DEA’s Reading Digest (09/15/2019)
14 min readSep 16, 2019
A. Stories, strategies & expert opinions
10 places to find product-market fit
- Product-market fit is a prerequisite for sustainable growth. There’s no point in pushing a product which brings no real sustainable value to customers.
- Founders are often misled by good acquisition numbers into thinking they’ve found product-market fit (PMF). But just because people are signing up for your product or downloading your app at a low acquisition price doesn’t mean you’ve found PMF.
- Engagement and retention numbers will tell the real story. If your product doesn’t have real value for customers, you’re going to see horrible engagement numbers and even worse retention metrics.
- If you think about why startups fail, in a way it’s very simple: startups fail because they run out of money before achieving PMF. Like a fighter jet taking off from an aircraft carrier, it’s a simple race between how much runway you have left and how fast you can achieve liftoff.
- But once you’ve achieved PMF, failure isn’t as pressing. 99% of the time, once you have real PMF, your startup will have no problem fundraising (at least in the short term) — at which point it becomes more about getting to a faster pace of growth than just survival. It becomes an execution play.
1. Taking an existing activity and making it 10X easier
- If there’s something people already do that you can make dramatically easier, it’s likely to find product-market fit.
- The catch is that, for people to adopt it, your product has to make the activity dramatically easier.
2. Making an existing activity 10X better (& networked)
- Taking an existing activity and making the experience dramatically better — especially if it’s better because you made it a network — is also likely to find product-market fit.
- The 10X better experience you’ve created will get copied, but the network you build using it will be much harder to replicate. For every good idea, you should always ask yourself: ‘how can I create defensibility through network effects?’
3. Create new inventory to be solid in a marketplace
- When you find significant new inventory that people couldn’t access before, and you’re able to unlock it for them, you’re likely to see the magic of product-market fit.
4. Discover new willingness to pay
- This happens when you do something so well that users will pay for something that they hadn’t previously been willing to pay for.
5. Connect a group of people that were not visibly connected before
- This is getting harder to do as we go deeper into the era of social networks, but if you can find ways to connect new, previously disconnected communities of people, it’s often very fruitful.
6. Find people a new or easier way to make money
- If you can actually fulfill the promise of making money for your users, they’ll love your product.
- For example, when people first realized they could make real money driving for Uber and Lyft, the pace in supply-side growth went up astronomically.
7. Turn something digital that isn’t digital
- Where there still exist opportunities to digitize areas that still remain analog, products have a high chance of finding product-market fit.
- Especially in the B2B space, we’re constantly surprised by how many processes are still manual or digitized only at the level of the spreadsheet.
8. Find a way to offer 0 pricing
- This is a short term driver of product-market fit, and it only works in situations where the prices were higher before. 0 pricing or low pricing is only sustainable if it’s used to bootstrap a network past the critical mass point so that you can get network effects going, or if the 0 price product has a high conversion rate to paying users.
- WhatsApp is a good example of this — in Europe, SMS prices were high, so offering WhatsApp for free really took off. But it didn’t transition as quickly to the US because of unlimited SMS plans available on traditional carriers.
9. Create a young version of a proven product
- Some products that have been proven to work for one generation don’t work well for the next.
10. Find a new ‘pleasure center’ in the mind
- This is when your product is something that makes it so fun for people that they become completely ‘addicted’ to it, even though they didn’t know they had such a desire before they encountered your product.
How to know when you’ve found PMF
- For all startup ideas, network effects create the best defensibility.
- Product-market fit also strongly tends to generate word-of-mouth. If you’re solving a real need in someone’s life, it’s only natural that they’ll talk to other people about it.
- If you try to scale before you hit product-market fit, you will experience the leaky bucket phenomenon. All that work you’ve done to bring people to your product will go to waste as they’ll just end up churning right out.
How China is cashing in on group chats
- In early 2015, “conversational commerce” was hailed as the future of online shopping. Back then, the term was commonly applied to tech like shopping bots and voice assistants. But the subsequent rise of private messaging suggests that group chats may actually be the secret to turning conversations into commerce.
