Archive for December, 2013

Creating a top list for 2013

December 30, 2013

In the spirit of sharing I am looking to creating a list of what we thought was the best of 2013 for Movies, Books, Songs etc. Please send me your thoughts so I can compile everyone’s thoughts into this list.

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Great article from the HBR Blog by Rob Go

December 18, 2013

Great Entrepreneurs Pick Great Markets

by Rob Go | 12:00 PM December 16, 2013

 

It’s hard to underestimate the power of an attractive or unattractive market in driving outcomes for companies, including start-ups. As Andy Rachleff, one of the founders of the venture capital firm Benchmark has said “When a great team meets a lousy market, markets win.”

For entrepreneurs, then, the challenge is to find an opportunity in an attractive market.

A few weeks ago, I wrote about the three high-level decisions that guide my thinking as a seed stage venture capitalist. Is the market attractive? Is the founder great? And is there a strong fit between the two? This is overly simplified, but gives a little bit of a window into how I think about investment opportunities early in my evaluation process. On the flip side, entrepreneurs need to think about these questions when crafting their pitch to investors – founders need to explain why their market is attractive, why they and their team are A players, and why they are the right people to tackle the opportunity. In this post I’ll start first with the question of markets.

So, what makes a market attractive? Is it just one that is very big and growing fast?

No. There are some very big markets that are fundamentally unattractive, especially for start-up companies (for example – music). There are also some markets that might be stagnating but present the perfect opportunity for startups to be disruptive (was anyone marveling at the growth of the eyeglass market before Warby Parker?) There is a lot more that goes into what makes a market attractive or not.

Crack open any strategy textbook and you’ll see Michael Porter’s Five Forces, a classic framework for understanding what makes markets attractive. With that in mind, here are a few particular points for start-ups to consider:

Mega Trends: Growth does tend to fuel great opportunities. But more important than the growth of a market are the big trends driving that growth and propelling companies and innovation forward. The key as an entrepreneur is to try to predict what these are before they are blindingly obvious and there are tons and tons of competitors in the space.

Some mega-trends are, well, mega. The platform shift to mobile computing is one of these. So was the shift from local to cloud computing. Companies in such spaces tend to benefit from wind at their back, even if that wind propels lots of companies forward.

Other mega-trends are a bit smaller and likely less publicized. The shift in advertising from direct sales to programmatic buying and selling of inventory is an example that unlocked a lot of opportunity for certain players. Entrepreneurs who spotted this early and locked up dominant positions in different segments of this market have done well. Other companies didn’t connect the dots as well, and have suffered despite early impressive revenue growth.

Concentration: Entrepreneurs should pay particular attention to the degree of market fragmentation vs. market consolidation. One isn’t necessarily better or worse than the other, but it does change the game in terms of how a new firm can compete.

Highly consolidated markets are ones where a small number of firms have significant market share. This makes it tough because these firms have tons of money, brand, and market leverage to compete. Often, this exhibits itself through dominance in distribution. In the college textbook market for example, a few firms utterly dominate. The primary channel through which textbooks are sold is direct to professor, which requires a physical sales force that shows up at professors’ offices and pushes adoption of their product. It’s extraordinarily hard for startups to compete at this same game, and most of the ones that have tried have lost. This is why the prices of textbooks have increased at double the rate of inflation for decades, even as the content in the books has become more and more commoditized. This is also why in 2013, the only major company to exit in this space is Chegg, a rental company that has a direct to student go-to-market. Any start-up in a highly concentrated market needs to have a novel go-to-market strategy initially to build brand and confidence in their product.

Moats: Market structure is often related to the ease or difficulty of competing in a market as a new entrant. And one of the main drivers of this is the existence (or lack thereof) of competitive moats. As Warren Buffet has famously said, in business “I look for economic castles protected by unbreachable moats.”

These moats are conditions in the market of competition that significantly favor incumbents. Network effects are a powerful moat (Ebay). Products with very high switching costs are another form of economic moats (enterprise software). Access to massive amounts of free traffic is another form of economic moat (Tripadvisor). The ability to drive costs down and service levels up to the point that no other competitor can exist economically is another powerful one (Amazon).

How will you create a moat to deter new entrants? Perhaps more urgently, if the incumbents in your market have a moat, what is your strategy to overcome it?

Market Creation: Sometimes, I hear push back on this concept of finding attractive markets because some start-ups are in the business of creating great markets. Twitter is a notable example among many. One could argue that a traditional market sizing analysis or Porter’s Five Forces analysis would have failed in analyzing that company.

I would argue that this is not really true. All companies are competing to fulfill some sort of customer need. Sometimes, the product a company offers is a direct replacement for something else that already exists. In other cases (as in Twitter) it’s a completely different medium. But the “job to be done” is not new. The desire for journalists and companies and celebrities and media to express themselves and build a following was not new. But Twitter has enabled it to a completely different degree, and lowered the bar for these individuals to develop a following.

Evan Williams himself has said this: “We often think…the internet enables you to do new things, but people just want to do the same things they’ve always done.”

