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Hi readers,

Big update: I’m joining Andreessen Horowitz as a general partner!

Starting in April, I’m returning to my roots to invest in and help grow the next generation of startups. I’ll be focused on consumer startups, bottoms up SaaS, marketplaces, and more – utilizing my expertise in growth to launch and scale new companies. Incredibly excited.

How this came together tells you a lot about Marc and Ben, and how Silicon Valley works. I moved to the Bay Area in 2007, as a first time founder with a lot of energy and a lot of questions. I spent the first year meeting everyone I could, reading everything about tech, and writing down all that I was learning. A few months in, I was shocked to get a cold email from Marc introducing himself. Who knew that sort of thing happened? My blog was pretty much anonymous and I could be anyone – but he reached out to talk ideas, which made a big impression. I learned a lot about Silicon Valley that day.

Marc soon introduced me to Ben, and together, they provided a regular stream of advice/ideas/frameworks over breakfasts at the Creamery, Hobee’s, Stacks, and other assorted Palo Alto diners. I was a first-time founder, and the real-life entrepreneurial experiences they relayed – on fundraising, finding product/market fit, hiring, and much more – proved to be insanely helpful. My startup ultimately didn’t work out and the team soft-landed at Uber, but I always remembered the incredible support from Ben and Marc.

Andreessen Horowitz is a firm built on the same core values I saw first-hand. The investing team has a deep empathy for entrepreneurs that reflects their extensive operating experience. The partners on the operating team are incredible and enable the firm’s unmatched support of founders and their companies. For all of these reasons and more, I’m thrilled to join the a16z team.

A decade ago, I learned how impactful it can be when a couple experienced entrepreneurs reach out to a new founder. I can’t wait to close the loop by doing the same – working with new founders and their startups, and helping build the next generation of tech companies.

As excited as I am about the next step, I’m also sad to leave an extraordinary team and experience behind at Uber. I have nothing but admiration for the talented, passionate people who are working hard to ship all the amazing innovations that are coming down the queue. To all my friends and colleagues at Uber, thank you for the amazing two and a half years.

Finally, to the readers of this blog: I’ll be writing much more! The new job will let me put down a lot of what I’ve learned over the past few years. I’m excited to share ideas and stories from across companies and industries with all of you! Looking forward to it.

Onwards!

Andrew
San Francisco, CA

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Dear readers,

2017 was a big year, where we got Trump’s first(!) year in office, a renaissance in interest around cryptocurrencies, Brexit, Puerto Rico, and oh yeah, things got a little crazy at Uber too. I want to take a moment to share some of my writing from the past year, a few books I’ve read recently, and also include stuff from the last year just for completeness. One of my 2018 goals is to spend more time writing – stay tuned for that – and am looking forward to sharing some incredible learnings I’ve gotten from Uber over the past few years.

As always, thank you again for reading!

Andrew
Hayes Valley, San Francisco, CA

Essays from 2017

Startups are cheaper to build, but more expensive to grow – here’s why
Lots of important trends – cloud computing, open source, etc. – are making it cheaper to start a company. However, growth is getting harder and more expensive because of consolidation, making paid acquisition one of the few channels that still work. Startups are responding by raising more money, monetizing earlier, trying paid channels, and experimenting with referrals instead of virality.

VIDEO: Three things you need to know to raise money in Silicon Valley
I spoke to an audience of French entrepreneurs and tech folks, and explained some of the key lessons from watching startups raise money in San Francisco versus elsewhere. This means focusing on a big story, growth trajectory (versus today’s metrics), respecting differing investor motivations, etc. This is a short video and hope you enjoy it!

How to build a billion-dollar digital marketplace – examples from Uber, eBay, Craigslist, and more
Marketplaces are magical because they both have network effects as well as clear monetization. This means that often when a niche marketplace works, it can grow into adjacent niches quickly. To grow to beyond an initial vertical, startups have to think about expanding geos, adding new products and price points, decrease friction, and grow demand+supply stickiness. I use examples from the major marketplaces to make my points. More to come on this topic!

10 years of professional blogging – what I’ve learned
Expanding on a tweetstorm, this essay breaks down the key lessons I’ve learned from running a professional blog over the last 10 years. This includes how to write content – opinion-driven, please! – and why writing is the best possible networking activity ever.

Books I started reading in 2017

I originally titled this section “Books I read in 2017” but I probably started more books than I actually finished :) Here’s a collection.

Superforecasting
Whenever you read a New York Times political column with a bunch of predictions – Trump is gonna do this! Saudi Arabia is gonna do that! – it’s entertaining, but who’s keeping track of these forecasts? This book covers the academic work of Philip Tetlock from UPenn, who puts together a forecasting competition and tracks who’s good at making these predictions. Lots of interesting learnings and relevant to those making startup investments also! Here’s a NYT article on the foxes versus hedgehog strategies for prediction, btw.

Venture Capitalists at Work: How VCs Identify and Build Billion-Dollar Successes
I read this awhile ago, but picked it up again and read more of the stories. It’s a series of interviews with many of the top venture firms – Floodgate, Founders Fund, First Round, Softbank, CRV – and the companies they’ve invested in. Each interview has a nice discussion and amount of detail. I found this much more compelling than many of the other books I’ve read on VCs, which remain a bit too high-level and adulating.

Reset
Ellen Pao’s story of her time at Kleiner Perkins, Reddit, and more. So much to learn from this experience.

The Ascent of Money
Sapiens for money :) Traces the history of money, the role it’s served over time, and the development of some of the major aspects of our modern financial system. Can’t wait for this to get revised for all the crypto stuff that’s happening now.

The One Device
History of the iPhone. Didn’t read this yet, but I love these recent tech history books.

Principles
Reading this because everyone else is too :) Lots of insights/lessons from Ray Dalio, one of the world’s best hedge fund dudes.

Stories of Your Life and Others
The recent film Arrival was based on this short story.

Area X
The director of my recent favorite movies – Ex Machina – is making a new movie starring Natalie Portman and a bunch of badass ladies exploring a strange, genetic-mutating world secured by the military. Reading the book ahead of time, before I see the movie! Here’s the trailer to the upcoming film.

Featured essays from 2016

10 years in the Bay Area – what I’ve learned
I’ve lived here for the last decade, and have learned a ton of about this region’s entrepreneurial drive, the unique culture, and wonderful folks. I wanted to share a couple lessons learned here.

The Bad Product Fallacy: Don’t confuse “I don’t like it” with “That’s a bad product and it’ll fail”
Your personal use cases and opinion are a shitty predictor of a product’s future success.

Growth is getting hard from intensive competition, consolidation, and saturation
It’s the end of a cycle, and we’re seeing headwinds on paid channels, banner blindless, competitive dynamics, and more. And it’s much harder to compete with boredom than with Facebook/Google/etc.

What 671 million push notifications say about how people spend their day
Here’s a study, based on Leanplum’s data, on how people spend their days – on sports, leisure, phone calls, and otherwise – in addition to what tech platforms they’re using.

Startups and big cos should approach growth differently (Video)
Here’s a video interview breaking down how startups evolve and change their strategies as they gain initial traction, hit product market fit, and eventually start to scale.

What’s next in growth? (Presentation at Australia’s StartCon)
Last year I presented this talk on how marketing has evolved over the last century, and how many of the ideas we think of as “growth” today are actually based on concepts from decades ago. I use this to talk about future platforms and where this might all go.

Uber’s virtuous cycle. Geographic density, hyperlocal marketplaces, and why drivers are key
In my last two years at Uber, I’ve learned a ton about the flywheel that makes Uber’s core business hum and grow incredibly fast. In this essay I draw from Bill Gurley’s essays on network effects, the labor market for part-time workers (aka drivers, “the supply side”), and how surge works within the company. A lot has evolved/changed since I’ve written this, but it’s a good overview from my first year of learnings.

