Author Archives: Hervé Lebret

Knowledge, skills and personality of entrepreneurs

A friend (thanks Kevin!) just retweeted the following: What kind of Knowledge, skills and personality traits are common to successful entrepreneurs?

I tend to agree 100% but I may have an idealized view of my own experience! It also reminded me another quote from the same period (2011 vs. 2010) by Steve Blank: Over the last decade we assumed that once we found repeatable methodologies (Agile and Customer Development, [Lean Startup], Business Model Design) to build early stage ventures, entrepreneurship would become a “science”, and anyone could do it. I’m beginning to suspect this assumption may be wrong. It’s not that the tools are wrong. Where I think we have gone wrong is the belief that anyone can use these tools equally well. In the same way that word processing has never replaced a writer, a thoughtful innovation process will not guarantee success.” Blank added that “until we truly understand how to teach creativity, their numbers are limited. Not everyone is an artist, after all. The full interview can be found on archive.org.

and also Komisar: “I think there’s stuff you can’t possibly learn in school and I’m not even sure you can learn that on the job. There’s an entrepreneurial character. Some people have it and some people don’t. Some people may not think they have it, and they may have it. A lot of people they think they have it, and many don’t.”

Coursera files to go public (#750)

After Deliveroo yesterday, here is Coursera’s cap. table. It’s #750 in my long list of startups (see here my most recent analysis – data about 700+ startups).

Coursera and Udacity are probably the most famous MOOCS companies and I could not be surprised if they contributed to create the edtech category. Coursera just filed to go public on Nasdaq so its numbers are available.

Revenues of $293M, with a loss of $66 million in 2020. A lot of venture capital since its foundation in 2011, $464M in total from Kleiner Perkins (and legendary partner John Doerr, and NEA.

Founded by two Stanford professors, specialists of artificial intelligence, Daphne Koller and Andrew Ng, age 43 and 34 at the time of foundation. They are not managing the company anymore. No information about Koller’s shareholding probably because she owns less than 5% of the company and has no executive role.

Coursera founders Andrew Ng and Daphne Koller are computer science professors at Stanford University


Source : NPR

Deliveroo plans to go public

There was a lot of buzz today about Deliveroo announcing its IPO soon. By the way Coursera, the edtech company just announced it too and I will post about it next. So I had to build its cap. table and thanks to the openness of the British register of companies, I could do it (at least partially) even before the company filed its IPO document.

Interesting data I think about the company growth, its funding and the founders stakeholding. £1.3B invested to cover £1.1B loss, 2’500 employees in 2019 and £1.2B revenues in 2020. Among the best European VCs (Index, Accel) plus Amazon, Fidelity, DST, T.Rowe Price as late stage investors. What else?

PS (March 19): a former colleague mentioned an article saying that early investors would have made “60’000 per cent return” on their investement. At the same time, I discovered about Coupang in South Korea which looked similar to Deliveroo. So I also checked the multiple return for seed investors in Coupang. Here is first its cap. table.

So for Coupang, the initial price per share was $0.02, and I assumed a $35 at IPO, which makes a 1750x multiple.

For Deliveroo, I assume a price per share of £900 with a series A price at £8.36. It is true there were also seed shares at £1,5. This would be a 600x (or 60’000 per cent, not an annuela return though)

So Coupang is even better than Deliveroo…

The Mom Test by Rob Fitzpatrick

The “Mom Test” is an intelligent book for any student of Steve Blank and his “Customer Development” model: validating hypotheses to launch a startup by exploring the existence of customers and of a market, of course. But how do you concretely approach this delicate phase when you are not a specialist?

Author Rob Fitzpatrick says he has faced this situation multiple times and gives excellent advice including how to conduct initial interviews and learn relevant information from them. This is, I believe, the main and rather rare quality of this book. An absolute must-read when you feel helpless on the subject and even more if you do not think you need advice!

