Chapter 1-The View from the Inside
Whether you’re a newcomer to mobile technology, a gifted developer, seasoned entrepreneur or just intrigued by what it takes to build a billion-dollar company in this day and age, this book is for you. If you’re an Android or iPhone user then you’ll already be an avid user of some or even all of them: WhatsApp (the messaging app), Viber (another messaging app), Square (the payments service), Angry Birds (the now ubiquitous game), Uber (your on-demand chauffeur), Instagram (the social-photography app), Waze (the mapping and social-traffic app), Clash of Clans (the ridiculously popular game from Supercell), Candy Crush (the ‘sweet’ game from King), Snapchat (the messaging app where your messages disappear after seconds) In this book I focus primarily on mobile-first companies – ones that have pure mobile DNA. Why? Because being mobile-centric is a different and entirely new way of thinking – and is possibly one of the biggest business opportunities in history.
That being said, there are a number of other billion-dollar technology startups that began as websites or even desktop applications. There’s clearly a huge amount to learn from them, not only from the way that they have adapted to the mobile world, but also because they are great examples of modern companies that have grown from ideas to billion-dollar powerhouses by developing better products, great leadership, constant innovation – and, above all, superb execution. Companies such as Google, Facebook, Skype PayPal, eBay, Amazon, Pandora, Dropbox, Box, Groupon and Evernote fall into this category.
Part I will also consider what it means – and takes – to think big. Entrepreneurs don’t trip over and fall into billion-dollar businesses: they see big problems, very big problems that frustrate lots of people, and then create elegant solutions. They do this through a combination of disruptive thinking, solid execution and management of complexity. These solutions are the basis of businesses with huge potential. This section will give you the tools you need to validate whether your idea has billion-dollar potential (and how to adjust it if it falls short).
Part II will guide you through the journey of building a billion-dollar app. There are five key lifecycle steps. The steps map to challenges that need to be met and solved to create a great product, a great team, a great business model and a great company overall. I loosely align these steps with valuations and funding rounds to help you along the journey as, in its broadest sense, the model I’ve used reflects how venture capitalists have been looking at technology companies for the last decade.
Until 1916 we didn’t even have any billionaires – John D. Rockefeller inaugurated the club on 29 September 1916.The world population hit 1 billion in 1804– that clearly took a while. We hit 2 billion people in 1927, 3 billion in 1960 and the magical 7 billion in 2011. While it took 123 years to double from 1 to 2 billion, it took only 12 years to go from 6 to 7 billion.But let’s have a look at something a little more relevant to our billion-dollar app. At the beginning of 2014 Facebook had 1.23 billion active monthly users,5 with an astounding 757 million logging in every day. Facebook needs between 180,000 and 200,000 servers (the computers that run their website and apps) to support all those users, according to one professional estimate. Think about what this costs to run. Well, according to one of Facebook’s financial filings, it invested more than $1 billion so far in server hardware alone. But, if you think that number is big, wait for it. Google is spending a few billion dollars – every quarter – on supporting the computers it needs to run all its services.In total it has spent over $21 billion on its data centres. So success is definitely about understanding – and managing – numbers at a billion-dollar scale.
I answered a cryptic online post from Jay Bregman, who had just founded Hailo. Jay explained how his approach to creating a single, global app to hail taxis in any city in the world was different from the handful of small competitors already operating. He loved my experience of building a multimillion-user community in the video-dating world – and creating an acclaimed product. Once he’d finished outlining the broad experience of the Hailo founding team I was pretty much sold. And so my journey to delivering my own billion-dollar app began.Jay knew two things all great entrepreneurs know: first, you need to focus on what you know; second, to build something enormous you need to disrupt and reinvent a service that millions of people around the world use on a daily basis. Hailo would have six cofounders – three seasoned entrepreneurs and three experienced taxi drivers. The team possessed great collective experience – deep sector expertise, tried and tested technology, years in finance and even a previous working relationship. It was a powerful cofounder mix.
Chapter 2-Mobile Genetics
‘A typical smartphone user looks at their phone about 150 times per day. In early 2014 the number of mobile phones exceeded the number of people in the world today: 7 billion.The number of smartphone users will top 1.75 billion in 2014.2 In 2013 people spent a whopping $25 billion on apps – an increase of 62 per cent on the previous year.So why is the mobile sector growing so fast? And why have both the rollout and the usage of the mobile Internet grown so much faster than the desktop Internet? In this section I’ll dive into how the last few decades of innovation have converged to deliver history’s most powerful computers, in the smallest forms, and at a price that an increasing proportion of the world’s population is able to afford. We’ll cover everything, from the operating systems used by the two smartphone giants Google and Apple, to the most popular activities on smartphones, to the underlying technologies that make apps so powerful.The Windows OS was launched in November 1985 and in just three years it was running on 25 per cent of all computers. In addition to making computers more accessible to users, it also provided a powerful platform for developers. As Windows dominated more and more desktop computers – it ended up running on 96 per cent of the world’s computers from 1998 to 2005 – developers could write a software program, and then easily distribute it and have it run on all those computers (no matter who manufactured the actual hardware).The opportunity to develop an OS for mobile phones was there. There was an opportunity to dominate software on mobile phones, just as Microsoft’s Windows OS had dominated the desktop. But it would be a few years before a winner emerged. Not only did Apple do away with the clunky method of entering letters via a numeric keypad, but they also replaced the pokey BlackBerry keyboard with a virtual one, thus freeing up more space for a larger screen (and more engaging apps). They also filled the iPhone with sensors such as GPS (Global Positioning System, to tell you where you are), a magnetometer (to tell you which direction is north), and accelerometers (to detect whether the iPhone is moving, and, if so, which way).It was through the combination of all these innovations, launched at the same time, that Apple was able to set the stage for what would be a multibillion-dollar-per-year app industry. Android mirrored Apple’s entire ecosystem, but with one key difference – and ultimately a massive one. Android would run on open-source software. That meant that anyone in the world – from an individual developer all the way to a giant smartphone manufacturer – was allowed to use the Android software and tailor it to their own specific purpose. The Android OS could therefore be used, adapted and optimised for use on smartphones produced by competitors such as Samsung and BlackBerry. Apple, on the other hand, had taken a highly controlled, walled-garden approach with iOS (its mobile operating system). Apple would not allow anyone else to use the system, and iOS would run only on Apple-made hardware.The diagram below shows how dramatically things have changed. When Microsoft launched Windows in the 1980s, it took 12–15 years for it to dominate 96 per cent of all desktop computers. And yet, when you look to the right of the graph, you can see that iOS and Android have destroyed Microsoft’s near-monopoly in a mere five years. People have adopted mobile computing more than three times faster than they did the desktop. In 2013, the average US consumer spent an average of 2 hours and 38 minutes per day on their smartphone and tablet. That accounts for a whopping 17 per cent of their waking hours – that’s almost one-fifth of the time we spend with our eyes open. Wow! Even more exciting is that those consumers spend 80 per cent of that time (that’s right – 2 hours and 7 minutes) using apps and only 20 per cent (31 minutes) on the mobile Web. Apps offer the better mobile experience – and as a result hold four times more of our daily attention than the mobile Web.
So, now that we know that people love their apps, the question begs to be asked: which apps are hoovering up so much of our attention? The diagram below suggests we’re a big bunch of time-wasters, spending almost 60 per cent of our time on games, Facebook or entertainment-related apps.
