Learning - Page 2

Apple Watch's Implications for the Wearables Space

From iPhone to Apple Watch

Once every five to ten years, a new platform emerges that has the potential to create enormous opportunity and wealth for entrepreneurs. One of those platforms was announced yesterday: the Apple Watch. You might be excited to buy one, but if you’re an entrepreneur looking for the right opportunity to start a business, you might also start thinking about building an app specifically for the Apple Watch or one of its smart watch ilk.

Over the past 10 years, we’ve seen an increasing number of platforms emerge for application development. And while many platforms promise to give startups access to a huge audience of new customers, few are successful enough to provide such reach. As Apple, Google, and Facebook have been successful in building their own platforms, they’ve leveraged their massive built-in customer bases to assure that well-built apps can reach millions of people.

When Apple launched the iPhone in June 2007, there were no third party apps. A year later, Apple launched the App Store with 500 third-party apps. In June of this year, there were over 1.2 million apps available in the iTunes store.1.

As part of yesterday’s announcement, Tim Cook spoke about WatchKit, a platform available to third-party Apple Watch developers, and previewed two dozen apps already in the works. I wouldn’t be surprised if there were over a million apps in the wearables space a few years from now.

New Hardware Means A New Opportunity

Prior to the smart watch, if you wanted to introduce an app that could track calories burned, sleep habits, or a heart rate, you would need to introduce a hardware product in addition to your software app, or else you could build onto a smaller hardware platform like FitBit. With the advent of Apple and Android’s wearables, now all you need to focus on is the software.

You can assume that millions of people will soon be walking around with hardware attached to them, monitoring and recording data related to their health and lifestyles. The potential for wearable app development remains tremendous.

The amount of venture capital focused on this space is also likely to be huge. In 2013, investments made in mobile companies exceeded $3.5 billion2, and in the nascent wearables market, $570 million was invested as of June 20133. History may guide the investment activity we’re about to see in the wearables space. In 2008, Kleiner Perkins Caufield & Byers launched a $100 million fund devoted to investing in iPhone apps– an amount that was doubled 2 years later4.

The winners are not always first to market, but the early starters usually benefit from eager investors looking to cash in on the excitement surrounding new platforms. For example, Zoosk and Zynga raised massive capital by being first or nearly-first in their respective verticals on the Facebook platform.

Less Competition = More Visibility

We also know from past introductions of new platforms that startups releasing apps first are more likely to benefit from higher rankings in app stores while there is less competition. First entrants to market are also more likely to figure out how to game app ranking systems before the full rules for new ecosystems are fleshed out.

Where is the Opportunity?

I would focus on one of these three areas:

  • Fitness
  • Healthcare
  • Data mining

I’m most intrigued by the promise of the smart watch to fundamentally upset the ways that we think about healthcare.

The existing healthcare paradigm is that you should visit a doctor to find out if something is wrong with you. With hardware that is constantly worn or carried by a user, the paradigm will necessarily change. For example, the measurements for a person’s well-being (pulse, calories consumed, sleep patterns, etc.) can be abstracted in real-time and messaged to a cloud-based service. In turn, that information will be used to alert you when you should see a doctor. Here, the paradigm shifts from one that depends on patient self-awareness and action to one that informs the patient and allows them to act accordingly.

The results of this paradigm shift could be profound. For one, it would likely lower healthcare costs because doctors are only being seen when they’re needed, instead of when they are being scheduled. On a larger scale, it could result in longer life spans because people will be more likely to visit the doctor when something internal requires attention.

The Apple Watch and the WatchKit aren’t available yet. But if you’re intrigued by the wearables market and you have an idea that could be delivered through a wearable app, it’s time to accelerate your thinking. Early 2015 should be an opportune time to start raising capital in the wearables space.

The Takeaway:

With Apple announcing Apple Watch and the WatchKit platform, entrepreneurs should move quickly to take advantage of the coming stream of venture capital and the potential to innovate in the early wearables space.

