An Exercise in Foresight

I really love this (excerpt from a Techcrunch article by Roelof Botha):

Imagine it’s five years from now and your company is a massive success. you’ve got a fantastic product, you’ve achieved market leadership, and everyone else is trying to catch up. What decisions helped you get there?

Now imagine the same five years have passed, but this time your company is struggling. You failed to live up to your original vision. Your product has stalled. You’re backed into a corner. What choices led to that moment?

These two questions are the opening exercise in a strategic planning technique that Larry Summers — the economist and former Treasury Secretary — led the team at Square through recently. The process sparked important discussions about choice, risk and foresight.

Likely a useful exercise to do, whether you’re a startup, a larger company, or a VC, even. Probably useful for personal life, too.

The Bear Case on Fitbit

It came as a surprise to most when Fitbit finally unveiled their financial numbers in their S-1. The company did over $700M in revenue last year (that’s over 10M devices sold!) and maintained an EBITDA margin of close to 26%. It was even more surprising how well FIT was received by public market investors. Fitbit’s  stock surged almost 60% on its opening day and has continued to outperform until its first earnings call. On August 5th, the company lowered revenue guidance and indicated that margins will decline in the next quarter, sending the stock down ~16% in after-hours trading.

Since I’ve been fairly bearish on FIT ever since its IPO, this bleak financial forecast did not come as a surprise. It seemed as if investors were so impressed by headline financial figures that they didn’t look further into Fitbit’s business metrics. FIT’s cumulative device sales track closely with registered users, which indicates that users rarely buy more than one device (despite Fitbit’s wide array of offerings). 

And, although 1 in 10 Americans owns a fitness tracker, research show that ~50% of them wind up in a drawer somewhere within six months. This kind of high user drop-off and low purchase repeat rate is a leading indicator of slowed growth down the line.

I’ve also always been skeptical of the product itself. Already, we have seen several startups, like Misfit and Moov, approach the wearables from the low end. In fact, you can buy a pretty decent activity tracker on (by Xiaomi) for $15! With Fitbit also victim of product recalls (the latest for the Fitbit Force in October 2014), it becomes clear that FIT will be subject to margin compression.

While Apple has indeed created general lift for wearables with the release of the Apple Watch, it has also set a price ceiling for these devices. For $350, you can get the lowest-end Apple Watch that does activity tracking on top of all its watch-specific apps… so why would you pay more than $300 or even $250 for a Fitbit?

Given these dynamics, Fitbit really runs the risk of becoming the Samsung of Wearables. While Samsung was able to grab a large share of the Android phone market a few years ago, the company has been slowly losing its footing to the likes of Apple and Xiaomi. Formerly the top mobile device maker in China and India, Samsung lost its footing in both crucial markets in the second quarter of 2014. How can it avoid this fate? Here are some suggestions:

  • Go Niche: Sometimes the right answer is a counter-intuitive one. Samsung failed in some cases because it flooded the market with a slew of low-end models – none of which appealed to the average consumer. Instead of trying to please everyone, Fitbit should take some of SoulCycle’s ethos and target a small and passionate niche. This may mean creating a Fitbit targeting fashion-forward women (a la Ringly), or creating a Fitbit for hardcore athletes (a la Athos). The wearables market will be large, but not necessarily homogeneous
  • Application and Service Integration: Samsung failed to build usable software and useful services on top of its hardware component. Samsung’s proprietary OS, Tizen, also never took off. I know Fitbit is incredibly focused on their consumer mobile app, which is performing well in the iOS and Google Play stores. The company has already made headway in this area by integrating more social and smartwatch-like functions to their fitness trackers, and should building the software and services layers.
  • Put Health First: Fitbit has proven its ability to make an activity tracker with a few bells and whistles. With the acquisition of FitStar, the challenge becomes making the app and wearable integration increasingly valuable to the user from a health-first perspective. In order to increase its unique value proposition and user retention, the Fitbit app should not only track activity, but find ways to increase and promote well-being.