BEST PERFORMANCE. By running natively on a smartphone, an app has the most direct and simple way of communicating to the phone’s operating system. That means it renders graphics more efficiently and accesses sensors more reliably and quickly. Web apps – by contrast – must be built to work with the ‘intermediate’ layer – the mobile Web browser – which adds complexity and inefficiency. To see this for yourself, compare how well Google Maps via a mobile browser works compared with the native app: the native app is faster to load and move and easier to interact with, and generally performs better with complex tasks such as directions.Billion-dollar apps are increasingly depending on APIs: the Uber and Hailo apps use mapping APIs to show you where your driver is, and payment APIs to securely store your details and charge your credit card; Flipboard uses the Facebook and Twitter APIs so that you can log into their app and share content via those sites with a single tap; gaming apps such as Angry Birds, Clash of Clans and Candy Crush rely 100 per cent on the app-store payment APIs to generate their revenues.And, naturally, apps can take advantage of APIs in other ways. With Instagram’s API you can create a new website or mobile app that automatically grabs your Instagram photos and does cool stuff with them, such as have them printed on demand and delivered to you as postcards, or create a specialised website full of puppy-only photos, or an app that shows Instagram photos by the location they were shot in. The possibilities are limited only by your imagination. If we go back to the beginning of the last technology cycle – that of the smartphone, kicked off by the iPhone in 2007 – we can see how quickly a touchscreen interface, a powerful operating system, integrated sensors and a ubiquitous mobile Internet connection changed our lives. It was just a matter of years. When the next technology cycle begins – and it will undoubtedly be something more wearable – it will begin with huge swathes of the ecosystem already in place. The time to get 1 billion active users of a gizmo like Google Glass will be a lot shorter than the eight years it took the smartphone to smash that milestone.
Chapter 3- A Billion-Dollar Idea
My point here is that if your idea resonates with a human universal, you will maximize the universal appeal of your app. Solving a ‘universal’ problem creates a much bigger market opportunity than solving a geographically specific, language-related or generally niche issue not shared by a huge number of people.The best disruptions appear simple – they are best because they are the simplest to communicate and the simplest to understand by the largest number of people. Mass appeal is a core component of far-reaching disruption. Unsurprisingly, the apps with indisputable You could argue that Snap chat is just a feature. But, goddamn, it’s a great feature! It’s amusing that by June 2013 this company was valued at over $800 million – but that’s because at the time it had 5 million users sending more than 200 million snaps (messages), photos and videos every single day – that’s up 25 per cent from 150 million announced by their CEO in April 2013. That’s ridiculous growth. More recently, they turned down acquisition offers of $3 billion and $4 billion from Facebook and Google respectively.
PART II- The Journey
So that generates a rather interesting number: 0.07 per cent of funded startups become billion-dollar companies. In other words, you have a 1-in-1,538 chance of reaching the Billion-Dollar App Club, once you have secured professional investment.There are of course many other scenarios – other than hitting the billion-dollar mark – that constitute success. And, once you have broken through the tough early stages, the numbers definitely shine a positive light on things, with the likelihood of success increasing throughout the lifespan of your startup.IT TAKES SEVEN YEARS. It’s not easy to build a billion-dollar company and it doesn’t happen overnight. On average it takes seven years to reach a billion-dollar valuation (and either an IPO, or merger, or acquisition), so you had better be in for the long haul. The minimum was just under the two-year mark (Instagram and YouTube) and the upper end was eleven years (Pandora). As the inside stories show, this path is never smooth. Perseverance – and a belief in the long-term vision of your company – is key if you’re going to make it all the way. FIVE BUSINESS MODELS THAT WORK. It turns out that five business models underpin so many billions in value – and, interestingly, each model seems to contribute equally in terms of value. The first is gaming, where users pay for a virtual service or good. The second is e-commerce / marketplace, where users pay for a real world good or service. The third is advertising (or consumer audience building in the case where the company has not yet switched on the advertising). The fourth is Software as a Service (SaaS), whereby users pay for cloud-based software (typically via a subscription model). And the last is enterprise, whereby companies pay for larger-scale software (again, via a subscription-type model). So there isn’t a huge amount of reinventing the wheel here. If you want to make it big, it’s pretty clear what business models to stick to But the good news is that there is a relatively systematic way to approach your path to success. Start with a big problem, a novel solution and a huge market ready to adopt it. Then build a great product that users love, and then prove they love it with data showing they are willing to pay for it. Combine that with a robust strategy that attracts users systematically and at a cost that is less than what users will potentially generate in revenue for your app.
Combine all of this with a diehard team sprinkled with people who have built companies before, and you’re going to maximise the chances of building an app business that is going to last. Instagram was the first billion-dollar app – and one with a fascinating journey. I admire Kevin Systrom, Instagram’s CEO, for possessing such a clear vision and such an ability to build a singularly brilliant app on a single platform. The final twist to the story – doubling Instagram’s valuation in a mere four days – is the stuff of Silicon Valley legend. Instagram launched on 6 October 2010. On its first day, it garnered around 25,000 users. Within a few months, in May 2011, it hit 3.75 million.
By February 2011, fuelled by their strong growth, Systrom and Krieger were looking at $7 million investment from Benchmark, a prominent venture-capital firm, valuing the app at $25 million. Botha was ready to invest $50 million in Instagram to further turbocharge its growth. It was now looking like the app was being valued at $500 million. As seasoned investors know, there are typically only one or two companies that end up dominating these types of spaces. Once consumers have decided the winner, competitors have two options: either acquire them or build their own. Both Twitter and Facebook had been following Instagram’s growth with great interest – and concern. Such growth could pose a threat if left unchecked. In April 2011 things started to hot up for Instagram. In the previous few months its user base had doubled to 30 million, and the Android version was about to be launched (when it was launched on 3 April it added another 5 million users overnight).
Zuckerberg then reframed the negotiation. He was planning to pay for Instagram mostly with stock, and asked Systrom what he thought Facebook could be worth. If he believed Facebook could one day match the valuation of, say, Google at $200 billion (or more), then valuing Instagram at 1 per cent of Facebook would be the right way to think about it. It was this strategy that led to the offer that Zuckerberg would eventually put on the table.
Deals happen quickly in Silicon Valley. Even though Zuckerberg owns 28 per cent of Facebook’s stock, he controls 57 per cent of its voting rights, which means he can act independently, and, more importantly, very quickly. Systrom also owned about 45 per cent of his company, which gave him the sway to nail the deal without too many issues. Andreessen Horowitz, the firm who invested the first $250,000 in Burbn, made a return of $78 million when Facebook bought the app. That’s a rather healthy 31,000 per cent return.
STEP 1
The Million-Dollar App
Building a Founding Team, Validating Your Product and Raising Seed Funding
Once you’ve combined your huge idea with a huge market, it’s time to find a cofounder. It’s worth considering now because the earliest days of your app are about challenging, distilling and refining your idea into a service, into an app. For just about all of us that is better done in the context of a team – a team most powerful when complementary skills are brought to the table.
