Monthly Archives: October 2016

Me too startups

One of the advantages of being an investor is that we get to see hundreds of startups a year. While an entrepreneur is focusing on a specific sector or even a specific part of the value chain in that sector, we often see at least a few, if not tens of startups doing the same. There are some highly technical areas with few competitors but that’s the exception, not the norm.

Since we have exposure to so many different startups which, at the surface, are doing the same thing, we need to go a level deeper in order to develop an informed hypothesis about which startup will win. This is why I ask startup founders what they’re doing differently than competition. Are you a me too startup, or do you know something that others don’t know, or are you doing something that others aren’t doing, that makes you uniquely positioned to win?

Although founders naturally don’t agree, most startups are me too startups. The reason for this is that every startup with a unique insight and therefore a unique approach to a problem produces many more copycats. Depending on the size of the market and the availability of capital, you can be pretty certain that you’ll get anywhere from 5 to 20 directly competing startups that, at the surface, may appear to have a chance of winning the market.

Part of our job as investors is to parse through the answers to this question to see which answers represent real insights and which are simply verbiage in the guise of insights.

Showing that you can work together

My natural tendency in meetings is to dive directly into the work. Work is about solving problems and I like solving problems.

Such an approach can work with someone you’ve known and have been effectively working with for a long time. Since you already know that you can work together, you can focus on doing the actual work.

However, when you’re meeting with someone for the first time, before doing the work, you first need to see whether you can actually work effectively with that person. You need to show that you can work together before actually working together. This means patiently revealing your character and intellect through a hopefully pleasant give and take which is very often about issues outside of work.

How much time you need to spend showing someone that you can work together depends on the person’s character and how long you’ve worked together in the past. The more a person appreciates diving directly into the problems and the longer you’ve been working together, the faster you can get to doing the actual work.

But even people who overwhelmingly prefer to dive directly into the work need to spend time to initially see whether they can work with you. If we have this luxury, it helps us avoid people who we don’t want to work with. And even if not, it hopefully helps us establish at least some common ground with the person which makes it more likely that we’re able to work effectively moving forward.

In addition to its practical benefits, the need is deeply engrained in us through thousands of years of evolution. So it’s unlikely to change any time soon.

Showing that you can work together with someone is a necessary first step to actually working with them.

Mobilotoservis in Ankara

Mobilotoservis, our investment which serves as a car repair and maintenance service that comes to you, started serving customers in Ankara this week.

As a result of the high quality of service that Mobilotoservis delivers to customers at their doorstep, the company has excellent customer satisfaction scores. This leads to many customers referring their friends to Mobilotoservis, including friends who live outside of Mobilotoservis’ initial launch city Istanbul.

However, while it’s great to have pent up demand in a new city, it’s important to fine tune your operations in your first city before diving in to serve this new demand. This serves two purposes. First, it ensures that your operational performance in your first city doesn’t decline when you expand to a new one. Second, it ensures that your second city launch is much more about executing a known playbook than making new mistakes and learning along the way. You’ll always have some of the latter but having your playbook ironed out allows for a much more smooth launch in your new city.

Mobilotoservis patiently waited for the right moment before expanding to Ankara. If you live there, I strongly recommend you try out their service.

An investor’s edge

There are three types of competitive edges that an investor can have. These are an informational edge, an analytical edge, and a behavioral edge.

Having an informational edge means having access to people, facts, or data that others don’t have. For example, local investors often have an informational edge over those that fly in to a country to invest or those that invest in a country from abroad because their on the ground presence lets them spend more time meeting with founders and collecting information about what interesting startups are working on.

Having an analytical edge means that you rely on the same information as others but have a unique insight which lets you arrive at a different conclusion based on the same information. Your perspective is your edge. Being able to see the second or third order effects of a particular action within a system is an example of an analytical edge. However, as this example shows, although these second or third order effects may escape most people, a small number of others will also likely see them. So having an analytical edge is pretty rare.

Having a behavioral edge means that you’re not exposed to an emotional shortcoming that disadvantages other investors. Examples of this include being able to invest in a founder or domain that other investors shy away from due to deeply ingrained prejudices, or investing over a longer time horizon than others.

If you don’t have an informational edge, an analytical edge, or a behavioral edge when making an investment, the investment can still be successful. However, your success will be due to luck, not skill. And in the long run, luck cancels out.

So, before making an investment, it’s useful to ask which, if any, of these competitive edges are letting you capture an opportunity that others are missing.

The impact of accessing autonomous electric vehicles

Here’s an 11 minute video from the Morgan Stanley Research team which quantifies the different impacts that our transition to accessing autonomous electric vehicles will have relative to the status quo of owning human-driven fossil-fueled vehicles.

