Team, Product, Monetization and Timing: Lessons from Uber, Dropbox and WhatsApp

This post first appeared on Lars' Medium ahead of his appearance at Arctic15


See Lars' Medium post here.

As a VC, my job is to meet and analyse interesting companies throughout Europe at speed. Dozens of them, in quick succession.

In this process, I’m trying to answer the question that every venture capitalist is constantly asking themselves: Can this company become a billion-dollar business? Does this company have the potential to generate the kind of returns that WhatsApp did for Sequoia, or that eBay did for Benchmark?

As I consider this question ahead of Arctic 15 (#Arctic15) in Finland, I’ve devised a system based on my experiences over the past 17 years. Over this period, I have worked at many tech companies including Uber and Dropbox, and served as an advisor to game-changers like WhatsApp and Pocket. I joined these companies when they were startups, and have witnessed each grow into businesses that have fundamentally altered industries.

Working at the heart of these businesses has enabled me to boil down the factors of success down to four themes: the team, the product, monetization and timing.

Within each of these themes, I have created a set of questions and observations that enable me to analyse companies in an unbiased and consistent fashion, which I also hope is helpful for entrepreneurs.

Working at the heart of transformational businesses has enabled me to boil down the factors of success down to four themes: team, product, monetization and timing.

Lars Fjeldsoe-Nielsen, partner, Balderton

1. The Team

My first question: Is the leadership team strong, do they have what it takes?

I saw Drew’s attention to detail and perfection at Dropbox, and Travis’ contagious passion at Uber even inspiring people around the World.

Another question: Is the team the smartest in the field, and is it deeply committed? This is an especially critical factor to consider when looking beyond just the founders. You need the entire team to be willing to make sacrifices in order to win, not just the founders.

Is the leadership able to articulate a vision for the future, and to take it a step further and create the future? Can the company scale? Are the team and the technology able to scale as the company explodes and possibly changes direction? Can they execute better than the competition? And, critically, can they execute faster than the competition?

Can they consistently attract top talent, like the best engineers in their field? Do the employees share in the company’s upside? Can they manage and motivate people as they grow, and retain employees even when things inevitably get hard? Can the team be held accountable, and can they create a healthy sense of urgency? Can they articulate their dream board?

Can they focus on the details while still being bold in their global aspirations? I think of Uber, simultaneously battling regulators in their existing markets and iterating the product on a weekly basis while never losing sight of the importance of spending billions to enter China, the world’s largest market.

What’s driving them? This motivational fuel and driving forces can come either from past experiences or future visions. Be that a need to prove something to the world, or a failure in the past that they want to overcome, or an aspiration to build a legacy and not be forgotten, to make a dent or just simply to create vast amounts of value. Can they handle communication well, especially when circumstances have turned against them? How would they react in times of crisis? And perhaps most importantly of all, do they have what it takes to build a robust, healthy company corporate culture?

This is a lot of questions, I know. But answering those questions can give a strong signal of probability for future success, and help the entrepreneur in the process.

Is the team obsessed with, and committed to creating, that extremely important and unique “simplicity” that will make the product or service an absolute 'need' for every potential user?

Lars Fjeldsoe-Nielsen, partner, Balderton

2. The Product

As I think about a potential investment, almost as important as the founders (I would say the founding team since you speak about the whole team beyond just the founders) is the product or service that the team is creating.

And here, too, I have lots of questions: Does the product or service solve a problem with a potentially huge market? Does the entrepreneur understand the industry and the customers? What is the current “pain point” that the product or service promises to overcome? Is it perceived better than the competition? Does it engender repeat usage, or feelings of loyalty and even love for the product? Does the product trigger an association with something that is a part of our everyday lives?

Consider popular services like WhatsAapp and Instagram: When you want to send a message, you think WhatsApp; when you want to share a beautiful picture with the world, you think Instagram. Even the whole mobile gaming industry is built on complex behavioral psychology.

