be able to have easy access to the latest figures. Also it would be very helpful to benchmark companies against each other. In early stage, where the biggest challenge is to get to product-market fit, looking closely at numbers is very helpful in mentoring/advising the company.
• what the team is currently working on
• what was planned but not achieved. In early stage startups things move very fast. Most teams have very ambitious plans which then get crushed by customers and the market.
• growth/traction. As Paul Graham emphasises - startups are all about growth. If the thing that the team is working on is not growing, then why are they wasting time on it.
• sales&marketing.
• help needed. The main role of each investor is to support the company. This support can take many forms. The most obvious is money, but it surely isn’t the most important one. Access to people and companies is probably the biggest value an investors can bring to the table. Portfolio companies should regularly communicate what sort of help is needed.
These investor updates play two roles a) inform about the current state of the company b) allow to track progress. Both are crucial in making further investment decisions.
3. Network
The VC business is all about people. Founders, mentors, advisors, coinvestors. An active VC is consistently expanding his network. If we have look at LinkedIn profiles, most VCs have more than 500 connections.
We have noticed that in the last 12 month, the network around Innovation Nest has expanded so much that we should implement software to manage all those relationships. As there is no CRM which would fit specifically the VC process, we tried to use typical CRM apps. The ones we have tested seem to be to “heavy weight” for our needs.
When I think about a dream “network app” it would be something in the spirit of Intercom. As with dealflow, network is heavily rooted in the email protocol. Email is still the main communication platform. Gmail offers a ‘contacts” functionality but it is very limited and also closed. The “network app” would have to live on top of email. Additionally it would have to be smart enough to pull any additional data about a contact provided by external databases and platforms.
In a perfect world all three (dealflow + portfolio management + network) apps would have to work seamlessly together as they provide data sets which are valuable across all three apps. If we go even further, there might be a need for a whole “operating system” for the VC industry. There are many more apps I haven’t mentioned like: news monitoring, lp management, fundraising to name just a few. I hope we will soon see this vertical populated with interesting startups tackling some of the problems I’ve mentioned. If you are working on such a product I would be very interested in talking to you.
Finally I would like to share our software stack we use at Innovation Nest. If you would like to share yours, you can reach me on Twitter or LinkedIn.
First 100 customers - validation framework based on MVS, MVP A+AARRR
There are many different methodologies or ways that can be utilized to build a startup. From my observation most founders talk about a macro view of their business. I rarely hear founders who are focused on a micro level. What I mean by that is focusing on achieving that first customer and then the first 100 and 1 000 and so on.
I’ve tried to outline a simple framework, someone could use to approach achieving that 100 customers goal. What I came up with is a three step structure:
Minimum Viable Segment
Minimum Viable Product
A+AARRR
Most if not all of these phrases have been covered multiple times. My approach was to combine these three phases to form a simple framework a founder just starting to work on his idea could implement.
My logic behind these three phases is as follow:
MVS - when you start, you have to identify your Customer and his Problem. Instead of addressing every possible customer segment and problem it might be a good idea to focus on something very niche at the beginning. If you narrow down your C-P to a segment in which you can easily identify your potential customers it might be easier for to sell them your solution. As an example - if your idea is focused on creating software for restaurants, you might start with italian restaurants in your city. In a city like New York you would probably find plenty of restaurants fitting this segment. Being so focused gives you the agility and know how might allow you to provide a better service to those customers than your competition.
MVP - because you are only targeting your MVS, the solution to its problems will probably be limited to a single feature or action. Think of the early days of Buffer or Pocket. MVS and MVP are closely connected. Paul Graham often says focus on the things that don’t scale at the beginning. By providing a very personalized service to your MVS you are building a competitive advantage and finding out a lot more about the sorts of problems your MVS deals with. Because of this minimalistic approach you are able to move much faster than incumbents in that market.
