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So as Adele said, I've been -‐-‐ I really stumbled into startups. No one told me they were an option. I was in university to learn how to program. They were like, "You can be this kind of engineer or that kind of engineer, or this kind of programmer," and then accidentally, I stumbled into it and I just couldn't wrap my head around it. I was like, "These guys just give you money and you don't have to pay them back. That's crazy." And it turned out it was true, and so on a whim, I pitched what was my master's research to some investors in the Valley -‐-‐ real early-‐stage guys. I got together a bunch of my buddies who were great at product, good designers. We went in there, and the investors said, "That's a terrible idea. It will never work, but we really like your team, so if you come up with an idea that isn't terrible, we'll fund that." That's like a great deal, so we did, and we -‐-‐ I dropped out of grad school, everyone else quit their jobs, dumped their girlfriends, etc., and we moved out to San Francisco to do the startup thing. We ran it out there for a couple of years, we raised a bit more angel money, and then what we thought was a fun toy for teenagers to be creative -‐-‐ actually, the teenagers didn't care, but the big creative and advertising companies were quite interested in the technology that was underneath it, so we started getting calls from Sony and Disney and MTV and they wanted to license it. We said yes. We knew nothing about it and we needed help at that point, so we raised more money and we moved over to London, because this is where the advertising world is and we needed to be close to our customers to understand them to wrap out heads around this very new industry. Two years later, the company went under. Everyone was very sad. We just couldn't scale the sales process. It was a nightmare. We were in the middle of closing a round when 2008 happened -‐-‐ our company's value dropped in half overnight. The investors ended up being amazing, and they were like, "This was a terrible deal for us now. We never would have gone into it knowing what we know now, but we've never gone back on a handshake, so let's just get this done before the economy gets worse." So we went for it, and then in the three years since then, I've had a number of other little projects. I've worked with a bunch of the early-‐stage investors, the universities, seen a lot of different ways of getting started both with money and without money, and so I hope to share some of that. London is actually an amazing city to get started in right now. Everyone's got envy for the Valley, but I'm here by choice. I think it's got everything that you need to start a great company, not least of which is a ton of customers. Everyone kind of overlooks that in the Valley. All you've got out there is a bunch of startups, and they have no money.
So you get an idea from somewhere. The idea can come from a lot of different places. There can be a problem, and you can be like, "I want to solve this problem," or you just get struck by sudden inspiration -‐-‐ the idea leaps fully formed into your head. Or you're a bit more rigorous, and you're like, "This is a big money opportunity. Someone's got to do this." And then lately, there's been sort of the geographic arbitrage where you seen an idea that works well in one location but hasn't yet been done in another, and you make that happen. So wherever it comes from, there's some kind of idea. There's something you want to do, and you want to get there, but there are all these problems -‐-‐ there's this gap you have to overcome in order to get where you want to be, and most of us don't have the resources in our own immediate circle and in our own wallet to get us all the way there. We just don't have that much firepower. So what we need to do is we need to figure out what the stepping stones are so that we can set shorter goals and get there successfully. If you're -‐-‐ you know, (Meyer?) is not in a good place here, right? He's probably not going to make it. and even if he sets an intermediate goal, which is, "Oh, I'll just get VC money and that will carry me the rest of the way," that's still a big initial jump, and that's almost as hard as just going all the way there. But there are a bunch of other intermediate steps we can take to kind of bridge it, and London has all of them, actually, which is really convenient. The reason we need these, the reason this jump exists -‐-‐ if you want to leave here and you want to not be in whatever job you're in, the easiest way is not to create a startup. The easiest way is to become a freelancer, like self-‐employed. Whatever skills you have, you go out and you sell them. You can be profitable tomorrow. It's 97 percent or 94 percent. I think 94 percent of the companies which are started in the U.K. never have a second person working in them. It's one person, and that's because those businesses work. Nothing's easy, right? It's not easy to make money on your own, but it's fairly predictable. You know what goes into it. You can figure out how to describe yourself, you know people from your previous life, you can go in and sell to them, you understand what they need. So that's the easiest way. That's sort of like this trajectory, but it flattens out. The agency scale is a little bit better. You can take it further, but it still flattens out. But you get money in the door immediately, which is really nice in both cases. What the tech companies do, and what makes them so difficult but also so appealing, is that there's a big upfront dip where you're just losing money like crazy. If you're trying to build something which has scale -‐-‐ you have to invest a lot in technology or infrastructure or setting up a new business model -‐-‐ there are a ton of unknowns, and this dip is scary.
It's hard, and I've known a lot of guys who -‐-‐ they've had, say, a finance job and they've saved up or got their bonus or whatever, so they had three or six months of runway and were pretty comfortable -‐-‐ sometimes even more, and then they go and somewhere in here, they're looking at their bank account and they get really nervous, and they go back. So ways of dealing with this is important. And it's not just about being brave, because this is actually a completely unknown period of time -‐-‐ and it's not just unknown, it's unknowable. It might be four years. It's not like you can suck it up for three months -‐-‐ it could be a huge, huge period, and that's why we have all these support structures in place and that's why they're so important in the tech startup world. But if you knew it was going to be 12 months, then you can sort of make it happen, but if you have no idea and you're 12 months in and you don't know if it's getting better or worse after this, it's a very different situation. The middle ground here, which is somewhere between agency and scalable startup -‐-‐ it's still scalable, but it's not VC scalable -‐-‐ is selling to businesses with subscription software. This is one of the few that are semi-‐reliable to boot strap because you can go to someone who's business and you can say, "What are your problems? I will solve them. It's going to cost this much a month," and you can get pretty good feedback, and it's a relatively understandable business model, and it's a relatively predictable software problem. You can do that. I've heard from a couple of people who know this industry really well that they're basically like if you nail it and you do a good job, you'll make about 200,000 in the second year -‐-‐ if you nail it. And that's completely uninteresting to VCs, but that's a great business, and if you can keep your costs low enough and you can get someone on your core team who's great software or great with design, it's a very desirable type of business. It's super-‐steady, you can predict your revenues a long way out, you can build relatively simple products, and it some ways, that's focusing on minimizing this dip. It's not a full hockey stick, but it's good. It scales well. But today, I'm going to focus more on the big ones -‐-‐ not because they're better in some sort of moral sense, but just because they're way more complicated, so that gives us more to sink our teeth into for the sake of a discussion. So what we're going to need is a lot of time and money -‐ -‐ A LOT -‐-‐ and the place we get a lot of time and money is VCs, right? They exist, they write huge checks, they're relatively friendly, they dress well -‐-‐ they're great. London's really good for VCs. If you look at the list of top global VCs, we've got a lot of them, and the numbers are actually not terrible. You would assume, compared to the Silicon Valley, the London gets absolutely clobbered on every metric, but that's not the case. We're worse, definitely, but we're not slaughtered. We do about a quarter as many VC funding rounds in London as happen in the Valley on a year-‐by-‐year basis.
