Thursday, November 25, 2010

Apprenticeship, BVP and Thanksgiving

A couple weeks ago, Ben Siscovick over at IA Ventures wrote a really wonderful post on the importance of being mentored as a young VC. As Ben wrote,

“In fact, it’s a complete wonder to me that young venture investors find a place in the eco-system at all …And yet, not only are there young VCs, but many in this new breed are excelling in the industry. In some ways I think of a firm ‘betting’ on a young VC as analogous to investing in a first-time entrepreneur - you know there will be mistakes along the way, but you hope that the big successes will outweigh the inevitable mistakes and that overtime the individual will grow into a seasoned, mature and experienced pro. ” 
On this Thanksgiving day, I wanted to pick up Ben’s thread with a long overdue post.

When I joined Bessemer as an Analyst back in May 2006, I was very young, new to both the investment world and the technology world, and quite a bit shy. If the job had required any internal politicking to get ahead, I would have floundered. Instead, the job was incredibly merit oriented, and the measure of merit extremely objective. I worked hard, listened a ton, and somehow, someway, I excelled.

Midway through my second year, as I started thinking about applying to business school, Jeremy Levine asked me if I would be interested in becoming his Associate. For those of you who don’t know Jeremy, that’s a little like being asked to dance by the winner of the national dancing contest. I still remember how elated I was on my train ride home from Larchmont that day.

It’s been almost three years since that day, and I realize more and more how much I’ve learned working with Jeremy and the rest of the Bessemer team. Bessemer is one of the few firms that have successfully transitioned from one generation of great investors to the next, several times over (dating back to 1911). With this tradition, comes an ingrained commitment to nurturing and recognizing the talents of its younger investors. I’m incredibly lucky for that. Venture investing really is a craft that one learns best through apprenticeship and mentorship. The feedback cycles are too long otherwise.  But getting apprenticed doesn’t mean you’ll be successful. There is first a question of the quality of the apprentice and whether he or she will be able to absorb all the lessons (and bring his or her own perspective), and then there is the question of the quality of the lessons that apprentice learns.

Although I can’t speak to the former, on the latter, I believe Bessemer’s incredible track record and longevity speaks for itself. For a youngin’ like me, it’s a pretty phenomenal place to be.  I have no idea where the road ahead lies, but I feel lucky and grateful for the road I've traveled thus far. So thank you BVP, and happy Thanksgiving to everyone!

Thursday, October 14, 2010

eCommerce Laws: Conclusion

Your first reaction after reading these ten rules may be, “Yeah, sounds good in a world of endless resources and time!” We understand. In the early days of a young eCommerce business, you can only do so much. But we still encourage you to follow as many of these rules as you can and adopt more of them as you grow. Once you reach $10m of annualized gross profit, if you're ignoring more than two, we’ll bet you won’t make it to $25m.

We hope you benefit from these best practices we’ve gathered from dozens of talented eCommerce executives with whom we’ve had the privilege of collaborating over the years. If you have any thoughts, comments or suggestions, please share them with us (eCommerce [at] bvp [dot] com). We would be delighted to hear from you.

Lastly, I've embedded below a pdf of the full rules. Please feel free to download it.

Monday, October 11, 2010

eCommerce Rule #10: Keep it social, but keep your data too

Social media isn’t just for promoting and evangelizing. Sites like Facebook and Twitter now need to be considered a core part of any e-tailer’s sales and marketing strategy. People are spending an increasing amount of time on these sites—a recent study by Nielsen showed that people now spend 22.7% of their time on social networks, up from 15.8% just a year ago. Moreover, according to eMarketer, 41% of all U.S. Facebook members connect with fan pages to highlight their favorite brands.

An extremely connected and network consumer has allowed companies like Groupon to take off, and we expect there will be many new eCommerce models that will emerge to leverage consumers’ social graphs. But all eCommerce companies can benefit from social media, if done right.

That means more eCommerce execs are paying attention to “Like” buttons and corporate fan pages, which allow marketers to run promotions tightly integrated into Facebook’s feature set and social graph. Brands can also broadcast updates, like coupons and special promotions that appear in users’ news feeds. Quick tip: Studies show that Facebook users are more likely to engage with an offer presented on the site if they don’t have to leave the Facebook ecosystem to do so. Another best-practice we hear is that Facebook fan pages are most effective when the merchant starts conversations with its followers (e.g., by asking a question) instead of just “pushing” offers out to its fans. If you want to have a best-in-class fan page, check out 3rd party products like Involver (BVP portfolio company).