– Andrew

1. http://en.wikipedia.org/wiki/History_of_the_iPhone, http://en.wikipedia.org/wiki/App_store
2. http://www.businessinsider.com/mobile-vc-funding-explodes–google-glass-games–mobile-ad-companies-thrive-2014-1
3. http://upstart.bizjournals.com/money/loot/2013/06/07/vcs-pour-570m-into-wearable-tech.html
4. http://www.techcrunch.com/2010/03/31/kleiner-perkins-ipad-fund/

Using Data to Mold Your PR Strategy

On Saturday, the New York Times published an article titled “OkCupid’s Unblushing Analyst of Attraction” detailing the dating company’s commitment to using data for the purpose of understanding the social dynamics involved in courtship. Unlike Microsoft or Google’s research groups, OkCupid’s initiative goes beyond using R&D for new feature development. It turns out that publicizing their practice of using data to distill social insights is a well-crafted press strategy, both differentiating their offering from those of competitors and drawing tons of attention to the OkCupid brand.

Here’s how their strategy works: OkCupid launches a free dating service distinguished from other services by its playful questionnaires and quizzes. Without revealing any specific user data that would breach their privacy policy, the company aggregates data and provides their insights on its blog and to the press. In the NY Times article, they reference data while stating how their users show preferences for users of the same race. The results are provocative conclusions about racism, flirting, and even strategies for courtship– all of which make for a more interesting story than the one about a dating company releasing yet another product feature.

Over the years, OkCupid has been able to use this strategy to their great advantage. They release a study, then the study is instantly covered, syndicated, and analyzed, and this results in incremental SEO ranking improvements, which in turn leads to more OkCupid registrants and more studies. As a digital entrepreneur, you should be asking yourself whether or not you could make a strategy like this work for your startup.

Imagine you have a company offering an online fundraising solution for political campaigns and non-profit organizations. Across many political campaigns, your company will have collected insights into what types of mailings proved the most effective in soliciting donations. You could publish data about what kind of copy worked best, what time of day was most effective to send out mailings, and even which demographics were the most responsive to mailings.

For an online shop selling gifts for newborns, you might be able to use data to provide answers about the time period when people are most likely to give gifts after a birth, or your findings on consumer spending in relation to a baby’s gender. The possibilities are limitless.

Companies often issue press releases about milestones in company development without realizing that these milestones are only meaningful insomuch as the audience has a vested interest in the company. If you have a business with some operating history and a large set of internal data, you should explore how to leverage what information you’ve collected to create press-worthy human interest stories and help move your industry forward.

The Takeaway:

  • The next time you’re thinking about writing about your 1 millionth user or the launch of your Android application, ask yourself whether or not you’ve collected any data that can lead to a more compelling narrative.

– Andrew

Why You Shouldn’t Look to Shark Tank for Startup Financing Education

Last night while I was watching Shark Tank, Kevin O’Leary insulted an entrepreneur for the umpteenth time about the presumptuousness of her valuation. In case you haven’t seen Shark Tank, entrepreneurs pitch their startups to a panel of investors. The problem is that these entrepreneurs almost never articulate valuations– they simply name the amount of money that they want to raise and what percentage of their business they are willing to exchange for that cash.

I’m sure that Kevin O’Leary knows how to calculate the valuation of a business, but for some reason, he consistently does it wrong on the show. For example, if an entrepreneur asks for $100,000 for a 25% stake in their business, O’Leary or one of the other judges will berate them and say that their business isn’t worth $400,000 (25% of $400,000). But as any finance person would tell you, if an entrepreneur is asking for $100,000 in return for 25% of their business, then they’re valuing the business at $300,000, not $400,000. This is the difference between a pre-money valuation and a post-money valuation. The pre-money valuation is what the business is worth prior to the $100,000 investment. The post-money valuation is the pre-money valuation cash plus the money that was just invested.

So why do Shark Tank’s producers allow the judges to consistently misrepresent the calculation of the startup’s valuation? I imagine they’re dumbing down the math for their audience. It would be confusing to say that a $100,000 investment represents 25% of a company currently valued at $300,000, although you could also say that $100,000 will represent 25% of the company after the investment.

What’s even more interesting is that the “deals” reached on Shark Tank are apparently “offers” for the judge to perform due diligence and structure an investment over a much longer period of time. One contestant said it can take 6 to 9 months post-show to structure an investment. Other terms part of these offers make a still bigger joke of the entire investment process on Shark Tank. I’ve heard several judges make offers where they acknowledge that the capital they’re providing is insufficient to build the business, but they’ll provide additional “non-dilutive capital” in the future. Does this mean that they’re offering free cash or debt in the future? And if it’s debt, what are the terms under which it’s repaid? What constitutes a default? Under which circumstances can debt be worse than dilution?