A+AARRR - this acronym stands for Awareness + Acquisition Activation Retention Referral Revenue. AARRR is one of the most basic tools a startup can use to model its (sales) funnel. I’ve added another A in front of AARRR. Building brand awareness is an elementary function of marketing. With the help of social media and search it is also something that can be achieved very cost effectively in your MVS.
When you look at those three phases you get an answer to three basic questions:
Who?
What?
How?
If you are a startup trying to get to your first 100 customers, this might help you focus on achieving that goal.
A-player teams in early stage startups - skills checklist
You can hear many VCs say that in early stage startups they mostly invest in the team not the idea. At Innovation Nest we also look very closely at the kind of people who want us to back their startups. At some point I think we even tried to create a persona of our ideal “customer”. When I’m looking at founders of our 14 portfolio companies they are all pretty amazing people - true entrepreneurs, always looking two steps ahead and perfectly executing their vision.
There is much talk about hiring A-players vs B-players. It is pretty obvious that every founder would like to hire the best possible people for the job, but that is never the case. There are many forces with opposite directions which will make this process very hard. When a founder starts out, he has limited resources, mostly in terms of cash in the bank. A players are expensive. Even if you have the money, most A players will have tons of choices. They can pick and choose for whom they would like to work for. I often see that A players tend to be entrepreneurs themselves and that they run their own businesses.
Regardless of what differs an - player and a B-player, (because that is a whole new argument) I always like to look at the team as a whole. Going through those 14 investments has taught me that it is far more important to look at the skillset of the organisation than look out for unicorns of the A player nature.
When we look at startups, creating one is fairly easy. We know what it takes to grow a company out of a startup. Great product, big market, enough resources, scalable business model and so on. When it comes to the team, what are the sort of things you should be looking at when analyzing the people behind a great startup idea?
I have created my own list of the sort of things I would like to find in founders of an early stage startup. If you are founder you might find it useful when looking for cofounders and first employees. If you are investing in early stage startups, this might be a great checklist for you when talking to founders.
A player team checklist for an early stage startup (I am biased towards SaaS). The list is very short. It only covers four areas:
technical skills - no matter what you are creating, your tech skills should be broad enough to stay open minded about the different technologies out there. In early stage startups, you are firstly focusing on your MVP and reaching product-market fit. This means many compromises in terms of the sort of tech you use. Nowadays there are so many choices when it comes to fast prototyping. We have open source frameworks (like Twitter Bootstrap), we have huge libraries of code and people (like Github), we have the cloud. Your tech people should be aware of these, and be proficient in finding low cost ways of hacking things that do not really matter at the beginning when the only thing you want to test is your value proposition.
design skills - if founders say that design is not that really important at the beginning that is a red light for me. I often hear, it is only an MVP, we will make the design better in the future. That is just foolish. Consumers and businesses are more and more demanding. They look for products and services which are intuitive, well designed, easy to use, accessible, nice to look at. Let’s say you are a salesperson, and you are spending most of your day in a CRM system. Would you be satisfied if the software was poorly designed? I guess you would irritated and stressed out. Remember design is not only how it looks. Take for example Nest - the beautifully designed thermostat. Before Nest, have you ever considered a thermostat to be an elegant and stylish appliance? The same goes for software. I am recently fascinated with two companies going after huge markets with a great design philosophy. I’m referring to Base (CRM) and Tictail (Tumblr for ecommerce). Now going back to the team. Is there a designer on board? How about UX/UI? Will your product welcome customers and make them feel good or will it scare them and get them angry? This is such a core skillset of a modern tech organisation that it cannot be outsourced.
