I started sketching out this post before Benedict joined a16z, so excuse the fact that his ‘business model’ is now resolved for a little while :). For ‘Benedict Evans’ feel free to substitute any smart, public intellectual unaffiliated to an existing organisation with a wealth of insight to provide.
When Benedict and his blog emerged on the start-up scene, it was an interesting event: he had over a decade of experience in mobile & media and was rapidly building an audience of the most influential people in tech. The most entertaining feature to me was his weekly summary of how many more readers he’d acquired that week. I reached out to him when his blog was just getting started and we had a good conversation over breakfast. I really admire him and watched him build his audience with fascination. The question that kept coming back to me was - what should his business model be?
The value proposition as I see it is: world class insight into a particular domain (in his case, mostly the evolution of mobile/media) which he was providing for free. Normally such insights are clearly part of a broader free+paid model - Fred Wilson was eloquent and explicit about this when describing his blog: "It is the model behind this blog in fact. You get the content for free. Anything else, you have to pay for with equity in your company".
The ways to get paid that I could see at the time:
- put some of the content behind a paywall (e.g. similar to Ben Bajarin at Techpinions or Om Malik) ie charge a subset of the public for incremental insight
- get paid offline (e.g. Eric Ries' book, events etc)
- build a product around his community (e.g. Sean Ellis & growthhackers that monetises in another way)
- get paid in cash/equity as an advisor to various start-ups, VCs, established businesses ie charge individual businesses for company specific insight
- get paid in carry as part of a VC firm
I have to say I was hoping that somehow this might represent the unbundling of VC and that Benedict would build a standalone business around advice/insight. But I suspect that what he’s doing now will probably be the best move he could possibly have made. It is interesting to consider what % of a16z he has vs the other partners/contributors. It would be a great data point on the value of insight.
In my opinion one of the most helpful things YC has done for the start-up ecosystem is to apply a reductive mindset to start-up strategy: Make something people want. There is so much wisdom contained in that one sentence.
The thing it reminds me of most is studying mechanics at university. The way I was taught mechanics, your goal is to take a small set of first principles (mainly Newton’s laws of motion) and learn how to rigorously apply them to understand the motion of physical objects. The point in a classical mechanics course where you apply these simple laws and end up with a model of how a gyroscope works is breathtaking.
I watched Elon Musk speak at the Dublin Web Summit, and one of the most helpful points he made was that innovation is the product of reasoning from first principles (good summary here). Given his current set of companies he was mainly referring to the first principles of physics/chemistry, but I think there are some similar first principles for building start-ups that must be discovered and applied. YC’s motto feels like one of them. Like Newton’s laws of motion, the hard part isn’t reading the sentence once, the hard part is learning how to apply it to understand a gyroscope. Paul Graham’s essays on start-ups and their early customers often feel like the course notes that explain how to apply that first principle.
One of the hard things about being a start-up CEO is simultaneously building a product and a business from first principles whilst recognising the need to market your business through narrative and analogy. The classic example here is the “X of Y” pitch that drives most investor pitches. Narrative and storytelling is an incredibly important component of marketing and quickly explaining what you do. But if you want to build a great product & business, and you try to do that by analogy, you will fail. So the art is to learn how to use first principles when you are building, and analogy when you are selling.
Age 19 Matt Mullengweg co-founded WordPress
Age 20 John Collison co-founded Stripe
Age 21 Sophia Amoruso co-founded Nasty Gal
Age 22 Joe Lonsdale co-founded Palantir
Age 23 Daniel Ek co-founded Spotify
Age 24 Michelle Zatlyn co-founded Cloudflare
Age 25 Larry Page co-founded Google
Age 26 Julia Hartz co-founded Eventbrite
Age 27 Ben Silberman co-founded Pinterest
Age 28 Andrew Mason co-founded Groupon
Age 29 Bryan Johnston co-founded Braintree
Age 30 Jeff Bezos founded Amazon
Age 31 Perry Chen co-founded Kickstarter
Age 32 Victoria Ransom co-founded Wildfire
Age 33 Jan Koum co-founded WhatsApp
Age 34 Jessica Livingston co-founded Y Combinator
Age 35 Reid Hoffman co-founded LinkedIn
Age 36 Renaud Laplanche co-founded Lending Club
Age 37 Reid Hastings co-founded Netflix
Age 38 Jimmy Wales co-founded Wikia
Age 39 Martin Lorentzon co-founded Spotify
Age 40 Aneel Bhusri co-founded Workday
Age 41 Paul English co-founded Kayak
Age 42 Robin Chase co-founded Zipcar
…running out of time to Google people’s ages but here’s a start on 43+:
Age 46 Linda Avery co-founded 23andMe
Age 50 Andrew Viterbi co-founded Qualcomm
Age 52 Kenneth Lerer co-founded The Huffington Post
Age 55 Arianna Huffington co-founded The Huffington Post
Age 58 Satoshi Nakamoto (maybe) co-founded Bitcoin
Age 64 David Duffield co-founded Workday
Your age and experience (or lack of) will help you and hinder you in different ways. Ambition & opportunity, at the right time in your life, with a big problem you want to solve, is probably more important.
ps if you can help me fill out names for the blanks post age 43 then please leave in the comments and I’ll add.