- Brands have discovered that user trust is a crucial metric in turning a network into a transaction platform.
- On WeChat, for example, group chats are discovered entirely by word-of- mouth or QR code — there is no global search option. The QR code is automatically disabled once a group reaches 100 members. Once the group grows to that size, users can only join if invited by a friend; groups are capped at 500.
- As a result, every group feels like a secret, known only to other members.
- Cultivating a sense of safety is key.
- Group chats on messenger apps can help transform traditional customer service into a crowd-sourced concierge service.
- Academic and non-academic classes can use private group chats for student activities and peer motivation.
- The poster child for this form of chat-related commerce in China may be Pinduoduo, a group-buying business in which the unit price of an item becomes cheaper as more users purchase the deal together.
- Pinduoduo’s dramatic growth came from leveraging WeChat group chats: to secure lower prices, netizens created shopping groups with friends and strangers for the purpose of sharing deals. Pinduoduo’s rapid ascent in the Chinese ecommerce space proves the merit of viral loops, especially when group chat sharing is part of the purchasing experience.
Fintech’s second wave: lenders in disguise
- Many of the trailblazing financial startups of the aughts were tech-enabled lenders. LendingClub, the most prominent of the bunch, was quickly joined by competitors like Prosper and Zopa. But in the increasingly crowded category of financial services, strong early growth does not necessarily equate to a long-term market position. That’s because giving people money is both easy and, from a business-building perspective, quickly forgotten — when a company extends a user a loan, it doesn’t necessarily mean that user will seek you out the next time they need cash. As a result, businesses primarily based on lending effectively need to reacquire customers over and over again.
- Put another way, it’s easy enough to drive one-off transactions, like refinancing a student loan or borrowing money to make home improvements. But when that financial drudgery is complete, there’s little incentive for continued engagement.
- In our view, the most sustainable companies will be lenders that provide ongoing value, giving customers a reason to stay.
- By being holistic, fintech companies can earn a place in users’ regular app rotation — then cross-sell into new product areas.
- The next wave of lenders, though? They’re pocket-sized financial assistants.
How to stop vanity marketing from killing your startup
- In 2014, I got in on the ground floor of what I thought was a rocket ship: Fling.
- But everyone on the team lacked a sense of urgency — the one that drives truly great startups to be thoughtful and careful about understanding why and how things work.
- And when resources are seemingly infinite, any expenditure — whether time, money or both — seems like a good idea, so long as the return is net positive. And in isolation, perhaps many (or all of them) yield a positive ROI.
- The result was a constant cash-burn, despite “doing everything right” — everything was working, but it wasn’t working in a sustainable, manageable way.
- The company would eventually go under after burning $21 million.
- We had all the money and time in the world — right up until we didn’t.
- If premature scaling is the leading killer of startups, marketing is the symptomless cancer that leads to its demise.
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B. Startups & market trends
Huimin announces new round of funding worth $225 million USD
- Chinese B2B e-commerce platform Huimin closed a corporate round of funding on September 9, raising around $225 million USD.
- The Beijing-based private company focuses on small-scale community supermarket leaning on the internet. It employs an e-commerce platform to directly connect community supermarkets with factories and farms so as to enhance supply chain efficiency and lower intermediate costs.
- By doing 2B business, Huimin has two distinct advantages over 2C e-commerce platforms. First, it has very low customer acquisition costs as their final customers are virtually customers of community supermarkets and are directly acquired by those supermarkets. Second, it has low logistics fees as compared to 2C players due to a much smaller number of supermarkets than end-customers.
Payments giant Stripe debuts a credit card in its latest step into the financing fray
- Today, the company is doubling down on financing with the launch of corporate cards for business customers.
- Announced officially today to coincide with the company’s developer event Stripe Sessions, the Stripe Corporate Card — as the product is officially called — is a Visa that will be open to businesses that are incorporated in the US, although they can operate elsewhere.
