The challenge for entrepreneurs is how to avoid these mistakes but the first step is to be aware and mindful of these hazards. That’s why for each mistake I have also listed common “symptoms” to help spot the problem. It is also a checklist for me, as a venture investor, to see what is the likelihood of company failure based on any of these factors, and how I should account for that risk in the investment valuation.
There are plenty of well thought-out advice books and blogs for entrepreneurs on what to do to succeed. Equally important, and in away a corollary to these advices, are critical mistakes that entrepreneurs need to avoid losing their business. Not all mistakes will kill a company and many in fact could strengthen the start-up, but after examining dozens of company failures, I have come up with a list of ten crucial areas that accounts for all the company failures I examined.
The challenge for entrepreneurs is how to avoid these mistakes but the first step is to be aware and mindful of these hazards. That’s why for each mistake I have also listed common “symptoms” to help spot the problem. It is also a checklist for me, as a venture investor, to see what is the likelihood of company failure based on any of these factors, and how I should account for that risk in the investment valuation.
Snapchat has become a darling of teens and yet its parent Company Snap is facing skepticism from investors ahead of its planned IPO this week. The investors certainly have plenty of reasons to be ambivalent including the slowing user growth rates, competition, lack of voting rights, and of course the most important one, the valuation. However, I believe that Snap has a credible case to be an $80 b company, for the following reasons:
How Much Money Can Snap Make? This is of course the central question for Snap’s valuation, and it depend entirely on the level of acceptance by user for its communication and content delivery platform. Based on the arguments I will present below, I believe Snap’s user base can grow rapidly and reach 650 m DAUs by 2020. This will allow Snap’s revenue to reach $11.7 b, generating an EBITDA of $4.7 b. Applying a multiple of 22-23x on this (reasonable for the stage of growth the Snap will have then) and discounting the valuation by 10% per year gives 2017 valuation of $81 b.
There are of course multiple risks to achieving this, beyond lack of user growth. These include the increase in ARPU from the current levels to around $18 by 2020 (FB’s 4Q16 ARPU in the U.S. was $19.3) and overall expense level that can afford Snap a 40% EBITDA margin by 2020 (FB’s 4Q16 EBITDA margin was 58.3%).
Below are my projections and the assumptions for Snap for the next few years.
Snap’s Big Hidden Value: A New Content Delivery Platform. Snap offers sponsored and curated stories including many by established content creators like CNN, WSJ and others. These stories are snippets of curated content, by the editors of these publications, that contain video and sounds and a short message that conveys the main storyline. As such, these stories are highly efficient way to deliver the content, and fun to watch. In an era where people have much shorter attention span, the ability to delivery personalized content in this way becomes very valuable. This is what Twitter was promising but failed to deliver. In many ways, Snap stories can be viewed as Twitter 2.0.
There is another major advantage for Stories: they are a natural format for delivery relevant advertisements since they allow the advertisers both to sponsor these mini-content as well as show their messages within the stories. This is at the heart of a bigger trend in advertising, where consumers are turning away from any ‘traditional’ format that are imposed over a content Even Facebook and Google are at a disadvantage with the current trends in advertising as their ads are still seen intrusive and consumers prefer to skip or block them. The only way for advertising to work is if the consumers see the value behind having the advertiser as part of the content, thus allowing the advertisers to reach the consumers heart and mind. Snapchat is uniquely positioned to take advantage of this trend.
Snap’s Core Value. Snap has quite possibly hit on the next wave of communication and content consumption. While Facebook and Instagram are used to post pictures and ideas and essentially seek approval and praise while communicating with your friends, Snapchat is used to primarily communicate in a new way, by capturing a short moment of your life. The images and videos are neither saved nor meant to get any “likes” or other reactions.
Thus, Snapchat is a communication tool more than a social network. Its primary use started with communicating with your closest friends using the camera and later with additional lenses and filters. In this sense, it competed more with messaging apps like WhatsApp, Viber, Line, etc. However, it offered a novel way to communicate that allowed, and in fact encouraged, goofy messages. Snap allows people to share their moment without being judged about it. Snapchatting was a real-time sharing of the moment, rather than posting an experience with the expectations of approval from others.