The next step is creating the identity for your business – its name, brand, style and first designs. This is the genesis of your app: what it’s going to be called, how it feels and how it’s going to engage people in a very strategic way. Once these big questions are answered – and decided upon – it’s a lot easier to move to the prototyping phase. This is when the app itself takes shape: you start thinking about details such as precisely what every screen looks like, what every button does and what service or experience you want to deliver to your users. Finally, it’s about validating your app with users – in the real world – and starting to gather objective feedback. It’s about measuring – with numbers – how much people love your idea, how much people love your prototype, how much time they spend using it – or how much money they would spend on it. I am going to concentrate on five business models that scale nicely into the billions. The companies referenced below – all of which are mobile-first, or have a massive app channel – are valued above $1 billion, and some a lot more.Finding a cofounder is a lot like dating. And, if you’re serious about making your startup a success, you should realise that this is going to be a 4–8-year commitment on average. That’s about as long as most marriages, the average duration being about eight years.So this is not something to take lightly. You’re not going to succeed if you feel as if you have to micromanage each other, or if you feel as if you’re both motivated by different things. Out of the billion-dollar success stories between 2004 and 2014, 90 per cent of the cofounders had at least a few years working together, or knew each other from school. In short, the venture ended up costing me a couple of thousand pounds in legal fees to resolve. So be careful – vet people upfront and do reference checks – even if you already know them.
Unless you already have an existing relationship with your cofounder, I strongly suggest that you both work on an extended project together to ensure that this person is someone you should be committing to for the lifespan of your app. Here are a few things you absolutely should do before taking the plunge with this person. The real stories behind our billion-dollar-app cofounders are pretty simple – and often pretty predictable. There is a formula – basically conspiring with people you have either studied or worked with. It’s a combination of a significant amount of time working together and plotting to do something new that will sow the seeds of your company. If hat’s not possible, it’s up to you to put yourself in situations where you’re going to expose yourself to the complementary people you need in place to start your company.
Chapter 6 Solving the Identity Crisis
One thing to remember is that the final name of your app is quite closely coupled with your domain name. Why? Because one of the main interactions between you and your users is your website – people will Google it, or click through to your website from an article or review. So the process of name generation will invariably involve checking whether a version of your app name is either available or can be purchased for a reasonable amount. I don’t think there is a short cut to coming up with a good name and developing that into a great brand. It takes a lot of time – and during the early days it is an evolving process. That said, it does need constant attention and it’s possible to achieve great results. So now it feels as if it’s coming together – name, logo, a bit of a colour scheme and a pretty decent domain name. Now it’s time to announce to the world that you’ve arrived! And that means getting your website up and running.
Chapter 7-Getting Lean and Mean
Most people often don’t spend anywhere near enough time talking to their prospective customers. Understanding your target users is critical – especially understanding their problems and how your app is going to solve those problems. We’ll incorporate Ries’s ideas of validated learning when we look at the way to measure, with analytics, how and why people use your app. And, most importantly, you’ll see why the build–measure–learn cycle is so important as you quickly put your prototype together, measure feedback, make tweaks and then try new features and improvements with your users.Irrespective of which platform you focus on first, you should become an expert on both platforms, so carry both an Android and an iPhone. Use them both religiously. You’ll become accustomed to both quickly, and start to appreciate how different they are. Armed with this first-hand knowledge, you will create a better product – a better app – for your users. And, for a founder, that is one of the key responsibilities. One of the big reasons that you’d want to potentially launch your app on Android is to reach a larger audience. The Android operating systems were expected to be running on more than 1.9 billion devices by the end of 2014, compared with about 700 million for Apple’s iOS operating system.5 Android is picking up especially well across Asia and Africa, due to its cost advantage (the operating system is free for hardware manufacturers and mobile operators to use). So, if your app is focused on users in those regions, then Android might be the first choice.It also means you need to have at least 10 of the top Android handsets in your office so that you can test that your app works on them as expected. And, yes, there are big differences between how your app can or might behave on an HTC smartphone versus a Samsung one. If you don’t test thoroughly, you risk annoying users unnecessarily. And it may not just be something superficial that goes wrong: it could be something a lot more operational. We saw a wide range of issues with the Hailo app on Android. Supporting Android added significant overhead.
Chapter 8- App Version 0.1
Everything starts with Version 0.1 – it’s the very first iteration, the prototype, of your app (Version 1.0 is reserved as the first version shipped to the public). In this version you want to focus on the most basic set of features that will make your app unique, useful and different. It’s often called the MVP (or the minimum viable product). At this point you want to focus on only the parts that are absolutely necessary to show why your app delivers something new and novel – something that wows your users. For Hailo it was focusing on how a user could see nearby taxis on a map, then hit the ‘Pick Me Up Here’ button and have a driver accept the hail. We also added in the ability to see the driver come towards you. That was enough to make people feel a wow moment If you’re a complete first-timer, I’d suggest using PowerPoint to create a slide-by-slide outline (using the shapes elements) for every screen in your app. Immediately, you will see the challenge of translating the idea of the app you have in your head to precisely how it’s going to look on a screen. It’s challenging. Once you’ve got a comprehensive wireframe outlined, you’ll be ready to work with a designer. Your wireframes will provide the basis for a structured conversation and the scope and size of the app that you’d like to build, and a designer will be able to create a pixel-perfect design. Design matters because competition in the app world is heating up and because people can be fickle. Twenty-six per cent of users will open your app once and never use it again. From that very first use you need to be able to deliver value to a user; you need to make them smile; you need them to say, ‘Wow, this is really cool!’; you need to set an expectation and deliver. Your goal is to get a designer to translate your wireframes into pixel-perfect mockups of your app. That basically means a set of screenshots and files that will look the same – pixel for pixel – as each screen of your app. Once those files are prepared, it is relatively simple work passing them on to your developers to implement as software code.
FUNCTIONAL VERSUS BEAUTIFUL. There is a fine line between beautiful and functional design. The highest praise is reserved for apps that achieve both. But let’s be 100 per cent clear: functionality should be your number-one priority. WhatsApp is arguably a rather spartan app, and not super-pretty, but it’s damn intuitive, has great performance and always works. Similarly, Snapchat has a simple and uncluttered interface, and, despite requiring you to learn a new behaviour to view a snap (press and hold to view the content while the clock counts down), achieves that goal easily.A great approach is to trawl two websites in particular – dribbble.com and behance.net. I’ve experienced great success with Dribbble (yes, three Bs in its name and in its URL). In fact, that’s where we found Hailo’s head of design. The great thing about these portfolio sites is that you can see a designer’s style, often with a lot of their historic work. Also, Dribbble has added the ability to search for designers who are actively looking for full- and part-time work (and, despite its being a paid-for feature, I thoroughly recommend using it). There’s one more thing you need to think about before you start coding: making it super-easy for users to send you feedback. In these early stages, don’t make a user dig around your app to find a feedback form: make sure it’s front and centre and makes it easy to get in touch with you with feedback. Reactions to the early versions of your app are key to success, and you want to use real user feedback to tune the direction in which you’re heading. Analytics tools give you a powerful visualisation of this information on both an individual user level and a level that shows you what the population of users is doing on your app. How you interpret this information, i.e. what insight you can glean from it, and what you should do as a result – well, that is an art!
Chapter 9- Metrics to Live and Die By
There are five types of metrics to remember (they are quite pirate-like – AARRR):
• ACQUISITION: users downloading your app from a variety of channels;
• ACTIVATION: users enjoying their first ‘happy’ experience on your app;
• RETENTION: users coming back and using your app multiple times;
• REFERRAL: users loving your app so much they refer others to download it;
• REVENUE: users completing actions on your app that you’re able to monetise.