Kitchen 2.0

My friend Star Simpson and I co-authored this piece a couple of months back, and I love that I’m still getting feedback on it! Love that there are so many entrepreneurs tackling this space.

Introductory excerpt below:

We are collectively obsessed with food these days. Since the launch of the Food Network in 1993, TV shows such as Iron Chef and Anthony Bourdain’s No Reservation have become immensely popular. Modernist Cuisine, a 52-pound masterpiece published in 2011, was deemed “the cookbook to end all cookbooks” and the term “foodie” entered the mainstream lexicon. We spend hours staring into the kitchens of others, and at HD renderings of exquisite meals. But, while Americans have become more familiar with the newest celebrity chefs and the hottest food trends (e.g. Cronuts! Liquid nitrogen ice cream!), we are also collectively spending less and less time in our own kitchens.

3 Ways Thumbtack Can Improve User Experience

Ever since I’ve had to find movers (SoMA to Jack London Square), I’ve been a big fan of Thumbtack. My friends and I have used Thumbtack to find local service providers such as contractors, golf instructors, housekeepers, and even a face painter.

I love that Thumbtack does the work for me. It essentially reverses the workflow of search for local services — instead of me taking the time to pore over pages of search results on Google or Yelp, Thumbtack takes some information on what I’m looking for, then returns up to 5 quotes from local professionals who may be a good fit for my request. While the user experience is pretty good, here are some ways I think they can be better.

1. Better communication

Below is a screenshot of the messaging platform on Thumbtack.


Each professional sent me a moving quote with a price per hour, as well as a short message introducing themselves and their business. However, I often found a long lag-time between message response, which led me to wonder if the professional was checking Thumbtack regularly. In fact, one professional I hired on the platform stopped answering my messages all together! One way to improve communication could be read receipts — a check mark for whether the other party has seen my message, or a time stamp showing their last login.

I don’t think it’s clear to the user that Thumbtack purposely caps the number of quotes to five. I can easily imagine a new user in limbo, waiting for more quotes to arrive before s/he makes a decision. I’ve also made a couple of requests that have only received one or two quotes — in this situation, Thumbtack can maybe let me know that I have tapped out the market or prompt me to widen the request criteria. On the supply-side, for requests that do not get five replies, Thumbtack can also waive posting credits to encourage service providers to submit a quote.

2. Easier transactions

When it came time to pay my movers, it was definitely awkward. I had to pull up the Thumbtack messages to recall the rate we had discussed and then run to the ATM to withdraw cash. For jobs that had slight delays or additional complications, I sometimes had to re-negotiate the transaction amount.

If Thumbtack can own the payment flow of the experience, it could remove some of the annoyances of transacting with a local service provider. Owning the entire experience will also give Thumbtack the data to close the loop, from a request to a transaction.

Providing a way for customers and service providers to transact on Thumbtack will also help the Company increase / diversify their revenue. For now, Thumbtack sells “credits” to service providers, who redeems them in order to send customers a quote. In addition to charging for qualified leads, Thumbtack could also take a cut of the transaction from the service provider who was hired for the request. (This is something Thumbtack had tried before, but was unable to close the loop on the transaction.)

3. Using data to improve the consumer experience

Given the number of quotes Thumbtack facilitates, they should be able to provide a certain level of transparency for the consumer to get more value out of the platform. One example would be to dynamically show how many professionals fit my request — this will help set expectations on how many responses I may receive and how much supply I can expect in this market.

I’m also surprised at how little customer data Thumbtack has on me. Thumbtack is one of the few online services that doesn’t have a Facebook sign-on – which could actually tell the Company a lot about my local service needs. This type of customer data would be incredibly helpful in re-targeting me for additional services. For example, if I like Crossfit, maybe I also need a sports massage, or if I like Sephora, maybe I’m interested in beauty services. Given that I just hired movers to move from 94105 to 94607, Thumbtack could probably also estimate some basic demographic data, like my age and income bracket.