marketing skills: this is the second weakest spot of most early stage startup teams. No clue and skillset in marketing. In most meetings I hear something like this: we will use adwords, content marketing, social media, partners… This is like baby talk. Most startups enter a very competitive market, populated with incumbents or other startups. You might have a great product, but if you suck at communicating with customers, and getting a message about your product to the market you will probably loose. Big corporations have customers, partners, sales networks, market/customer data, relationships. An early stage startup has none of these. If your team knows little about marketing, how will you compete with others? The answer is simple - you will not, you will fail. Yesterday I attended a keynote by Salesmanago CEO - a new contender on the marketing automation market. Greg gave some great points about hype’ing some marketing keywords like - growth hacking. At the end of the day it all comes down to a very carefully planned marketing strategy. You might say the old fashion AIDA (Attention, Interest, Desire, Action) - the rest are just tools you use the achieve your marketing strategy. A strategy combined with sales activities. Online marketing landscape is changing so fast that it is really hard to keep up. With the proliferation of networks, we have more and more opportunities to connect with customers at scale. How much does your marketing team know about all the different ways of engaging customers online? How much do you know about testing techniques, metrics - measuring your actions, optimization, and so on. Do you have a hypothesis of your customer segments, how will you get your first 100 customers. These might seem as obvious questions, but more than often I see founders puzzled when I ask them about these simple things.
sales skills: do you have a dedicated salesperson on your team? Who will be closing all those leads, your marketing will generate. What sort of experience do you have? Believing your product will sell itself is again - foolish. Who on your team will profile potential customer, implement a CRM system, talk to customers? In SaaS the dominant sales channel is direct sales. A recent study (I think by Compass ) showed that most SaaS startups/companies have less than 10 000 customers. When you consider that ARPU from such customers is way below $100 per month, rarely any of these startups generates above $10M of yearly revenue. There are 220M businesses worldwide - that is a lot of of sales calls. Sales people are the ones who drive revenues. If the founding team does not have these skills - how will it execute sales? Faith might not be enough.
These four key areas tech, design, marketing, sales are obvious but yet so poorly addressed by most early stage startups.
How to build a sales framework in an early stage SaaS startup.
Thanks to Dave McClure most of us think about sales as a funnel with multiple steps a customer has to take in order for our startup to generate revenue. We tinker with AAARR so that our numbers are close to what is considered as industry standard. We often use tools like Mixpanel to gather data and later analyze it. You might even say that this knowledge has been already commoditized. If every SaaS startup reads the same blogs, follows the same people - it is hard to achieve a competitive advantage.
At our recent sales meetup we have discussed the idea of creating a framework which can help to establish a sales process in a SaaS Startup. We came up with four basic steps.
STEP 1 - Segment your customers
It all starts with the basic CPS (customer-problem-solution) hypothesis where we only focus on the C - the customer. I wrote a couple of month ago a post on identifying a Minimal Viable Segment. This might be very helpful at this stage. You should really narrow down the first segment of customers you want to target. By limiting the number of your customer segments you will regain focus. This is very important, because at the next step you try to identify customers in that segment.
Instead of saying that you are targeting medium size enterprises, you might say something like this: we are targeting medium size companies with less than 100 employees, who are recruiting at least 5 new employees per month and which spend minimum $1 000 per month to advertise their vacant positions. This segmentation limits the number of customers who will fit this description but it also gives you more details how and where to find these companies.
STEP 2 - Build a prospects database
SaaS startups have it much easier than lets say consumer apps. In B2B SaaS our customers details are already online. There are databases which hold the data for every company in the world. Extracting this data and feeding it into your database will give you a list of potential clients you can target with your sales activities. We have identified multiple sources where you can easily gather customer data:
search engines
social media platforms
auction sites
job listings
industry directories
personal network
conferences
local business associations
odesk like platforms
industry reports
maps
yellowpages like directories
bestvendor like directories
Using these sources you should be able to build a database of your potential customers with their websites, email addresses, telephone numbers, social media profiles. Having all this data will make the work of your sales team much easier.
STEP 3 - Crunch the data
By now we have a large database of customer records. In most cases it contains only the basic company info. The first thing you should do is to further segment the data. Maybe you will first focus only on customers located in your city. Maybe you will focus only on customers active in social media. It is up to you to decide on the segmentation method but you should end up with a small enough number of prospect to be able to work on it.