Chapter 10-Let’s Get Some Users
Naturally, your website should work on a desktop Web browser, a tablet and a smartphone. Delivering a great experience across all these devices is called ‘responsive design’. A good example is whatsapp.com: the design elements on the webpage are fluid (they resize smoothly) when you look at them on a desktop browser, but, when you look at the site via a smartphone, the content is laid out in a much more mobile-friendly way, with bigger touch areas and an interface that’s simpler to scan and scroll. It even resizes itself when you’re browsing from a tablet. If you’re looking for something that will expedite building your website, you should try Bootstrap. It is an open-source, fully customisable website front end – and, yes, it is responsive. It was created by our friends at Twitter. I’ve implemented it a few times, and it’s a real pleasure to use – and a huge timesaver. This will replace the very basic Launchrock holding-page website that you had up previously.
1. DOMAIN NAMES. Protect your domain name by buying it as soon as possible along with any obvious misspellings (to capture traffic from people who type your website name directly into the web browser, rather than going through a search engine), because, when you become big, someone else will buy them. Don’t spend a huge amount of money on them, but it’s worth paying $10 a year for the obvious ones. Also, if your app is clearly going to have international appeal – which I hope it does – grab the country-specific suffixes such as .co.uk, .fr and all the countries you think are pertinent. Don’t forget .cn (China) – these guys are pretty fast at picking up what will be a very useful domain for you in the future (and you don’t want them selling it back to you for thousands of dollars down the line).For example, say your average CAC is £1 and you’re charging a user £2 for a download – good news! You have a profitable business (so long as users keep doing this in droves). But, if your CAC is £1.50, and your app is free, and you’re counting on people to buy virtual goods, for example, and they spend only £1 on average over a six-month period, then you’re going to have a challenge ahead (i.e. you’ll need to spend a bunch of money upfront, and hope that over 12 months they will spend more than £1.50 with you – or a lot more than £1.50 if you really want to succeed). One of the biggest and easiest-to-use platforms is Google’s AdMob. It is the indisputable number-one player in mobile advertising. Google was already the largest online advertising company when it acquired AdMob, itself the leader in mobile ads, in 2010. It is now integrated into Google’s AdSense platform. It’s very simple to use: create an account, create a simple ad and then you’re ready to go.
The way AdMob works is by trying to adhere to your desired CAC – as an average over time – so over the course of a week you may pay a bit more for some downloads, and a bit less for others. The goal is to hit your desired CAC.
Chapter 11-Is Your App Ready for Investment?
But where do you start hunting for angel investors beyond your friends and family? The aptly named AngelList is a great first port of call. Funnily enough, it’s a truly fantastic startup itself (started in none other than Silicon Valley). In September 2013 the company landed a hefty $24 million investment to keep helping the startup ecosystem. It is effectively a social-network/dating site for entrepreneurs and investors, mainly focused on the early rounds. Get details about yourself – and your company – up there and start meeting people who are interested in investing anywhere from $5,000 to $100,000 in your fledgling app. It’s by far the most impressive site of its kind, and it’s becoming increasingly global.VCs, on the other hand, love risk. Their business is in making big returns on big investments. If a VC invests $100,000 in your business, they don’t want to see $105,000 after one year, or $121,000 after four years: they want to see a multiple – times 2 or even times 10 if you’ve really knocked it out of the park. For every 10 companies that a VC invests in, their goal is to have one company make a tenfold return (i.e. for an investment of $1 million, a return of $10 million), three companies to return five times the investment, three or four to break even (i.e. the VC recovers the initial investment that they put in) and then, on two or three companies, they expect to get no return (effectively lose their money). It’s a pretty scary model when you think about it. So what can VCs help you with at this stage? First, find one who knows your market inside out. If, say, your app is a game, a VC who has previously invested in a gaming company will know the ins and outs of the sector. They will know the leaders, their cofounders, their business models, their competitors. Since all startup companies are, by the very nature of their youth, private, it is very hard to get any information about them (except the information they want you to read via PR – and we all know that we should be quite careful about how much we believe that). Their job is to get data that is hard to find publicly.Helpfully, the venture-capital community is pretty small, and the very best investors – such as the Accels, KPCBs, Sequoias and USVs – all tend to see a lot of the same companies pitching for funding and hence tend to see a lot of confidential information, and thus they have a lot of privileged insight. So, if you know people working at these investment companies, they can give you a very good steer – and brilliant advice – while at the same time not divulging any privileged information.
Chapter 12-How Much is Your App Worth and How Much Money Should You Raise?
At this early stage, investors want to own anywhere between 10 and 25 per cent of your company in return for their investment. They want to make sure they are compensated for the risk they are taking by giving you money so early in the process, and they want to protect against their investment being diluted by new investors coming in during subsequent funding rounds.So what ends up happening is a negotiation. If you are a small team with only a bit of experience and need 12 months of runway to get your app out there to market, a $200,000 investment might get you there. And your valuation will probably be at the lower end of the spectrum, around $700,000 or so.
If your team is more experienced and has a track record – and there are a few more of you – and you need a bit more runway to prove your product (Hailo needed to build both the driver and passenger apps very quickly), then you might need to raise $1,000,000 or more to get you there, and perhaps you could agree a valuation of $4–5 million.
According to the Angel Capital Association, the median pre-money valuation (the valuation of your company before an investor puts in their money) of companies that are not yet generating revenue was $2.75 million in 2012. This was an increase over 2011, when it was $2.1 million, and an even larger increase over 2010, when it was $1.7 million. Second, you need to ensure that you clearly own all your intellectual property, in other words, you need to make it clear that all the work you contract other parties to do belongs to your company. For example, if people are designing logos, illustrations or videos for you, you need to make sure that work belongs entirely to you. If people are developing an app, website or other piece of software, then you need to make sure the source code belongs to you. On a practical level, this means you need to have signed agreements with anybody who does any work whatsoever for your company.
With a clearly articulated and signed agreement in place there is no room for doubt. This will prevent unscrupulous, or just opportunistic, people from trying to take advantage of you. I have encountered rather nasty situations whereby people working from a verbal contract have refused to deliver a design or a piece of code because the price or deadlines were disputed. I have also seen situations where contractors refused to hand over source codes once a piece of work was completed – again because there was no clearly written contract. If you’re serious about running an app startup, you will want to make great friends with lawyers. They are nice people too – and can be a great resource to call on when you’re lost and not sure if you’re getting screwed. It’s great to feel that you can ask a question – and you won’t get billed $500 for the privilege.
Summary
The big – and simple – goal we set at the beginning of the chapter was validation. Were you able to build up a core team, which might just be you and a cofounder? Did you successfully translate your killer idea into a design, wireframe, prototype and product? And is it beginning to wow your early users?
And the toughest part (on a nonexistent budget): were you able to get your app out there and start demonstrating some traction and, most importantly, gathering feedback from early users to help you to start refining your app? Unfortunately, all these steps are not linear; nothing is ever as simple or structured as you would like. The app prototype might come before the cofounder, and users may be clamouring to download your app before it’s completely polished.In the end, getting to a point where you’re talking with investors is a great place to be. If you’re in a position where someone wants to give you money to take your app to the next level, well, that is both inspiring and petrifying Your virality is generally measured as a number called the viral coefficient (oddly, it’s usually represented by the letter K).
Your viral coefficient, K = X × Y × Z, where:4
• X is the percentage of users who refer or invite other users to download your app;
STEP 2 -The Ten-Million-Dollar App
Achieving Product–Market Fit and Raising Series A Funding
Chapter 14-Make Something People Love
Product–market fit means first, being in a good market and, second, building a product that can satisfy what people in that market want. Without that you’re not going to experience explosive growth.‘Don’t build something clever, build what people want.’ The nature of technology – and software companies in particular – has evolved quickly over the last decade. Open-source software – along with easily accessible services such as payment, mapping, messaging (and many others) in the form of APIs (application programming interfaces) – allows any developer to build powerful programs.Leading the Product Vision
There are two critical roles in your app company at this stage. One is responsible for figuring out what product to build and the other is responsible for how to build it. These two people are going to be joined at the hip, so they need to work extremely well together.