To the teenagers who were trying to find the most interesting and unusual emoji to send in their texts, this was a godsend. To the rest of us, Snapchat was a hard-to-use gimmick used by teens, mostly for sexting. But it gradually became obvious that Snapchat had hit on a new way to communicate that can potentially go beyond teens and goofy messages: instead of text or voice using pictures and videos, in a new way. ‘Snaps’ are quick to create, even quicker to watch, and highly efficient because they could convey the entire message in 10 seconds, and don’t require the other party to be on at the same time (they are asynchronous). The chart below shows the evolution of the communication platform and where Snapchat fits.
In some ways, Snapchat did to pictures and videos what Twitter tried to do with text communication, but eventually failed to gain wide acceptance.
Similar to the Stories, Snap’s new communication mode is perfect for advertising revenues with its Sponsored Creative Tools (lenses, geofilters) that allow the advertiser to be part of the user’s content creation process.
Snap for Everyone? Ultimately, Snap’s success will depend on if this new mode of communication takes off beyond its current demographics. I think it is a fair bet that it can become the new mode, but only if Snapchatting proves to be efficient and comfortable enough for most types of communication, not just fun and youthful chatting. This requires further innovation from Snap, beyond their current lenses and filters. Among other things, the platform needs to become intuitive and much easier to use.
While Snap’s success is not going to directly take people away from other platforms such as Instagram or Facebook, it will take away some of the available time from people and could eventually impact the usage pattern of other platforms.
Can Competition Outdo Snap? There are other advantages to Snapchat’s platform that can’t be duplicated by FB or Instagram. Snapchat appeals to its users because it allows them to escape from the news and sometimes depressing posts in Facebook. At the risk of some exaggeration, one can say that Facebook has become a way to show off your moment, get entertained by voyeurism, and yes, get some news (including sometimes even real news). This doesn’t mean FB lacks a legitimate and useful role in the daily lives of people, but it does mean that it lacks the legitimacy to launch a Snapchat model that can succeed. Similarly, Instagram is a feed format of getting entertained by pictures from your friends and celebrities you follow. It is also important to note that Snap has been the most innovative company during its first few years. It took Facebook many years before there was any meaningful innovation in its consumer-facing platform. Twitter is still struggling with this, while Snap has introduced dozens of game-changing features in just two years.
Risks. The case for $80 b valuation, even in the best-case scenario, is still heavily dependent on the execution of SNAP in the next two quarters, as well as investor sentiment which will govern the multiple on 2020 or other future year EBITDA. But most crucially, however, it rests on the assumption of SNAP reaching the monetization levels of around $18 ARPU (yearly average) by 2020. As an example of the sensitivity to ARPU, if SNAP were to get to say $8 ARPU, the discounted valuation will be cut back to $35 b. If, in addition to lower ARPU, SNAP’s DAUs grew to only 400 m by 2020, the valuation will be $22b. The factors that can cause these risks to materialize include lack of acceptance by broader demographics to use Snapchat (a major risk), insufficient content partners creating Stories, diminished user interest in watching Stories or accepting the imbedded ads, and lack of progress in increasing ARPU due to limited number of advertisers who can take advantage of the SNAP format (also a major risk).
Amid all the news about Twitter’s potential sale as well as its still struggling performance, it is wise to look at the value proposition that Twitter provides and see if this platform has a place in our lives, and if so, who can best leverage it (hint: it is not Salesforce). I contend that there is a potential path to make Twitter relevant again, and that makes it a great acquisition for two companies.
Twitter began with a disruptive solution: how to communicate in the shortest possible form and easily share news and information with millions. The forced brevity of the message often made it succinct and easy to consume, while the open platform made it easy to follow anyone who had something interesting to say. This wasn’t possible through any other platform and it made Twitter very popular.
Twitter’s problem stems from loss of its value proposition for the users
However, as competing platforms evolved and provided quick update and newsfeeds, Twitter stumbled and failed to advance its platform by making it easier to use. At the same time, Twitter and its users expanded the original mission to entertainment, videos and a number of other formats which were already offered by other platforms. As a result, Twitter failed to retain its raison d'etre and lost relevance amidst the crowded field that was competing for our time and attention. Thus Twitter’s problem primarily stems from loss of its value proposition for the users. The lackluster growth of ad revenue is only a symptom of this.
This is not a groundbreaking observation but I state this way so I can lay out what I believe are the three major steps Twitter needs to take to fix this problem. I do believe that Twitter’s problems can be fixed and that there is a place for Twitter in our social media and news sources.