This was 2011. A quarter is not bad. When people think about the Valley, they think there's an infinite number of rounds going on and London has none. That's really not the case. Where the Valley does have an edge is -‐-‐ based on the number of rounds going, the valuations are twice as high, and investors in London will echo this. Seeedcamp is an early-‐stage investor, and when they started, they were very much like it's about the European ecosystem -‐-‐ it's for European companies. But now they've started bringing their companies over for the first few months to the U.S. for follow-‐on investment, and they didn't want to do this, but the reality is that as soon as they bring companies to San Francisco, they're worth two to three times as much. That's sort of a reality of the market, but also the outcomes in this type of startup are largely binary. You make it and you've made it, or you don't and you haven't. You can definitely get more for your equity in the Valley, but by no means does that mean you can't do it here. So London's pretty good. The VCs here are amazing. This was just a list off the top of my head. I'm sure I forgot someone and they'll yell at me. But Index (Ventures), Accel, Atlas (Venture) -‐-‐ all these guys are absolutely top tier globally. If you have a company that's a good fit for VC, you're going to be able to work with the best in the world. You're not playing catch up. And then, more and more, we're seeing investors from New York and the rest of the E.U. come over. The investors from the Valley don't come over that much. It's a long trip, and they've got a lot of companies to deal with already. But almost everywhere else is starting to move around, so it's like the Valley and the rest of the world. That means it's actually a much bigger funding ecosystem than we would initially imagine. What they want to invest in is maybe not when we need the money. We need it now when we're starting out, but only five percent of the investments they make go into a company when it's just starting up, and I can almost guarantee that 100 percent of this five percent goes to people they've worked with in the past or who have a remarkable track record. Twenty-‐five percent while they're building the product, the lion's share, you're making money, so you've got some sort of business model. You're trying to figure it out. There's a product and you can sell the thing, but you're losing money. This is where the VCs like to come in. Then the final 10 percent come in once you're already profitable, and these are kind of weird situations, but you can kind of turbo boost the whole model. In different regions, this graph looks totally different. This is what it looks like in London. In China, this is like 90 percent -‐-‐ coming in and doing huge amounts of growth capital after you're already profitable. But in London, this is us, and it basically looks the same in the Valley. But then what do VCs want to see? The three big ones -‐-‐ well, I guess the two big ones -‐-‐ is some sort of traction going on, like the charts are up and to the right in the important
dimensions? And there's some sort of business model. And then the last thing is we need to know them. It's really, really hard to break into the VC communities without some kind of in. Sequoia released the numbers -‐-‐ they said that 90 percent of the pitches they get come through their web site. So people are saying, "Oh, Sequoia, they're amazing. They submit online, there's a nice little thing. We like this and this and this." So 90 percent of what they get comes in through that channel. But only 10 percent of the investments they make are from that pile. So 90 percent of the investments they make are the 10 percent which come in through personal introductions. So it's wildly unlikely that you're going to submit without getting a personal introduction and be in there. A lot of the VCs will come to events, and you can definitely meet them and you can get their card and shake their hand, but you're not really in the community yet, so that's a real obstacle. And the others are traction and a business model -‐-‐ we'd sort of expect those. So time and interest -‐-‐ here, I said we need traction and a business model, but really, for us, that turns into time. You're probably looking at between one and three years to kind of figure this stuff out. Some companies nail it a lot faster, but to get most of the pieces in place, it takes a while. Three years might be on the high side. But that means you need some amount of money that gives you the leeway, the freedom, to try a bunch of stuff -‐-‐ to experiment, to figure it out over the year, and that's where angels come in. London is less good for angels. It's very good for VCs. For angels, it's much more so-‐so. However, we have a few other options which are picking up, which maybe will even things out. The biggest one is SEIS. This is a quote from one of the venture reports about the last year or so, and it was saying a bunch of countries are giving tax incentives to try to get money and break it out of wherever it's locked up currently -‐-‐ gave up an extra car, an extra house, an extra boat, but that's not doing them any good. I guess one boat is an extra boat. What the U.K. has done is throughout the whole world, it's remarkably generous in what it gives, and the expectation is they would unleash a huge wave of angel capital from first-‐time investors, and this thing is called SEIS -‐-‐ the Seed Enterprise Investment Scheme -‐-‐ and essentially, for a high-‐net worth individual -‐-‐ there are some caveats. I'll go with the simple version. Basically, they can invest up to a hundred grand in the startup, but only risk 20 grand. They get a hundred grand worth of upside, but they only risk 20 grand, which is a good deal. It's hard to lose money like that. You still can, but that's great. It's not really open to funds. It's open to individuals. Startups can only raise up to 150 grand this way, so it's really meant to be for your first round. It's meant to get you going and get through that first year of ambiguous "what are we doing? What's the future going to look like?" trying to get the pieces in place so you can raise from professional investors.
But the reality of this is it hasn't really moved the world yet. What we're seeing is guys who are already tech investors now benefitting from SEIS because they think it's a bonus -‐-‐ "I get some of my money back." But what the hope was and what everyone expected was that everyone in the finance world would be taking their bonuses and dumping them into startups, and everyone would move their vacation home and dump it into startups. I think part of the reason this hasn't happened is because as startups, we don't speak the language of the high-‐net worth individual, and we don't know them. It's hard for me to go to a stranger and ask them for a hundred grand if that's not what they do. It's a weird interaction. So I think what it needs is -‐-‐ there's a certain type of person who understands both worlds, and if you do, and if you have peers in that group, you can call (cull?) together the rounds however you want. You can get 10 grand from 15 people to make your 150, you can raise more than that and distribute part of the bonus to each of them. It's really cool, but it's something that's much more available to people coming out of the professional world than it is to normal tech startups. This is also a cool way -‐-‐ you are allowed to create groups of these individuals, so if you wanted to try your hand at investing, you can create a collective and then as a group, invest in startups while getting the SEIS bonus. I know a couple of guys who are taking advantage of this, but again, it's relatively minor because there are few people who straddle both worlds and can get both the high-‐net worth individuals and also access to startups. Very cool. But it's possible. You can actually hustle together a round for 150, which was very hard to do before, and it's very hard to do elsewhere in the world as well. Tech angels are the best case. When I say tech angels, I mean specifically tech. Because there are guys who call themselves angels, but they're actually closer to what you would see on Dragons' Den than what a startup would really need. The reason is that they come from investing in physical products, so they're used to investing in restaurants, they're used to investing in a new piece of gym equipment or something. It's like they're relatively known business models and they sort of understand the cost and the startup costs and how much money it's going to make and on what time scales, they know the partners, all of that. And also, the upside is limited for businesses like that, so when they come to tech startups, they expect a lot more up front information and also much lower valuations, whereas the companies expect to have to give much less detail in the beginning and much higher valuation because it could scale infinitely. There's like a real disconnect here. But the tech angels -‐-‐ Index, Seed and Passion Capital are definitely the best and the most active in London. Index just put 350 million into a seed fund, and Passion Capital is great. Stefan, one of the founders of Last.fm, Eileen -‐-‐ and a bonus to this one is that any company they invest in-‐-‐ they just have this beautiful space called Whiteberry Art -‐-‐ come, hang out in startup paradise!