Featured essays from 2015

The Next Feature Fallacy
“The fallacy that the next new feature will suddenly make people use your product.”

New data shows losing 80% of mobile users is normal, and why the best apps do better

This is the Product Death Cycle. Why it happens, and how to break out of it

Personal update- I’m joining Uber! Here’s why
“I’m joining Uber because it’s changing the world. It’s one of the very few companies where you can really say that, seriously and unironically.”

More essays from 2015

This is what free, ad-supported Uber rides might look like. Mockups, economics, and analysis.

The most common mistake when forecasting growth for new products (and how to fix it)

Why we should aim to build a forever company, not just a unicorn

Why investors don’t fund dating

Ten classic books that define tech

The race for Apple Watch’s killer app

Photos of the women who programmed the ENIAC, wrote the code for Apollo 11, and designed the Mac

The post Hello 2018! Books, essays, and more from the past year. appeared first on andrewchen.

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1/ After 10+ years of publishing professional writing at https://t.co/ddc2F89IIV, I have a couple opinions on how to get your stuff read

— Andrew Chen (@andrewchen) July 26, 2017

Building your personal bat signal
I want to cross-pollinate a tweetstorm on lessons I’ve learned from a decade of professional writing. In a way, it’s a followup to some more general life lessons from 10 years of living in the Bay Area. Writing has been enormously impactful from a professional standpoint, and I continue to recommend to everyone – especially folks who are new to the Bay Area – to do it as a way to send out the “bat signal” on their aspirations, ideas, and interests.

It’s awesome, but insanely hard to get started. Of course everyone knows the mechanics of setting up a blog – but the hard part is finding your voice, figuring out topics that are interesting for other folks to read, and building a long-term habit.

The lessons
Without further ado, here are a few opinions I’ve developed up along the way:

  • Titles are 80% of the work, but you write it as the very last thing. It has to be an compelling opinion or important learning
  • There’s always room for high-quality thoughts/opinions. Venn diagram of people w/ knowledge and those we can communicate is tiny
  • Writing is the most scalable professional networking activity – stay home, don’t go to events/conferences, and just put ideas down
  • Think of your writing on the same timescale as your career. Write on a multi-decade timeframe. This means, don’t just pub on Quora/Medium
  • Focus on writing freq over anything else. Schedule it. Don’t worry about building an immediate audience. Focus on the intrinsic.
  • To develop the habit, put a calendar reminder each Sunday for 2 hours. Forced myself to stare at a blank text box and put something down
  • Most of my writing comes from talking/reading deciding I strongly agree or disagree. These opinions become titles. Titles become essays.
  • People are often obsessed with needing to write original ideas. Forget it. You’re a journalist with a day job in the tech industry
  • An email subscriber is worth 100x twitter or LinkedIn followers or whatever other stuff is out there. An email = a real channel
  • I started writing while working at a VC. They asked, “Why give away ideas? That’s your edge.” Ironic that VCs blog/tweet all day now ;)
  • Publishing ideas, learnings, opinions, for years & years is a great way to give. And you’ll figure out how to capture value later

But let’s talk about each one of these in more detail.

The lessons, but with more detail!

Titles are 80% of the work, but you write it as the very last thing. It has to be an compelling opinion or important learning

Titles are often written as a vague pre-thought, but in fact, it’s the most important creative decision you’ll make. Titles are the text that’ll be featured prominently in every tweet, Facebook share, and link – and people will refer to it by name. Titles are best when they can pass the “naked share” test – imagine some text that’s so compelling that even if it’s not linked to anything, people will want to share it.

The best example of this in my work is “Growth Hacker is the new VP Marketing” which started out as a tweet with 20+ shares, and then was developed into an essay afterwards. To pass the naked share test, this means a title should be an opinion on its own. Or be a factoid (like push notifs being 40%+ CTR) that’s fascinating and shareable. Or if that’s just too hard, the common “curiosity gap” pattern of a listicle can work too. Just avoid vague titles like “Here’s my thoughts on XYZ.” No one cares. As a result, in the course of my work, I often write a placeholder title, write the essay, and then at the very end, spend a good chunk of time iterating on titles until there’s a good one.

There’s always room for high-quality thoughts/opinions. Venn diagram of people w/ knowledge and those we can communicate is tiny

You might think that there’s too many blogs on tech, startups, whatever. There’s always room though, when you think of the whitespace as Knowledge x Communication x Medium. People with real knowledge are busy, especially when that knowledge is under a huge amount of demand. And even when an expert can poke their heads up and do something besides execute their craft, they often can’t communicate! It’s hard to make professional content – often dry, boring, technical – into something that’s compelling and accessible to a wide audience. And furthermore, I’d add the medium into the mix as a third dimension, which is the idea that the knowledge can be shared via video, long form essays, podcasts, presentation decks, etc. Even when there are experts writing long-form content about cryptocurrencies, let’s say, there’s still room in the market for a highly visual version. Just figure out the whitespace and dive in!

Writing is the most scalable professional networking activity – stay home, don’t go to events/conferences, and just put ideas down

When I first moved to the Bay Area, I was spending at least one afternoon/evening a week at a launch party, a conference. Plus hours and hours of 1:1s as I was meeting a ton of people. After an entire year of hard work, I had met something like 1000 new people for one-off conversations. But it took hundreds of hours. At the same time, I was dedicating about the same amount of time to writing, but quickly unlocked 5,000+ people, and started reaching into their inboxes on a weekly basis.

Speaking at conferences is the worst time suck. You spend hours prepping a deck, speak to a group of perhaps a few hundred people, and retain very few them in any meaningful relationship. It can feel good to be recognized, but at the same time, it just can’t compare to writing a piece of content that lives forever. I’m still getting traffic – and email feedback – on essays I wrote ten years ago, which is insane! But that’s the power of scale – nothing can beat content as a bat signal.

Think of your writing on the same timescale as your career. Write on a multi-decade timeframe. This means, don’t just pub on Quora/Medium

Building your network, your audience, and your ideas will be something you’ll want to do over your entire career. Likely a multi-decade thing that will last longer than any individual publishing startup. That’s why I refuse to write on Medium or Quora. Instead, I prefer to run open source software that I can move around, prioritize building my email list (more on that later) and try to keep regular backups. I used to write on Blogger and watched them slowly stop maintaining the platform after the Google acquisition. Then I switched to Typepad, only to watch the same thing happen. I learned my lesson.

Focus on writing freq over anything else. Schedule it. Don’t worry about building an immediate audience. Focus on the intrinsic.

I get it- the activation energy to start publishing your professional ideas/thoughts is high. Nevertheless, because initially no one will read your work, the key is just to get started. Your initial topics and format should be whatever you can do easily and maintain some sort of frequency. Maybe that’s 500 words a month on a new product you’ve tried, and whether you hate or it not. Just get started, find out what you like, and you’ll have a lot of time to figure out the intersection of what you want to write, and what others want to read.

To develop the habit, put a calendar reminder each Sunday for 2 hours. Forced myself to stare at a blank text box and put something down

Several years in, writing remains hard. It’s something that still – to this day – requires time to be set aside. I turn off the music, stop checking email, and write over a few hours to crank something out. Some parts get easier, but the core activity stays difficult. Since starting a normal job (haha) it’s gotten harder to write on Sunday evenings, since that’s when the work email starts. But a good chunk of the writing on this blog happened over Sunday evenings, a few times a month, blocked out with no distractions.

Most of my writing comes from talking/reading deciding I strongly agree or disagree. These opinions become titles. Titles become essays.

After a lively lunch/dinner discussion where a provocative opinion is blurted out – say, that cryptocurrencies are going to be widely adopted and ultimately cause a global recession – I usually write it down. If it’s fun and memorable, it’s an easy thing to write 3-4 supporting points as paragraphs, and turn into an essay later.