Because most of the records are basic you can go a step further and try to enrich the data by applying a process called progressive profiling. Maybe you are familiar with Rapportive - a gmail plugin which displays more data about your gmail contacts. If you connect few different sources of data, you can get a very detailed company profile. A simple example - if you are targeting software companies you could use data gathered in Crunchbase, Angel.co, Bestvendor, LinkedIn and Github. Combining these different sources would give you a pretty detailed profile of each company containing their products, some financial data, employees, company structure. Other example - if you are targeting Fortune 500 companies you could also tap into sources like Bloomberg or other financial services.
STEP 4 - Building and testing of sales scenarios
The last step is where the fun part starts. We have decided on our Minimal Viable Segment. We gathered customer data. Now it is time to brainstorm and decided on a couple of hypotheses we will be testing. We have identified a couple of tasks which seem important at this stage:
you have to build a detailed scenario (a step by step flow of how the sales process will be conducted in a particular hypothesis)
you have to decide on your marketing communication (how you will communicate the value proposition to your customers)
you have to choose a channel of communication. We have broken this down to two main categories:
personal communication - you are directly reaching your customers with a personalized message (eg. direct sales, telemarketing)
automated communication - you are communicating to your segment but the message is not personalized (eg. content marketing, social media, adwords)
you have to decide on a metric you will focus on in testing a particular hypothesis
you have to prepare a detailed plan (timeline) and set a goal
you have to choose a team member who will take responsibility for testing a particular hypothesis
This step should get you to a point where you have identified a sales process which matches your Minimal Viable Segment (MVS). Achieving this milestone allows you to scale that process so that you can dominate that particular MVS.
Building this sales framework would be rather difficult without the right tools. We asked each of our portfolio company to tell us what software they use. This is the list we ended up with (some are product categories):
CRM
Mixpanel
Clicktail
Optimizely
Adroll
Mailchimp
Google Analytics
Colibri
Positionly
MOZ
Inspectlet
Zendesk
Chat
Sendgrid
Rapportive
Intercom
Mention
Landingi
Groove
Buffer
Appanie
Zappier
This is a long list. All of these tools give value, but if you are a small team trying to reach product-market fit choosing the right tools and focusing on them is crucial. Some of these tools like Mixpanel are really powerful if applied the right way. Tools you choose should be inline with the sales process you have set up. You should follow a very simple schematic: set a goal, choose a metric, apply a process, test your hypothesis, analyze data and iterate.
Should an early stage SaaS startup use direct sales and telemarketing to do customer development?
One of the ways we support our portfolio companies is to have regular portfolio meetups. We have started last year and by now we have had a few iterations. To date we have talked about such topics as team building, content marketing, growth hacking and at our most recent meetup we went head on with direct sales and telemarketing. During the session a question was raised:
“Should an early stage SaaS startup use direct sales and telemarketing to do customer development?”
Pre product-market fit companies are constantly looking to validate their business model. If they want to survive before they run out of money, they have to find a repeatable and scalable business model. One of the ways a startup can validate its business model is to simply talk to customers. Get out of the building, as Steve Blank often emphasizes.
There are basically two ways a startup can talk to customers a) through interviews b) through sales. The conclusion to which we came during our SaaS meetup is that direct sales and telemarketing might be two very efficient ways of talking to customers.
Here are a few points you might consider:
if you have just launched your product, you should focus on customer feedback
even early on you should try to test the willingness of your customers to pay
instead of relying on automated sales (adwords, social media, email marketing) maybe it is a better idea to approach potential customers directly
this direct approach might convey much more feedback than a bunch of numbers in your sales funnel
talking direct to customers might reveal competitive products, alternative ways of addressing a problem, product flaws, communication difficulties, and much more
if we consider sales as an iterative process, each iteration might make your product better
The popular misconception is that direct sales are not scalable and that a scalable startup should stay away from everything that does not scale. A recent study by Compass shows that direct sales is the most commonly used customer acquisition strategy used by SaaS startups. If you have not yet tried to sell your product directly to your customers maybe it is time you give it a try. Results might surprise you in many ways.