But beware: While it might sound like a great idea to add Facebook Connect integration and Facebook “Like” buttons to your e-commerce site with the hopes of attracting viral traffic from Facebook, proceed with caution. When your customers click that they “Like” a certain product on your site, Facebook records that data and then lets companies target those users with advertising. Essentially, you’re giving your competitors data they can use to target your customers on Facebook. Depending on what you sell and how competitive the market is, it might be worth the risk, but tell your employees to let you know if they notice that they are being targeted by ads from your competitors. If you see one of your competitors showing you an attractive offer, you’ll know why.

If you’re unsure how to best leverage Facebook and Twitter, don’t stress about it. Remember: However social-media trends play out, consumers will always, always want three things when they shop online: lower prices, more selection and better service.

Sunday, October 10, 2010

eCommerce Rule #9: Identify your best customers, encourage customer loyalty, and motivate the evangelicals

The rise of social-media services like Facebook and Twitter, and the explosion of niche blogs, means your customers now have very public microphones with which they can broadcast their feelings about you. This cuts both ways: Your disgruntled customers have a louder way to complain. But social media also means that your biggest fans (as discussed in Rule #2 and Rule #5) can be heard more, too. They can use social media to sing your praises all over the Internet.

Make sure you take advantage of this phenomenon. The first step is, identify your best customers. They are your most profitable customers, who come back to your site again and again. Work hard to keep them happy. You might try dubbing your most loyal customers VIPs, as Zappos does. This nomenclature may sound silly, but people are naturally proud of being loyal customers of services they like. Then make these customers realize you value them as evangelists or VIPs. Invite them to VIP-only events or sales, and send them special emails to get their feedback. This also serves to encourage their customer loyalty. But you can do more.

Consider Amazon Prime. With Amazon Prime, consumers must pay a fee to participate. But once customers sign up, they get free shipping on all their orders, not just those over a certain amount. This program is incredibly effective at turning repeat customers into truly loyal customers. The logic is that once you’re a paying member of a retail site like Amazon, you’ll always consider Amazon first when you want to buy a new book, or a movie or a backpack. You’ve got to get your money’s worth, after all, since you paid an initiation fee to get into Amazon Prime. Amazon’s goal with this program is for its site to become a daily habit for its customers. This is an incredibly expensive program to implement if you're not already at scale, and a huge barrier to entry Amazon has erected (though some retailers are now locking arms to try to offer a similar program and compete with Amazon).  Mobile apps are another way of encouraging customer loyalty. If you are able to get a customer to download your mobile app, you make it that much easier for your customers to find you again and use you when the urge strikes.

If you're at scale, yet another gambit is to create a loyalty-points system, as MooseJaw, an online retailer of outdoor gear, has done. This site’s program—akin to frequent-flier miles—gives customers ten points for every dollar they spend on regularly priced items, and five points for every dollar spent on discounted products. Customers can then use their accumulated points to buy products on MooseJaw’s reward site.

Now, motivate your evangelicals to sing your praises. In Rule #3, we discussed the importance of Net Promoter Score. To best leverage your NPS, make it as easy as possible for your Promoters (those that rated your service a 9 or a 10) to promote you. One way is through loyalty or incentive programs. These might be simple offers, like “refer a friend” to save money on a future purchase. But there are a number of new vendors that offer unique solutions to motivate users to share their purchases. The space is still very young, but it will evolve quickly. The higher your NPS, the better you’ll be positioned to leverage it.

Tuesday, October 5, 2010

eCommerce Rule #8: WWAD (What Would Amazon Do)?

Amazon was among the first online retailers to offer many of the elements so crucial to e-commerce today: obsession with customer service, affiliate marketing, product reviews, free shipping, a VIP service, on-site advertising and many others. When Amazon first launched many of these features, observers scratched their heads in confusion (e.g., why would Amazon let consumers say negative things about the products they sell?). But eventually other e-tailers followed suit.

Now, it’s tough to find any sophisticated online retailer that hasn’t implemented product reviews. In fact, companies like BazaarVoice help online retailers launch product-review functionality with minimal effort. It’s now widely understood that product reviews often increase conversion rates by a double-digit percentage.