- Notably, users are expected to pay their balance in full each month, so for now there is no interest rate, or fee, to use the card, with Stripe making its money by way of the interchange fee that comes with every transaction using the card.
- At the same time, it underscores how Stripe is leveraging the huge amount of data that it has amassed about its users and payments on the platform: it’s not just about enabling single services, but about using the byproducts of those services — data — to put fuel into new products.
- The credit card product will follow a model similar to that of Stripe Capital. As with the lending product, there is a single bank issuing the credit and the card.
- Also similar to Stripe Capital, the underwriting of the card is based on Stripe data. That is to say, business users are verified and approved based on turnover (revenues) as measured by the Stripe payments platform itself.
- Notably, the cards will be delivered in the spirit of instant gratification: if you are applying and get approved, you can download a virtual card within minutes to your Apple Wallet as you await the physical card to arrive in the post.
SoftBank mints QuintoAndar a new unicorn in Latin American real estate tech
- QuintoAndar, the Brazilian real estate technology developer, has secured a massive $250 million Series D led by SoftBank, as the Japanese conglomerate continues to deploy its $5 billion commitment to the Latin American region.
- QuintoAndar invented a marketplace that lets users search, book, rent and advertise rental properties in Brazil. The site manages listings and visits, as well as transaction processing between tenants and landlords, and houses the digital contracts that bind these agreements. QuintoAndar also developed a credit analysis system that negates the need for co-signers, deposits and rental insurance.
- The startup, which has grown into a 1,000 person São Paulo-based operation, has now amassed a total of $345 million to date, including a $64 million Series C led by General Atlantic that closed just nine months ago.
- The company was founded in 2013.
- Brazilians are seeing home ownership as less of a long-term goal and are opting to rent, meaning more money in the bank and freedom to relocate.
- The company is projecting over 2 million visits scheduled through its platform in 2019, and is seeing 4,500 contracts signed per month.
Shopify buys warehouse automation tech developer 6 River Systems for $450 million
- Shopify, the shopping technology developer that’s quickly becoming the anti-Amazon, has taken another step up the sales supply chain with its $450 million acquisition of the warehouse automation and management technology developer, 6 River Systems.
- The acquisition will serve to boost efficiencies among Shopify’s Fulfillment Network service, which launched in June.
Root Insurance valuation hits $3.65 billion in latest round led by DST Global and Coatue
- Root Insurance, an Ohio-based car insurance startup that uses smartphone technology to understand individual driver behavior, said Monday it has raised $350 million on a $3.65 billion valuation in a Series E funding round.
- The car insurance company, founded in 2015, has now raised $523 million with an additional $100 million in debt financing. The funding will be used to scale up in the 29 U.S. states where it currently operates and expand into new markets.
- Drivers download the Rootmobile app and take a test drive that typically lasts two or three weeks. Root provides a quote that rewards good driving behavior and allows customers to switch their insurance policy. Customers can purchase and manage their policy through the app.
- Root has said its approach allows good drivers to save more than 50% on their policies compared to traditional insurance carriers. The company uses AI algorithms to adjust risk and sometimes provide discounts.
- The company’s business model has attracted customers. Root wrote more than $187 million in insurance premiums in the first six months of 2019, 824% growth over the same period in 2018.
Uber commits $200 million to Uber Freight expansion in bet on trucking and Chicago
- Uber Freight is establishing its headquarters in Chicago as part of Uber’s broader plan to invest more than $200 million annually in the region, including hiring hundreds of workers.
- Uber Freight, which helps truck drivers connect with shipping companies, has become an important piece to Uber’s larger business strategy to generate revenue from all forms of transportation, including logistics for packages.
- Since launching in May 2017, Uber Freight has grown from from limited regional operations in Texas to the rest of the continental U.S. and to Europe.
- Uber Freight has more than 400,000 drivers in its carrier network and 1,000-plus shippers as customers, including AB Inbev, Niagara Bottling and Land O’Lakes. Uber Freight also has more than 50,000 carriers on the platform.