That's kind of nice. Number One Seed is new, but they've just been super-‐active. I've been really impressed, because they're sort of like the drinking club. Angel investors, they're like it's fun, and they want to see startups and tell them no, but they very rarely make investments. And then there are a bunch of individuals. The individuals I'm not going to go through, but there are three big lists online which just rattle off all the names of the individuals. Sometimes people you didn't really expect will actually want to be tech investors, or they're relatively active, and you can often find ways once you know who's in it. And the last one's crowd funding. It's taking over. There are so many that are popping up, and what I think is confusing about crowd funding right now is they're very specific, so if you're doing an indie art project, there's an indie art project crowd funding site, and if you're doing -‐-‐ it's very niche down, and Kickstarter clobbers everything, but with Kickstarter, you need a U.S. bank account, and you can't fund companies through it. You can only fund products. In the U.K., Crowdcube and Cedars -‐-‐ I feel like I'm missing one or two big ones on that list. Are there any other big company crowd funding guys in the U.K.? (someone answers, but is inaudible). These are cool. They've got slightly different models, but essentially, I don't know how well it works if you don't have your own promotional network. The guys who do really well on Kickstarter tend to already be kind of famous, and then Kickstarter is a nice way to get them a stamp of credibility and multiply their reach a little bit. In some ways, I feel like the crowd funding companies are similar. If you have a bit of your own community, it's a great way to make it happen, but I'm sure there are going to be tons of counter-‐examples to prove I'm wildly wrong if there haven't already been. The U.K. also has a few grants. The Technology Strategy Board (the TSB) -‐-‐ they used to only fund hard technology research, so if you were building like real science, whereas now, they're willing to go a much lighter weight. And the grants range from 25 to 250 grand, and there are some other conditions around them. If that's something that's relevant to you, there's a company called GrantTree. It's run by Daniel and Paulina. They really, really get startups. They're wonderful, and they basically just make this process as painless as it can be. Grants are nice, because you give up nothing. You often have to write a report at the end saying what you did with the money, and often they won't give you the money up front, so you need to find some other way to deal with your (person coughed), like often they'll reimburse, but it's still a great deal. There are a few of them, and there are also a few competitions, and none of them is really going to grow the business, but if you need a grant to get the first version of your site up -‐-‐ there are enough competitions that you can write one little document, submit it to all of them and maybe hustle that together.
Capital Enterprise is my go-‐to place for anything that's money-‐ish. They're, I think, largely hooked into the university scene here, actually, but a lot of the bank and grant and support money -‐-‐ all of these programs -‐-‐ flows through Capital Enterprise. They're really friendly, they're super-‐accessible, they're based just off UCL's campus in central London, and they really understand the latest on this scene much better than almost anyone else in the city. Don't pay to pitch just categorically. If it's like 50 quid because someone wants you to buy them a round, fine, but some of the angel groups will charge you like 1,500 quid, and really, if an investor is worth their salt, they should be making money when you sell the company. If they have to pay you come in the door, that means they're not making money when you exit, so the pay to pitch guys -‐-‐ it's like they're holding up a big sign that's like, "We are bad investors." So don't give them your money. You have better things to do with it. There are a couple of those groups, and they'll sometimes come and actively sell to you, and it's hard because they're selling a dream and they justify it as admin costs and stuff. But really, there are great investors. The guys who really get tech won't ever ask you to pay to pitch. They might ignore your calls, but that's a totally different problem. So Bangers and Mash -‐-‐ silly name, but awesome list of angels. It's got a ton of other resources on it. If you search for Bangers and Mash, understandably, you will end up with a bunch of restaurants, but if you search "Bangers and Mash startup London," you'll get to the right place. That's run by a local entrepreneur. He was a VC, he's now an entrepreneur. He runs a site called CityMapper -‐-‐ really good guy named Azmat, and he's done a great job of keeping it pretty comprehensive. Seedsummit is like a European angel list. This was created by the guys who started Seedcamp, which is one of the best early-‐stage investors around here. Since it's the European angel list, that implies that there's AngelList where you can just select "London" and then AngelList is like the European angel list. This is also great. AngelList is something I was so skeptical of. Raising money is meant to be messy and awkward, right? It's kind of like you're judging someone -‐-‐ you're like, "Do we want to work together?" I thought that inefficiency was part of it, and I was like, "An online network where you just raise money? That will never work." I've been proven just so unbelievably wrong. It seems like it's an absolute powerhouse. I know guys who treat AngelList almost like their replacement for Facebook or LinkedIn or a blog, and all the news from their company, even when they're not raising money, from the earliest phase they get going on AngelList so by the time they are ready to raise money a bit later, there are already a bunch of people that know what's going on with the company and are familiar and they've been bouncing messages back and forth when they know each other a little bit, so I think that's prudent on both AngelList and Seedsummit. Bangers and Mash is much more of a directory. It doesn't have that additional layer on it.
Those are our angels. You've got the actual tech angels, you've got high-‐net worth individuals -‐-‐ especially through SEIS -‐-‐ you've got crowd funding, you've got government grants and there are the random floating individuals you can track down and stalk through AngelList and the like. But this is where London is worst. There's a big gap in this space, and there are companies that don't have to deal with it who are able to just leap through or they can raise these weird rounds, but typically, if you (??) people who oversee a lot of what's going on in the market, you can get your 150 grand, you can maybe get your 250 grand, but between there and two million, there's a really awkward hole, and there are just very few investors who are actually making investments of that size in London, and so if you go through that list and it's like no, no, no -‐-‐ you're kind of in a tight spot. You can take that a couple of ways. "Okay, we can raise from somewhere else," or you can look for businesses and structure your business in a way that whatever money you raise up front is going to last you for a long time. You raise that first quarter million and you want to go spend it, but you shouldn't, because there's not more afterward until you can increase your valuation by eight times. So you need to hold on to that money to let you get much further than you would with an equivalent amount of money in the Valley, because in the Valley, you can -‐-‐ I guess the steps are less tall. I don't know if that's coming across. Here, you're going to have fewer rounds and they're going to be spaced out more, so you need to make that first bit of money go considerably further. What angels usually want to see -‐-‐ you definitely need a product. It needs to be a product that works -‐-‐ people can use it. It doesn't need to be perfect, it doesn't need to have a coherent business model, it doesn't need to be (??) like crazy, but someone needs to have fallen in love with some part of it. Whether it's a tool for restaurants and there's a dozen restaurant owners who can't live without this and want to know how soon it can be done, or whether it's a small group of a hundred crazy users who are on your site every single day -‐-‐ like when Facebook raised that first bit of money on amazing terms, they didn't have a load of users, but the users they had -‐-‐ 90 percent of the users logged in every day. That's the love. You've got some sort of core ingredient that investors can hang their hat on, so it's our responsibility before we can go to the angel investors -‐-‐ we kind of need to find that. We need to find where the love is and that killer bit. Once you've got the angel money and you've got that core, you're trying to structure the other pieces of the business model. It's fine if you're still losing money, but the pieces are coming together and then the puzzle's mostly there, and then the VC comes in. So the way we find the love and get through the first version is accelerators. That's meant to be a car. I really struggled on this. I had a hard time finding an iconic representation of accelerators. I thought about running shoes (someone chimes in) -‐-‐ I should have just drawn a person.