First, go back to basics and focus on short feed of news
Twitter needs to cut back on its product offerings rather than expand them to compete with Instagram, Snapchat, Facebook and others. This type of competition is not a winning game and it makes Twitter less useful. Twitter should go back to its original mission and focus on being the most efficient platform for keeping abreast of the news and trends we care about. This platform should be easy to follow, intuitive for new users, and very easy to consume its content. I have found the most useful updates I get are not from the social networks but rather the alerts on my iPhone. Whether it’s from CNBC, Bloomberg, New York Times, or CNN, they give me the main point of the news, and I can swipe if I need to read more (90% of the time, I don’t need to). Twitter should get closer to Alerts than to Instagram feeds, by focusing on the most important areas of its users’ interest. Obviously, a tweet can still be much richer and more useful than an alert, without being overwhelming
Second, create a useful funnel by curating and suggesting content
With the explosion of information sources, bloggers and commentators, there are many people who are now opining on news or trends. It is critical for Twitter to help users find these and sift through them, so there isn’t just a firehose of tweets that are hard to keep up with. Twitter’s current effort in this regard is minimal and mostly limited to suggesting new people to follow. This isn’t much help when there are thousands of sources, and it leaves the burden on the users, making the platform harder to use for the masses.
A semi-curated and highly intelligent content suggestion platform should make it very easy to onboard new users, based on just a few questions about their interest. Such a platform should continue to learn and become more relevant and useful. This is in effect the second phase for Twitter which it never got around to do: after it amassed millions of sources, it now need to curate them and make the best use of them.
Third, Personalize the Feed
The feed that I get in Twitter is only personalized based on the people I follow. This is pretty much how people get their feeds in Facebook or other platforms, using it sometime to just kill time and have fun. This is highly inefficient, though entertaining, way to keep up with news. It works very well for Facebook, but is a total killer of value proposition for Twitter.
However, your Twitter feed can be personalized significantly more if Twitter followed what stories you care about, which friends’ retweets are read most, and in general which tweets you like (Facebook is doing a lot more of this). These factors change even for a given user, as their interest evolve based on seasonal activities, life stages, or simply new interests. While you can create ‘Custom Timelines’ and ‘Twitter Lists’, these are fairly difficult to do for most users and at the end, they put the burden on the user, rather than do it automatically for them. As a result, only advanced and driven users of Twitter can take advantage of these.
A truly personalized feed should provide a custom feed of my evolving interest, with minimal effort from me. This could make the platform so useful that many users will even pay for it.
Who Should Buy this new Twitter?
These three steps can make Twitter a highly relevant and necessary platform to use, one that is not duplicated by other companies. It also makes Twitter a great match for companies that need more user engagement, but not more ad revenues, like Google and Microsoft.
Google has struggled and failed to create a social network so at one level, it is a relatively easy way for Google to have a presence in this area. Google also needs to have more layers of engagement with its users, beyond search and YouTube. In many ways, a highly personalized Twitter feed will be the ultimate intelligent search result for news, provided proactively by Google. It is also easier for Google to monetize Twitter, simply by having more Google users on it who can then be consumers of other Google services, such as Youtube, Play, and of course, AdSense. But most importantly this will be a good fit because Google doesn’t need to squeeze ad dollars by over-diluting Twitter’s value.
The fit with Microsoft may not be that obvious first, but it is a strong one. Microsoft has very little presence in the mind-share of general users, but its products are used widely by the office and information workers, where Google has been taking some share recently. Microsoft’s recent acquisition of Linkedin was a perfect match to cement the engagement of its office users. By having a much broader consumer platform that offers a service, Microsoft can gain significant mind-share in an area that few other companies compete. At the same time, the social aspect of Twitter will give Microsoft a potential area to expand. Twitter could become the glue that can help attract more loyal users to Microsoft products and have Microsoft gain more respect.
The excitement over self-driving cars has accelerated in the past few months, with increasing promises of very near (10 years or less) implementation of these systems. Lyft CEO John Zimmer, in his interesting and visionary piece promised the Third Transportation Revolution and suggested that “by 2025 car ownership will all but end in major U.S. cities.” Shahin Farshchi of Lux Capital suggested that we should even accept a level of error and fatalities with self-driving technology and let it sort out its bugs. While I am equally excited about the safety and efficiency that these systems will bring, I believe they will take significantly longer to flourish than most people think. There are three reasons for this.