People are often obsessed with needing to write original ideas. Forget it. You’re a journalist with a day job in the tech industry

Thinking of yourself as a journalist that’s covering interesting ideas, trends, products, and everything that’s happening around you leads to much better/stronger content. It means you can write often and build on others’ ideas, without feeling like everything has to be completely new. Just as startup ideas are rarely new, but rather twists on older ideas, the same goes for your observations and ideas on tech.

An email subscriber is worth 100x twitter or LinkedIn followers or whatever other stuff is out there. An email = a real channel

For a professional audience, at least, email is the only KPI I care about. Nothing has more engagement. And importantly, to a previous point, it’s independent/decentralized and will clearly be around in a decade – it’s hard to say that about any of these other subscriber metrics. Given that, I focus on my blog’s UI on collecting emails – both on the homepage, at the bottom of essays, plus those annoying popups that are (unfortunately) super effective.

I started writing while working at a VC. They asked, “Why give away ideas? That’s your edge.” Ironic that VCs blog/tweet all day now ;)

It took a long time for VCs to figure out how to market themselves and their ideas :)

Publishing ideas, learnings, opinions, for years & years is a great way to give. And you’ll figure out how to capture value later

The first year of writing, I had an audience of hundreds, including friends/colleagues from Seattle, my sister, etc. It wouldn’t be until a year later that I figured out it was a helpful asset when you’re going out and trying to raise money for a startup! And years after that, to help get your company acquired. And a great launching pad for market research and side projects too!

Creating is the thing – writing is a subset
For me, writing on this blog has been a real gamechanger in terms of building relationships, a professional reputation, etc. But it’s just one potential method of creating and putting content out there. Maybe your version of this is through videos, photography, or podcasts. Or maybe you’re a developer and want to keep shipping open source projects. All of it can work. The important part is just to start giving out your knowledge and ideas – and over time, to build that into a platform for other activities.

Just get started and I doubt you’ll regret it. And to those who’ve been reading my work for the last decade, thank you! I appreciate it.

PS. Bonus lessons
To close, I’ll point you to some bonus ideas from an old essay, How to start a professional blog: 10 tips for new bloggers, written when I was just starting:

  • Carpet bomb a key area and stake out mindshare
  • Take time to find your voice
  • Stay consistent on your blog format and topic
  • Just show up
  • Go deep on your topic of expertise
  • Meatspace and the blogosphere are tightly connected
  • Embrace the universal reader acquisition strategies for blogs
  • Come up with new topics with brainstorms, news headlines, and notes-to-self
  • Look at your analytics every day
  • Don’t overdo it

More details here.

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Marketplaces are easily underestimated
When marketplaces get big, they can get really big. Some of the biggest tech successes ever – eBay, Airbnb, Alibaba, Uber – are marketplaces worth tens of billions of dollars each.

And yet marketplaces often start small, in niches and weird corners of the Internet. As we all know, when eBay got started in 1995, it was focused on collectibles. The venerable venture capital firm, Bessemer Venture Partners, famously passed on an early investment:

“Stamps? Coins? Comic books? You’ve GOT to be kidding,” thought David Cowan, a partner at Bessemer. “No-brainer pass.”

An early investment in eBay would soon yield a 50,000% return from Series A to after the IPO, as the company started to help transact on everything from electronics, cars, homewares, and more.

Two decades after eBay was founded, a similar story unfolded itself, this time over Uber (my current employer!) and the taxi market. NYU Professor Aswath Damodaran asserted that Uber was overvalued after a 2014 investment round. Based on data points from the global taxi and car-service market, he concluded the real number should be $5.9B. Since the 2014 article, Uber has blown past his estimate by 10X, with top line revenues to support it. Not bad. The reason the estimate was so off, as investor Bill Gurley pointed out, is that Uber goes beyond taxi use cases and grows the market substantially by unlocking many new categories of transportation. Another example of going from niche into more use cases over time.

(As an aside, a slightly different flavor of the expansion of audiences and use cases leading to wild underestimates – this time my mistake: Why I doubted Facebook could build a billion dollar business, and what I learned from being horribly wrong)

Starting small, and what to do next
In both the eBay and Uber examples, we see that you can start with a niche – whether that’s a geography or product line – and then quickly scale into a huge network of buyers and sellers. It turns out that there are a couple key moves to make this happen, and today I’ll highlight some of the main strategies with examples across the past few decades:

  1. Expand into new geographic markets
  2. Add new products and price points
  3. Decrease friction from signup to successful transaction
  4. Grow supply + demand stickiness

Let’s dive into each one.

1. Expand into new geographic markets
Marketplaces like Uber, OpenTable, Craigslist, and others are hyperlocal in nature, and a critical mass of supply/demand must be quickly built within a constrained geography. If a customer is trying to book a restaurant in the Hayes Valley neighborhood of San Francisco, you don’t care much how many restaurants are also on the platform in Manhattan.

As you might imagine, breaking into each new local market can be incredibly painful. Marketplace companies often end up employing teams of “launchers,” a specialized ops role focused on cracking new cities.

Here’s a great Quora writeup on Uber’s Launcher team from Chris Ballard (these days, GM SoCal):

The “Launcher” role at Uber is one of the most physically, emotionally, and mentally challenging roles that an individual will come across.  It is also one of the most rewarding. […]

Once in a city, the Launcher must simultaneously:

  • recruit, hire, and train a local team
  • develop partnerships and manage relationships with local hire car operators (NB: Uber does not own any vehicles.  We work with existing accredited, licensed, and insured hire car owners)
  • create a marketing strategy to scale the client base and increase visibility
  • explore biz dev opportunities (sponsorships / partnerships / co-promotions)
  • form relationships with local press
  • throw a legendary launch event to officially kick off the city!

The travel is intensive.  Launchers are on the road over 300 days per year.  We live out of suitcases, and our most important possessions are our MacAirs and our Passports.  If you tend to get homesick after a few days or don’t sleep well unless you’re in your own bed, this is definitely not the position for you.

Launching is hard work, but the good news about these hyperlocal marketplaces is that if it works in one market, then it will probably work in hundreds more. Sometimes there will be stronger cross-network growth across geographies than you initially imagine, enabled by factors like Airbnb’s global travel use case, which can supercharge your addressable market.

Furthermore, if you are a new startup, you can go after hyperlocal markets where your competitors are weak, and build a local network effect that will be hard to dislodge.

2. Add new products and price points
The next variable that marketplaces can play with is expansion of product lines and price points. Both of these directly unlock new use cases and addressable market, and there are strong examples of how this happens. Craigslist, the mother of all free marketplaces, started with events and then expanded to jobs and apartments.

In an Inc interview in 2016, Craig Newmark reminisces on the early form of Craigslist – literally just an email list – and how he intuitively added product categories over time:

Craigslist began with a single email in 1995–you simply shared interesting things going on in San Francisco. What was in that first email? The first ones had to do with two events: Joe’s Digital Diner, where people would show the use of multimedia technology. It was just emerging then. Around a dozen of us would come and have dinner–always spaghetti and meatballs–around a big table. And a party called the Anon Salon, which was very theatrical but also technology focused.

How many people did that first email go to? Ten to 12.

And then? People just kept emailing me asking for their addresses to be added to the cc list, or eventually to the listserv. As tasks started getting onerous, I would usually write some code to automate them. And I just kept listening. At first, the email was just arts and technology events. Then people asked if I could pass on a post about a job or something for sale. I could sense an apartment shortage growing, so I asked people to send apartment notices, too.

Today, Craigslist in over 57,000 cities, generating $700M in revenue per year (on job listings fees!) with just 50 employees. Amazing.

A related move is to offer new price points to the market, which can unlock new use cases and grow the addressable market as well. A good example of this is Airbnb, which provides a much wider set of offerings to guests – from super cheap to super expensive – as compared to their hotel competitors. The low-end of this enables new, higher-frequency use cases to emerge, like weekend getaways. The high-end allows for large family gatherings, like weddings or reunions, to all share a huge house together.