Over the course of building Songkick, and seeing it grow to over 9 million fans/month, I’ve had the pleasure to learn from and work with some exceptional thinkers on growth. I’ve learned the most from Dan Rogers who has lead our quantitative growth efforts since 2010, Sean Ellis and Andrew Hunter who was an early advisor to Songkick and Dan’s mentor. I love learning about marketing and have at various points in Songkick’s past tried to make sense of various types of distribution, primarily:
- quantitative growth channels e.g. viral loops, email marketing, widgets, SEO, SEM
- partnership or narrative driven growth channels e.g. BD partnerships, PR
Quantitative growth channels are now what’s termed ‘growth hacking’.
It’s a mix of creativity (finding novel channels to drive growth that competitors have not yet discovered) and technical/analytical skill (scalably exploiting those channels). The lifecycle is:
1. find a channel that works before your competitors (and if the channel is broad enough this may include all consumer apps)
2. exploit that first mover advantage
4. get creative & go find another novel channel. Return to step 1.
Another way of looking at this is that new marketing channels have a limited amount of new users they can supply, and there is infinite demand from start-ups who want more users. It’s a zero sum game, where the overall value of winning the game also usually declines over time.
So the best growth hackers shut the fuck up about what’s working & hope that they can keep the channel to themselves for as long as possible. Usually the only way you learn really novel marketing approaches is by spending time in person with a trusted peer, sharing your respective secrets & hoping the novel things you learn from them balance out the information leakage.
This is at odds with what’s going on in start-up land at the moment where there’s now even a forum dedicated to ‘growth hacking’. I’m really skeptical you can learn anything there beyond what’s worked in the past (which is no longer relevant) and how to apply a quantitative approach to marketing. I have a theory that the growth hackers forum is actually just an elaborate growth hack by Sean Ellis to market Qualaroo!
So if you’re a start-up looking to grow, get creative, find your unique approach to growth and then keep it to yourself.
I did this last year and friends seemed to enjoy it, so here’s the 2013 instalment.
Books (most published before 2013):
1. Ulysses (James Joyce
2. In Search of Lost Time (Marcel Proust)
3. Catch 22 (Joseph Heller)
4. Average is Over (Tyler Cowan)
5. The Sense of an Ending (Julian Barnes)
6. On Chesil Beach (Ian McEwan)
7. Who Owns the Future (Jaron Lanier)
8. … that was it. Ulysses & Proust took up most of my reading time but wow they were worth it
Musical artists (new music released this year):
1. Kanye West
2. Chance the Rapper
3. Pusha T
4. Kevin Gates
5. Indian Wells
6. The Haxan Cloak
7. Jon Hopkins
9. Arcade Fire
Films (released in UK in 2013):
2. Blue Is the Warmest Colour
3. The Great Beauty
4. Zero Dark Thirty
5. A Hijacking
6. Frances Ha
8. American Hustle
9. World War Z
10. Neighbouring Sounds
In general I agree with Marc Andreessen’s thesis that software is ‘eating' the world. More and more large network effects based businesses seem to be displacing existing offline businesses (Yellow Pages->Yelp, Tower Records->Spotify, Addison Lee->Hailo etc). One of the most successful venture capital firms only invests in ‘large networks of engaged users’.
But if that is happening what’s the equivalent of a small mom & pop business online? If you just want a little corner of independence and a decent living what are your options?
I guess one option is just to be a supplier to these mega-marketplaces - make stuff for Etsy, drive cars for Uber, rent properties on Airbnb. But what if you want a bit more independence than that?
Competing with network effects or web enabled economies of scale seems like a dead end - it’s going to be hard to start a small independent online bookstore with the ‘Everything Store' as competition.
I think the answer might be to build a small utility that a decent number of people find useful and charge them for it. You’ll probably be safer if there are no obvious network effects to exploit. That could be an iPhone app to read articles later like Instapaper, it could be a way for bands to put their music on iTunes and YouTube more easily like Distrokid.
Those two services seem like unfair examples in some ways because the creators are two of the most effective solo-entrepreneurs in the world. But as tech literacy increases, maybe there are more Marco Arments and Philip Kaplans carving out an independent niche online, immune to the rich get richer trajectories of network based businesses like Amazon, Google, Apple etc.
The two books that have most influenced my view on where the entertainment industry is headed are Infinite Jest and The Pale King, both by the great David Foster Wallace.
In Infinite Jest he paints a future in which a new form of entertainment has arrived that is so all consuming that the viewer is mesmerised to the point where they cannot tear themselves away from their screen. The viewers typically die of thirst, sitting in their chairs. The book was published in 1996 and pre-dates the mainstreaming of internet delivered entertainment, but in retrospect it felt prescient about where we were headed .