First, a problem with the above arguments is that they ignore the reality of human nature. Here in Silicon Valley we apply technology mindset to all the problems – an approach that has worked well for many cases, but not all. Human drivers kill many people each year (about 30,000 in U.S.), but it will not be acceptable if we had but a few technology glitches that caused fatal results, even if the percentage of those was far below human errors. The society will simply not accept this because we are programmed to accept and deal with human risk, but we cannot assess machine risk.
As a result, people cannot be convinced easily to get into a driverless car that they perceive is less than perfect, even if we can prove to them that it is generally safer than human drivers. We should note that the assumption that driverless cars will be safer than human drivers has not yet been proven yet, but it is logical and we assume that it is within reach of our technology in the next say 20 years.
People will not get into driverless cars unless we prove they have near-perfect safety record.
There is also another aspect of the consumer psychology that is relevant here. Cars are purchased not just for transportation but as they provide a level of freedom and a sense of prosperity to the owners. Thus the fact that they are used only 4% of the time (assuming that statistics counts for the time we are asleep) is irrelevant. We don’t buy cars just as a utility to provide us with transportation. Consumer like to have cars, if they can afford them.
This consumer tendency will be a headwind against the ride-sharing with driverless cars, potentially limiting their growth rate, though not the eventual success of these platforms. But it is an important headwind that is often ignored.
Second, we have to consider the fact that ride-sharing services really work best in highly dense areas of the major cities. The entire system is based on frequent use and frequent availability of rides. As aggregate demand drops in suburban and rural areas while at the same time distances increase, the ability of the ride-sharing platforms to maintain the required availability of cars diminish substantially, regardless of driver-based or driverless cars.
Now consider the fact that only for the 10% of the U.S. population lives in the major cities while the remaining 90% lives in the areas that will not be easily served by ride-sharing or autonomous cars. These includes suburban areas of the metropolitan districts which may be easier than rural areas to penetrate, but still pose significant challenges as car ownerships remain very high there, while traffic conditions are usually less congested.
Only 10% of the U.S. population lives in the top 20 major cities. It will be far more difficult to make self-driving ride share systems work for the remaining 90%
While it is true that car ownership in the cities has declined somewhat, on average it is still a whopping 83% ownership, even in the big 20 cities (it is over 90% across the country). For the 83% to drop to almost zero, it will take a lot more than a decade.
Third, we have to consider the level of technology required for the fully autonomous (level 5) is pretty significant, especially when we go beyond safety and required high speed and efficiency. The promise of autonomous systems and ride-sharing based on self-driving cars only flourishes with Level 5 (no human driver required), and that in turn will require the vast majority, if not all, the cars on the street to be autonomous and communicating with each other. By the time we can develop such complex technology we are likely to find other breakthroughs for transportation that doesn’t require navigating our difficult streets and minding the building, people, and other obstacles.
So while I share the enthusiasm for a safer and more efficient driving system, I am reminded of a number of previous predictions of technology take-over that proved to be many decades off. Let’s remember that back in 1975, BusinessWeek (any many others) predicted a paperless office by the 1980s, at the latest. Only recently, in 2016, we have seen the first sign of potential leveling off of paper’s use in the offices. Artificial Intelligence (AI) was supposed to take over well before the begging of 21st century, and again only recently we are seeing some meaningful improvements in AI systems. These two cases alone should be a reminder to us that technology can take a much longer to be useful and even when it is, the adoption of it will not be automatic.
The best way to advance the growth of autonomous cars is to be transparent with the risk and the technology hurdles, while pushing ahead with the innovation.
As Scott Keogh, CEO of Audi, recently wrote in the Wall Street Journal (“The Danger of ‘Self Driving’ Car Hype”) rushing the adoption of self-driving cars can actually turn off the consumers. The best way we can advance the growth of driverless cars is to be transparent with the risk and the technology hurdles we face, while we push fully ahead with the innovation.
The new designs with faster processors, longer battery life and other features are the state-of-the-art, but they don’t amount to much help for the consumers to move beyond the basic tasks on the iPhone. The fault is not just with Apple as the entire industry including the app makers are missing innovative new solutions.
Hardware innovation has plateaued in its consumer value while software innovation has been seriously lacking
We need new tools and platforms, including new OS, which makes the smartphone significantly smarter and easier to use, and empower the users to get everyday tasks done quickly. A bigger camera, a new color, slightly bigger size, curved corners, etc. are just not going to cut it.