In this post I will focus on Growth. The fourth and final part of the Startup Risk Model. In the previous three posts I tried to explain the risks involved with the product, customers and sales.
If your startup managed to reach the growth risk you have validated three things: you have build the product, you know why your customers use your product - what makes them engage and return, finally you proved you can sell - people are paying for the value you are delivering. Awesome! you reached a milestone hard to achieve by most startups.
If you dream of building a global company, now is when the fun part really starts. The question you have to answer is how to get from hundreds of thousands in revenue to tens or maybe even hundreds of millions in annual revenue.
Very few startups reach the goal of $100M+ annual revenue. So far you proved that you are able to build a small business. It might be big enough to support you and the 10, 20 or 30 employees you might have on board. This is great but still a very long way from the Facebooks and Googles of the high-tech world.
The secret sauce of building a supersonic growth train has many ingredients. Virality, growth hacking, platforms, social media, search these are some of the obvious once you have to master. If we take a deeper look at those $100M+ annual revenue startups each of them has had a different road to success. This is mostly because the ingredients are well known but the way you should mix them together is the secret. There has been a lot written about the growth of Dropbox, but even if you would try to implement all their strategies into the growth of your product, you will probably fail.
Each successful startup has done something else right, which in the end led to hyper growth. And this is why growth is an enormous risk involved with building a startup. You might taim all the available knowledge and you still might fail. What you have to find is your own unique way to put all the pieces together.
CORE COMPETENCE
If you have reached the growth stage your team has probably grown, and you have people in marketing, sales, analytics, customer support, design and of course technology.
Each one of these areas will contribute to the overall growth of your startup. Each area is interconnected. This mesh of connections will form the tissue of your growth organism.
I am bias towards startups where user acquisition teams play the major role. The knowledge behind how people interact on the Internet and how a company catches that interaction will be key to achieving hyper growth. This knowledge should drip down to product, to technology, to customer service.
FUNDING STAGE
Now we are talking big bets and huge rounds. If you raise too little most probably you will scale too slow.
KEY MILESTONE
There is only one milestone at this stage. You have to achieve a very steep growth curve. The famous “hockey stick” is what you are aiming for.
KEY METRIC
At this point there might be few more metrics which are important. I believe that the key metric you should be looking at is the number of users/customers or directly the amount of revenue they generate each month.
So far I discussed two risk areas: product and customer. The third area where you might fail is sales. Sales are the lifeblood of any business. In venture backed startups this lifeblood is temporarily replaced by your investors money. It is great that you can get your startup off the ground with someone backing you financially but you should not rely on this money as the primary revenue stream.
At the sales stage you are already halfway to building a sustainable growing business. You have your product out on the market. People are engaging with your product and returning to use it over and over again.
Now you have to take on the hard part of building a startup - you have to prove that you are able to sell to your customers. Most founders are afraid of this leap forward. If you confront your customers and ask them to pay, in a black and white version of the world two things can happen - they will pay or they will switch to a different product.
The Internet allowed for an evolution of business models. A whole lot of products online you can use for free. Many others are offered in a freemium model. Sometimes it is very hard to compete with these models if you want your customers to just pay for your product.
What needs to happen at this stage is that your customers must see the real value in your product. If your product delivers true value, customer will be “happy” to pay. Depending on your target segment, your customers will be more or less willing to pay.
Unless you get your customers to pay, there is no point in thinking ahead about growth.
What you will be testing now, are different revenue streams, pricing tactics, conversion funnels.