Anyway, the accelerators are really cool, and again, London is a place which is amazing for accelerators. Do you guys know what the accelerator model is? An accelerator is what I first went through when I started startups. We went through one called Y Combinator, but now there are hundreds of them globally. Essentially, they usually have programs of about three months, but some of them vary. Seedcamp has a whacky, staggered, two days, two days, two weeks model that bounces around in different countries. HackFwd is a more relaxed year, but say on average a typical one is going to be about three months, and they'll give you a ton of support, a ton of mentoring, they usually deal with all your legal, your accounting -‐-‐ they'll just make sure that everything is set up so that you can obsess about your business and not all of the stuff that wastes your time around the edges. Usually, you'll go through it in a class, so they'll be somewhere between 10 and 30 other companies that are all going through it on largely the same time scale as you, and you'll mostly be at about the same stage in your company, so there's a really cool energy and a positive peer pressure, and then at the end, the big thing they do is they'll give you a really strong PR pedestal, bring all the investors who are worthwhile into a room and just all at once break you into that community. It's by far the most efficient way to break into the investors' world. You can go to every meetup in the world, you can meet the same guys over and over, but you're never going to break into their world. But the accelerators are so good at it. How far they'll move your product and your business -‐-‐ you're moving your product and your business. They'll create a fun environment and give you somewhere to sit sometimes, but you're doing that work. Or they can really, really provide that stamp of credibility, and then anyone you call will pick up the phone. That's hugely valuable. The money they give is not significant. The money they give is going to be somwhere between 15 and 50 grand usually, so it's about enough to survive mostly for three months -‐-‐ sometimes six months, depending on how badly you treat yourselves. But it's great, and the valuations are low. If you run the numbers, you'll be like, "They value my company at a quarter million. That's ridiculous." But they're putting in such a small amount of money that they end up with a tiny stake, so I don't think it's a big deal. The main London ones -‐-‐ Springboard, which is probably the most open to companies without product. Springboard actually does fund companies with ideas and a good team. They're, I think, 15 grand for six percent. HackFwd is kind of a strange model. One restriction they have is everyone on the team has to be able to program. That's their investment thesis. They want to invest in technical teams, but they give more money -‐-‐ between 100 and 200,000, which is unusual. They are in Berlin and Mallorca and stuff, which is fun.
Bethnal Green just opened up, so I don't really know if they're good or not, but it seems like a good model. There are good people behind it. They like social enterprises. Seedcamp is 50 grand for, I believe, 10 percent. I wouldn't swear on that. It might be eight percent. Seedcamp is more of a competition. Seedcamp does less to catch you and grow you, but they will get you right before you're ready to raise a bunch of money, and they're all the credibility and PR platform you need, so they've really focused down on that, and the whole thing happens in about a week. You're in, you're funded -‐-‐ you've got a serious A. Your valuation goes up by like 10 times in five days. Springboard Mobile just opened. These guys behind Springboard actually run five different programs which are in different locations and different industries. Emerge Venture Lab is another one for social enterprises. These are all in London. If you're willing to go outside of London, you've got a countless selection to choose from, and they're incredibly specific. There's one in the U.S. which all they do is startups that want to sell technology to elementary schools. It is hard to sell technology to elementary schools, but they clearly need technology. The whole value of the accelerator is they built all the relationships with the elementary schools, and they found 12 crazy ones who are willing to try any piece of technology that their companies built. So they're like, "If you go through our accelerator, we will get you 12 customers." It solves this chicken-‐egg problem of, "Yeah, I'll try it once you have the first customer," and you just want to wring people's necks. So yes, these guys are great. I actually think if you're new to the startup world, even if you can skip the accelerators, I don't think it's a good idea because you can get the money without getting rooted into the community. You might raise that first 150 from high-‐net worth individuals that you happen to know, but what do you do next? It's very hard. You're sort of on your own, and now your valuation's high enough and it's hard to go back to an accelerator and it's a little rough. So I really think the accelerators are the perfect starting gate, and it's also nice that there are a lot of them, and it's relatively meritocratic, and they do a lot of investments. A typical VC -‐-‐ like a VC at Accel or Index -‐-‐ each partner will make four deals a year. It's like one deal every three months, and they talk to hundreds of companies in those three months. The odds are stacked against you, whereas the accelerators -‐-‐ the investment decision, when we went through it, was based on an online forum that I wrote over two hours and a 10 minute conversation. And that's nice. That's very respectful of your time as a founder, and almost all of them are this sort of deal whereas with VCs, I know some guys now who have spent three months talking to people and it's still dragging on and their company's just dragged to a halt. So I love the accelerators.
The other way you can flip it is if you can't get into the accelerator, it's a great time to abandon ship, because no one believes in your idea more than you, which is really dangerous. It means you're going to pour everything you can into it until you get really hurt, so having a couple of clear gates where you're either going to get through that, or you're out, or you're going to keep costs low and keep trying to improve until you can get through this gate -‐-‐ I think that's going to be helpful. And leave some money in your bank so you can start up the next one after the first one doesn't work. That's one of the big things I learned. My first company failed so hard. We put everything we could into it for four years, and when it failed, it took two years to pull ourselves out of that hole. When you can detect earlier that something's not going to work and you decide to step off the cliff, it's much easier. Then, you don't have that down time because you don't have to climb out of the crater. It's much easier to stay as an entrepreneur. Accelerators -‐-‐ they're awesome. The requirements for them? We're really getting down to the baseline requirements for them now. You need a team, you usually have to have built something, but it doesn't even need to be live. They just want to know that someone on your team can build something, and you need to be able to articulate it reasonably well. Articulating it is the easy and fun bit -‐-‐ everyone loves talking about their idea. The language that most investors -‐-‐ and especially the accelerators -‐-‐ are using now is a combination of Business Model Campus and Lean Startup. This is the Business Model Campus. You can take everything that's in a business plan and mash it down into these nine boxes, so instead of being like, "Here's my idea. It will take you five hours to read," you can be like, "Here's my idea. I wrote it on an index card for you." You can have a very structured conversation. You've got your value proposition, which reaches a customer through a channel. Once you've sold to them the first time, you've got some sort of ongoing relationship with them for upsales, for resales, for retention, and then all of that is how you make money. This is your revenue structure. The right side is about delivering the product and and making money. Over on the left side is about losing money to build a product. You've got the things you do -‐-‐ your activities -‐-‐ and the resources you have access to which you can kind of mash together. This might be technology you built, it might be deep customer insight -‐-‐ whatever you have that other people would have to recreate if they wanted to compete with you. Anything you're not doing and you don't have access to yourself you need to get from a partner, and all that costs you money. The left side is your costs to create the value proposition and the right side is your revenue to sell and deliver it. XX is a great book, and The Lean Startup doesn't cover idea creation at all, but it's a very structured way for taking an idea and finding out if it's going to work or not. There's never a right answer when you talk to investors, but there are lots of wrong answers, and not knowing some of the language of Lean Startup -‐-‐ you've lost before you've started, which is annoying. Conveniently, it's all in one book.