Pricing is a key strategic move because it’s often the main factor for customers, as seen in this Morgan Stanley survey of Airbnb customers:

And of course, we’re also seeing direct product expansion from Airbnb, via their new Experiences product that can be an upsell in addition to accommodations.

3. Decrease friction from signup to successful transaction
The dual levers of geographic and product expansion are powerful, and decreasing the friction of conducting transactions on the marketplace amplifies both. This grows the TAM in two ways: 1) First, directly growing the market because lower friction transactions mean more sales. 2) But also, more subtly, it unlocks more transactions when your marketplace can be incorporated into new use cases that require reliability and ease of use.

For example, few people use taxis to commute, because the service can be expensive/flaky, whereas many folks use Uber POOL to commute because it’s reliable and affordable. You’re bound to use OpenTable more to snag last minute reservations when restaurant inventory is up to date, making it convenient for even casual get-togethers.

There are many ways to decrease friction, but in particular we should look at this from the perspective of the customer (both buyer/seller) through their journey from signup to transaction:

  • Reducing friction from signup to first transaction
    • Signup and onboarding
    • Setting up payment
    • Finding the desired transaction
    • Trust infrastructure (depending on product: Reviews/photos – or ETA – or availability calendar)
  • Reducing friction from the transaction to receiving the product/service:
    • Reliability and consistency – driven by both market liquidity and UX
    • Determining the right price
    • Timing and logistics on completing the transaction
    • Resolving post-transaction issues

Focusing on reducing the friction on the above doesn’t just generate more revenue for the marketplace, but it’s also just a much better customer experience.

4. Grow supply + demand stickiness
Transactions require strong retention of both demand and supply, and if a marketplace can improve that stickiness, more activity can be generated on the platform. In many ways, this is just a classic retention problem, except with multiple players within the ecosystem. Just as you would on a social network product, you can tackle using traditional growth methods:

  • Notifications: Creating a strong notifications platform to engage buyers/sellers at the right time
  • Use cases: Understanding use cases and how to up-sell and cross-sell the stickiest ones
  • Offers/promotions: Using offers and content throughout the calendar cycle to engage
  • Optimization: A/B testing growth levers – from email/SMS/push copy – to when/how to reach out

However, beyond the traditional techniques, we’ve also seen a recent trends towards deeper productization of workflows for buyers and sellers within a platform. This solution, coined in recent years by James Currier and the NFX crew, is to build a “market network” that’s part SaaS tooling and part marketplace.

As a reminder, Market Networks provide useful tools to each side of the market – for instance, OpenTable’s seating system, you get stickiness purely through utility. Combine that with a marketplace, and you get even stronger effect.

Here’s a diagram illustrating the ecosystem:

And below are some examples based on AngelList and Honeybook – showing how multiple players on a market network ecosystem might interact with each other.

As one can see, sometimes these relationships between ecosystem players happen via money, and sometimes it’s through content/community. These rich interactions, facilitated by a great product UX, can retain multiple players and generate a rich stream of transactions. It’s still early years for market networks, and I’m excited to see this sector develop.

Marketplaces can start small, and end up big. Very big. 
To build a billion dollar marketplace, you have to build expansion into your model from day 1.

For some, this will look like focusing on geographic growth and building your team of launchers. For others, it’ll be about adding new product lines and price points quickly, to create new use cases for your market. Or you can improve the core platform, by increasing efficiency – whether that means onboarding or the friction of each transaction. Others can double down on retention, by building utility and workflow automation, to set a foundation for more transactions.

Each of these moves can be valid, and different marketplaces will do each. Or perhaps all of them!

The post How to build a billion dollar digital marketplace – examples from Uber, eBay, Craigslist, and more appeared first on andrewchen.

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Raising money is hard. And it’s even harder if you’re an entrepreneur from outside the Bay Area.

Entrepreneurs from outside of Silicon Valley often struggle to raise money here. There’s issues with culture and style, differences in expectations, as well as our emphasis on growth over monetization. I’m reminded of this every time I travel and meet startups. Earlier this year in Paris, my girlfriend Brianne (at Zendesk!) and I gave a talk that touched on many of these issues. We recorded the session and wanted to share it with you.

The video has a variety of topics, including:

  • How the startup ecosystems are different in SF and in Sydney (and Paris!) (2:30)
  • An alternative to influencer marketing, for startups (5:09)
  • A different way to think about your competition (7:02)
  • Customer service as a competitive advantage (9:25)
  • Why ecosystem matters, and why the Bay Area is cushier than most people think (12:50)
  • Why you should look for failed experiences if you’re hiring or interviewing (14:56)
  • Insights on Uber’s “give / get” program (18:17)
  • Breaking into VC as a teenager (19:02)
  • Advice for starting your own blog or thought platform (26:27)
  • Biggest fiascos working in growth and the downsides to being “too good” at acquisition (29:20)
  • The 4 -5 stages to building a great growth team, and what profiles to look for (33:13)
  • Does the rise of “growth” mean that “marketing” is dying, and should we expect to see the end of the CMO? (36:18)
  • Why you need “growth” when you work in a company with a million-dollar acquisition budget? (39:39)

Here’s a direct link to the video.

For those who are too busy/lazy to watch the video, I want to deep dive on a particular topic: The challenges of entrepreneurs from outside the Bay Area who are pitching investors here.

1. Your company right now doesn’t matter as much as your company’s trajectory.
I’m going to generalize a bit from startups I’ve met from Australia/Europe. One common anti-pattern is for startups to pitch what they have right now, to their detriment. Bay Area investors seek to understand the trajectory of a company. They want to know what it could be in the coming years, and so it’s not good when a pitch is literal and descriptive to the present state of the company. “This is exactly what I’m doing today, and these are the current numbers.” And so on. While this is concrete and feels real, it’s also not the right approach to create a strong vision and narrative that’s exciting.

If you’re a SaaS company, you don’t talk about this last month’s MRR with X% monthly growth rate. You should also talk about how this is the beginning of a platform/suite of products. And why it’s strategic, and sticky, and will be hard for companies to rip/replace in the future. If you’re a consumer startup, then it’s not about how many installs your app has today. Instead, you want to talk about the network you’re building when hundreds of millions of users are actively engaged in your product. And what this will enable you to do that’s unique in the market.

Where the startup is now is just a supporting bullet point to that story about where things are headed.

2. Investor motivations are different. Large outcomes matter more than high probability of success.
The second observation is that Bay Area VCs often have different motivations than investors elsewhere. For traditional Series A venture capital firms, their biggest limitation is not high quality dealflow. There’s a ton of great startups here. Instead, it’s that a partner can only be on the boards of about ten active startups at a given time. Thus, what they care most about is maximizing those ten startups. They want to make sure that those ten are the ten biggest possible companies they could be investing in, with the best possible outcomes.

They care less about whether or not your startup is profitable because that’s sometimes irrelevant to the size of the future outcome. In fact, profitability can be interpreted as reducing the potential scale of the business when the company isn’t growing fast enough. When you can only invest in ten startups and have a billion dollar fund behind you, then it’s all about opportunity cost. I’ve heard a VC say that they’d rather inject more risk into a business to avert a small/medium size outcome ($100M) to have a smaller percentage chance they can get a multi-billion dollar outcome. This can be a disorienting point of view until you understand the economics of a large professional investment fund.

3. At the startup stage, scale and velocity matter more than depth of monetization.
Finally, the third observation is also related to the emphasis on monetization from investors I’ve met in Sydney, Sweden, and France. There’s exceptions of course, but speaking in generalities, investors will naturally have a different investment strategy when they can’t assume that there’s a ton of follow-on funding behind every check. As a result, there’s a focus on getting to profitability so that the company can be self-sufficient.