The newest frontier is onsite advertising. Amazon clearly measures eGPV (see “Conversion Rate” under Rule #3), and every change Amazon embraces improves its eGPV. To this end, Amazon has been running a variety of online ads on its site for a few years now – including Amazon’s own pay-per-click advertising and third-party display ads. The thought of letting third-party sites advertise on your site, after you’ve spent so much money and worked so hard to get consumers to visit your site in the first place, might sound sacrilegious. But mark our words: This train has left the station. Onsite advertising represents a great opportunity to leverage manufacturer trade budgets to generate additional revenues for your onsite clicks. Companies like Hooklogic and Intent Media hope to be the BazaarVoice of onsite advertising and are already gaining traction with some of the biggest names in e-commerce.

Other Amazon best practices we admire:

Metrics-oriented culture. E-commerce is a low-margin business. To make a low-margin business work, Amazon has an incredibly metrics-oriented culture. Amazon isn’t the only one. Time and time again, the most successful e-commerce businesses we see share Amazon’s obsession with metrics. (We joke that it’s no surprise QuidSi’s CEO, Marc Lore, worked in a Wall Street risk-management group before becoming an e-commerce entrepreneur). Take this to heart. You just can't be successful as an online retailer if you're not similarly obsessed with metrics.  A/B test and optimize everything - every link, every call to action, every merchandising decision. As one successful eCommerce exec once told me, "If we don't have an A/B test going on, I get very grumpy."

Obsession with page-load times. It’s easy to be tempted to add JavaScript tags from different vendors to your Web pages to soup up the functionality on your site. But beware: These tags can slow down performance. And Amazon has long known that the faster your page-load time, the higher your conversion rates. In April 2010, Google took the step of incorporating page-load time into Google’s all-powerful Quality Score, which makes page-load times more important than ever.

Keeping “fit.” Each workgroup in Amazon must build a “fitness function”, a customized equation that incorporates the most important metrics for a particular group. When computed, the fitness function creates a single “fitness number.” This is the number each group presents to Amazon CEO Jeff Bezos. And if this all-important number isn’t going “up and to the right” consistently, the group is in trouble. Each group’s fitness function has to be approved by Bezos, and sometimes it takes months (if not years) for groups to arrive at the right function.

Keep it simple. Amazon has maintained its innovative, startup culture partly by avoiding the temptation to build large teams to tackle big problems. Instead, the company typically takes a problem and divides it into bite-size pieces, assembling small teams to attack each part of the problem. The rule of thumb for the teams is that they should be “no bigger than you can feed with two pizzas.” Most often, this means a team of three developers, a product manager, perhaps a shared designer resource and a manager.

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Thursday, September 30, 2010

eCommerce Rule #7: Affiliates are risky. Don't let them pick your pocket.

Affiliates are third parties that charge a commission when a user clicks through a link on one of their sites to a merchant and subsequently completes a transaction (usually a purchase). On the face of it, affiliates look like a no-brainer—the more of them you can get, the better. But don’t be fooled. It’s the Wild West out there, and certain evil affiliates are looking to pick your pocket. You are better served having a very tightly controlled affiliate program, and you need to keep a close eye on affiliates for suspicious behavior. Here are three things to watch out for:

Everyone claims credit. As we discussed in Rule #6, consumers often visit a site multiple times before completing a purchase. The larger your affiliate program, the higher the chance that your average customer clicks on the links of more than one affiliate before converting (perhaps they visit the site of a traditional affiliate, and then an online-coupon site). Because affiliates get credit for a conversion even if it occurred several days, or weeks, after the user first clicked through the affiliate’s link, this means you might find yourself with multiple parties all claiming credit for the same conversion. A 5% commission for one affiliate is fine. But if you need to pay two or more affiliates the same commission rate, your costs can add up very quickly. To minimize this, you’re better off sticking with just one affiliate program (e.g., Commission Junction, Performix, etc).

Watch out for spyware and other scams. The most insidious affiliate ploys are scams like spyware or cookie-stuffing. Ben Edelman of Harvard Business School has a great report describing how some affiliates use pop-ups, pop-unders, IFRAMEs and other little-known industry mechanisms to trick a user’s browser into downloading an affiliate’s cookie for multiple merchants—even when the user hasn’t clicked on an actual affiliate link. When the user then goes to one of the soon-to-be-defrauded merchants and makes a purchase, the affiliate scammer’s cookie claims credit for the conversion.