It's not that heavy-‐handed. One of my pitches for one of my first products -‐-‐ we're going to let teens on social networks make personalized cartoons and they're all going to share it with each other and maybe we'll make money, hopefully, through that. Then backing up that, hopefully at some point, you get to numbers. But you can get pretty far off of qualitative feedback -‐-‐ talking to people, getting them committed to run trials, to buy an early version, they sign a letter of intent, they join your board of advisors -‐-‐ there are a lot of ways you can get signal which is real without actually having to have a web site and set up metrics. But the goal is to get the metrics. That's what really proves it. (Connect?) is slightly trickier. No one's going to give you money -‐-‐ Man: How much money would an accelerator give? Rob: They're between 15 and 50. The typical founder in London -‐-‐ founders who have raised a seed round, usually around 200 grand, they'll on average pay themselves 32,000. Some are lower, some are higher, and broadly, you can ballpark your company's burn rate at about five grand per month per employee, assuming you've got relatively young people who have equity and they're excited about building a company and getting the upside. So 15 grand you can burn through immediately. When we were going through Y Combinator, none of us took salaries at that point, but the company paid our rent and bought us food and would occasionally buy us a movie ticket, so we got through it. But we were also stupid. We wanted to play things by the book, so the first day we got our check, we spent more than half of it buying copies of software which we had pirated previously. In retrospect, that was a bad use of money. But with the first version of the product, there's not enough money that anyone will give you at this point, so you're putting in your sweat equity. You get people who are excited and they dig in. You make it happen. Let me actually avoid what the slides are telling me and talk about -‐-‐ the tempting way to get a product built, especially if you come from a well-‐paying job, is to hire an agency, or freelancers, or consultants, or whatever because it feels like if you built the product, then good things will happen. It's very desirable. The product is there and it's looming. It's like this one obstacle that's just in your face. "Ah, the product. I don't have a developer, I don't have a technical person. How do I get the product?" So you say it will only cost however much and you'll just pay someone and it will be done and then I'll have it. The problem is that doesn't actually get you through the next gate, because without the tech team, you can't get into the accelerators. Without the tech team, you can't raise the angel money. It's like paying the agencies to build it, and again, there will be counter-‐examples, and I know some people that made it happen, but in general, paying the agency commits you to funding the entire business because at some point, you need the tech team and unless you're able to pull salaries for them, it's just a really tough spot to be in.
It's like you kind of skipped a space. You’ve skipped the starting spot, but you needed the starting spot. At some point, you need the tech team, and it makes more sense to get them earlier before you start spending all your money. And finding them is awful. Finding any good co-‐founder is awful. There's no clean solution. This is literally the hardest part. The most precious resource that startups have is good people to work with and join your founding team. It's just so hard. This is the huge advantage that university students have because they're surrounded by smart people who don't spend very much money. You can get a few of them together. It's relatively cheap to get things started and you have access to a big pool of them. And you see them work, so you know how smart they are (more or less). Companies can be like this as well, but it's hard. The upside of it is since there's no right way to do it, there's also no real wrong way to do it. And you only need one. You need one guy or girl. I'm assuming that most of you are non-‐ technical, but the same is true in other cases, like I can't start companies without an amazing designer because I'm abysmal at design, and stuff that lives on the web needs good design. I'm in the same tight spot, and since I'm not a designer, I don't hang out in design circles, so that makes it very tough to find them. But you just need one, so you just get them however you can. Coworking spaces are awesome. An amazing company just popped up at Google Campus. They were just two people that were working across the table. They were working on two different ideas. They started chatting, and then they both were like, "We hate our idea. Let's work together on a new idea." And now, they're killing it. I've never seen a company so successful at three weeks. It's unbelievable. They happened to be in the same cafe and they were both working and they were talking and they were like, "Oh, that's a smart person." Now, they're a company. Another guy I know -‐-‐ it was two business guys, and they really wanted to start up, and they wanted to build a tech company. They were so excited about the idea, but they also didn't want to quit their jobs yet, because they knew as soon as they did that, the clock starts ticking. So they took all their vacation time. They took as much time off as they could, and it took them nine months. But they found two amazing tech guys and then they were ready and hit the ground running and went full steam on it. Another one I've seen -‐-‐ I know one guy who found his co-‐founder through Gumtree, but I don't think that's necessarily repeatable. They just sold their company, too, so now they're millionaires who met through Gumtree. But I love the coworking spaces. Any time you have a chance to see how people work it's going to be great.
Founders Fit is a local organization, and all they do is try to facilitate these connections. It's run by a woman named Itxaso who teaches entrepreneurship at UCL. They run really regular meetups and just try to get a bunch of smart people coordinated, so I'd recommend that if you need something. You only need one of something. You can just ignore best practices. If you hear someone on the phone and they say, "Yeah, I've been hearing about startups," just jump them. "Hello, me too." Are there any questions at this point? We covered a lot of ground -‐-‐ funding, people, VCs, angels, accelerators, doing the hard work yourself. No? Another cool thing about London is there's a ton of support coming from corporations, government, banks, investors -‐-‐ it's all over the place. Everything you need, except for time -‐-‐ your time and the rest of your team's time -‐-‐ you can get for free to a really high level. We need space, we need people, we need help navigating the terrain and sometimes, you just need straight up book learning. If I enter a new industry, the first thing I do is buy a bunch of books and read them. But once you know the basics of the industry, the books become worthless, because then you're just entertaining yourself. But sometimes, you just need access to a skill and you don't want to pay an expert for it. You need to know you're not all alone. It's hard. It's hard sometimes. Everyone you see is going to be telling you how great things are going. "Hey, how's it going?" "Great! We just closed another round. Good things are happening. We just hired our umpteenth employee." No one ever goes, "It's really hard. It's hard. I'm scared." And when you don't hear anyone else say that and you feel that way, it's very demoralizing and lonely, so being around other people who can honestly talk about how hard it is I think is crucial. Startups are made out of people. If the people get bummed out, you stop being able to work very hard and then the startup stops. Then the last thing is you need people who will call B.S. on you. We all do stupid things with our own ideas. I love my ideas so much. I'm so bad about my ideas and so good about other people's ideas, and this is true for anyone. I can immediately see the idiocy in what other people are doing, but it's very hard to reflect that back on yourself, so you need a couple of people. They don't need to be experts. They just need to be honest. You can get a lot of these from shared spaces. My favorite is Google Campus. Central Working, Innovation Warehouse, The Trampery are great. Obviously, you can go get free space at a cafe, but why I like these places for free space is that they tend to have a high density of people working on tech startups or new businesses. Not all tech -‐-‐ there's one guy who's a regular on Campus I keep bumping into whose job is salvaging sunken ships, and then if no one claims the things that are on them, he gets to sell that stuff. That's a cool business.