The Problems is that the over the last ten years the smartphone has not evolved meaningfully from its initial function. The main use cases of entertainment, content, communication, and retail (that were already available on laptops and tablets) became much more convenient and accessible by the smartphone. This was a major development but unfortunately, smartphones didn’t move much beyond that, while consumers are now hungry for much more capable tools.
The first new functionality was mobile pay but beyond that, with some notable exceptions, few applications have emerged that let consumers use their mobile phone in a new way to get things done. Applications that allow you to control household devices were the first group that showed some promise. Smartphones have also been proven very useful in areas like ordering transportation and finding your route, thanks to their mobility. Now it’s time to move beyond these few functions and expand the use of smartphones into every other area of our daily life, at home and work.
In fact, the majority of time spent on smartphones, over 60%, is still on content and entertainment, and the rest is mostly on communication. Smartphone are not being used as smart devices by the masses, yet. They are just smaller and fancier computers, with better apps which take advantage of the smartphones mobility.
Smartphone are not being used as smart devices by the masses, yet.
But it doesn’t have to be this way as the hardware is highly capable with many built-in sensors and yet it is not being used to its potential capacity. With the massive processing power and advanced features in today’s smartphones, surely we should be able to do more than send text and read Facebook posts. Furthermore, the smartphones have massive amount of information about us, our activities and preferences, and yet very little of this is used to help us get things done. This points to a huge opportunity in the next 10 years, but first, let’s look at where the problem lies.
iOS 10: Little new since iOS1
If you look back to the original iOS, little has changed in a fundamental way that makes the phone easier to use. With the notable exception of Siri, everything else has been incremental. Just take a look at the original iOS 1 and the latest iOS 10. If you look at the evolution of iOS versions, the vast majority of changes were only improvements to the functionality of an existing feature. Granted these improvements were cumulatively significant and made the iPhone more useful, but for the same initial tasks. Taking photos has become significantly better experience now, but it is still taking photos. Texting has improved massively, as now you can text anyone, and send them pictures, videos, emoji, etc., but it is still texting.
You can now make in-app purchases; Spotlight search is better; there is control center and you can do copy and paste. None of these features were there in iOS 1, but they haven’t changed what we can do with iPhone, they only made what we could already do faster and better.
If you take a look at the full feature list of iOS version, and remove all the incremental changes, you are left with and incredibly small list of new capabilities (see chart below)
In the past 10 years, there has been a total of only seven new functionalities added to iOS/iPhone
Basically in the past nearly 10 years, there has been a total of only seven new functionalities added to iOS/iPhone, of which only two, Siri and Apple Pay, have had a meaningful impact.
So what are some of the innovations that can meaningfully change the iPhone for consumers, making it a truly smart device? Here is my wish list, an incomplete one, but an attempt to get this discussion going.
iPhone Wish List
None. Current hardware is more than sufficient for now. Please work on the other areas noted below.
iOS Wish List
The entire interface needs to be changed with something that makes app use and discovery much easier. In fact, it should be task based, not even app–based. We also need a significantly better app management system that eliminates the many screens that we have now.
The Smartphone is not just a computer for us any more, it is our everyday tool, has sensors and it can interact with us. It can remember what we do and learn from those. iOS needs to take advantage of all of these and become highly personalized, making iPhone a device that knows me and what I need.
Siri needs to play a crucial role in all these changes. While Siri has improved and is now marginally useful, it is still used only by a fraction of people and even they use it minimally (70% of users use Siri only sometimes or rarely). Siri needs to not only be improved in its understanding of user commands, but also be integrated with the apps (a small step on this is coming in iOS 10) so that users can launch and interact with the apps through voice. It also needs to significantly improve its output function (reading back to you), which is currently minimal. Siri has to become the main interface for the new iOS.
Here are a few examples of commands I wish I could ask Siri today:
“Find a service station for my car [know the make] that is open on Saturdays and is less than 30 minutes away”
“Order some Pepcid from Walgreens, also order some soap and napkins from Safeway”
“When did I last order a camera from Amazon”
“Get the recipe for baked pasta that I bookmarked yesterday”
“Find an app that can go through my pictures and find all of our beach shots of last summer”
“Check to see if the garage door is open”
“Find a thriller for me to watch which is like Bourne series and has at least 70% plus rating on Rotten Tomatoes”
App Wish List
There are also many areas that third party developers can innovate. Here is my wish list
1. Home. To be able to control many things in my house with simple voice commands
2. Personal Assistant. Voice driven inquiries, assistance for finding places, getting to appointments, and communicating with others. Here are some examples:
3. Personal Data. Voice-enabled inquires on various sources of personal data, from financial to health care, to past experiences and memories. I like to be able to ask my phone things like:
In ten years, we would ask: is that all your iPhone could do? Really?