Other affiliates deploy good old-fashioned spyware. One of our portfolio-company executives recently was combing through his Web logs and noticed that the codes for some of his affiliates were being entered into users’ clickstreams milliseconds before transactions were finalized, thereby tricking the merchant into thinking that the affiliate had acquired those customers. The executive soon realized some of his users’ computers were infected with spyware. The spyware tracks a user’s behavior and, in the first millisecond it sees a shopping cart activated, refreshes the user’s browser and slips in the affiliate’s code. Our executive notified Commission Junction, the leading affiliate program provider, of the ruse and the affiliates were quickly terminated. But remember: no one else is looking out for you, so you need to monitor your affiliates yourself.

Don’t let them bid against you. Left unchecked, affiliates may bid on your trademark search terms, effectively fighting you for keyword ads and driving up your acquisition costs. Whats worse, often, affiliates try to take advantage of the navigational-search phenomenon we touched on in Rule #6. If a user types your brand name into Google, he almost always already knows what he wants---he just wants to get there quickly. But if he ends up clicking on an affiliate’s link instead of your own, you’ll have to pay the affiliate for the conversion even though you did all the hard (and expensive) work to lure in the user in the first place.  Talk about a free ride!

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Tuesday, September 28, 2010

eCommerce Rule #6: Only lemmings focus on last-click marketing

Since the advent of online advertising, the conventional wisdom among Web marketers is that the provider of the “last click” that delivers a user to a particular Web site before a purchase “closed the deal”, and therefore deserves all of the resulting ROI credit. Consequently, for years, Web marketers have been determining where to invest their online marketing dollars based on the last thing someone clicked on before converting.  This methodology has serious shortcomings.

One is that it discounts the classic “marketing funnel”. The marketing funnel is a relatively old-school marketing concept but remains very relevant today. It describes the manner in which most consumers go about making purchasing decisions. In the beginning, consumers cast a wide net—just like the wide top of a funnel. They do broad-ranging research and consider a number of products from a number of providers. But then most consumers start to narrow their choices. Their research becomes more targeted, and they look at fewer products as they figure out what they really want. Finally, they’re at that narrow bottom of the funnel, having decided on the one product that best suits their needs.

But the last-click methodology ignores this critical funnel concept. If a consumer visits, say, a number of Web sites several times over many days (including a few visits to, weeks or even months before making a purchase—and is exposed to a wide variety of online media during that time period—why does the keyword he clicked on right before buying a new computer at get all the credit for his new laptop purchase? It doesn’t make sense.

Another big problem with last-click marketing is that last clicks are often just “navigational” searches: Consumers use sites like Google and Yahoo as search engines, but also as navigation engines. What we mean by “navigation engine” is that a user already knows where he wants to go (to look at a particular printer on the Staples Web site, for instance) but is using a search engine to get there quickly. Consumers have been trained to behave this way because the internal-search capability on most Web sites is quite poor. Consider: A Google search for “Staples HP Laserjet 1200 toner” yields a link to the relevant page on as the 6th result. But a search for “HP Laserjet 1200 toner” on the web site yields 15 incorrect links ahead of the target page. Searching with Google is actually more efficient than searching the retailer’s web site directly. This is important because it means the marketing channel that drove a customer’s first visit (e.g., a comparison shopping engine (CSE)) might be more valuable than the channel that drove the last visit (e.g., Google search for “Staples HP Laserjet 1200 toner”).  But again, with last click, marketers are told to invest more in "Staples HP Laserjet 1200 toner", and less in the CSE, even though that CSE was what exposed the consumer to Staples in the first place.

None of this mattered much until recently. Through 2008, traditional, last-click online marketing had consistently provided a highly attractive ROI with ever-increasing customer volumes. But lately, competition for customers among online marketers has intensified; more marketers are buying online keywords and bidding up their prices. As a result, e-tailers have to spend more money to acquire the same number of customers. What was once a highly attractive ROI has become less compelling. It’s time to sharpen your pencil.

It is becoming increasingly clear that attributing “conversion credit” to the last marketing link a user clicks before making a purchase is highly flawed. More often than not, the last-click approach rewards navigational keyword searches. More troubling, it incents online marketers to stop investing in the top-of-the-funnel marketing sources that actually acquired the customer in the first place. Nonetheless, the last-click methodology is ingrained in widely used Web-analytics offerings like Adobe SearchCenter (fka Omniture) and Google Analytics. These analytics companies make recommendations about keyword bidding and other online marketing strategies based on that obviously flawed methodology.