One approach to this I really like is to think about the size of a problem, which helps you think more creatively about the ultimate scale of the market. Seed investor Hunter Walk has said this well:

Billion dollar companies often create new markets by tapping into unmet demand. Billion dollar companies can start out looking like toys. It can be about levels of zoom – like on a Google Map. If you thought airbnb was just the size of the hostel market and not the hospitality market, you missed out. If you thought Uber was just the size of the black car market and not the transportation market, you missed out.

To summarize, when assessing the attractiveness of a market, entrepreneurs need to ask what’s changing (mega trends), how market structure (concentration) impacts how a start-up needs to compete, and what the barriers to entry are (and will be) for new entrants (moats). If the market isn’t attractive, the startup is in for a very tough battle, even if everything else is in its favor. If it is attractive, then the question is how equipped the team is to capitalize on the opportunity. That will be the subject of another post.

 

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80-Rob-Go

Rob Go is a co-founder and partner at NextView Ventures, a dedicated seed venture capital fund focused on internet and mobile innovation.

What is new in Small Business Marketing

December 6, 2013

New Borrell SMB Report: ‘The Deer Have the Guns’

0 Comments 05 December 2013 by

borrell logoThere’s a contingent within media circles that attribute flailing revenues to a faulty product. The steep drop, they say, stems from the failure of online media to develop a suitable replacement to the subscription-based revenue streams which have been lost in the move to the web. But a new study from Borrell Associates suggests that the demand from small business advertisers has simply gone elsewhere .

The study, which surveyed 903 small business owners between July and August 2013, asked respondents how they planned to invest their advertising dollars, covering everything from print and yellow pages ads to social media and mobile. Business owners said they expected to spend only 12% of their 2013 digital advertising budgets on banner advertising, sponsorships, and classifieds — the products most commonly used to monetize a media company’s audience.

But here’s where the news gets worse for media. The study found that small businesses expected to spend more than half of their marketing budgets on owned channels, investing heavily in managing their website (35%), running email marketing campaigns (13%), and social media (14)%. To boot — roughly the same percentage of businesses owners said they “kept up on Twitter” (31%) as those that expected to buy a banner ad in 2013 (35%).

What that means is that over half of the relatively small marketing investments made by small businesses go to technology companies that build or manage software, not sell audiences. Take out the money generated by discovery content, which technology companies like Yelp have also taken over, and what’s left is a meager opportunity for media companies to sell brand advertising to cash-strapped small businesses.

“The most depressing thing, if you’re in the media business, is that the small businesses now have all of the retention on themselves,” said Gordon Borrell, the research firm’s chief executive, about the results. “It’s like the deer have the guns — they have their own media at their disposal.”

Another factor that’s compounding the revenue crunch for local digital media is that small businesses aren’t spending less on local newspapers — they’re spending more. While ad spending on national newspapers continues to plummet, small businesses actually planned to spend more on local newspaper advertising in 2013 than a year earlier. That means that a large portion of the prospective budget that would go to “branding” products like display is tied up in other investments.

Local media companies have hustled over the past 18 months to find their place in a fragmented local marketing environment, bundling services like SEM, website building, and promotions largely through partnerships with third-parties. But, an agency model does not monetize content — it monetizes the languishing sales forces of scrambling local media companies.

In an agency model, content becomes an odd appendage, supported in large part by a somewhat synergistic, but not particularly related, marketing services business. It’s unclear what competitive advantage content production provides a Gannett or Gatehouse over a pure-play marketing company with an comparable sales force in an “agency” market.

Meanwhile, the study also indicated that mobile marketing seems poised to have a big year in 2014. It found that small businesses marketing budgets are set to grow substantially (10%) next year as consumer spending picks up and business owners become more confident in the economy. With a slightly larger budget, small business owners are more likely to experiment with less proven tactics like mobile.

Looking to add to your bottom line next year? Look to your sales team

December 4, 2013

But not in the way that you are thinking about, ie just telling them to close more leads and to sell more, or better yet to work smarter.

When it comes to establishing high performance sales people and sales teams there are a number of things to make you think, but here are some numbers to open you mind:

  1. 48% of sales people never follow-up with a prospect (a.k.a. potential customer)
  2. 20% of sales people make a second contact call and stop
  3. 12% of sales people only make three contacts and stop
  4. 10% of sales people make more than three contacts
  5. 20% of your sales people delivery 80% of your sales results
  6. 55% of sales people should be doing something else
  7. 50% of the sales managers are too busy to train and develop their sales teams
  8. 5% Reduction in customer defection rate can increase profits from 25% to 80%
  9. Retaining customers is 7 to 10 times cheaper than acquiring new customers
  10. Average company loses 10% to 30% of its customers each year

So if you want to grow you bottom line, work with your sales team and help them be better to make you better.

What are you going to do differnet?

December 3, 2013

What are you going to do different to achieve the results that you want? If you are not where you want to be what are you going to do to be different next year, next month, next week? We can not be the same person that we are and expect different results. No here is the rub, doing stuff different is hard work. Starting is hard, sticking with it is hard, follow up and delivery is hard.

So the first step is to decide what you want? So that is what we are going to do. What do you want for yourself, your business, your life, your family. What will give you the juice to do the hard stuff and to push through.

What do you truly want….