In terms of learning, the General Assembly teaches a bazillion classes on everything all the time, so if you've got 20 quid, they'll teach you whatever you want to know. If you join the General Assembly, the Google Campus and the Escape the City mailing list, you basically know everything that's going on in London in terms of events. There's one other I forgot to put on here called StartupDigest, and that will cover the rest of it. I wouldn't go to all of them, because you'll go crazy and never do any actual work, but it's nice to be in with the community occasionally. I don't spend every day at these coworking spaces, either, but I do try to go to them twice a week just because you meet people and weird, serendipitous stuff happens and that's always good news. And I don't know how relevant this is, but UCL and Imperial both have really good entrepreneurship programs. UCL does a great master's in entrepreneurship. A bunch of their graduates are going on to get funded, they're moving to the Valley, they're raising great rounds, they're building good companies. Will Smith uses one of their products all the time. It's market credibility. I don't think you need the degree, but if you want the structure for whatever reason, those are the two good programs in London. The other things I do -‐-‐ this is mainly for the calling B.S. on each other thing -‐-‐ every Monday, a bunch of us get together and we're like, "This is what I did this week, this is what I'm having trouble and this is what I plan to do," and then we're like, "That's garbage. What you plan to do has nothing to do with your problems." The whole thing fits in an hour, and I find it pretty good bang for the buck. If you guys would like to, you're welcome to join. You just have to be actually trying to start something. It doesn't need to be built or anything. You don't need all the pieces, but it's not for deciding if you want to start, but as soon as you decide you're going to try something, it's really helpful to have structure. In general, the biggest mistake you can make in startups and where you lose the most months is when you're doing the work -‐-‐ when we first start out, an awesome idea takes us. We're like, "Yes! I'm so excited! This is it. It does everything I want and I'm so pumped." It has to be exciting. Otherwise, it wouldn't have gotten you out of bed. It wouldn't have gotten this process started and caused you to take this crazy leap and quit whatever you quit, so it's exciting. But then we need to do this very hard thing. We need to ignore the exciting thing and be like, "Okay, that's the end. That's all the way at the other side of this gap. What's the first gate I need to get through? What's the first stepping stone?" And then you do not what's most similar to the end goal, but rather what's most likely to get you to that first stepping stone. Sometimes, they're very different. If you just keep the ultimate vision in your head and go for that, you can end up spending 12 months that don't actually get you any closer to that first stepping stone.
That's true at every level. Product guys are way more notorious for this than business guys because we just love programming and hate talking to people and when you have those two things, it's easy to lose a lot of weeks. But it happens with strategy a lot, too. I realized one week that whenever I went to my board meetings, if I told my investors that I'd met with a bunch of tiny businesses they never heard of, they didn't care, but if I met with Sony and Disney and MTV this week, they would be excited. So I started filling my schedule with all the big names I could find, and I felt good and I bought a bunch of suits and I went to all these meetings and I learned how to make small talk. Then, eventually, it was almost completely irrelevant for our business. Those were the guys who felt important, but the ones we really needed to serve with our product were actually the tiny mom-‐and-‐pop stores no one had heard about. So I was stuck on what was exciting rather than what was important, and that happens all the time. The goal changes, too. There are different size jumps for different types of companies. B2B software to service might be like this. Somehow, you need to get the product built, and then you need to market it, and that's a big uphill slog. Something like a tech startup might need to build a product and get it relatively easy and get it to the accelerator, and there's a big jump to the angel. There are different structures, so you can't really take anyone's roadmap. There are some that are common, and this is probably the trickiest part about startup advice is that guys tend to only have done one company. Most of the successful people are successful from one company, so they assume that their experience in that company is global for any kind of company and they don't really see the whole ecosystem. They'll be like, "Just close your eyes and jump twice. You'll be there, then walk uphill," whereas if you've got one of these, you're in trouble. Once you can see what someone's perspective is, you can get a lot of value out of their advice, but if you just take it at face value, you'll end up in a hole. So we're going to take 30 seconds, and I hope a couple of you will volunteer your answers. What's the next stepping stone for whatever you want to do? Is it about finding the team? Is it about deciding what you want to do? Is it hustling to get this money, getting product built, figuring out how you can fake the service so you can sell it to someone before you built it? We're going to take 30 seconds -‐-‐ what's the next gate? What gets you closer? Woman: Probably sending out letters in my case. What I would like to know, in your opinion, one of the things I think is really hard to do is if you don't have the greatest network in the world, most people don't answer. It doesn't matter what you're doing. It's a bit like if you're sending off a CV. It's the same thing -‐-‐ unless you know somebody probably within the company, nothing will happen. It will probably go into delete or archive -‐-‐ they don't know anything about you, et cetera, et cetera. Rob: What do you need from them? Are they potential customers and you just go about the market? What are you trying to learn?
Woman: Normally, I would say this is actually to get help in setting up a network to do what I'm having to do. Rob: Looking to build out the team? Woman: Yes. Rob: Or is it partnerships with other companies, or -‐-‐ ? Woman: In a sense to test the idea -‐-‐ whether other people think it's good. Rob: So just get expert opinions from people who understand the industry? Woman: Well, it's like what you say -‐-‐ you think your idea's going to be great. Then there's a next stage of how would I get this to work when I need to get in touch with X, Y and Zed to see if they would be on board if I could get some (money?) Rob: Right, so getting almost like the conditional purchase before you've committed to build it? Woman: No, the conditional facilitation of purchase. The business would be social enterprise in this case. (someone mumbles something inaudible) Rob: I'm not exactly sure. Do you have a concrete example? Is there something that's going on now that we can delve into? Woman: No, I don't think I do, actually. Rob: In terms of getting through to people, you need to understand the industry, you need to understand the life in the day of whoever's going to be buying and using it. If it's big enterprise stuff, then that involves figuring out a lot of people's lives because you need everyone who has the ability to torpedo or approve the purchase. If it's going direct to a consumer, often it's only one person's life. You need to dig in and find some sort of opportunity to either create joy or some problem that they're really emotional about. You can get that far without ever building anything, and ideally, you wouldn't have built anything, and in some cases, you don't even have the product idea in your head. Amy Hoy -‐-‐ she's one of the strongly opinionated startup thought leaders who's very much in the camp of venture capital is evil and you shouldn't ever raise funding because it will ruin your life. I disagree with that. I think it's a useful tool if you want to use it, but she's got a really good method of coming up with ideas and building them into fairly workable businesses that free you. She says you don't start with any sort of product idea. All you start with is a person in
mind whose life you want to make better and who has money. Usually, this ends up being businesses -‐-‐ small businesses of some kind or some kind of professional or whatever. And then you go and ask what's the worst part about the day, and if you can't get a few of them to take you seriously for that conversation, just like not being able to get into an accelerator, that's a wonderful time to abandon ship because if you can't get them to talk to you now or be interested and you don't have a worthwhile conversation, it's going to be hard to sell to them later and it's going to be hard to speak to them through marketing channels as well. Trying to get these early conversations is a great test, and then you basically build the solution to whatever is making their day the worst. And she's now repeated this with a bunch of students and it seems to work. To me, it feels like the most repeatable way to boot strap a company, and it starts with conversation. It's all conversation. You get a solid enough foundation. When you do need to take a leap, you do it fairly informed. That was wildly divergent from your question. We were not taken seriously in the advertising industry, as you can imagine. That was going to be a problem, because we needed to. We needed to get meetings with all the big companies and for them to write us checks in order for our business to work. First, I grew a beard so I would look older, and then we lined up an advisory board. We knew that was going to be a huge obstacle and we needed to get through it, so we built an advisory board based of industry experts -‐-‐ people we went to and were like, "Hey, we're not trying to sell you anything. We're doing something really cool. You're a super-‐expert -‐-‐ let me borrow your brain for a second." And then you offer them a little piece of your company and everyone's flattered by that offer, and if they're excited about what you're doing and they're able to help and you get along well and you make that offer, almost everyone says yes. We built up about five incredibly credible industry experts as our board of advisors and their job was just to make a couple of intros here and there whenver we needed someone in particular, and then we were friendly and did what we said we would do and so people started making more intros and at some point, there were more open conversations than we could deal with. It's kind of like the co-‐founders, and that you get the first one however you can and from there, it can often snowball. And another cool bonus about starting a new company is you're thinking through some very particular problem. Maybe you're thinking about how to hire and fire floor staff for retail stores. It annoys them -‐-‐ they've got a bunch of staff and they have to hire and fire them all the time. It annoys them, but they're not really sure how to fix it, and if you go and you're obsessing over that problem, suddenly, you become the world's expert in that problem. So when you talk to people, even when they're not buying their stuff, you're still able to deliver tremendous value to them. That's true in almost anything you're doing that's new, so over