This is a small 122-page book that I really recommend reading. Here are some extracts that I hope will convince you

Every question we ask carries the very real possibility of biasing the person we’re talking to and rendering the whole exercise pointless. (Page 3)

And I add a strong statement from Steve Blank: Talking to customers is hard.

The measure of usefulness of an early customer conversation is whether it gives us concrete facts about our customers’ lives and world views. (Page 12)

The Mom Test:
1. Talk about their life instead of your idea
2. Ask about specifics in the past instead of generics or opinions about the future
3. Talk less and listen more.
(Page 13)

Blank talks about “a day in the life of your customer”. You need to understand the actions and the interactions, who does, who decides, who pays.

Here is a list, according of the author, of good and bad questions:
“Do you think it’s a good idea?”
“Would you buy a product which did X?”
“How much would you pay for X?”
“What would your dream product do?”
“Why do you bother?”
“What are the implications of that?”
“Talk me through the last time that happened.”
“Talk me through your workflow.”
“What else have you tried?”
“Would you pay X for a product which did Y?”
“How are you dealing with it now?”
“Where does the money come from?”
“Who else should I talk to?”
“Is there anything else I should have asked?”

at page 15 and he lets you think about what is bad and good before giving his views.

What you should have in mind is given page 22: “They own the problem, you own the solution.” And this is so true as Henry Ford or Steve Jobs mentioned, customers do not know what they want!

So (page 49), when interviewing, “Start broad and don’t zoom in until you’ve found a strong signal, both with your whole business and with every conversation.

How to begin?

In his original book on Customer Development, 4 Steps to the Epiphany, Steve Blank solves this by recommending 3 separate meetings:
the first about the customer and their problem;
the second about your solution;
and the third to sell a product.
By splitting the meetings, you avoid the premature zoom and biasing them with your ideas. In practice, however, I’ve found it both difficult and inefficient to set them up. The time cost of a 1-hour meeting is more like 4 hours once you factor in the calendar dance, commuting, and reviewing.

If the solution isn’t a 3-meeting series, then what is it? You may have noticed a trend throughout the conversation examples we’ve seen so far: keeping it casual. (Page 56)

Rule of thumb: Learning about a customer and their problems works better as a quick and casual chat than a long, formal meeting.

Advancement

Then you need to deliver (page 62): “When you fail to push for advancement, you end up with zombie leads: potential customers (or investors) who keep taking meetings with you and saying nice things, but who never seem to cut a check.

Rule of thumb: “Customers” who keep being friendly but aren’t ever going to buy are a particularly dangerous source of mixed signals.

Ideally you should find a champion as an early customer. Page 73: “Steve Blank calls them earlyvangelists (early evangelists). In the enterprise software world, they are the people who:
• Have the problem
• Know they have the problem
• Have the budget to solve the problem
• Have already cobbled together their own makeshift solution”

Of course to ask questions, you must organize conversations. This is what chapter 6 is about…

A short extract: “The framing format I like has 5 key elements.
1. You’re an entrepreneur trying to solve horrible problem X, usher in
wonderful vision Y, or fix stagnant industry Z. Don’t mention your idea.
2. Frame expectations by mentioning what stage you’re at and, if it’s true,
that you don’t have anything to sell.
3. Show weakness and give them a chance to help by mentioning your
specific problem that you’re looking for answers on. This will also
clarify that you’re not a time waster.
4. Put them on a pedestal by showing how much they, in particular, can
help.
5. Ask for help.”

Rule of thumb: Keep having conversations until you stop hearing new stuff.

And then you will need to focus by doing customer segmentation and slicing. This is chapter 7.

Rule of thumb: Good customer segments are a who-where pair. If you don’t know where to go to find your customers, keep slicing your segment into smaller pieces until you do.

Process

Avoid creating (or being) the bottleneck. To do that, the customer and learning has to be shared with the entire founding team, promptly and faithfully. That relies on good notes plus a bit of pre- and post-meeting work.