The path to software innovation is clear and these are only a few examples. With innovative solutions we can unleash a power in our smartphone that will be orders of magnitude higher than what we are getting now. I have no doubt that in ten years from now we would look back and say: is that all your iPhone could do? Really?
Of the 114 companies that presented their three-minute pitch on Monday and Tuesday of this week, I initially “liked” about 36. Going further through the list, I eliminated most of them and ended up with 15 that I call “Most Promising”. The key here is that this list is based, mostly, on the presentation that I saw, with some limited research that I did afterwards on each company and their market (emphasis on limited). With a few exceptions of companies I knew or had met before the demo day, I have not met wit the founders yet and so the ranking is not necessarily a long- term endorsement.
Three things impressed me for each of the companies that made the list below (which, by the way, just happen to be 15 – I set no limit on this number, as I don’t believe in Top X, with an arbitrary X). The three things were: Innovation in business model or technology; strength of the founders, and the market demand. You may notice the absence of traction because nearly all companies had pretty significant traction, for their age, at the demo day.
Here is the list, along with my brief reasons on their selection – the list is in the order the companies presented; there is no ranking within the list. Also, respecting the “off the record” ask, I have not revealed the names of companies that were in that segment of the demo day, until they launch publicly. Finally, I didn’t include companies that I had no way of assessing their potential (like highly specialized medical devices, rocket launch companies, etc.)
As we await the availability of Apple Watch in April, I predict that Apple Watch will be a huge success, possibly selling more than 30 million in 2015 alone (avg expectation is for around 10-30 million). I base this prediction on my many years of watching Apple introduce new products and watching how consumer markets adopt new technologies.
There are four main reasons why Apple Watch in particular, and smart watches in general, are poised for rapid adoption:
1. Apple Design. Apple has once again introduced a product that is designed to get things done for you, not to show off technological innovations. While there are a few very interesting innovations, much like iPhone or iPad, the real innovation is the way Apple has put these together, and in the user interface. The watch is designed to help you get better usage out of your phone and to connect better, and more easily, with your friends and family. It makes it faster to get to appointments, reply to messages, and get information. And, it can be personalized far more than any other device.
2. Form Factor. I have watched the usefulness of apps increase dramatically as we have gone from webpages, to iPad apps, to iPhone apps. The smaller the space, the better designed the apps are and the more useful they are, from a consumer perspective (sorry advertisers, pop ups – not much room for you).
3. Wear-Factor. The fact that this device is actually worn makes it easier to use, not the least because it is always on you and it’s nearly impossible to misplace it . It is also the new version of “Always On”- it is real time, and it is ready fo ruse, saving you several steps compared to a smart phone. The small form factor is offset by brilliant design and the fact that most notifications and interactions don’t require the full phone screen. The use of NFC makes the Apple Watch more natural device to use, compared to the phone- no more searching pockets for your phone to check-in at the airport, or to pay a merchant, or perhaps very soon, get product information at a display – just point your wrist at the reader.
4. Comfort-Factor/Show Off-Factor. The watch is a device that we have worn since at least 19th century. (see picture below). Unlike the awkward Google Glass, there is nothing unusual or uncomfortable about wearing a smart watch; at the same time, you do get a chance to show off your savviness fashion, wealth, etc., in an acceptable manner (minor prediction: The $10k+ Edition Watch will become the new “Tesla” in Silicon Valley, as the must-have for the well-to-do)
I do get the shortcomings of the Apple Watch: short battery life, dependence on the iPhone, high price and lack of subsidy from telecoms, and possible long replacement cycles. But I think these will be overcome gradually. When I hear predictions of doom or the negative reviews of Apple Watch, I am reminded of very similar comments about the iPhone (now sold over 700 million). In fact, I have noted in my blog that iPhone had nothing new that you couldn’t do before, but it was the packaging and the way it got those things done that won the consumers. I believe the same will be true for Apple Watch.