I was reminded of Infinite Jest today reading Jeffrey Katzenberg’s brilliant MIPCOM speech where he makes two key points:
1. That entertainment is not a zero-sum game - the introduction of new types of media (printing press, film, radio, TV, web etc) creates new demand - basically we’re not even close to saturating humanity’s desire to be entertained
2. That mobile accelerates this because we can now be entertained when we are out and about, “waiting”. Paperback books, magazines in the doctors office, the walkman predate this ‘mobilsation’ but now expanding faster than ever
I think both of these points are true, and if you buy that, exceptional storytellers & entertainers - whether the creators of Breaking Bad or Jonathan Franzen will be valued far more in the future. So too will be new platforms for entertainment. And so will those that amplify the leverage of those great storytellers e.g. CAA.
The counterpoint to this acceleration is provided by The Pale King - a study on boredom. The book questions whether our hunger to be entertained is a distraction mechanism that helps us ignore the unanswerable questions in life that roughly reduce to - what does it all mean. His heroes are the workers in the US tax office and they are realised and dignified by their boredom. All this to say - I share DFW’s concern that a world in which we are more and more entertained is not necessarily a healthy one and I think much good can be done by helping people find that empty space. The counter cyclical investment thesis for entertainment if you like. I think at some point we will be in search of that lost boredom.
 - the structure is also weirdly prescient - the endless footnotes feel something like web browsing & hypertext.
I’m always fascinated with how the internet is impacting other creative industries beyond music.
On Saturday I took my little sister to The Vogue Festival as a birthday present, and we watched 4 of London’s most exciting young designers (JW Anderson, Jonathan Saunders, Mary Katrantzou and Erdem Moralioglu) discuss how they have grown their businesses from the UK.
As designers who grew with the web, there were a few really interesting insights on how the internet has affected their work:
1. Changing aesthetics: Shopping online for clothes typically involves scrolling through pages and pages of images. Mary Kantrantzou believes that this has lead to shoppers paying more attention to designs that stand out - in particular unusual colours or prints. She believes this has been a factor in the resurgence of print
2. Designing for more climates concurrently. Sites like Net-a-porter clothes allow smaller designers to sell to more markets, and so a designer has to hold more markets in their head when designing - thinking about how a dress will feel in Singapore summer or Brazilian winter.
3. While critics and artists have always been intertwined, the fashion blogosphere has sped up the pace at which a new designer is decontructed and analysed. Kantrantzou shared an interesting story about how very early on in her career she had been exploring various designs, when a fashion blogger wrote a piece which explained how they all fit into a theme from her first piece to her last. That helped to solidify her aesthetic, perhaps faster than would have happened in the past.
Grilled Polenta with mushrooms
Every VC talks about ‘value add’. The unique ways in which they believe they can help you build your business, be a great partner, and increase the chance of your start-up being a success. These include their network, recruitment, strategic advice, operational experience etc.
I have observed that a great angel/VC partner/firm can add enormous value. As a simple example of something concrete that changed Songkick’s trajectory, Saul Klein our board member from Index knew we were urgently looking for a world class designer, and introduced us to Gideon Bullock who he knew from his days at Skype. Gideon became our Creative Director and is a core member of Songkick’s management team. That’s just one example and I have hundreds more examples of things that our investors including Greg McAdoo from Sequoia, Peter Read, Paul Graham and many others have helped us with in building Songkick/Detour.
But there are other investors that I have encountered or learned of who do not add meaningful value beyond their capital, and in some cases, actively destroy value by distracting, confusing and generally offering poor advice to start-ups. I’ve lost track of the number of off the record conversations I’ve had with founders where they tell me about a VC pushing them to do something they know to be fundamentally wrong for their business, and the distraction it is causing.
Clearly there are qualitative signals of who adds value - you could look for example at which VC firms great angel investors steer their companies towards. You can look at how effectively VCs win deals etc. Just as there are qualitative signals around product market fit, the most important concept for start-ups. With product market fit, the most valuable contribution I believe anyone has made to the discussion is Sean Ellis’ concept of ‘% very disappointed’ as a way of quantifying how close you are to to achieving PM fit and moving it away from a purely qualitative discussion.
I’d like to suggest a comparable metric for VCs to track, as they question how much value they add beyond their $$. They should ask their portfolio companies “If I had provided zero capital, how much equity would you give me in your business for the advice and support I provide”. Let’s say the founder came back with an answer of 5%, but you own 20% of the company, you know that 15% of your value is in the capital you provide and 5% in your ‘value add’. YC have taken this to the extreme by offering so little capital that the 6% average equity stake they take is close to entirely value add.
This statistic will be somewhat inflated as founder worry about wounding their investor’s egos, but it should nevertheless provide a good sense of how your value add compares to your equity stake. More interesting, an independent 3rd party with the trust of enough founders, could establish a clearer index of investor value add across a wide set of start-ups, and help to rank value add across the investment community.
Over the long term as an increasing set of funding mechanisms emerge (Kickstarter, Angellist, Upstart etc), this may be an increasingly important question to ask as VC itself is disrupted and partially/completely decoupled from the capital it provides.