Does the press tell love the story, and speak positively about the company, culture and the mission of the founders? Does the product or service have a network effect built in? That is, do existing users benefit from bringing their friends and family members on board as well? As an investor, I’m particularly careful about whether a service can handle success, and that a company won’t simply crash and burn as the business attracts users. As Uber put it, a service must be “as reliable as running water.”

Is the service staking out new ground? Does it sit on valuable patents? Can the team fend off competition in the future by building value in their inventions?

Has the team applied parallel testing of user experiences (A/B testing) and built a strong analytics platform? Is the product “pixie dust” material? That is, even though WhatsApp has many competitors, people still do not leave the service — whatever it has, this magic ingredient is what I call pixie dust.

Is the service aspirational, and does it leave a positive impact on the world? To give a few examples here: Tesla reduces pollution and provides the sensation of driving into the future, while Facebook connects people and, in doing so, makes the world a smaller place.

How does the company tackle privacy and security? I cannot think of a major company that has not stumbled in this regard, and has had to learn to grow up very quickly.

Finally, but probably most importantly: Is the team obsessed with, and committed to creating, that extremely important and unique “simplicity” that will make the product or service an absolute “need” for every potential user?

3. Monetization

Businesses have to bring in revenues — hopefully sooner rather than later. What do the current metrics show against the benchmarks? Some companies consider whether to grow fast and bring in revenue later, like WhatsApp.

Others, like Uber, offer a service that people are used to paying for, and hence have a high and early monetization capability.

And others, like Dropbox, sit somewhere in the middle, providing a tiered service that lets people try it for free, and then charges them as their use continues and moves to more specialized and professional use cases.

Each of these models can work, but entrepreneurs need a clear idea of the monetization strategy that works best for them and their products.

Some more questions: Is the product or service solving a problem worth paying for? Is the team analytical in its business decision-making? At Google, I believe, a “Bizops” team was set up to deeply analyze the business, and make product and strategic decisions based on data analysis.

Can a company grow organically with a virtual “currency,” like storage space for Dropbox, or free rides for Uber? Can the product or service attract new users non-organically through partnerships with other companies? (This was my own mission during my years at Dropbox and Uber.)

Can the team take bold strategic bets? Google bet early on its acquisition of Android, and Apple made an aggressive move by launching iTunes and the iPhone. Facebook offers an even better example when it acquired Instagram, WhatsApp and, most recently, Oculus Rift. Those last two deals, in particular, seemed especially risky or expensive at the time, but in hindsight have appeared more strategic and critical as time has passed.

Some consider timing, along with a sprinkling of luck, to be the single most important success factor for any tech business. And while timing is difficult to manipulate, it isn’t impossible.

Lars Fjeldsoe-Nielsen, partner, Balderton

4. Timing

Some consider timing, along with a sprinkling of luck, to be the single most important success factor for any tech business. And while timing is difficult to manipulate, it isn’t impossible.

Founders can consider the factors that determine whether their timing is good or bad; and, by doing so, they can consider whether they can control or react to developments and adjust the product’s market fit.

A good way to think about “timing” is in relation to the competition. Having said this, the actual advantage of “first mover advantage” is hard to assess. WhatsApp made a late entry to the game, yet their obsession with creating a positive product experience was so strong that their growth exploded anyway. My advice here is simple: If you’re the first mover, you have to win a large chunk of the market quickly with an amazing product or service, which needs to be sticky enough for users to stay put even as competitors inevitably arise to try and snatch away your market share. If you’re the second mover, the task isn’t impossible. Analyze exactly what the “first mover” does, and what it does well and not so well (potentially using some of my questions above!), and find a way to do it differently and better. For example, be more focused on a vertical or use case. One great example is Snapchat, which was able to carve out a strong niche in the crowded world of messaging.

What’s next?

As I meet with entrepreneurs, I am constantly thinking through these questions, seeking ways to build great companies with entrepreneurs, and in the meantime to construct a venture model of service that fits the market in Europe with my partners at Balderton. To sum up all of these thoughts, answers and factors, I will ask one last big question:

Will the team be as excited about partnering with Balderton as I would be to join their board?

If so… I can return to operating where I’m most comfortable — building and exploding the growth funnel again.

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