time, they start enjoying talking to you, but it takes a while and you hustle those first couple of conversations however you can. I'm doing a product right now. I'm a couple months into my next startup for people giving presentations at conferences and stuff. The way I got the first meetings was I was at someone's engagement party, and I heard this girl say, "Yeah, I'm about to go give a talk at this conference," and BOOM! On-‐the-‐spot small talk, aka customer interview. "Tell me about what you do. What's this talk I hear about? Are you excited? Why are you doing that? What does your employer think? How many days do you have to take off?" She became the first user to use it in a big trial. That wasn't predictable. I wouldn't necessarily go to engagement parties as a reliable way to line up early customers, but at some point, they fall into your lap. And sometimes, we get blind to the obvious as well. I was talking to a guy who ran a personal training business and he wanted to figure out how to scale it. He was working like 15 hours a day or whatever -‐-‐ he was working way too much, but he was only able to bill for about six hours a day because most of his day was wasted sitting in traffic going between different people's houses. It was driving him crazy. He was working so hard and was making so little, and couldn't raise his prices because everyone complained. We were talking, and he said, "What about the police? I could go there and I could train the police all day. I could go to a different station every day. They'd be an awesome customer segment." We started getting all strategic and were thinking how we were going to reach the police and what we were going to do. What police industry expert did we know who could give us some insight? He looked at us like we were idiots and said, "What are you guys talking about? I'm going to pick up the phone and call them." It's not as if he didn't know the number for the police. So he went out with a cigarette and coffee and called a bunch of police stations and said, "Hey, how do you guys get your personal fitness? How do you stay in shape?" And he knew in 10 minutes whether it was going to work for his business or not. It's easy to slip into the theory side of it too much instead of just doing the scary thing -‐-‐ picking up the phone and asking. Man: How do you know if a developer is good if you don't understand it? Rob: That's a great question, and it's super-‐hard. It's easy for very well-‐meaning developers to waste all of your money and put you out of business just because code is hard to write and we're overly optimistic and we expect it to be easier than it is. And those are the well-‐meaning ones. The malicious ones are real trouble.
I think the best bet is to find someone you trust who you know is good for whatever reason but who is way too busy to join your team, but who you get along well with, and offer them an advisory stake. A normal advisory stake is somewhere between half a percent and two percent, depending on how early you are and what they're doing for you. Their only job is to come to your hiring meetings and run technical due diligence on the people you're working with, and then occasionally read through the code and check in and just communicate between you and them occasionally. It's still not ideal, but that's the best I've found that doesn't cost a ton of money or time and gets you some of the way there. At some point, you know someone and you trust them and put your belief in them. But you don't do that from day one. Man: We're at the stage now with our business that we're looking for a co-‐founder and attempting to build the web site we want. Is there any -‐-‐ I know you talk about the coworking places and the Gumtree lottery before, but specifically that sector of guys -‐-‐ where you do find them? Rob: The finances of this explains some of this situation. Startups pay 12.5 thousand pounds per developer that they hire, and in addition to that, they'll pay them well. A reasonable developer working for a startup -‐-‐ it will be upwards of 70 grand for a relatively junior guy, but they're good. If they want to not have a real job -‐-‐ even students I know are making 500 quid a day doing programming for iPhone apps. So for them to take a punt on equity -‐-‐ to basically do someone else's idea -‐-‐ at that point it becomes more of a price thing -‐-‐ they're like, "This money or that money?" more than a vision thing. It's very hard to say there's equity and it's going to be awesome, so do it -‐-‐ it's hard to make the financial case, but if you can bring people in so it's like their vision as much as yours -‐-‐ I was at a co-‐founder "speed dating" thing. Everyone had to put on their name badge that they were either a CEO or a CTO. It was a little cheesy, but it worked. Half the people there were CTO and half the people there were CEO of imaginary companies that don't exist. Every single business guy got shot down, except for one, and the one guy was by far the most experienced in the room. He'd been a VC, he'd sold a couple of companies and he really knew what he was doing, but he also knew he needed a technical guy. Almost everyone else, if you listened to their conversations, they would go, "Here's my idea. This is what I need. Can you do it? I figured everything out and I just need to know that it's going to be an easy way." The technical person would then come and say, "Eh, that's your idea." There was no room left for them to take ownership of it. What the ex-‐VC did was say, "Hey, I've been talking to these guys and they have this problem and it's real, and this is the budget for it. I've got a dozen of them lined up, but I'm not really sure what to build for them. What do you think?" Immediately, the tech guys were like, "Oh, you can do this, you can do this, you can do this,"
and the ex-‐VC said, "That is awesome. Yes!" He was the only one in the room that left with a co-‐founder. They're doing great now. They're up and running. But he didn't have all the answers. He left big chunks of it open. He had shown that he had lined up customers, he deeply understood the market, everything that he was expected to deliver value on as the business half he had already done. But he hadn't claimed any of their half. He left it open for them, and as soon as someone joins in and starts creating your idea with you, it's a totally different conversation. I've seen it go wrong in both cases. We hired someone and gave him way too much equity. A couple of months later we realized that was irresponsible for our other investors and stakeholders, so we had to fire him. That was terrible. That was completely my fault. We hired him into an impossible role that he never could have performed at. And I've seen other situations where someone negotiates really hard with their first hire and got him down to about one percent equity. A year in, the guy was like, "Wait a minute. I'm doing half the work and I have one percent of the company," so he quit and the company went under. I think the fairness and bringing people in as proper partners, if it can be done, is better, but again, it's hard. Oh, and this is like a magic bullet. No one believes me when I tell them this, but it's the best idea I have. If I could figure out a way to sell this, I'd be set. You organize meetups. Let's say you need a technical guy and you're a sales guy. Tech guys are notoriously bad at selling things, especially themselves and their services, and they would like to, because they then can make more money. You can have a meetup called, "How to Sell Yourself and Get a Promotion as a Technical Guy," and then a bunch of technical people pile into the room and you tell them how to sell. You convince them you're good at selling by teaching, by giving value. In some cases, you can flip the whole question on its head and say there are a lot of people who want to start companies and it's less about how do you find them and more about how do you make it easier for them to find you. If you make yourself visible in the community and you're constantly giving value -‐-‐ you're teaching people what you know. If you can't get a couple of people to listen to you talk about sales for free, then it's unlikely they would join the company for you to do sales or whatever you're good at. There's something you can give away early to get the people in the room. I spent a year trying to do freelance stuff, and the first thing I did was organize a bunch of meetups. It works really well and it solves the problem you mentioned. I don't know if this would solve the problem you mentioned, but if you start calling people and they think it's spamming -‐-‐ we do a bourbon (burger?!) night every Monday where it's just meant to be no B.S., come, hang out, no one's pretending to have all the answers, let's just hang out and understand each other.