CORE COMPETENCE
There is a great scene with Alec Baldwin, when he lays out the basics of sales - ABC (Always Be Closing) and the ever useful AIDA (Attention Interest Desire Action).
To be able to sell online, your team should have that sales experience. This experience will vary from market to market. If you are building a social product, where your business model is based on advertising, the needed experience will be much different than if you were selling a B2B enterprise software.
No matter what sort of business you are in you will need sales people on your team. Even if your are doing SaaS where everything sells itself you will still need people who will assist your customers in the sales process.
Most startup teams are understaffed when it comes to people with the natural ability to talk to customers and sell. These should be your key hires once you validated that your customers engage and return to your product.
FUNDING STAGE
Now that you started generating revenue, your business model looks less risky. This step forward is a good milestone to look for a little bit more capital to focus on sales.
This time around you should look into early stage VC’s. You still do not require a lot of capital to achieve an important milestone at this stage.
KEY MILESTONE
The key milestone for this stage is to find out if and why your customers pay for your product. You should be able to pinpoint the value which drives your customers to open their wallets and pay. Having this knowledge will allow you to convert more users into paying customers.
KEY METRIC
The simplest metric you could apply at this stage is revenue. The only problem with revenue is that it hides many other metrics like unrepeatable revenue or churn. What you should really be looking at is recurring revenue. The amount should be set at a level where it is a challenge but not something unachievable in a fairly short period of time. It could something like $20k or $30k monthly recurring revenue.
This revenue is a proof that you have achieved product market fit and that you are ready to think about growth.
You have managed to launch the first version of your product. You achieved a significant milestone. Now people can actually get a “look and feel” of your product instead of just you talking about how great it will be.
When I used to launch products, the public launch was the single most scaring experience ever. All those months of hard work. Countless hours spent on talking to the team and customers, implementing their feedback.
Now for the very first time anyone who types your address in the browser window will be able to access and use your product.
Now your goal is to measure and analyze user engagement. We are not talking sales yet. All you want to test at this stage is whether people use your product the way you thought they would be using it and if they are coming back to use it over and over again.
Some mentors say you should focus on sales from day one. In my experience you are not ready to sell until your first users tell you they are ready to buy. This is tricky so let me explain in more detail.
If you are in the SaaS, ecommerce or even social space, you have an instant feedback loop build into your product. People come to your site and do stuff. If they bounce right of, or if they do not use any of your features, or if they do not come back again - you know you have a problem.
Before you move on to selling anything to your customers, you should fix your product so that people engage in it. Only if you have engaged users you will be able to ask them for money in return for the value you are providing.
CORE COMPETENCE
Because your product is off the ground you should shift the focus of your team from development to user experience and analytics. Sometimes teams, do not ever stop to develop new features or iterate on the once already built. As with all Internet products the famous quote “it will never be finished” is very true, once you launch the first version of your product you should focus more on your users than the code itself.
Most of the work you will be doing during this stage will be related to two things: listening to your users and analyzing their usage data.
The key people on your team right now should be user experience designers and data analysts. Your customer support staff will also play a very important role, because they are the closest to your customers from the whole team.
FUNDING STAGE
After you launch the first version of your product you should be looking for some support from accelerators and incubators. They will give you the needed mentoring and capital to focus on your users feedback.
At this stage you still do not need a lot of money. You are not expanding your time nor you are writing big marketing cheques. Your financing should be aligned with your customer development cycle. You will need time to reach that engagement level. Time in startups is valued in money (cashburn). There is no real benchmark as to how long it will take. This is why you should spend as little money as possible and iterate very fast.
KEY MILESTONE
A decent number of engaged and returning users. How many of such users you should have at this stage - it is hard to say as it will vary from startup to startup. The number should be significant and it should be growing.
KEY METRIC
There are a couple of metrics to choose from. The one that is showing the most engagement is returning users. If your users are using your product multiple times a day, you know they are hooked. Depending on the type of the product it could be couple times a week or a month.