We have gathered what we believe is the most comprehensive list of private companies with over $1b valuation, the so-called Unicorns’ club, with 85 companies identified as of January 2015. While even our list is likely to be incomplete, we believe it most accurately reflects breadth of the Unicorn club, as we start 2015. This has allowed us to analyze the data beyond just geography and come up with some interesting insights. The 85 companies have a combined market valuation of $283B and have raised in excess of $28 B.
We have attached the full list at the end of this article and include below several observations that illustrate some key findings:
Where to look for the next Unicorns? Our belief is that the Consumer Services sector, currently with two members only (Instacart and Delivery Hero) is likely to grow rapidly in the next five years (we have included the other major on-demand companies, Uber and Airbnb in transportation and Travel segments, respectively, rather than lump them all together)
It is worth noting that another $250-$300 b of market cap was taken off the Unicorn list in 2014 through M&A and IPO process, with Alibaba taking $168 b of this (all numbers reflect IPO market caps).
We compiled our list from a variety of sources including announcements of funding events, VC news sources such as Crunchbase, our contacts in the investment community in the U.S. and abroad, and similar Unicorn listings from the Wall Street Journal and others. Our methodology was to include private companies within consumer and enterprise sectors that have raised venture capital investment in the past three years. We note that the list may contain errors or omissions and we welcome comments and corrections.
Our full list of the eighty-four Unicorns of 2015 is below:
In 1979, Sony introduced the Walkman, which eventually became the most successful consumer electronic product of the next two decades, selling close to 400 million by 2010 (amazingly, Sony still produces the Walkman). What made the Walkman such a hit would eventually become the same factors that helped Apple launch iPod and then the ultimate CE device, the iPhone. I don’t know if Steve Jobs and Apple studied Walkman’s success or they just had the same thinking all along, but both Walkman and iPhone share critical common characteristics.
Ironically, after Sony’s success with Walkman, the rest of the Asian manufactures have failed to duplicate that trend or even come close to Apple’s success, despite a number of major technology innovations. Once again, the reasons for this have to do with ignoring everything that made Walkman and iPhone a success, and herein lies the greatest lesson for today’s start-ups.
And therein lies the surprising lessons for the start-ups of today, to learn from what made Walkman and iPhone the big success stories while a slew of companies since then have failed.
First, let’s discuss what iPhone and Walkman did NOT do. Neither product had revolutionary cutting edge technology. Nor were they first to produce this category of products. In both cases, there were other companies that introduced “the first” such device many years before. In fact, the consumer electronics industry is littered with innovative new products that failed to grab a large market share and become the category leader. Even Apple’s most recent product announcement, the iWatch was first introduced, not by Samsung, but by Fossil in 2003.
Sony’s Walkman itself may be thought as following in the footsteps of the first great modern Japanese product success, Toyota. While Toyota’s 0-60 was terrible, the company showed how the car was useful to the average American family:
This, plus a relentless focus on quality (another trait shared by Apple) eventually helped Toyota capture the U.S. auto market.
There are four key lessons we can draw from Walkman and iPhone:
1. Functional. The biggest single factor that helped propel the original iPhone was its functionality. It was the first device that allowed you to get a task done, quickly, and painlessly. It allowed one to check stock prices with one tap, not five; weather was right there next to stocks, and most other everyday tasks for both consumers and professionals were easily accessible. In other words, the product was designed to do your task. It was a solution for your everyday problems.
2. Ease-of-use is paramount. When iPhone was introduced, you didn’t need any instruction manual to use it. It was intuitive: you could hand an iPhone to someone walking on the street and they could immediately figure out what to do. While Apple did not invent Multi-touch, it did incorporate it in a way that made the use of product exceptionally easy. Walkman similarly made thing very easy with focus on one function: listening to music while on the go. By comparison, many products in consumer electronics today remain difficult to use and often times even counter-intuitive!
3. Design is the King. Both Walkman and iPhone were designed, not engineered. This means the product is first designed to the desired task for the consumer, and then the engineers worked on how to get it done. The process makes the design attractive, natural, and one that you like to keep using.
4. Simplicity. It is tempting for the engineers to pile on features and buttons that make a product more functional and yet consumers have clearly shown they prefer simplicity to multi-function features. Apple TV is another great example of elegant and simple design. Nest thermostat also demonstrated the simplicity with a highly elegant UI.