The person behind the ‘what’ is the head of product. The person behind the ‘how’ is the CTO, or chief technology officer – the person in charge of building the actual software. In many very successful tech companies – especially appcentric ones – the first head of product is usually the CEO. They have the vision about what to build, and in many cases cofound a company with someone rich in engineering experience to deliver the how. Over time, as the CEO role becomes broader and more demanding, a dedicated head-of-product role needs to be created and filled with someone entirely focused on that mission. The responsibility for answering these questions lies with the design team (which is usually part of the product team). At the one-million-dollar-app stage, you probably had the budget to engage a designer only part-time. Now, to deliver a killer product, you need to engage with a designer more closely – ideally, full-time if you can afford it.The designers – working with product and engineering teams – are responsible for delivering a pixel-perfect design of what the app will look like, along with wireframes to describe how a user will interact with the app. Once that happens, we arrive at a very important stage: How are we going to build the app? Let’s have a look at how your app team will look in reality at this stage. One of the cofounders is going to be leading the product vision and management; the other cofounder is ideally going to be an engineer, and with your seed funding you should be shooting to get at least another app engineer (or two) on board. You probably won’t be able to justify a full-time designer, but you’ll need to have a great designer working with you on a weekly basis. When it comes to QA, you probably won’t be able to justify someone here full-time either. In reality, making sure you have a quality app that performs well is going to be the responsibility of your one-person product department. So you’ll be looking at a team of five or six people in total. Hailo was at the other end of the spectrum: we needed to build up a bigger team (at the same time as being very tight on costs, which meant low salaries). I was brought in to head up the product development, the cofounders were taking little or no salary, we had a full-time designer (who was stretched to the limit working on the website, the passenger app and the driver app), we had a couple of iOS engineers and a couple of back-end engineers, and a couple of contractors supporting the developers, and we ended up bringing in a quality-assurance engineer because the platform was complex – and we had a lot of product development to do in order to launch! So we were more around the 10–12-person mark. It’s worth noting that in some places around the world (these are magical places) there are people who encapsulate all these skills – spanning product management to design to software development. I call them unicorns. Don’t hold out hope that you’ll ever find one – but, if you do, grab them.When you start approaching the hundred-million-dollar-app stage – when you start to grow at a crazy rate – communication remains absolutely critical. So the culture of communication you build now will reap even more powerful rewards in the future.
Measuring Product–Market Fit -- The other, more powerful and objective way is going to be through your analytics. Are more than 40 per cent of your users coming back often? Are users spending more time on your app? Are users actually referring other users to download and use your app? All these things can be measured.
Chapter 16 - The Metrics of Success
Throughout this stage – as you’re approaching product–market fit – you need to think about each step of the customer lifecycle as a funnel. You need to think about moving your users from the first stages of the funnel (acquisition, activation) through to the later stages (retention, referral and, ultimately, revenue). As you move users through the funnel, you will be moving them from being of lower value to being of much higher value.In a nutshell, analytics software gives you insight into who is using your website or app, and what those users are doing. Are users landing on your homepage and leaving in three seconds? Or are they landing on your homepage, clicking through seven pages and then making a purchase? Analytics software tracks every ‘event’ that happens on your website or app, then collects that information and presents it in a nice visual interface.
This interface then allows you to read through a variety of metrics – such as how many users are using your app – and then view them on an hourly, daily, monthly basis. The interface also allows you to see what users from the United States are doing on your app, and see if that behaviour differs from users in the UK. You can also see trends in behaviour. Are people using my app for longer this month, compared with last month? Or are they using it less? no longer are you forced to treat users as groups, or segments, and now you can reach out to them as individuals. You can see precisely what each individual user is doing on your app, and you can tailor the experience directly to him or her. For example, you can tailor alerts, messages, even promotions based on their individual behaviour, and then monitor their individual responses. This wasn’t possible before in an off-the-shelf analytics solution.
Chapter 17- Getting Your Growth On
In the search market there are well-known players such as Google, with massive worldwide reach; Baidu, which is the leading search engine in China; Yandex, which is the king of Russian search; and such engines as Yahoo! and Bing. All are optimised for desktop and mobile marketing.On the social level, Facebook has more than a billion active users and a very powerful mobile-advertising platform; Twitter has hundreds of millions of users and a growing mobile-advertising platform; Tencent QQ is the undisputed social leader in China with around a billion active users across its services as well; LinkedIn also provides a great platform to reach a professional audience with more than 200 million users.Media channels such as video (YouTube), photos (Pinterest, Instagram) and blogs (Tumblr) are all proving to be reliable, high-volume user-acquisition channels. Your challenge will be to see how to make those channels convert to valuable users. Messaging platforms are not yet being widely used as user-acquisition channels for other apps, but, as they keep increasing their reach, this will be a monetisation for the likes of WhatsApp, Snapchat, WeChat (China), Line and even Skype. Let’s start with the simplest one: redemption or referral codes. Generate simple, short and unique codes that users can send to other users. If you design your campaign carefully, and ensure there is sufficient motivation for both the ‘inviter’ to send the codes (e.g. they earn credits or money for each one redeemed and not just shared – remember that!) and sufficient incentive for users to input the codes (get £5 off your first taxi ride with Hailo), then you will encourage existing users to refer your app and new users to redeem codes to use it.
Chapter 18-Dollars in the Door
To raise $1 million at a decent valuation of around $4–5 million you need:
• Great product • Great team • Great traction
If you’re an e-commerce (or gaming) site or app you should be generating $50,000 per month
• If you’re a marketplace you should also be generating $50,000 per month
• If you’re building a consumer audience app you should have at least 100,000 downloads
• If you’re an enterprise company you want 1,000 paying users at $10 per user per month.
Chapter 19-Seducing Venture Capital
The first thing professional investors are going to want to see is numbers. They want objective measures of great product–market fit. They want to see a trend – that increasing numbers of people are downloading your app, that users are spending more time on your app, and even that they’re spending money on your app. A typical cohort analysis compares the behaviour of all the users who registered in a given month (let’s say that all the users who downloaded your app in January use it on average five minutes per day) with all the users who downloaded it in another month (let’s say that customers who downloaded it in February use it on average six minutes per day). By comparing the January cohort with the February cohort, investors can see that users are using the app more – a great sign. Cohort analysis allows you to present a trend – typically from month to month – showing clear improvements across any metric: from session length, to customer acquisition cost, to lifetime value.From the diagram below, you can see that the average amount of time from the closing of a seed round to a Series A round was 600 days in 2013, or about a year and eight months.4 The diagram also shows that in about ten years this period almost doubled from just over 300 days in 2004. This is a sign that it takes quite a bit while longer to reach product–market fit. What is not clear from this graph is that the size of seed-round investments also increased significantly in the same period. So, while today startups have a longer runway to achieve results, the quality bar for the end product is also a lot higher.
STEP 3-The Hundred-Million-Dollar App
Tuning Your Revenue Engine, Growing Users and Raising Series B Funding
In the last section $10 million was the average valuation for all Series A software startups (including apps). To hit $100 million at this stage you’re going to have to pull out all the stops. While the average Series B valuation is around $27 million, this is the point when truly great companies pull away from the pack. They don’t double their valuation: they blow it out of the water.