Everyone on the team who is making big decisions (including tech decisions) needs to go to at least some of the meetings.

The tech guys don’t need to go to most of the meetings, but you’ll all learn a ton from hearing customer reactions first-hand occasionally. You’ll also be able to help each other catch and fix your conversation mistakes and biases. (Page 99)

What is the number of people that should face customers? 2 is ideal, 1 is not enough to take notes and avoid bias, more is messy.

Conclusion

I still ask dumb questions all the time. You will too. Don’t beat yourself up over it. In fact, just yesterday I screwed up a particularly important meeting by slipping into pitch mode (this was yesterday at the time of writing… hopefully not again at the time of reading). (Page 112)

with a nice final quote : “Having a process is valuable, but don’t get stuck in it. Sometimes you can just pick up the phone and hack through the knot.” (Page 113)

PS: I think the Mom Test is more convincing than Reis’ Lean Startup, you can read here about the reason of my skepticism.

PS2: thanks to Laurent and Monica for advising me to read this little gem!

Venture capital by Bill Janeway (part II)

In a remarkable new series of videos, Venture Capital in the 21st Century, Bill Janeway describes the value and challenges of technology innovation. I mentioned in my last post the perfomance of venture capital, his third video.

The first video, Investing at the Technological Frontier, describing the radical uncertainty of innovation and how it contributes to economic development.

In the second video, What Venture Capitalists Do, he further develops his thoughts that I summarize through a few screenshots below. (They are self explanatory and you should certainly listen to Janeway if you are curious or intrigued).

The 4th video, The Failure of Market Failure, opens the debate of state intervention and private speculation. This important topic has been largely debated by Mariana Mazzucato and you will find additional posts under tag #mazzucato.

Evaluating Venture Capital Performance by Bill Janeway

I must admit I did not know Bill Janeway. I should have, given his long expertise in venture capital. His recent contribution was mentioned by many including Nicolas Colin and on a personal note, friends from IMF. They just mentioned to me 8 videos which seem absolutely brilliant: Venture Capital in the 21st Century.

I just watched the third: Evaluating Venture Capital Performance | #3 | Innovation in the 21st Century. Here are the slides.


Janeway reviews the performance of Venture Capital firms and recent changes in the venture capital market. He starts by summarizing the stylized facts of venture capital returns (highly skewed, very persistent, and correlated with the stock market). VC capital increased rapidly in the late 1990s, peaking in 2000. VC returns have since settled down, with longer holdings and fewer IPOs. But with the climate of zero real interest rates since 2008, new unconventional investors (private equity, hedge funds, etc.) have waded into venture financing directly, hunting for the high returns of the next big tech giant. A “Unicorn Bubble” has developed as a result, where dubious firms have been financing their growth by selling illiquid securities at inflated prices to deep-pocketed investors with little expertise or control over the entrepreneur. This may have implications on the long-term link between venture financing and technological innovation.

I just copied a few screenshots:

Venture capital is highly skewed and follows a power law, just like startup success models.

Venture capital returns are highly correlated to those of Nasdaq as shown above and below, so… ?

Good VCs are good and bad VCs are bad.

So…

“The message here to limited partners is very clear.
A blind allocation to venture capital, just allocating a fixed proportion to venture capital runs the major risk of what’s known as adverse selection.
The funds you want to invest in, the persistently successful ones, don’t need your money.
The ones who want your money are the ones you want to avoid.”

GAFAM do not suffer from the crisis (part II)

Yesterday I published data in Tesla, Google and Facebook do not suffer from the crisis. and after linking my post to the usual Twitter, LinkedIn and Facebook, one of my readers (thanks Manuel!) told me it would be fun to add Uber as a comparison. I said I would if/when I find the time and then thought why not AirBnB, Apple, Amazon, Microsoft?