They came in and the first words out of their mouth were, "Are you a developer?" I said, "Yes, but ...." They said, "Are you busy?" I said, "Yes." I was cut off, and they turned to the next person and asked, "Are you a developer?" They just worked the room like that, and none of them were available, so they left. What was -‐-‐ maybe one or two of the others? The next thing you need to get done to move forward? Man: What about when you have an idea -‐-‐ you have a vague idea of what you want to do. It's actually putting some limits on the idea and say (someone coughs through rest of sentence). This is what I want to do, and I don't want to go like 15 ways and do this, do that. At some point, you need to -‐-‐ you tell me. You're the expert. I have no idea what it's going to be, but I'm passionate about the ideas and I can see what can work, but what I sometimes struggle with is throwing a line around (Rob laughs). Rob: How do you limit it? What do you start to say no to? My perspective on that part of it is it's about your personal constraints. I didn't have an idea, but I knew I wanted to build something, and it's very easy to spend way too long, so the constraint I put on myself was that I would only accept ideas that I can build the first version of in a week. I made a huge list of all of my ideas. There were about 30 of them, and I was immediately able to cross off 25 of them just because they didn't fit that constraint, and that's what my finances at the time needed. I know another guy who did almost the exact opposite. He would only work on ideas that someone else partners with me on. He'd spend way too much of his time convincing himself something was a good idea and pouring years into it, so he said if no one else partners with him, and take half of it, he's uninterested. My favorite little thing was a guy drew a triangle, and one corner was "fun," one corner was "fast," and the other corner was "impactful." He just mapped his ideas. He put them on Post-‐It notes and placed them within the triangle depending on whether they were fun, fast or impactful. You can choose your own axes. You just look at it, and you're like, "I really want to be in the fast and impactful zone," or I really want to be in the fun and fast zone." Whatever your criteria are -‐-‐ even just putting them down in that sometimes is very clarifying. The other side of that is when you actually have the company. Suddenly, the opportunities start coming in. "Hey, you want to be on this TV show?" "Hey, you want this money?" If you say yes to everything, you end up with a very confused company. One of the most impressive things I ever saw a founder do -‐-‐ we were just meeting, and someone wandered in who was from a big corporation. They wanted to sponsor the company, and I guess they thought I was important and belonged there because they made the offer and said they wanted to do something and would give 200 grand for it. The founder said, "Thanks so much, but that's not what we do."
It was like, "How long would that have taken you?" He said, "It wouldn't have taken us any time. We could have had it, but it's not what we do. It would be one more thing to worry about. It would distract us from our focus." He knew what the unconditionals of the business were and he instantly said no. In my first company, every time there was an opportunity, no matter how small, we would get everyone together and spend a day debating whether it's a good idea or bad idea, and we burned up a lot of our own strategic time on stuff that if we'd known our limits -‐-‐ that's just not what we do. In terms of features, I just think about it in terms of finding the love. Within your set of features, there's one thing that people are more likely to love than all the rest, and building a ton of mediocre features does not make a great product. If you have 10 mediocre features that no one really loves and you add an eleventh, they don't love your product more. They love it less. If a great feature is a one and everything below that is less than one, they all get multiplied together. It's better to have that one really good one. It's not possible in every industry, but often it means carving things out or getting rid of them rather than adding them, which is hard. Woman: When you're thinking about new ideas, how do you work out whether something is truly scalable? Obviously, in the tech space, you can talk about (remainder inaudible). Rob: I don't think you can truly know. There are rules of thumb. In the Valley, when I was raising my funding, they're like, "Is it a billion-‐dollar market?" And you'll be like, "Yeah." It was a binary question. It either was a billion-‐dollar market or it wasn't. If it was, they're like, "Good enough." If it wasn't, beyond that, you're not going to be able -‐-‐ you're going to be wrong, anyway. It's impossible to predict. It's in the range of "good enough," and then you hope for the best. I think that's true in a lot of cases. There are some businesses that if someone wrote them a hundred million dollar check, they wouldn't be able to do anything with the money. They can't use it to acquire more customers, they can't build up any defensible advantage, they can't put that money to work for them, and there are others where they can absolutely use it. Groupon, for better or worse, was able to spend an arbitrarily large amount of money because -‐ -‐ on the, in retrospect, incorrect thesis that once they got people onto their mailing list, they were there forever and they wouldn't move on to a different daily deal site. They ended up being wrong on that, which is a problem, but if it were true -‐-‐ and it's true for some businesses that it makes a lot of sense to pour money in -‐-‐ scaling is a funny thing, because they can put money to work to scale so they can raise the huge VC rounds, but then you've got something like Instagram, which can scale to a very large number of users but never really needed a ton of money.
In some ways, Instagram couldn't have used the money. They could have run billboard ads and stuff, but how effective would that have been. All of their energy and execution went into the product itself. The product has a natural growth rate, which in their case was very high. Again, hard to predict. You're never going to really know. So much of it comes down to execution. I talked to a team who's been trying for three years to go viral. Going viral is like the Holy Grail, because you spend no money and you get all the users. They're just trying everything. Essentially, the way it works is you're not viral, so you have no users, and then you are viral and you have all the users. They've been in the not viral zone for ages. They finally tipped it, and it was just tiny improvement, tiny improvement, tiny improvement. It goes from around .4 to .45 to .5 -‐-‐ it's creeping up, and .9 is so close. What finally tipped it is they switched the order of two fields on their login form or something ridiculous like that. It was that last tiny thing that tipped it, and they went from having 10,000 users total to adding 100,000 users an hour. But all of their resources were going into product innovation to make it that little bit more sharable, to make it that little bit stickier, that little bit easier to get started with. It took them a long time. That was a lot of not really answers. And we are very much out of time. Thank you very much, everybody.
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