Chapter 21-Tuning and Humming
1. TUNING YOUR REVENUE ENGINE. You need to make sure that your business model really scales. Are you going to be profitable with a few thousand users? Or do you need to attract (and retain) millions of users? Will your same business model appeal to people all over the world? Will everyone pay $0.99 to download it? Or will everyone be equally willing to make in-app purchases? Will some users be a lot more valuable than others? If so, should you spend a lot more acquiring more valuable users? All this needs to be figured out.
2. IGNITING YOUR GROWTH ENGINE. Growth means getting your app into the hands of lots of people – start thinking millions and then think globally. Is your current user-acquisition strategy going to scale? How are you going to tweak your app to hook millions of users? Will it need to be customised by region or country or language? • Should I go for growth (acquire more users, generate more revenue, at the cost of profitability)? • Should I aim for profitability (sacrifice some user and revenue growth but retain more control and potentially position myself to fund my own growth and not give away more of my company to investors)? Now that you have someone in place who has done it all before, it’s a good moment to breathe a sigh of relief. If you’ve hired well, your VP of marketing will be already thinking about whom they want in their team and will already be warming up contacts they have from previous jobs.
Tuning your growth and revenue engines is going to be a good amount of hands-on work: chasing user-acquisition channels, testing campaigns, negotiating partnerships, working with PR channels, digging through data, setting key metrics and goals.
Chapter 22- Getting Shedloads of Users
In the United States 91 per cent of all Americans have their mobile devices within reach 24 hours a day, seven days a week,1 so it’s a bit of a no-brainer that mobile advertising is also growing at a crazy rate in an attempt to capture and direct people’s attention. In 2012 global mobile-ad spend was up 83 per cent on the previous year, to $8.6 billion. By 2015, mobile advertising is projected to grow to $33.1 billion, which will be 25 per cent of Internet advertising and 6 per cent of all advertising spend. Social media advertising will balloon into an $11 billion market in 2017, about 20 per cent of which will be generated by mobile
Chapter 23-Revenue-Engine Mechanics
Either you focus like a maniac on driving customer lifetime value through the roof (once you get a user, you need to keep them spending and spending), or, you figure out a way to attract millions of users to your app while simultaneously driving your customer acquisition cost as close to zero as you can. It takes a genius combination of idea, market, product, growth engine and revenue engine to achieve this. Let’s dive into both strategies in a lot more detail. Some apps are just built on the back of ever-increasing lifetime value. This works for companies focusing on e-commerce and marketplaces. Why? If they succeed in delivering a product or service users love, well, users just keep coming back and buying it. Amazon and eBay are traditional masters of this approach. They focus on utilities, on necessary products and services, and frequent purchases. And then they make the experience so good – great website, great app, great selection, great delivery – that you just keep coming back again and again. In the SaaS case there are two widely shared rules of thumb. First, your lifetime value should be at least three times your customer acquisition cost: if a customer typically spends $100 over the course of their lifetime with you, you shouldn’t be spending more than $33 to acquire them. That number makes sense because SaaS apps tend to have higher user-acquisition costs, and also have a tendency to churn (i.e. customers leave and stop using the service). If you look at bigger SaaS and enterprise players you tend to see lifetime value grow to five times the customer acquisition cost. There’s yet another quite important consideration in this equation. You want to be thinking not only about how long it takes customers to start generating revenue for you, but also about how long it takes that customer to become profitable.
This has a big impact on your bank balance. Let’s think about two scenarios. In the first case, imagine that a customer has a lifetime value of $100, and they cost $25 to acquire. Nice – a 4x multiple is very healthy. Unfortunately, imagine that customer spends that $100 over the course of five years – the equivalent of $20 per year. Hmm. That means you don’t break even until Month 15 – i.e. it takes 15 months to recoup the cost of acquiring that user, and they are profitable only after that point.
In the second case, we have another customer with the same lifetime value of $100, and they also cost $25 to acquire. But for whatever reason they spend their $100 within 12 months and then leave. That means they are at break-even after only three months. That means you start earning a profit very quickly – and, most importantly, you can reinvest the profits to acquire new users. I love playing gaming apps, and I have to admit to a secret affair with Candy Crush Saga. I am one of the people who have played it 151 billion times during 2013.2 I am one of the 200 million people who play it every day.3 But I am not one of the people paying to play by making in-app purchases – that is a tiny sliver of its users. The app generates anywhere from $1 million to $3 million per day, which translated into about $1 billion in revenue in 2013. Let’s dig into that number, though. Let’s assume the app makes $2 million per day. That translates to 1 per cent of players paying $0.99. The average revenue per daily user comes out to a paltry $0.01. But, in aggregate, all those cents clearly add up to a tidy annual total.
That means the annual revenue per user amounts to a whopping $3.65. Clearly, the individual numbers are not massive. I would estimate that the lifetime value is not going to reach more than $7 – people get bored of games, and new ones keep coming along.Your virality is generally measured as a number called the viral coefficient (oddly, it’s usually represented by the letter K).
Your viral coefficient, K = X × Y × Z, where:4
• X is the percentage of users who refer or invite other users to download your app; Let’s see how powerful cycle time is, and why you might want to optimise your app to take advantage of it (e.g. by sending email prompts to invite friends more quickly).
Let’s imagine that your app has a viral coefficient (K) of 1.1 and a cycle time (CT) of 14 days and started with 1,000 users. Within 670 days you could have 1 million users – so not too bad. If you reduced your cycle time to 7 days, then it would take you 50 per cent less time to hit that goal – just under a year at 335 days. It’s clear that it can have a huge effect.
Chapter 24-Keeping Users Coming Back
Fred Wilson, the well-respected venture-capital investor from USV, suggested a retention ratio of 30:10:10 for mobile: 30 per cent of customers should use the app each month, 10 per cent should use the app daily and 10 per cent of the daily users will represent the maximum number of users using the app at any given time.1 While that’s a pretty good rule of thumb, we can do better.
The truth is that retention metrics vary by an app’s vertical and business models – so let’s have a look at the data. The diagram2 below shows the retention rates 30 days after downloading an app.
Chapter 26-Growth is a Bitch
You’re going to need structures, systems and processes in place. You may think it’s boring – but it will need to happen.
Struggling with growth is one of those problems you want to have. During this growth stage the team at Hailo grew from 25 to 100 people (it took us a mere nine months from closing our Series A to closing our Series B). The growth was amazing – but, in order to make it deliver value, we needed a very clear organisational growth strategy. • Where do I want to go?
• How will I know I’m getting there?
They are two fundamental questions that every business needs to answer. A framework that came out of his book and Intel was OKR – or ‘objectives and key results’. Famed venture capitalist John Doerr popularised the framework, which is now actively used in companies such as Google and Zynga.
The idea is that the whole company and every team has one objective and three measurable key results every quarter, and, if you achieve two of the three, you achieve your overall objective; if you achieve all three, you’ve killed it. It is a good, simple organising principle that keeps people focused on the three things that matter – not the ten.
As Mark Pincus, cofounder and former CEO of Zynga, has said, ‘It’s about making everyone the CEO of something’ – from the management team through to every single employee. The principle is a good one: everyone in a company should understand what the company’s objectives are and be responsible for helping to achieve those objectives, in whatever capacity they’re able.