Given the market they’re facing, it’s still really early for Thumbtack and they’ve got multiple directions in which they can grow their business. With the increased competition from large incumbents such as Amazon and Google, I’m rooting for the underdog and can’t wait to see how their product will develop in the next couple of years.

The Emergence of “Pre-Seed” Capital

Notation Capital, founded by former Betaworks folks, is a new pre-seed investment fund launched a couple of months ago. 

Notation Capital is attempting to institutionalize the round of funding that’s usually done by “Friends and Family”. With just an idea and a co-founder, one could actually raise up to $500K in exchange for 5% to 10% of equity.

Really, pre-seed investing isn’t anything new. A few years ago, these rounds were simply known as seed or angel rounds, lead by early stage investors like SV Angel, Lerer Ventures, or Thrive Capital. Startup accelerator programs like TechStars and Y Combinator also use a similar model.

The thesis here is clear – firms are entering both from below and above the traditional VC-backed period of a startup lifecycle in hopes of capturing more of the returns generated by high growth companies. This is why we continue to see more large and institutionalized seed rounds (by pre-seed capital funds), as well as more large and highly-valued growth rounds (by public and/or PE funds). 

From a risk/reward perspective, I think funds with “bookend” strategies (either preceding or following the traditional VC funds) likely have lower return thresholds. What would be interesting is to see a partnership between very early and pre-IPO strategies – if one could be used to identify the winners and the other used for putting more capital behind those winners. 

Six Things Technology Has Made Insanely Cheap

I believe that technology and democratization goes hand-in-hand. If you examine the now-commoditized products listed in this article (PC, software, TV, trading commissions, camera, cell phone plan), you can also follow how such technologies became much more widespread and accessible to the masses as prices dropped.

The subtitle of the article boldly proclaims, “behold the power of American progress”! And it’s interesting to me that the author (Aki Ito) states:

For anyone bearish on the progress made by the U.S. economy, consider this: Computers are now one-1,100th of their price 35 years ago.

On the contrary, I believe that much of this price deflation actually comes from international manufacturers (read: China, India, etc.) who are able to produce virtually the same item at a fraction of the cost. 

With those two factors in mind, tech advancements and cost-efficient copycats, here are few things that I believe will face the same deflationary pressures over the next decade:

  • Mobile phones: This is a no-brainer and has already happened with the likes of cheaper Android handsets, courtesy of Xiaomi.
  • Automobiles and trucks: Asian manufacturers, such as Hyundai, are innovating quickly and will be able to rival Western brands soon in terms of quality. Furthermore, if Uber’s expansion continues world wide, demand for cheaper and more efficient cars will rise as drivers proliferate and riders opt to forgo car ownership. 
  • Education: With the current status of rising student debt, something’s gotta give. Disruptive Education Technology startups, such as General Assembly, Codecademy, and Coursera will begin to offer non-accredited alternatives to higher education. For profit education companies, like Minerva Project, will offer degrees at a fraction of what it costs today.
  • Food: I have high hopes for companies like Beyond Meat, who are looking to product petri dish-grown meat in a more cost-effective and environmentally sustainable way. Before that becomes mainstream, however, farmers will continue to lobby for government subsidies which hopefully will be passed through to consumers. 

On the other hand, there are a couple of things I wish would drop in prices, but I think unfortunately will continue to rise:

  • Healthcare:Healthcare is notoriously a laggard vertical when it comes to tech adoption, and the burden of outdated IT/infrastructure is eventually passed through to the consumer. An aging population, the impending shortage of doctors/nurses, and America’s sedentary lifestyle will all pose to be challenging to the current healthcare system. Without the right incentives for health systems and individual consumers to change their behavior, healthcare looks like it will only increase in the years to come. 
  • Housing: While this is a particularly stressful topic for those of us living in the Bay Area, I think it’s a pain point that all young adults will face sooner or later. Given high student debt and low employment, young adults will find it much more challenging to become home owners than the generation before did. 

What do you think will become cheaper or more expensive over the next decade?

Six Things Technology Has Made Insanely Cheap