Shark Tank makes for great entertainment in so much as you’re watching judges analyze a bunch of startups. But their simplification of startup financing is so abbreviated as to make the process a bit of a joke. I’m not sure what would make for better television, but entrepreneurs certainly shouldn’t look to shows like this one for any sort of financing education.

The Takeaway:

  • No one should conflate pre-money and post-money valuations– they are two entirely different financial concepts.

– Andrew

Why You Shouldn't Look to Shark Tank for Startup Financing Education

Last night while I was watching Shark Tank, Kevin O’Leary insulted an entrepreneur for the umpteenth time about the presumptuousness of her valuation. In case you haven’t seen Shark Tank, entrepreneurs pitch their startups to a panel of investors. The problem is that these entrepreneurs almost never articulate valuations– they simply name the amount of money that they want to raise and what percentage of their business they are willing to exchange for that cash.

I’m sure that Kevin O’Leary knows how to calculate the valuation of a business, but for some reason, he consistently does it wrong on the show. For example, if an entrepreneur asks for $100,000 for a 25% stake in their business, O’Leary or one of the other judges will berate them and say that their business isn’t worth $400,000 (25% of $400,000). But as any finance person would tell you, if an entrepreneur is asking for $100,000 in return for 25% of their business, then they’re valuing the business at $300,000, not $400,000. This is the difference between a pre-money valuation and a post-money valuation. The pre-money valuation is what the business is worth prior to the $100,000 investment. The post-money valuation is the pre-money valuation cash plus the money that was just invested.

So why do Shark Tank’s producers allow the judges to consistently misrepresent the calculation of the startup’s valuation? I imagine they’re dumbing down the math for their audience. It would be confusing to say that a $100,000 investment represents 25% of a company currently valued at $300,000, although you could also say that $100,000 will represent 25% of the company after the investment.

What’s even more interesting is that the “deals” reached on Shark Tank are apparently “offers” for the judge to perform due diligence and structure an investment over a much longer period of time. One contestant said it can take 6 to 9 months post-show to structure an investment. Other terms part of these offers make a still bigger joke of the entire investment process on Shark Tank. I’ve heard several judges make offers where they acknowledge that the capital they’re providing is insufficient to build the business, but they’ll provide additional “non-dilutive capital” in the future. Does this mean that they’re offering free cash or debt in the future? And if it’s debt, what are the terms under which it’s repaid? What constitutes a default? Under which circumstances can debt be worse than dilution?

Shark Tank makes for great entertainment in so much as you’re watching judges analyze a bunch of startups. But their simplification of startup financing is so abbreviated as to make the process a bit of a joke. I’m not sure what would make for better television, but entrepreneurs certainly shouldn’t look to shows like this one for any sort of financing education.

The Takeaway:

  • No one should conflate pre-money and post-money valuations– they are two entirely different financial concepts.

– Andrew

Should You Build 2 Products at Once?

This past week, an entrepreneur shared with me his mobile app and a very clear description of the business proposition that his app would address. When he was done, and after I had absorbed his business opportunity, he paused. Then, he said: “The best part of my story is that this exact functionality can be used as the basis of a second business. All I have to do is change some copy and graphics within the app.” This, he said, was a case of “build once and receive twice.”

If I was half-way excited by the first part of our discussion, my excitement level fell to zero after hearing about the new opportunity. His sentiment about adapting a piece of his app’s functionality to solve numerous business problems is a not a phenomenon unique to this entrepreneur. While in the trenches, every entrepreneur sees new opportunities that they couldn’t have imagined prior to commencing their product’s build.

The new idea is often appropriate as a product extension. Other times, you might come to the conclusion that you’ve stumbled upon two ideas that can serve as separate, compelling businesses. I’ve heard entrepreneurs go so far as to rationalize this process of building two unrelated products by referencing Google. They say, “Google offers search as well as work productivity software. If Google can do it, why can’t I?”

This is my response: 1) Google won search first before building Google Docs or any of their other products; 2) You’re not Google (yet).