What I know now (thanks to Marty Cagan, a Silicon Valley product guru who’s helped countless product and development tech teams grow into efficient operations) is the following:
All startups have very similar growing pains as they grow their product and development teams – and the final solutions are very similar and proven to work.
• Most companies end up in a ‘product-centric’ organisational structure, which means that there is a product manager with a development team and testers dedicated to each one of the core product areas: the mobile apps, the customer-facing website, the back-end systems, the admin and reporting systems and the services layer (which is the API, or application programming interface, we talked about earlier).
• These self-sufficient teams have all the skills they need to design, develop, test and then release software to real users out in the wild. A good rule of thumb is one product manager for eight to ten engineers, one designer for every two product managers, and one tester for every product manager.
• As your team grows, make sure that you hire product managers before you hire engineers. This ensures that you have a backlog of features for engineers to work on – and there’s someone there to guide the engineers well as they work. We talked earlier about the ‘agile’ app software development. ‘Scrum’ is the most common way to flexibly and holistically develop products in an agile way where a development team works as a unit to deliver a common goal (like build an app). The scrum master is the person in charge of helping the developers focus on building software, by removing all distractions and dependencies. In one sense they are a very focused project manager who works with the product team directly and as the main interface with developers.
When you get to a decent-sized development team – probably around 20 or more engineers – then you can benefit from a scrum master (I am not talking about an average project manager, but someone who is a trained – and certified – scrum master, and who loves making development teams more efficient). My epiphany came when at Hailo we hired a truly great scrum master, and saw improvements not only in developer happiness immediately but also in how many features we were delivering. Keep in mind that scrum masters vary wildly in experience, ability and passion – and you get what you pay for. But at the right time, when your development team is growing quickly, you can reap some big efficiency and moral improvements. A good ratio is one scrum master for every 12 or 15 engineers.
Chapter 27-Money for Scale
The ideal scenario at this point is that you’ve been working hard growing your users and tuning your revenue engine, and it’s been working. The best case is that revenues are growing nicely, and you’ve nailed a profitable model, which is highly likely if you’re focused on gaming, where the margins are very high – think Clash of Clans, Angry Birds, Candy Crush Saga. But, if you’re focused on e-commerce or marketplace, your margins are more likely to be in the 3–20 per cent range (think Hailo, Uber or Square). And, if you’re in an ‘audience-building’ game (such as Snapchat or Instagram), you won’t have any revenues at all.
So in most cases – to keep the momentum and grow bigger, faster – it’s now time to start looking for more investment. On average, you’re going to be looking to raise anywhere from $10 to $25 million if all is well. Hopefully, if you’ve hit a strong valuation at, or north of, $100 million, you might get away with giving away only 10 per cent of your company. The typical timing between closing a Series A funding round and landing a Series B round is around 600 days You know from earlier in the book that it takes three solid months to close out an investment round when things are going well (and potentially longer if things are not going so well, but we’ll delve into that later). Let’s have a look at what our friendly Billion-Dollar App Club members were doing when they were at this stage.
SNAPCHAT. These guys are the exact opposite of the self-sufficient WhatsApp. At this stage their app had no revenue stream and their massive growth was generating huge technology costs. Luckily, their growth and popularity has meant that they are able to pick from the cream of the crop of investors. A mere 13 months after their Series A investment, they closed a $60–75 million dollar Series B round (at an $800 million valuation) – meaning that they gave away only 10 per cent of their company (that’s not bad . UBER. This company raised $37 million in its Series B round at a valuation around $300–350 million. The company also used the money to hire Kees Koolen, who grew booking.com to $9 billion in revenues as the company’s number two, as COO.4 Koolen then helped the app through a phase of massive European and international expansion. Similarly, Rovio’s Angry Birds haven’t needed any more investment after their Series A financing round because they have a great business model – a combination of a freemium app, in-app purchases and brand licensing – and great financing management. In fact, they announced $200 million in revenues for 2012, $71 million of which was profit.5 Who needs investors with that kind of profit margin?
STEP 4
The Five-Hundred-Million-Dollar App
Scaling Your Business and Raising Series C Funding
especially during the period from 2007 to 2009 – that costs can remain essentially flat and your revenues can grow substantially. In this case, Google’s costs increased about 25 per cent but revenue increased by around 50 per cent. That’s what you want.
Scaling requires doing one thing exceptionally well. Whether that is delivering a single excellent gaming app, focusing entirely on just processing payments or delivering the best possible taxi service, you have to make sure that you’re doing something better than everybody else in the market. Don’t try to do everything. Don’t try to tackle multiple business problems. Focus on one core problem and deliver one great solution. Don’t be under the illusion that you can solve several big problems simultaneously. It is only after you have demonstrated you have a scalable model – one that is firing on all cylinders – that you should think about expanding into other areas. Right now it is not about size: it’s about sustainability. Some apps – especially ones in the gaming and messaging sectors – are still small at this stage. WhatsApp, for example, hit a $1 billion valuation with 35–40 employees and Snapchat reached $3 billion with a team of just 35 people.2 Other more operationally heavy apps such as Square and Uber are already going to have a couple of hundred people When she joined Facebook in 2008, her immediate task was to help the company settle on a business model. Within a few months she led the decision to focus on advertising, and by 2010 had led the company to profitability. It’s amazing what an impact a single individual can have.
Chapter 30-Scaling Marketing
Solutions such as Google Analytics and Mixpanel can definitely handle well into the billions of analytics data points, but they will start charging you. Your costs will approach tens of thousands, and even hundreds of thousands of dollars per year. Again, not a bad problem to have. At this point, you’re going to hear the term ‘big data’ being thrown around. Apart from being a buzz phrase, it just means that your systems are now simply more capable of collecting and storing loads more data than was previously possible. The company – as it scales – is disrupting its own business model and making it more powerful. It has started to integrate three very important elements into a single business: content, community and commerce. When those three components come together they create a very strong ecosystem – one that is very hard to eliminate if it gets into the leading position.
Chapter 32-Scaling Product Development and Engineering
Each of the engineering and product teams at our billion-dollar apps echoed the themes below.
organising people, organise them around the ‘product chunks’ that you’re building – the app, the API layer, the admin and reporting systems, the back-end systems. Don’t organise around technology or skills or functions – that only leads to confusion and doesn’t build an organisation where every single person is focused on building the greatest product experience for your users.
• Make sure that you build teams into self-empowered squads or units (‘cells’, as Supercell likes to call them) that can deliver new features and bug fixes as an independent unit, without creating dependencies on other teams. That means creating teams with dedicated product managers, designers, engineers and testers all working together. tures, less on process. Exceptional scrum masters improve communications between all teams, and remove dependencies. They make development teams happier.
• Invest in people, not infrastructure. Hold out for exceptional engineers, the 10x employees, the ones who deliver above and beyond. Snapchat managed to build a platform that sends 400 million snaps per day1 with a team of 35 people; WhatsApp handled 18 billion messages on New Year’s Eve 2013 with a team of about 55 people.2
• If you are planning to go cross-platform (supporting iOS and Android, as well as other mobile platforms like Windows) and scale rapidly, it’s imperative that you focus on the API first. You want to ensure that you build what’s known as a service-oriented architecture. let’s talk base salaries. For a good engineer we’re talking between $100,000 and $130,000. That doesn’t include perks and bonuses. That number is based on data from in the world.3 Glassdoor, a career website, culled data from 3 million salary reports, company reviews and interviews from employees at more than 210,000 companies, and found Google had the highest average base salary for software engineers at $128,336. Facebook came in at number two with a base salary of $123,626. So that’s a killer combo: the most exciting places to work as a software developer also pay the most. Where does that leave the rest of us? How are startups supposed to compete with numbers like that?