This also means that there tends to be more B2B and even enterprise startups than we typically see in the US. This is because there certainly are major advantages to that model — you’re able to book revenue faster and show initial traction. But, the key problem that this approach introduces is that it limits the scale and velocity of growth because it’s just much harder to scale an enterprise business than it is to scale a consumerized SaaS or a purely consumer business.

Wrapping up
There’s a ton more content in the video, but ultimately, a lot of the differences in startup cultures for the Bay Area versus other regions comes from these varying investor and entrepreneur motivations. I’ve seen it directly from my meetings with startups from various communities.

It’s often tempting to think that there’s so much investor money here that they’re giving out checks at SFO – and as soon as you land, you’ll get funded. But it’s not quite that easy. For a new entrepreneur to come to SF and succeed, one has to often rethink the style, content, and even growth strategy of their pitch to adjust to a very different ecosystem and set of perspectives.

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The rise of the Growth Hacker
The new job title of “Growth Hacker” is integrating itself into Silicon Valley’s culture, emphasizing that coding and technical chops are now an essential part of being a great marketer. Growth hackers are a hybrid of marketer and coder, one who looks at the traditional question of “How do I get customers for my product?” and answers with A/B tests, landing pages, viral factor, email deliverability, and Open Graph. On top of this, they layer the discipline of direct marketing, with its emphasis on quantitative measurement, scenario modeling via spreadsheets, and a lot of database queries. If a startup is pre-product/market fit, growth hackers can make sure virality is embedded at the core of a product. After product/market fit, they can help run up the score on what’s already working.

This isn’t just a single role – the entire marketing team is being disrupted. Rather than a VP of Marketing with a bunch of non-technical marketers reporting to them, instead growth hackers are engineers leading teams of engineers. The process of integrating and optimizing your product to a big platform requires a blurring of lines between marketing, product, and engineering, so that they work together to make the product market itself. Projects like email deliverability, page-load times, and Facebook sign-in are no longer technical or design decisions – instead they are offensive weapons to win in the market.

Get updates to this essay, and new writing on growth hacking:

The stakes are huge because of “superplatforms” giving access to 100M+ consumers
These skills are invaluable and can change the trajectory of a new product. For the first time ever, it’s possible for new products to go from zero to 10s of millions users in just a few years. Great examples include Pinterest, Zynga, Groupon, Instagram, Dropbox. New products with incredible traction emerge every week. These products, with millions of users, are built on top of new, open platforms that in turn have hundreds of millions of users – Facebook and Apple in particular. Whereas the web in 1995 consisted of a mere 16 million users on dialup, today over 2 billion people access the internet. On top of these unprecedented numbers, consumers use super-viral communication platforms that rapidly speed up the proliferation of new products – not only is the market bigger, but it moves faster too.

Before this era, the discipline of marketing relied on the only communication channels that could reach 10s of millions of people – newspaper, TV, conferences, and channels like retail stores. To talk to these communication channels, you used people – advertising agencies, PR, keynote speeches, and business development. Today, the traditional communication channels are fragmented and passe. The fastest way to spread your product is by distributing it on a platform using APIs, not MBAs. Business development is now API-centric, not people-centric.

Whereas PR and press used to be the drivers of customer acquisition, instead it’s now a lagging indicator that your Facebook integration is working. The role of the VP of Marketing, long thought to be a non-technical role, is rapidly fading and in its place, a new breed of marketer/coder hybrids have emerged.

Airbnb, a case study
Let’s use case of Airbnb to illustrate this mindset. First, recall The Law of Shitty Clickthroughs:

Over time, all marketing strategies result in shitty clickthrough rates.

The converse of this law is that if you are first-to-market, or just as well, first-to-marketing-channel, you can get strong clickthrough and conversion rates because of novelty and lack of competition. This presents a compelling opportunity for a growth team that knows what they are doing – they can do a reasonably difficult integration into a big platform and expect to achieve an advantage early on.

Airbnb does just this, with a remarkable Craigslist integration. They’ve picked a platform with 10s of millions of users where relatively few automated tools exist, and have created a great experience to share your Airbnb listing. It’s integrated simply and deeply into the product, and is one of the most impressive ad-hoc integrations I’ve seen in years. Certainly a traditional marketer would not have come up with this, or known it was even possible – instead it’d take a marketing-minded engineer to dissect the product and build an integration this smooth.

Here’s how it works at a UI level, and then we’ll dissect the technology bits:

(This screenshots are courtesy of Luke Bornheimer and his wonderful answer on Quora)

Looks simple, right? The impressive part is that this is done with no public Craigslist API! It turns out, you have to look closely and carefully at Craigslist in order to accomplish an integration like this. Note that it’s 100X easier for me to reverse engineer something that’s already working versus coming up with the reference implementation – and for this reason, I’m super impressed with this integration.

Reverse-engineering “Post to Craigslist”
The first thing you have to do is to look at how Craigslist allows users to post to the site. Without an API, you have to write a script that can scrape Craigslist and interact with its forms, to pre-fill all the information you want.

The first thing you can notice from playing around with Craigslist is that when you go to post something, you get a unique URL where all your information is saved. So if you go to https://post.craigslist.org you’ll get redirected to a different URL that looks like https://post.craigslist.org/k/HLjRsQyQ4RGu6gFwMi3iXg/StmM3?s=type. It turns out that this URL is unique, and all information that goes into this listing is associated to this URL and not to your Craigslist cookie. This is different than the way that most sites do it, where a bunch of information is saved in a cookie and/or server-side and then pulled out. This unique way of associating your Craigslist data and the URL means that you can build a bot that visits Craigslist, gets a unique URL, fills in the listing info, and then passes the URL to the user to take the final step of publishing. That becomes the foundation for the integration.

At the same time, the bot needs to know information to deal with all the forms – beyond filling out the Craigslist category, which is simple, you also need to know which geographical region to select. For that, you’d have to visit every Craigslist in every market they serve, and scrape the names and codes for every region. Luckily, you can start with the links in the Craiglist sidepanel – there’s 100s of different versions of Craigslist, it turns out.

If you dig around a little bit you find that certain geographical markets are more detailed than others. In some, like the SF Bay Area, there’s subareas (south bay, peninsula, etc.) and neighborhoods (bernal, pacific heights) whereas in other markets there’s only subareas, or there’s just the market. So you’d have to incorporate all of that into your interface.

Then there’s the problem of the listing itself – by default, Craigslist works by giving you an anonymous email address which you use to communicate to potential customers. If you want to drive them to your site, you’d have to notice that you can turn off showing an email, and just provide the “Contact me here” link instead. Or, you could potentially fill a special email address like listing-29372@domain.com that automatically directs inquiries to the right person, which can be done using services like Mailgun or Sendgrid.

Finally, you’ll want the listing to look good – it turns out Craigslist only supports a limited amount of HTML, so you’ll need to work to make your listings work well within those constraints.

Completing the integration is only the beginning – once it’s up, you’d have to optimize it. What’s the completion % once sometime starts sharing their listing out to Craigslist? How can you change the flow, the call to action, the steps in the form, to increase this %? And similarly, when people land from Craigslist, how do you make sure they are likely to complete a transaction? Do they need special messaging?

Tracking all of this requires additional work with click-tracking with unique URLs, 1×1 GIFs on the Craigslist listing, and many more details.

Long story short, this kind of integration is not trivial. There’s many little details to notice, and I wouldn’t be surprised if the initial integration took some very smart people a lot of time to perfect.

No traditional marketer would have figured this out
Let’s be honest, a traditional marketer would not even be close to imagining the integration above – there’s too many technical details needed for it to happen. As a result, it could only have come out of the mind of an engineer tasked with the problem of acquiring more users from Craigslist. Who knows how much value Airbnb is getting from this integration, but in my book, it’s damn impressive. It taps into a low-competition, huge-volume marketing channel, and builds a marketing function deeply into the product. Best of all, it’s a win-win for everyone involved – both the people renting out their places by tapping into pre-built demand, and for renters, who see much nicer listings with better photos and descriptions.

