Making things worth making

Tony Fadell led the incredibly successful teams that built the iPod, the iPhone, and the Nest Thermostat. He sold Nest to Google for $3.2B in 2014, which enabled him to become one of the most sought-after tech investors of the past decade. But he also led or was part of other teams that failed on a large scale. This remarkable journey has been captured in his new book Build: An Unorthodox Guide to Making Things Worth Making, also reviewed here. This is not a theoretical business book but full-on advice and insights from the frontline of the startup battle. The most prophetic lesson is to follow your passion and curiosity, even if it's not immediately apparent what the payoff will be. Great founders are able to infect all key stakeholders - especially early investors - with this passion, aligning them with the same mission. The trouble often starts when others (especially investors) try to second guess the mission every time the business hits a snag. This creates a constant uncertainty that eventually sucks the energy out of the founder and allows self-doubt to creep in. For this he says:"When you run out of the passion, move on. Find something else or take a break."

Another great lesson relates to data. “Everyone wants data so they don’t have to make decisions.” Fadell says that some decisions are 'data decisions', and some decisions are 'opinion decisions'. You need to know the difference. You can’t get hung up on data when you have to make an opinion-based decision. Fadell cites the great example of Steve Jobs and the iPhone keyboard. It seems like a no-brainer now, but for those of us living with smartphones at the time, the Blackberry keyboard was dominant. To move away from a physical keyboard went against all the data you could get. Yet Steve Jobs was adamant the iPhone could not and would not have a physical keyboard. It wasn’t a data decision. It was an opinion - and the right one. But it wasn’t until after the decision that Apple could gather the data. Opinion decisions are the ones early investors will often take the greatest convincing about. But for founders with an immovable passion, they are often the stepping stones to greatness.

The other big takeaway relates to being intentional around designing every step of the customer journey. This goes back to the importance of understanding the problem/solution paradigm and how this evolves into really tight product/market fit. When the first users were installing the Nest Thermostat, it took about an hour - a big user frustration. Analysis revealed about half the initial setup was finding all the right tools. As a result, Nest then included all the tools needed with the thermostat. Not only did this solve the problem but users were delighted at having some cool tools to keep. Fadell also relates a similar story about Apple. Most devices before the iPod didn’t come pre-charged. But this wasn’t a good user experience. So Apple began charging all devices prior to shipping. Users could open their new device and begin using it immediately. This became the new standard for all devices and for many of us this just seems normal now. These insights only scratch the surface of an incredible read for founders at all stages of the journey. If you are looking for a great holiday read, look no further.

Understanding how European startups succeed

One of the most significant factors in the success of European startups over the past decade has been the choice of 'strategic play'. Research by McKinsey into the top 1,000 European Tech startups founded since 2000 across 33 countries has shown there are 4 basic 'plays' that enable a business to scale effectively. They are: 1. Network (users make the platform more valuable to other users - think marketplaces or social media). 2. Scale (rapid early growth is necessary to reach critical size and economies of scale - think ecommerce and consumer). 3. Product (the product experience itself accelerates sales - think much of B2B SaaS), and 4. DeepTech (heavy R&D prior to commercialisation - think hardware, AI/ML, biotech). McKinsey's research unveils the factors that typically drive success for each 'play'. These impact the amount of capital and timescales required for positive outcomes so are vital for founders, as well as investors, to appreciate.

The research identifies that different strategic plays require different success factors. For Network players, it’s crucial to win local markets one by one and not try to grow globally in one fell swoop. Scale plays need to over-index on building strong commercial capabilities. Both Network and Scale players [eventually] benefit from M&A. Product-play companies need to prioritise a compelling product and narrow use case initially, while for DeepTech plays, attracting the best research and development talent is most important. Intriguingly, but maybe not surprisingly, a key insight is that valuations in DeepTech are linked to the amount of talent they hire from Europe's top 100 research universities. In comparing DeepTech companies with similar funding, those with a higher share of top-tier researchers achieve 43% higher valuations than others. In terms of commercial traction, the median revenue required to reach unicorn status is the lowest for DeepTech at €8M, versus €52M for Product, €88M for Network and €194M for Scale. An unexpected insight here is that Network and DeepTech players tend to reach unicorn status early, while significant shares of Scale players (24%) and Product players (31%) take more than ten years.

In the analysis, these 'plays' also had different funding requirements to reach unicorn status. Network and DeepTech required the highest amount of funding at approximately €200M. Scale and Product players required much lower funding amounts at around €80M and €160M respectively. These different characteristics, especially the time and investment levels required, not only influence what kinds of investors will be attracted to these plays but also help founders to identify the quickest and most reliable route to success. i.e what scaling activities to prioritise. For DeepTech founders this research provides confirmation that even though the road to success may be the most capital intensive, revenue expectations to hit unicorn status are actually the lowest. This means that revenue multiples can be an order of magnitude higher than other categories, reflecting the huge promise of future revenue potential.

Marketing the written word

In a world that is shifting from analogue to digital with increasing pace, the power of the written word seems to rise ever higher. Mediums might be changing, but content is still king. This is an era where a short, well-conceived tweet can have as much impact as an essay: Digital delivery but still analogue thinking. For marketeers, writing great material is essential, especially for content-driven growth businesses. In B2B models, the cost of customer acquisition through outbound sales is under constant scrutiny. If innovative marketing can drive more demand creation, the go to market strategy becomes much more efficient. The core messaging must radiate through all channels from PR, product education, customer stories, all the way to the website. The narrative you build is the backbone of your content marketing strategy, aimed at simplifying the decision-making process for new prospects. For example, if the first step in the sales process is a demo, how can we entice a prospect into a demo without a live (expensive) sales conversation?

Authenticity is everything. For startups building software products for developers the bar is particularly high, so engineers are often drafted in to help. This could be writing the occasional blog post or newsletter article. But as Olivier Pomel, CEO of DevOps pioneer Datadog says, having engineers writing is really not a scalable proposition. "Most people are super excited about the idea of doing it, but then most people [engineers] actually don’t want to do it. So people spend days going “I need to write this article”, and nothing comes out. So you end up killing people’s productivity and they feel bad. We’ve tried having marketers do it, it doesn’t work great because ..  an engineer can tell if it’s been written by a marketer. "  Pomel ended up hiring full-time engineers who are also interested in journalism. This team is dedicated to content creation and reports into engineering - not into marketing. 

The reader meanwhile is becoming more discerning. It's not enough to know your audience but to think like your audience. Any founder that has written an investor deck will know just how important (and difficult) this is. Even just creating a simple sentence that crisply describes what your company does can be a mind-bending and time-consuming exercise. Whilst capital raising is perhaps the ultimate test of the written word, an important day-to-day application links to the other big priority, revenue generation. But this doesn't mean all marketing must have an immediate connection to sales. Experienced CMOs know that the top of the funnel starts way above the first step in the sales process. It begins with awareness. If a prospect doesn't know you exist, or doesn't understand your purpose or your views, you aren't even in the game. Thought-leadership has become one of the most powerful founder attributes for that very reason. Being able to convey your thoughts using the written word has now become an essential founder skill.

Happy reading!