What about the average software developer? In the US, according to Bureau of Labor statistics, the average salary for a software developer is $90,530.
Chapter 35- Financing at a Big Valuation
Uber is a prime example of an app that has managed to make venture capital work. In August 2013 it announced a long-awaited Series C funding round. It managed to raise a whopping $258 million dollars from investors including Google Ventures, at a $3.5 billion valuation.1 That’s an incredible amount of cash to raise, but, more importantly, the company had to give away only around 7.5 per cent of its equity for that. What drove that incredible Series C was the fact that the company was able to increase its valuation 10x in a period of 18 months. When Uber closed its Series B financing it had a valuation of $330 million. That’s an extraordinary achievement for any company, and it’s largely the dogged persistence of CEO Travis Kalanick that’s driven it.The company processed just shy of $1 billion in fares in 2013, delivering top-line revenue of around $200 million. By the beginning of 2014 it was operating in over 60 cities and 26 countries.
STEP 5
The Billion-Dollar App -The Promised Land
Chapter 37 People at a Billion-Dollar Scale- In the world of fast-moving technology your advantage is not the hardware (that’s owned by Apple or Samsung or someone else): rather it is the software you create, the experience and emotion that the software delivers, and the supporting experiences, such as customer service. So, if you want to play in the big-boy club of technology companies, the average revenue per employee is $593,000. From the chart opposite, you can see that Apple once again comes out on top with $460,000 in profit generated by each employee, and Google and Facebook are neck and neck with $280,000 and $236,000 respectively. If we added Supercell to this picture we’d get another unbelievable number. No matter how much they pay every one of their 150 employees, they are still going to be left with millions in profit per employee.
So the mechanics of mobile apps – combined with the distribution power of Apple’s App Store and Google Play, and the simplicity of in-app payments – have created a revenue-and-profit juggernaut like nothing else.
Chapter 38-Advice from Billion-Dollar CEOs
‘Vision is the dream,’ Weiner points out. ‘A company’s true north. It’s what inspires everyone day in and day out.’ The LinkedIn vision is ‘Creating economic opportunity for every professional’. Everything that everyone does – whether it be designing, building, programming or marketing – should help deliver on the vision. The ‘mission’, on the other hand, is how the vision is executed. At LinkedIn that means ‘Connecting the world’s professionals to make them more productive and successful’.
Visions are meant to be grandiose – multi-decade adventures that may seem close to impossible to deliver. That’s why they are called visions. The more meaning the vision has, the more soul is injected into the company.
Invest in Diverse Skills
Bill Gross has backed and advised 100-plus companies and believes that you fundamentally need to build your team with four types of complementary people
• Entrepreneurs – the ideas people who explore what it takes to get ideas off the ground;
• Producers – they are the doers who push projects forward and deliver; they make the product, sell it and answer customers’ questions;
• Administrators – these people are builders, who plan, organise and devise processes; they keep your organisation running smoothly as you grow; and
• Integrators – they are the emotional centres that make sure that everyone gets along, especially in times of high stress and pressure. In an ideal world you want these four viewpoints when your company is making big decisions, and ideally they will be represented on your senior management team. Employees like being trusted and hate being surprised. A policy of complete transparency feeds these needs. Rosenberg’s advice is, ‘Back up your position with data. You don’t win arguments by saying, “I think.” You win by saying, “Let me show you.”’
Chapter 39-Getting Acquired
Google has made an art of acquiring companies – big and small. This talent has allowed Google to grow in leaps and bounds, allowing it to stay ahead of the competition, but also building a formidable talent pool. It has 80 specialists across the organisation to make the process as smooth as possible.2
Google’s acquisition of YouTube was the foundation of its video strategy; its acquisition of Keyhole Inc. was the foundation of Google Maps; its acquisition of DoubleClick launched it into display advertising; its AdMob acquisition further cemented its lead in mobile advertising; and even Android – the world’s biggest mobile operating system – was an acquisition. IPOs are used in the case of technology companies to monetise the investments of early investors; in this case the investors can sell their shares directly to the public. Companies can also use an IPO to raise further capital for expansion – this time getting money from investors on a stock market, rather than through venture capitalists.
In any given year about 7 per cent of exits are done via the IPO route – though this does vary wildly. In 2013, for example, it represented 15 per cent.Only the most robust startups have made it to this level. Facebook is a great example. It held its IPO on 18 May 2012. The IPO was one of the biggest in technology, and the biggest in Internet history, with a peak market capitalisation of over $104 billion and a share price of $38.
Within days, however, the share price plummeted and, two months after the IPO, it hit $20 and lost half its valuation. The public stock market wasn’t ready for Facebook, but the company worked hard and 16 months later the share price had rebounded to the IPO level, based on strong growth of users, revenues and profits. At the end of 2013 it was trading at 25 per cent above its IPO price. It was a wild ride.Twitter – the micro-blogging service – announced in September 2013 that it was going to an IPO. It seems as if the response has been unanimously positive, which is an encouraging sign for mobile-first social media. On the first day of trading, Twitter’s shares closed at $44.90, giving it a market capitalisation of nearly $25 billion. The IPO process allowed the company to raise about $2.1 billion, which it can now use to fund further activities.The day also saw a huge windfall for employees: the IPO created 1,600 new millionaires. The best entrepreneurs have cracked the formula, and now, with more experience under their belts and the massive innovations in technology, platforms, business models and distribution, we are already seeing a new wave of mobile-centric creation. And it’s just the beginning.
That formula has a number of elements. The first is to build a truly great product – an app, a service – that addresses in an elegant way a big problem that many people share. The raw computing power, coupled with Internet connectivity, supported by the API economy, is empowering even rookie developers to create spectacularly powerful apps. The key is spotting an opportunity, and focusing on building something great for users. Don’t ever listen to people who say it’s good enough, because it never will be. Building a great product is a fluid, ongoing process.
Today, the best entrepreneurs are focusing on products and apps that are materially affecting billions of lives. Their apps are making lives better, more enjoyable, more social and more efficient. Technology is being tamed; it is becoming more about people. Technology in many senses is disappearing into the background – it is increasingly woven into our lives, our experiences. Software – apps – is personal. Building apps is fundamentally about understanding people.
The second secret to success is people. In the virtual realm of software and apps, the quality of the end experience you offer your users is a direct reflection of the quality of your engineers, designers and product managers. Great, tough people are more suited to the ups and downs of startup life than average people. If you can infect people with your vision and mission you will succeed. Remember that it’s not your job to make everyone happy: it’s your job to attract and select the best people for the mission. You should be interviewing 20 to 40 people before you make a hire. You should be demanding and selective. You’re building a company, a culture, a group of people with a relentless mission to solve a big problem. Make sure you absolutely want every person on your team with you.
Possessing a solid business model from Day One is the third key to success. Whether you’re focused on building a gaming company with in-app payments, an e-commerce marketplace, Software as a Service, enterprise subscriptions or – the toughest – building a consumer audience app that will be later monetised via advertising, you need to have a concrete idea in place. It’s just not good enough to fumble around looking for a business model. Yes, some people trip into it, but the odds are very low. The arrival of app stores, in-app payments and super-simple credit-card payment integration (from players such as Stripe) has made it so easy to collect money that you should be doing it from the day your app goes live.
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