This is just a case study, but with this type of integration, a new product is able to compete not just on features, but on distribution strategy as well. In this way, two identical products can have 100X different outcomes, just based on how well they integrate into Craigslist/Twitter/Facebook. It’s an amazing time, and a new breed of creative, technical marketers are emerging. Watch this trend.

So to summarize:

  • For the first time ever, superplatforms like Facebook and Apple uniquely provide access to 10s of millions of customers
  • The discipline of marketing is shifting from people-centric to API-centric activities
  • Growth hackers embody the hybrid between marketer and coder needed to thrive in the age of platforms
  • Airbnb has an amazing Craigslist integration

Good luck, growth hackers!

Get updates to this essay, and new writing on growth hacking:

The post Why Growth Hacker is the new VP of Marketing appeared first on andrewchen.

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I recently did a video interview on the topic of how your growth strategy changes from being a small startup versus becoming a larger company. It’s hard to compete when you’re launching a new product and you have to think asymmetrically for your growth efforts to work. I walk through each stage, step by step, and talk through some of the strategic dynamics to think about. (Thanks to the Reforge folks for setting this up!)

Video
You can watch the full video here, and check out the notes below.

 

Notes
New startups have to focus on underrated acquisition channels for early growth efforts [0:00]

  • Look for channels that are too small for the big companies to worry about — this is how smaller companies can gain an asymmetric advantage
  • Examples: niche communities, sub reddits, mailing lists, offline, blogs, linkedin groups, facebook groups
  • The best underrated channels are all small but high-intent

Find underrated channels that directly match your product’s target market [1:45]

  • Look at what are the channels that match your product the most.
  • It has everything to do with finding lots of little channels with high relevance.
  • Regardless of where you start, you need to quickly be able to cobble together a bunch of small channels to get going — not just one or two.

Learn with very small channels by focusing on qualitative feedback to start [2:48]

  • Any small channels that allow interaction with the audience, will allow you to do testing.
  • Even small groups for customer development are worth exploring
  • Test for the responsiveness of your audience

Scale up to the next, bigger channels, by starting with tests to optimize your performance [3:58]

  • First path: Go after the bigger channels that the bigger co’s are going after, siphon off a small amount of traffic, at minimum it’s a means of testing
  • Second path: trying to find a new channel / platform, that others haven’t considered that’s unique to your product. Example: Dropbox or Slack integration if you’re doing workplace productivity.
  • Those channels are “medium sized” right now but have the chance to scale up bigger as their APIs develop.

Big companies approach acquisition by building a portfolio of channels that can scale [5:32]

  • Once you’re big, it’s about building a portfolio
  • All the little things will hit their ceiling and won’t scale
  • You’ll end up with a few established, large channels, and your strategy will be about aggregation. Grow your portfolio, not replace channels
  • Big opportunity is around attacking existing channels (or new ones) in a unique way that’s tied to your product
  • Product-channel fit is key (Pinterest + workplace productivity tool = dissonance)
  • Examples for b2b: the calendar, the browser
  • For consumer, there’s YouTube

The most exciting channels “right now” need to tie uniquely/directly to your product [9:02]

  • “Right now” is the wrong way to think about it; it’s about the trajectory
  • Stage 1: Map the user lifecycle:
    • What are all the other tools, apps, offline experiences that your users are also coming into contact with?
    • Find out what your product is most adjacent to
  • Stage 2: Sizing / understanding the trajectory of all these things that are out there (at an MAU level).
    • What kind of integration can you get?
    • Some platforms are more conducive to virality or being used as a growth channel (instagram doesn’t give you a way to link out, so it’s less good of a channel VS youtube, which does allow cross linking and linking out)
  • Channels have to match what people are trying to do with your product

You have to pick the right social channels for virality [11:30]

  • Social isn’t just digital experiences; it’s also offline experiences
  • So, “social channels” are any ways that your users / customers talk to each other to convey that the other person should try a product
  • Direct recommendation or invite: “I’ve invited you to Facebook, you should use this.”
  • Indirect recommendation or invite: “I’ve taken this cool Instagram photo, do you like it?”
  • Same applies to B2B; Dropbox is an example of indirect.
  • Digital is important because it’s attributable, but the broader takeaway is to create a product with a bunch of touchpoints in a user’s life; those touchpoints trigger natural recommendation or invite opportunities

How do products spread on social channels? [16:06]

  • Extrinsic vs intrinsic motivation, and their accompanying rewards systems
  • Extrinsic — get a direct reward for referring someone
  • Intrinsic — my friends using this makes the experience better for me
  • They’re not mutually exclusive, and can work well together
  • Extrinsic is easier to bolt on after the fact, but intrinsic (built in to the product early on) creates deeper defensibility by creating network effects

“Going viral” doesn’t mean just building something cool [21:19]

  • “I’ll just make something really cool, and people will talk about it” is not as sustainable as acquisition channels that are based on combined intrinsic and extrinsic motivations
  • Example: Slack going viral
Get updates to this essay, and new writing on growth hacking:

Not every platform is created equal (for virality). How do you build for the right one? [22:48]

  • Anything that’s spreading from user to user is spreading on a platform that already exists.
  • Platforms are built on top of each other (Facebook on top of .edu, many companies built on top of the Facebook platform) and certain ones are more suitable than others.
  • Key questions to ask when evaluating platform potential:
    • How easy is it for customers to communicate with one another?
    • How much control do you have (via APIs or anything else) to customize the invite experience?
    • Do you have the ability to add a link?
    • Can you get ahold of an address book or social graph, in order to generate invites?
  • You have to assess not only size and trajectory, but also how open is that platform? What are the hooks the it supplies you to build growth?
Get updates to this essay, and new writing on growth hacking:

The post Why startups and big companies should approach growth differently (Video) appeared first on andrewchen.

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Startups should be getting cheaper to build. After all, the industry’s created several waves of innovation that’s supporting this across multiple layers in the stack:

  • Open source software instead of paid developer tools
  • AWS instead of your own datacenter
  • Per-click ads instead of Superbowl commercials
  • Off-the-shelf SaaS tools versus building your own
  • App stores for efficient global distribution

Not only do a number of these trends make building new products cheap, in many cases it’s about driving the costs down to zero. If we zoom just into AWS / cloud computing, you see how a massive amount of competition is leading to significantly lower costs – even some vendors giving away their services pro bono:

As cloud providers rush to build new data centres, and battle for market share, businesses are finding that the cost of putting their computing and data storage into the online cloud is getting ever cheaper. In the past three years prices are down by around a quarter, according to Citigroup, a bank; and further significant falls look all but inevitable. Some providers, such as Microsoft, have started providing their services free to startups, in the hope of turning them into paying customers as they grow. (Economist)

However, this is opposite of what’s happening. Instead, startups are raising more capital and burning more capital to get to their Series As. It might be cheap to build the v1 of your app, but getting traction is a whole other story. Compared to a decade ago, it’s getting more expensive to get traction, while at the same time, growth is getting harder from intensive competition, consolidation, and saturation.

Why costs are rising
There are two underlying reasons for the increasing costs: Salary/comp for your team, and growth has shifted more towards paid acquisition. While the former is obvious (especially to those paying rent in San Francisco), the second is more nuanced, since it’s driven by a number of industry trends.

As we’ve said, growth is getting harder, and as a result, companies building new products are evolving their strategies away from counting on traditional channels like virality, SEO, and organic, and more towards paid acquisition to scale. Even though traction is difficult to achieve in today’s climate, venture capital is plentiful for those who hit a solid growth curve. This means that companies have an advantage when they execute well also have a natural product/channel match for paid acquisition channel. (Think high LTVs, lack of ad competition, being good at fundraising.)