Spendesk raises $38.4 million for its corporate card and expense service
- French startup Spendesk has raised another $38.4 million in a Series B round, with existing investor Index Ventures leading the round. The company has raised $49.4 million (€45 million) over the years.
- Spendesk is an all-in-one corporate expense and spend management service. It lets you track expenses across your company, empower your employees with a clear approval process and simplify your bookkeeping.
- The service essentially works like Revolut or N26, but for corporate needs. After you sign up, you get your own Spendesk account with an IBAN.
- Over the past year, the company went from 20 employees to 120 employees. There are now 1,500 companies using Spendesk in Europe.
Max Levchin’s Affirm seeks capital amid surge in fintech funding
- Affirm, founded by PayPal’s Max Levchin, is said to be raising as much as $1.5 billion in a combination of debt and equity.
- Affirm recently raised a $300 million Thrive-led Series F round in April at a valuation of $3 billion. Fintech companies focused on payments and lending, however, require a vast amount of capital to sustain operations.
- To date, Affirm has raised $1.03 billion in funding from Ribbit Capital, Founders Fund, Andreessen Horowitz, Khosla Ventures, Lightspeed Venture Partners and more.
- Affirm offers installment plans to online shoppers, a method of delayed payment historically reserved for large purchase like vehicles or luxury electronics. Using Affirm, consumers can create personalized installment plans for purchases as small as a pair of sneakers sold by StockX or as large as a diamond engagement ring from Diamond Nexus.
- Affirm, serving as an alternative to a credit card charge, requires no paperwork, minimum credit score or income. The company, however, makes money the same way as a credit card provider, with interest rates for Affirm’s loans falling between 10% to 30%.
- Affirm, doubling down on the opportunity in B2B, spun out a new financial services business focused entirely on business lending earlier this year. The company, Resolve, provides a “buy now, pay later” option tailored to B2B sales flow.
- “Today, many companies offer a standard net 30-day payment plan only to their best and longest tenured customers, leaving others in need of financing to rely on credit cards or installment loans.”
Walmart Grocery is expanding its $98 per year ‘Delivery Unlimited’ subscription across the US
- Walmart is expanding its brand-new “Delivery Unlimited” grocery delivery membership program to more stores across the U.S., with plans to reach more than 50% of the country by year-end.
- The new program allows regular grocery delivery customers to pay either an annual fee of $98 or $12.95 on a monthly basis instead of paying the usual $9.99 per delivery fee. These options make Walmart Grocery delivery more affordable for those who order at least twice a month or more.
- The program also gives Walmart a better way to compete with rival grocery delivery services, including Amazon Prime Now/Whole Foods, Instacart and Shipt, all of which offer subscription memberships.
- Walmart’s Grocery business has grown steadily over the years, and has become a favored alternative to higher-priced services like Instacart, where the individual products are marked up as a means of generating revenue. Walmart, on the other hand, charges the same online as it does in stores — the only added cost is the delivery fee and tip. (Pickup is free).
- Today, Walmart Grocery Pickup is offered at nearly 3,000 stores and Walmart employs more than 45,000 personal shoppers to fill its online grocery orders. Walmart Grocery Delivery, as noted, is on track for more than 1,600 stores this year.
India’s OkCredit raises $67M to help small merchants digitize their bookkeeping
- OKCredit, a Bangalore-based startup that enables small merchants to digitize their bookkeeping, has raised $67 million in a new financing round to grow its business in the nation.
- The Series B financing round for the two-year-old startup was led by Lightspeed and Tiger Global. The new round, which follows the Series A in June, climbs OkCredit’s total raise to $83 million.
- OkCredit operates an eponymous mobile app that allows merchants to keep track of their day-to-day purchases and sales.
- The app had amassed over 5 million active merchants across 2,000 cities in India.
- A wide range of merchants from roadside vendors to grocery shop owners and pharmacies have joined OkCredit.