A new breed of marketing analytics vendors including Convertro (another BVP portfolio company) are pioneering a much more intelligent approach. These companies adhere to a concept called, fittingly, “multi-attribution.” In multi-attribution, credit for a purchase is distributed across every marketing event that drove a consumer to a particular Web site, instead of just allocating credit to the last one.

You’ll be shocked by how the multi-attribution approach will prompt changes to how you allocate your online marketing dollars. (Hint: most affiliates won’t like it, and neither will Google’s AdWords team.) We’ve seen companies use this new approach to suddenly increase their return on ad spend (ROAS) by more than 50%, even though they thought they’d tapped out their online-marketing effectiveness.

Speaking of online marketing allocations, display advertising has played the part of the ignored, ugly sibling of search advertising for far too long. Marketers have often embraced a spray-and-pray approach to display ads and haven’t known how to measure their ROI (a cause that wasn’t helped by the last-click paradigm). This is changing thanks to retargeting companies like Criteo (in the BVP portfolio). With retargeting, a merchant is able to show a display ad to users who visited the merchant’s site but didn’t buy anything. Later, when those users are on a third-party site, a retargeting ad promotes the merchant’s brand. The hope is that the ad will draw the user back to the merchant’s online store. Some retargeting companies, like Criteo, take retargeting one step further. Instead of showing only the company’s brand in the display ad, they show the actual products the consumer browsed (or, even better yet, related products that the consumer may have missed). Retargeting has fast become a must-have tool in any online marketer’s toolkit. If you don’t retarget your visitors, your competitors will.

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Thursday, September 23, 2010

eCommerce Rule #5: It’s the service, stupid

In Rule #1, we discussed the importance of building a brand penny by penny with direct response advertising.   Embedded in this rule was the assumption that your offering "works."  Paying Google and other media companies to drive new users to your site is only the first step. To build a brand and a sustainable, profitable business, you want those customers to come back to you again and again – without your having to pay for them again and again! To get customers coming back, knock their socks off with an extraordinary customer experience.

This orientation is a commitment that needs to permeate everything you do in your company.  As Jeff Bezos said, "Start with the customer, and work backwards."  In addition to offering low-cost products and getting them out the door quickly, you should bend over backwards to offer friendly customer service throughout the entire fulfillment process. Train your sales reps as if they’re working at the Four Seasons hotel chain. Don’t rush customers off the phone. In general, always empower your reps to please customers first and save costs later. At Zappos, for instance, a rep once fielded an eight-hour customer service phone call, while another delivered fresh flowers to cheer up a customer. These examples are extreme, but they’re the inspirational stories that help define company culture and drive powerful word-of-mouth promotion among consumers. This type of culture needs to be instilled throughout your entire company; every senior executive should spend some time every month taking customer service calls.

Another good idea: Creating fabulous surprises for your customers, such as unsolicited coupons, refunds or credits, gifts, or even just patience, apologies and empathy. Across most industries today (think banking, travel, cable TV), the average telephone- or email-based customer-service experience is so bad that it’s actually pretty easy to be surprisingly fabulous. Other surprises can be baked into your core offering. Zappos, to praise the company again, has a 365-day return policy with free return shipping. Consumers take full advantage by returning almost 40% of the things they purchase on the site.

You should carefully monitor customer-service metrics such as average wait time (email and phone); abandon rate; average call length; and number of calls needed to resolve an issue. There is a significant increase in abandon rates after 90 seconds of wait time. If you can answer 90% of calls in 120 seconds from when the customer first dials your number, you’re well on your way to becoming a best-practices, customer-service organization.

And, finally, while you should always work hard to delight your customers, don’t be afraid to fire the perennially annoying ones who waste your time and cost you money. When a consumer calls to complain about a product or claims she never received it, check to see if she’s a first-time caller. If so, give her the benefit of the doubt (a full refund, express shipping, etc.). If this isn’t the first time, don’t be afraid to give her some tough love. Try to understand what marketing channels or products drive these less desired customers and make appropriate adjustments to reduce them or at least make them more profitable.

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Tuesday, September 21, 2010

eCommerce Rule #4: Your goal: cheap, fast and free

If there is one thing you can count on, it’s that consumers will always want lower prices. And once a consumer spends money online, she wants immediate gratification. So for an online retailer, there’s nothing more important than price and availability.  This is the core advantage of scale in eCommerce, but also what new eCommerce models like Vente-Privee in Europe and Gilt Groupe in the US have been able to leverage for tremendous success.  In our view, the best e-commerce companies will offer products at low cost and deliver them quickly—and, often, free of charge.