What’s happening as a result
As a result of this pivot towards paid acquisition to scale, we see four trends that go along with rising costs:

  1. Startups are raising more money to get to traction
  2. Companies are trying paid marketing earlier
  3. There’s an increase in emphasis on paid referral programs rather than virality
  4. Companies are going for deeper monetization in order to open up paid channels

Let’s look at each of these trends.

1. Startups are raising more money to get to traction
More focus on paid acquisition means startups need to raise more money to raise money only once they can prove out their traction. We’re seeing more companies raising more money to get more traction before they raise, and when they do take the new round, it’s often to fund bigger and more expensive paid acquisition efforts.

The median seed round tripled from $272K to $750K between 2010 and 2016 according to analysis from Tom Tunguz over at Redpoint, and that growth extends to later rounds too. Companies across the board are raising bigger rounds, often from non-traditional investors, to drive growth for the next fundraise or for an exit (source: Quartz):

In the initial stages, this extra money enables buying early growth through testing and sub-scale campaigns to compliment organic growth. As a company scales, these bigger rounds buy you time and acquisition resources to build a defensible but expensive flywheel.

2. Companies are trying paid marketing earlier
The good news about more companies trying paid acquisition is that it’s easier than ever to experiment with paid marketing early. Self-serve ad systems are now the norm, which we can see from recent self-serve ad launches from newer platforms like Snap and Quora. Companies can test and master paid spend much earlier and run meaningful experiments with budget as low as $50. This allows an earlier and better understanding of unit economics and how to optimize the other steps in the funnel.

“Today, advertisers of all sizes expect platforms to offer them a number features as basic built-ins: self-serve, hyper-targeting, analytics, dynamic pricing. The way ad platforms are now structured with these features allows you to run small tests with sub-scale campaigns. It takes minimal time to make the creative, and it’s super easy to do testing for startups and new products.”

Sriram Krishnan, ex-Revenue Products at Snap, Mobile Ad Platform at Facebook.

The internet advertising industry continues to grow across all channels. The number of advertisers on Facebook alone recently hit 5 million, up from 4 million just 7 months ago.

There are a couple of implications to this. First, more competition (in total spend and in number of spenders) increases the global focus on paid acquisition. As a result, everyone’s spending more.

3. More emphasis on paid referral programs rather than virality
Viral channels aren’t working as well as they used to because of the natural lifecycle that affects all acquisition channels. Today, 10 years after the introduction of biggest social networks, most viral channels have peaked:

Perhaps we’ll see the return of these social channels, as messaging platforms mature, but in the meantime, many companies are utilizing referral campaigns to juice their acquisition. Paid referral programs also help build user engagement and get companies to faster network effects because on top of bringing in more users, they bring in more users who are already connected to each other.

Dropbox’s give/get disk space was one famous early example of referral, but these days, the largest companies from Uber to Airbnb all utilize referral programs.

4. Monetize more deeply to open up channels
To support the increase in paid spend, companies need to either raise more money, or make more money. As a result, we’re seeing companies optimize for better LTVs to justify higher CAC and increased competition across the board.

Companies like Wealthfront, Breather, Credit Karma and Gusto have all hit high LTVs early in their lifecycles, and that profitability has bought them a competitive edge in acquisition as those stronger LTVs afford them higher CAC. Anecdotally, it’s been said that many Fintech companies have CACs over $1000+ to acquire a single customer.

All acquisition channels are an efficient market at some point, and this means that companies that monetize better than their competitors (either with higher LTVs or because they enjoy shorter payback periods) will be able to afford a higher CAC and subsequently out-invest those competitors. In short, better monetization is a competitive advantage for growth.

Conclusion
As you build your company, don’t underestimate the rising cost of distribution. Yes, everything’s getting cheaper from the growth of cloud computing, off-the-shelf SaaS, open-source code, and more granular and accessible performance marketing. But, growth is also getting tougher from channel saturation, better competitors, and consolidated winner-take-all platforms.

To keep growing in this type of landscape, you’ll need to think carefully about paid acquisition, deeper monetization, and how to compete in this new environment:

  • New products are often sub-scale on unit economics, so they have negative LTV:CAC. Show and carve out a clear path to monetization so you can afford growth.
  • No one can afford to put off paid acquisition anymore, and it’s easy to test ads on small budgets, so start as early as possible.
  • Think of referral programs are another form of paid spend. You have the same CAC, but instead of giving the money to Facebook or Google, you give value to your users and their friends.
  • Finally, consider ways to deepen differentiation by solving hard(er) problems and building your moat with tech.

Good luck out there!

The post Startups are cheaper to build, but more expensive to grow – here’s why appeared first on andrewchen.

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Readers,
As you can tell, I’ve been a bit more active writing in the last few months. I wanted to do a quick roundup of my essays over the last year, in case you’ve missed any of them. I’ve published a number of guest essays and original writing on topics like growth metrics, consumer psych, the startup ecosystem in the Bay Area, push notifications, and much more.

If you want future updates, you can always subscribe to get the newsletter.

For your convenience, I’ve written a couple blurbs underneath each essay so you can get a sense for each article.

Finally, I wanted to note – can you believe I’ve been writing for almost 11 years now? Who knew I’d be able to keep it up for so long?! Appreciate all the folks who’ve been with me for years. Thank you for reading!

Regards,
Andrew Chen
San Francisco, California

Original essays

10 years in the Bay Area – what I’ve learned
I’ve lived here for the last decade, and have learned a ton of about this region’s entrepreneurial drive, the unique culture, and wonderful folks. I wanted to share a couple lessons learned here.

The Bad Product Fallacy: Don’t confuse “I don’t like it” with “That’s a bad product and it’ll fail”
Your personal use cases and opinion are a shitty predictor of a product’s future success.

Growth is getting hard from intensive competition, consolidation, and saturation
It’s the end of a cycle, and we’re seeing headwinds on paid channels, banner blindless, competitive dynamics, and more. And it’s much harder to compete with boredom than with Facebook/Google/etc.

What 671 million push notifications say about how people spend their day
Here’s a study, based on Leanplum’s data, on how people spend their days – on sports, leisure, phone calls, and otherwise – in addition to what tech platforms they’re using.

Startups and big cos should approach growth differently (Video)
Here’s a video interview breaking down how startups evolve and change their strategies as they gain initial traction, hit product market fit, and eventually start to scale.

What’s next in growth? (Presentation at Australia’s StartCon)
Last year I presented this talk on how marketing has evolved over the last century, and how many of the ideas we think of as “growth” today are actually based on concepts from decades ago. I use this to talk about future platforms and where this might all go.

Uber’s virtuous cycle. Geographic density, hyperlocal marketplaces, and why drivers are key
In my last two years at Uber, I’ve learned a ton about the flywheel that makes Uber’s core business hum and grow incredibly fast. In this essay I draw from Bill Gurley’s essays on network effects, the labor market for part-time workers (aka drivers, “the supply side”), and how surge works within the company. A lot has evolved/changed since I’ve written this, but it’s a good overview from my first year of learnings.

Guest essays

How To (Actually) Calculate CAC
Brian Balfour, ex-vp growth at Hubspot, talks about how to calculate cost of acquisition and all the practical difficulties involved.

A Practitioner’s Guide to Net Promoter Score
Sachin Rekhi, ex-director product at Linkedin, breaks down how to measure and utilize Net Promoter Score and its relation to viral growth.

Growth Interview Questions from Atlassian, SurveyMonkey, Gusto and Hubspot
Lots of amazing interview questions from the growth leads at some of the best SaaS companies on the market.

Psych’d: A new user psychology framework for increasing funnel conversion
Darius Contractor at Dropbox describes a framework on pushing users through conversion funnels by getting them psych’d (via value prop, clear CTAs, etc). Nice framework that speaks to reducing friction and increasing value.

Top essays from 2015
This roundup, but from two years ago :) Includes writing about Uber, online dating, push notifications, Apple Watch, and more.