Whether you look at it from the perspective of saving lives, time, or money, or the new opportunities which emerge as a result of the transition, the changes are significant.

I couldn’t embed the video in this post but you can watch it at this link.

Tala

Tala, where we invested through the Female Founders Fund AngelList syndicate, is a mobile banking solution for underserved customers in emerging markets. The company analyzes a customer’s smartphone data to offer its first product, loans, to its customers.

Shivani Siroya, Tala’s founder, talks about Tala in this This Week in Startups interview hosted by Jason Calacanis. In the interview, Shivani shares valuable insights about the signals, including non-obvious ones, which predict loan repayment rates. She also offers some quantitative data about variables like Tala’s loan sizes, interest rates, and repayment rates.

You can watch the full interview below.

Words are an abstraction of reality

We reason in words. But words are an abstraction of reality.

When we describe what we see as reality with a certain set of words, the connotations which these words bring about in our brains produce a certain feeling. However, if we were to offer a plausible alternative description to the same reality using a different set of words, due to the different connotations which these words have in our brain, we would produce a different feeling.

Sometimes the different feelings which emerge from these alternative descriptions aren’t that far apart. But sometimes they’re quite different.

There are two takeaways from this reasoning. One is internal and the other is external.

Internally, when we use words to reason about reality, it’s useful to describe the same reality with different words. Our first attempt presents a limited view of reality which is influenced by the specific words we choose and the connotations which these words have in our brain. If we perform multiple descriptions, the spectrum of our resulting feelings is likely to provide a more accurate assessment of actual reality.

Externally, we need to pick our words wisely when communicating with others. Expressing the same reality with different words which have different connotations can produce a very different reaction in the recipients of our communications.

Which markets are attractive?

A friend recently asked me which tech markets are currently attractive.

The most common response to this question is to list today’s popular markets. This would include areas like artificial intelligence, drones, and the blockchain. There are two problems with this approach.

The first is that it’s too high level. Simply being in a specific market isn’t enough. What exactly you’re doing in that market and who you’re doing it with are the determinants of success.

The second problem is that everyone who reads the tech news knows what today’s popular markets are. And the more people who know about a market opportunity, the smaller that opportunity becomes. At the extreme, if everyone knows about a market opportunity, that opportunity no longer exists.

Because of these two reasons, investors aren’t the right source of information to determine which markets are attractive. Since we invest in many companies across many markets, our level of understanding of a specific market simply isn’t deep enough for this to be the case.

The answer lies with founders who build a specific company in a specific market. The caveat is that they need to be great founders.

Great founders determine what part of a market is attractive and who they should work with to increase their chances of succeeding in that part of the market. And great founders have a much more in-depth and nuanced understanding of market opportunities than what’s available through the tech news.

I therefore don’t know which markets are attractive. I let great founders tell me.

Managing your psychology

I was recently speaking with one of our entrepreneurs. We spent the first few minutes of the conversation talking about the stressful moments in our jobs and our strategies for dealing with stress. We talked about the benefits of exercise, forcing yourself to take time off, and disconnecting well before going to sleep.

About 10 minutes into our conversation, which was getting more interesting the more we talked, the founder said “OK, let’s move on to more important topics”. For a founder experiencing a lot of stress, I don’t think that there’s a topic more important than what we were talking about. The reason is that, in order to effectively manage a business, you first need to manage your own psychology. If you’re not doing the latter, the former is going to suffer.

In fact, the psychological support that an investor can provide a founder is one of the most important contributions that they can make. Running a business is a lonely role. There are so many decisions to be made and ultimate responsibility for the consequences of these decisions resides with the founder. A failed product launch is the founder’s responsibility. A wrong hire is the founder’s responsibility. An ineffective marketing campaign is the founder’s responsibility. This pressure can tempt founders to not share the problems they’re facing so as to appear to have everything under control.

From working with multiple founders, your investors know the stresses that you’re facing. Although we currently do not feel it to the same extent as you because of the fact that we’re invested in multiple companies, we have relevant knowledge of the strategies and mindsets that are effective in dealing with stress. And our interests are aligned with yours so we will gladly share this knowledge with you.

But we can’t support you if you avoid the issue altogether or see it as an unimportant issue only worth addressing for 10 minutes. We can only support you if you recognize the importance of managing your own psychology, embrace it as part of the journey you’ve chosen, and openly share how you’re feeling.

This doesn’t mean that you need to share how you’re feeling with each of your investors. There are naturally some who you will have a better relationship with and trust more than others. Having one or two such people is all that you need. These one or two people who help you manage your psychology can make all the difference.