Cheap. It takes just a few clicks for consumers to figure out the market price for any item on the Web. You don’t have to offer the cheapest price on all products all of the time. But you should be rock-bottom on those items your customers will use to judge you. Consumers aren’t dumb; they generally won’t pay more than they have to. Don’t forget this.

Fast. The biggest disadvantage to shopping online, as opposed to in a brick-and-mortar retailer, is the lack of instant satisfaction. Until the moment of delivery, a consumer has spent his or her hard-earned money but has nothing to show for it—no new Jimmy Choos to wear out on the town, no new leaf blower to show off to the neighbors. Not surprisingly, then, quick delivery is key to delighting customers. A recent survey of U.S. consumers conducted by STELLAService confirmed that the leading factor in determining great customer service was delivery speed:

Companies that care about customer service are laser-focused on fast shipping. For example, our portfolio company QuidSi boasts of reaching 70% of US consumers overnight and the rest in two days. To offer your customers the products they want quickly, we believe you need to control the entire customer-fulfillment experience. In the beginning, this may mean using a third-party logistics company (3PL) to own and operate your back end or drop-shippers to fulfill the long tail of SKUs. But once you hit a few million dollars in annualized gross profit, you should keep as many of your SKUs as possible in stock in your own warehouse so you control those products from the moment a consumer clicks “buy” to the moment he or she receives your delivery. Then you can start thinking about fast shipping.

There are two ways to minimize your shipping times. The first is the Amazon approach. If you’re like most retailers and lack the gross margins to afford next-day air delivery, build multiple distribution centers across the US, as Amazon has done, and optimize your delivery from each center to each customer. Amazon has 19 distribution centers in the US alone. You need massive scale to support 19 warehouses, but even splitting into two DCs – to cover each side of the Mississippi – will improve average ship times considerably. And don’t be afraid of regional shippers like OnTrac or LoneStar. They’ll help you reach pockets of the US faster and cheaper than UPS and FedEx. There are also third-party services like Ensenda and Enroute to help manage the complexity.

There’s also the Zappos approach to shipping. The shoe retailer, with its 40+% gross margins, was able to leverage its rich gross margins and standardized shipping boxes to ship all its products via next-day FedEx air delivery and place its sole distribution center in Nevada. This is easy and effective, but few retail categories can afford it.

Free. Unless you have a unique value proposition or are selling the type of product that costs more to ship than to buy, consumers now expect a path to free shipping when they shop online. According to a recent comScore survey, 23% of consumers only purchase items with free shipping, and 51% of consumers are at least “somewhat likely” to cancel their order if they don’t have a free shipping option. It may even make sense to increase your prices slightly to eliminate shipping charges. We’ve seen this tactic actually improve conversion rates for some e-tailers. Run the numbers, and figure out how you can make free shipping an option for your visitors. Avoid losing your shirt by setting a minimum order size before free shipping kicks in.

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Thursday, September 16, 2010

eCommerce RULE #3: The 6 “Cs” are your vital signs: Ignore them at your peril!

These 6 “Cs” are metrics that provide an unparalleled window into the health of your online retail business.

1.  Company Net Promoter Score, or NPS, is a customer loyalty metric developed by Satmetrix, Bain & Company, and Fred Reichheld. This score is determined by posing a simple question to consumers; it’s a query designed to screen for customer loyalty. Consumers are asked, “On a scale of 0 to 10, how likely is it that you would recommend our company to a friend or colleague?” Consumers offering a rating of 9 or 10 are anointed “promoters”, implying they could heavily promote the company to others. Those who give a rating of 7-8 are “passives”—maybe they might not do anything. Those at the lower end of the scale, with ratings of 0-6, are dubbed “detractors,” since they might speak ill of a company and hurt its prospects with other potential customers.

A company calculates its overall net-promoter score by subtracting its percentage of detractors from its percentage of promoters. So, if 65% of an e-commerce firm’s customers rank as promoters, and 15% as detractors, the firm’s overall NPS would be 50. You should ask every customer this simple NPS question after they’ve received their shipment. 

Track and monitor your NPS every month and discuss it in your management and board meetings. Slice and dice the metric to study specific people who have interacted with your customer-service team or who processed a product return. You’ll be surprised by the insights that will jump out. Check out to compare your score against the best brands on the planet, like Amazon, Apple and Google. Tracking NPS is invaluable.