Thus, Apple didn’t; need to be the first in any of the technology areas, but it needed to design an elegant product that was functional, and it did that well. By contrast, Keyocera, Sony, Fossil and countless others technology leaders failed because they rushed a technology to the market, not a solution.
So here is my advice to you as you build your new start-up:
Instead of coming up with the next killer technology, which could become a solution in search of a problem, use the best technology available and design an elegant and highly functional, easy-to-use product that is solving a real problem. Don’t pile on too many functions; don’t make the users read a manual to use it; make the UI and design intuitive and fun, and make sure quality is the highest.
Google is facing some crucial challenges as it navigates the new environment of mobile platforms, task–specific apps, and most importantly, design-driven platforms.
With over 150 products, Google has a strong presence in many aspects of our daily lives, well beyond search. However, the top products, beyond search, remain Youtube (over 1 b users), Gmail (over 500 m users), and Chrome (largest market share at 32%). Google Maps is probably an emerging fourth (I am not including Android in this list, as it is an OS rather than direct consumer-facing product). The other 140 or so products include many useful ones (Translate, Google Now, Hangout) but they have yet to reach a critical mass. I have of course excluded Google + from this list since I don’t believe there are any valid statistics on the actual engagement levels for G+ - the number of sign-ins and other metrics are, in my opinion, irrelevant at best and misleading at worst.
To be sure, Google enjoys an enviable and strong position, along with Apple, Amazon, and Facebook, as one the four pillars of the new online and connected world. However, Google’s strength is becoming less effective and I attribute this primarily to three areas that I list below, along with my recommendations for each area:
1. Design. Embrace it.
Google products used to be the easiest to use, the most intuitive and highly useful. In fact, even Google’s acquisitions reflected companies that were elegant in design and very simple to use (e.g. Picasa, and most recently, Nest). However, the recent products seem to be ‘engineered’ rather than ‘designed’. Take Hangout for example – an incredibly useful and well-engineered product that is also very hard to use and completely non-intuitive. Even Google +, the major focus of the company has a mish-mash of various navigation systems and a confounding design. The highly useful and clever Google Now suffers from the same fate. There is no clear way to find what you are looking for – you kind of stumble upon various options. The worst part is that the forced integration with Google + adds another layer of complexity. All this is happening at a time when design rules and apps that succeed are the simplest ones – think Snapchat.
Google used to have extensive user testing labs and I am assuming that continues and has been expanded. Yet, it is hard to believe that Google’s existing products would be rated as intuitive and easy to user, let alone well-designed, by average users. Something has gone wrong here, and I am not sure what it is.
2. Google + - Ditch it.
Google Plus, as a social network (not as the platform for unifying other Google products) has had a very poor performance, by all accounts. The effort was justifiable and I applaud Google for trying, but as it turns out, there are not enough reasons for anyone to either switch from FB or use G+ as an additional social network. There are some nice features on G+, specifically the circles, as well as ease of posting and various other functions, but these are not sufficient value propositions for most users.
The problem is that Google + has been essentially forced on all Google users without offering much in return. Thus the number of sign-ins is meaningless. In fact, I believe that imposition of Google + as a unifying platform has caused many of otherwise great Google products to become much more difficult to use and hence not as useful. It is time for Google to take the right steps and abandon Google +, and redirect all that effort into a better Google Now, Hangout and innovation in other Google products.
3. Email/contacts/calendar– Innovate.
Email continues to be the most often used application, even on mobile devices. Despite this, there has been hardly an innovation in the email clients, aside from minor feature enhancements. A number of private companies have introduced well–designed and useful features that should be eventually part of the native clients on iOS and Android. But email is a much bigger platform and it needs significant innovation. It is not just a form of communication anymore, but a way to schedule meetings, get introductions, make business proposals, delegate tasks, deliver tasks, make inquiries, send reminders, send gifts, get purchase receipts and confirmations, etc.
Since Google introduced gmail with its features, there has not been a major innovation in email. Yet, emails have tremendous amount of information about our activities, likes, purchases, connections, etc.
Google needs to massively improve on its gmail search as well provide for more functionality within gmail – i.e, the ability to do tasks while in gmail. Google should also incorporate the features offered by apps like Accompli, Tempo, and Gusto – these are all basic, commonsensical features that make both email and calendars much more integral to daily activities, and easy to use.
There is a lot that can be done through a highly powered-up and integrated email and calendar system. Google has barely scratched the surface here and yet this could be almost the second level OS for many other apps.