The post This year’s top essays on growth metrics, consumer psychology, Uber, push notifs, NPS, and more appeared first on andrewchen.

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The end of the cycle
One of the best essays written last year was Elad Gil’s End of Cycle? – referencing our most recent 2007-2017 run on mobile and web software, and the implications for investing, startups, and entrepreneurs. Although he doesn’t directly talk about it, the end of a tech cycle has major implications for launching new products, growing existing product categories, because of a simple thing:

It gets much, much harder to grow new products or pivot existing ones into new markets

The reason for the above is that there are multiple trends – happening right now – that impede growth for new products. These trends are being driven by the biggest players – Google/Facebook, et al – but also by the significant leveling up around of practitioners in design/PM/data/growth.

We’ll look at a couple trends in this essay, including the following:

  1. Mobile platform consolidation
  2. Competition on paid channels
  3. Banner blindness  = shitty clickthroughs
  4. Superior tooling
  5. Smarter, faster competitors
  6. Competing with boredom is easier than competing with Google/Facebook

These trends are powerful and critical to understanding why all of a sudden, entrepreneurs/investors are starting to get into many new fields (genomics, VTOL cars, cryptocurrency, autonomy, IoT, etc) in order to find new opportunities. After all, if you can’t grow in the existing markets, you very quickly need to get into new ones, as Elad describes:

One sign that technology markets often exhibit at the tail end of a cycle is a fast diversification of the types of startups getting funded. For example, following the core internet boom of the late 90s (Google, Yahoo!, eBay, PayPal), in early 2000 and 2001 there was a sudden diversification and investment into P2P and mobile (before mobile was ready) and then in 2002-2003 people started looking at CleanTech, Nanotech etc – industries that obviously all eventually failed from an entrepreneurial and investment return perspective.

Nanotech, cleantech, etc was the last cycle, and now we’re talking about the next one.

#1 Mobile platform consolidation
The new Google/Apple app duopoly is more concentrated, more closed, and far less rich (from a growth standpoint) as compared to web – which means that mobile is far more stagnant and harder to break into. App Store functionality like top ranking charts, “Essential” bundles of apps, editorialized “Featured App” sections, all help drive a winner-takes-all mobile ecosystem.

No wonder app store rankings have ossified over the years. Facebook and Google now control most of the Top 10 apps in the mobile ecosystem:

Source: Nielsen, Dec 2016

If you’re introducing a new app – whether unbundling a more complex app or launching a new startup – how do you break into this? There’s not a ton of organic opportunities. And the paid acquisition channels are getting saturated too.

#2 Competition on paid channels
Paying for acquisition is one of the key channels still available, if you can find the right untapped audience segments with high ROIs. This only works when prices aren’t bidded up and you don’t face too much competition for the same ad inventory. Unfortunately that’s not what’s happening.

For example, let’s look at some of the dynamics of Facebook increasing their revenue per DAU over the last few years:

This is driven by a number of factors, of course – relevance, targeting, ad unit engagement, etc. – but it’s also because competition is getting fiercer on Facebook ads, not less, which is evidenced by the rapid increase in the advertiser count as well as the increase in revenue per user. In 2017, Facebook counts over 5 million advertisers on its platform, up from 4 million in Q3 of last year and 2 million in 2015. During its Q1 2017 earnings call, Facebook told investors that it expected ad revenue was approaching a saturation point, despite major growth in Q1 2017 earnings as compared to 2016. It’s currently at 2 billion users, with 17% YoY user growth, and its ability to add more inventory depends increasing its user base, or increasing users’ time spent on Facebook.

#3 Banner blindness = shitty clickthroughs
Additionally, everyone’s getting smarter about growth, including consumers. Today, most invite systems no longer have the same novelty value or efficacy as they did 10 years ago (Dropbox’ give/get was novel when it launched), and consumers’ “banner blindness” extends far beyond actual display advertising to encompass referral systems and virality programs.

In Mary Meeker’s latest internet trends report, she reports that up to 1/3 of some countries are using ad blocking, and we’re quickly on our way to 600M internet MAU who can’t be reached by ads:

This is just the 2017 version of The Law of Shitty Clickthroughs, which I wrote about a few years ago, where I showed some stats indicating that email marketing open rates are on the decline:

… and that traditional banner CTRs seem to be asymptotically approaching zero:

These trends are troubling, and mean that these channels are getting less engagement per user, and we haven’t found amazing new channels to replace them.

#4 Superior tooling – which levels the playing field
At the same time as advertising is getting more crowded, there’s also increasingly widespread availability and adoption of tools like Mixpanel, Leanplum, Optimizely and others that close the gap on being data-driven at companies.

Ten years ago, we used to look at total registered users. Cohort analysis was a sophisticated approach, and we also didn’t have a sense for MAU, DAU or other more granular metrics. One of the killer features of Mixpanel is that it made understanding cohort-based retention turnkey. It used to take a real investment of engineers, data scientists, and know how to be able to create simple graphs like this:

Now, it’s pretty much turnkey. You can get this chart from Mixpanel (and may others!) practically for free, as soon as you implement your analytics tracking.

In B2B, we’re seeing the same phenomenon. Outbound used to be painstaking and manual. Today, there are many sales tools that make outbound more accessible (Mixmax, Outreach, insidesales.com etc), which automates part of the process but also generates more noise and competition. Tasks that used to be more manual and higher friction are automated and easier, which leads to more people jumping in.

The result is that it makes everyone better. You and all your competitors understand your/their acquisition and retention bottlenecks. Everyone has an equal, data-driven shot at improving LTV, and as a corollary can spend more on ads.

#5 Smarter and faster competitors
It used to be that startups could count on their competitors to be big, dumb, and slow. Not anymore. We’ve all gotten smarter and faster, and that includes your competitors. It used to be that you could wait a few years before competitors would respond. Now the Facebooks, Hubspots and Salesforces of the world can and will copy you right away.

Most famously, we’ve seen Facebook fast follow Snap within their Messenger, Instagram, Whatsapp and core product:

But it’s not just consumer where this is happening:

  • Dropbox <> Google Drive
  • Slack <> Microsoft Teams
  • YesWare <> Hubspot Sales

… and many more examples too.

#6 Competing with boredom is easier than competing with Facebook + Google
When the App Store first launched, competition was easy: Boredom. Mobile app developers were taking time away from easy, ‘idle’ activities like waiting in line, commuting etc. But today, acquiring a new app user means stealing a user’s time from their favorite existing app.

As we’re near the end of the cycle, companies have moved from non-zero sum to a zero-sum competition.

Instead of competing with boredom, we’re now competing with Silicon Valley’s top tech companies, who already have all your users (back to number 2 above). This also applies to the consumerized workplace, where new entrants will be competing to steal users’ time from Slack, Dropbox and other favorite apps. This is much, much harder because the incumbents have pretty great products! And proven distribution models to respond if needed.

How the industry is evolving, in response
The above trends are troubling for new products, and especially for startups. All 6 of these trends are scary, and they’ve emerged because we’re at the end of a cycle. There’s a variety of natural monopolistic trends (like app stores, ad platforms, etc), where everything with related to growth and traction is getting harder.

If companies want to stay in the mobile/software product categories, they need to evolve their strategies. I’ll save a deeper discussion for a future essay, but here are some observations on what’s happening:

  1. More money diverted to paid acquisition
  2. Deeper monetization to open up channels – especially paid
  3. Creation of paid referral programs to complement ad buying
  4. Personalization features that rely on lots of data to amp up targeting
  5. Products trying to deepen differentiation by solving hard(er) problems/tech

There seems to be a deepening in both monetization, differentiation, and personalization to help open up growth. This happens by solving more fundamental customer problems – especially those that help generate real $ value for people – but also helps open up paid channels, whether that’s advertising, referrals, or promos.

More discussion on this in a future writeup!

The post Growth is getting hard from intensive competition, consolidation, and saturation appeared first on andrewchen.

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