Most entrepreneurs find it extremely hard to do one thing well. Only with a herculean amount of effort can you apply the requisite discipline and focus necessary to succeed at one venture. When you’re just starting out, it’s next to impossible to do two things well simultaneously.

Here’s what I told the entrepreneur: if he liked his new app idea better than the first idea, he should abandon the first one. Although he claimed that creating two ventures would double the size of the addressable market opportunity, he would likely fail at executing both of them. By embarking on two separate ventures, he would almost certainly turn off any investors and advisors who might otherwise be willing to help him.

The Takeaway:

Focus on doing one thing well. If you succeed, the next opportunity will present itself in time. When it does, it will be easier for you to accomplish than the first one.

– Andrew

What Happens When You Run out of Blog Content?

When we first launched the Roadmap course in May, we debated for a long time about whether or not we should start a company blog. In my past ventures, blogs ended up as exercises in futility. They inevitably died when we lost steam on our posting frequency and then we eventually stopped writing them altogether, leaving behind a graveyard of content and dreams of a large readership.

When actively maintained and frequented by an engaged user-base, a blog is an amazing asset for any company to have. So the question we posed to ourselves was: how can we create a blog that is likely to remain sustainable over time, avoiding the burnout that so frequently follows blog creation?

Our first conclusion was that my prior burnouts weren’t associated with the actual writing, but rather with the process of selecting topics to write about. Our second conclusion was that the principal focus couldn’t be simply opining on industry stories. The blog’s focus needed to center around content that we were already engaging with on a consistent basis.

So what would this tactic look like, practically speaking?

On a regular basis, I receive many questions and invitations for meetings from startup founders. In the past, I would do my best to respond to each person individually and schedule time to speak with them. My motivation for connecting with first-time entrepreneurs was threefold:

  • It kept me sharp. The best way to learn about what the future holds is to be speaking to as many people you can about the future that they are creating;
  • I believe in the principal of ‘paying it forward.’ In the past, many people were there to help me. It’s good karma for me to help others; and
  • I’m interested in bringing founders into the Roadmap boot camp where I can provide the most comprehensive entrepreneurial information I’ve gathered and scale the educational platform that we’re building.

In the past month, we created Founders’ Hours— weekly 20-minute sessions that entrepreneurs could schedule in order to ask me any questions they have about building startups or relating to the weekend course that we offer. Right now, we’re using the free minimalistic service Calendly for meeting scheduling.

While each founder’s case is fairly specific, the advice that I offer is, more often than not, broadly applicable to a wide range of entrepreneurs. This means that it makes sense to try and memorialize each session’s content in the form of a blog post. Using Founders’ Hours as a content creation vehicle would accomplish:

  • Educating entrepreneurs on business questions asked by real startup founders;
  • Drawing dedicated, quality entrepreneurs to upcoming events; and
  • Generating sustainable and shareable blog content.

By institutionalizing these question-and-answer sessions on a weekly basis, we’re guaranteeing that we’ll continually generate blog content. Publishing these findings would also satisfy our company’s over-arching vision, which is providing guidance and inspiration to entrepreneurs so that they can build stronger businesses.

At the outset, we’re instating the following basic guidelines for our blog, just to keep the content uniform and flowing smoothly:

  • Each post is based on a Founders’ Hours session;
  • Content is anonymized and generalized so that no individual can be identified and so that it will aid the larger entrepreneurial community.

As we launch this blog, we view it as an experiment, not a fixed device. For the time being, we hope we’ve solved the problem of offering content that isn’t duplicative, irrelevant, or merely self-promotional. We’ll continue adapting our guidelines as we go along, making sure to focus on content generation tactics that can be enacted with the least amount of effort and the maximum potential value, which we’ll write about here.

The Takeaway:

To have a much better chance at developing a regular blogging habit, center your blogging system around content that:

  • You’re most interested in;
  • You deal with frequently (which makes you somewhat of an authority);
  • You view as having a great potential for being automated.

If this tactic has worked for you in the past, we’d like to hear about it. Leave a comment about the wonders of automation or your blogging hacks below.

Want to receive entrepreneurial advice and contribute to the greater startup community’s knowledge base? Schedule a free Founders’ Hours session with me here. (We’ll never share your personal details.)

– Andrew

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