I could only compile data about revenues of these firms and I think it is striking enough:

I wrote yerterday the growth rate was above 100% (doubling every year) in the early years declining to around 40% (doubling every other year) then to 15% (doubling evry five-year). Here are the growth rates of these old and new Titans. It begins again with 100+% for all of them. Too early to say about the future of Uber and AirBnB.
The three others of the GAFAM.
– Microsoft even had a 50% growth in its second decade, Amazon was closer to 30% and Apple struggled with 20%.
– In their 4th decade, Microsoft had an average grwoth of 10% and Apple 30%.

OK Manuel?

Tesla, Google and Facebook do not suffer from the crisis.

This may not be surprising and it has been said in the media. The GAFAs have generally benefited from the Covid crisis. So, as I was independantly doing in the recent years, I looked again at the growth of Google and Facebook as well as Tesla.

[As a reference here are past articles:
– Are GAFAs threatened? Their growth is still steady: www.startup-book.com/2019/12/28/are-gafas-threatened-their-growth-is-still-steady/
– Facebook Finally Files For $5B: www.startup-book.com/2012/02/02/facebook-finally-files-for-5b/
– Google vs. Facebook: www.startup-book.com/2010/11/12/google-vs-facebook/]

And here are my udpates abour revenue, income and employee growth of Google, Facebook and Tesla:

Revenues and profits are in millions of $. What is undoubtedly the most striking is the similarity of the growths of the three actors and of course the fact that all these numbers are considerable, not to say extraordinary.

Typical of Silicon Valley startups, the growth is often above 100% in the early years decreasing to about 40% after a few years and still above 15% after 20 years. This means respectively doubling the numbers every year, every two years and every five years.

The Plague Year – Leadership and Courage according to The New Yorker


I have regularly mentioned here articles by great magazine The New Yorker even if not directly related to the startup or innovation topics. The New Yorker publishes long and deep analyses which often take at least 30 minutes attention. Recently, it published a 40-page article requiring hours… it is about Covid and the USA: The Plague Year – The mistakes and the struggles behind America’s coronavirus tragedy written by Lawrence Wright, published online on December 28, 2020 and on paper in the Jan 4-11 double issue.


Picture from Tyler Comrie

The reason I decided yersterday to blog about it is a short section close to the end: Pottinger’s White House experience has made him acutely aware of what he calls “the fading art of leadership.” It’s not a failure of one party or another; it’s more of a generational decline of good judgment. “The élites think it’s all about expertise,” he said. It’s important to have experts, but they aren’t always right: they can be “hampered by their own orthodoxies, their own egos, their own narrow approach to the world.” Pottinger went on, “You need broad-minded leaders who know how to hold people accountable, who know how to delegate, who know a good chain of command, and know how to make hard judgments.”

You should try to read it, it’s really mesmerizing, but this short section reminded me of French philosopher Cynthia Fleury and her book “La fin du courage” (The end of courage). You may want for example to read To be Brave is sometimes to Endure, sometimes to Break up which I find quite close to what is written above.

The largest technology companies in Europe and the USA in 2020

I regularly look at the largest technology companies in the USA and Europe and obviously this year, I had the impact of Covid in mind. Here are the tables I build once a year (and that you could compare to the ones published in January 2020 here or in 2017 here.

I am adding below their PS (price to sales, ratio of market cap to revenues) and PE (price to earnings, ratio of market cap to profits when positive) as well as the growth of the market cap. and revenues. There are 3 new companies I had not studied last year (Airbnb, Paypal and AMD) for which the growth is therefore not mentioned.

There would be many comments to give btu I will be fast:
– The GAFAs are the clear leaders, 4 of them are trillion dollar companies. Facebook is a little surprinsingly not as impressive and Tesla is appearing on top.
– The COVID did not have a big impact, not to say it had a positive impact on technology companies (in financial more than in economic terms)
– Again, looking at averages we see Europe is lagging in market caps, employement, sales and profits by factors close to 10…