2.  Customer lifetime value, or CLTV. As discussed in Rule #2, CLTV is the net present value (NPV) of the profit from a customer’s purchases. A profitable customer will have a CLTV in excess of its CAC (see next metric).

3.  Customer acquisition cost (CAC). This is quite simply your fully-loaded average cost to acquire a new customer. You should track this over time. However, averages can be misleading; not all customers are created equal. You’ll always have one group of customers that come back to your site multiple times and are profitable to you. Others may come once, perhaps pick up some of your lower-margin SKUs—and never return. Remember: Your goal is to optimize CLTV minus CAC. This means that trying to keep your CAC down is not always your best bet: Sometimes your better customers (those that return and/or buy higher margin SKUs) are a little more expensive to acquire. But they’re worth it. If your current average CLTV is at least 2X your average CAC, and most of that comes in year one, you’ve got enormous upside potential.

4.  Conversion rate. For most e-tailers, the relevant conversion rate is the percentage of new visitors that convert to buyers. Here, traditional blocking-and-tackling concepts like streamlined landing pages and fast page-load times are king. If you want to take this metric to the next level, you should think of your conversion rate as a conversion of visitors to revenue producers (not necessarily to buyers)—or, better yet, to gross profit contributors. Essentially, what you are trying to measure is how much money you make from each visit to your website. It’s the equivalent of the eRPM (effective revenue per thousand impressions) most Web publishers use to measure their businesses. But here, we suggest eGPV (effective gross profit per visit). Compare the eGPV for all of your visits, and tweak the site paths that are falling below the average. Adding additional revenue streams such as on site advertising may help to optimize this metric.

5.  Churn. Yes, e-commerce businesses have churn too! This is the percentage of visitors to your site that don’t come back to buy anything else. You should also, of course, track the number of monthly visitors who are returning customers.

6.  Cash-conversion cycle and return on invested capital. Only the simple-minded focus on the P&L statement. No one cares what your profits are if you don’t generate any cash flow. Online retail can be tricky because there are lots of ways to burn cash even when you’re generating income-statement profits. Inventory and warehouse equipment can consume a lot of cash, particularly during periods of high growth. The best online retailers actually boast a negative cash-conversion cycle. In other words, they get paid by their customers before they have to pay their suppliers. Amazon and Blue Nile have negative cash-conversion cycles, so it’s perhaps not surprising that these companies have the most attractive valuation metrics in the online retail industry. For example, below, we plotted all the pure-play online retailers, with their cash conversion cycle on the X-axis and their TEV/LTM Gross Profit on the Y-axis. You can see that Blue Nile, with its average -47 day cash conversion cycle for the past four quarters, is valued at a multiple of almost 12X, and Amazon, with its –26 day cash conversion cycle is valued at a little over 8X. Leading competitors, with much longer, less attractive cash conversion cycles, most have valuations hovering around just 3X. 

Be aware of this, and make smart tradeoffs between vendor-discounts and stretching payables whenever you can. If you want to get really sophisticated, measure cash conversion on a SKU-by-SKU basis.

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--> Go to Introduction / Table of Contents

Tuesday, September 14, 2010

eCommerce RULE #2: Customer Lifetime Value (CLTV) is your new pulse

As you build your direct response marketing campaign discussed in Rule #1, remember to focus on the lifetime value of your customer, or how much profit that customer will generate during the course of your relationship. 

The textbook definition of CLTV is the net present value (NPV) of the profit from a customer’s purchases. Remember to include all the sales that result from a customer’s repeat visits, less any associated costs to service the resulting orders (include variable costs like COGS, credit-card processing fees, shipping, warehouse-order processing, etc). A profitable customer will have a CLTV in excess of its customer acquisition cost (CAC). Treat these profitable customers well. 

Once you have a good handle on this metric, you shouldn’t be afraid to spend until the marginal CAC (your CAC to acquire the next customer) approaches the CLTV of your next incremental customer, even if it costs more to acquire that new customer than you recoup on his or her first purchase. Note: This doesn’t mean you should spend until the average CAC approaches your CLTV. Rather, you want to spend to acquire customers until your marginal contribution (CLTV – CAC for each new customer) equals zero.  Anything less is under-investing in your business. 

Obviously, this can be a very scary pill to swallow, so make sure you really understand your CLTV before jumping in. For early-stage companies, estimating a customer’s lifetime value can be more of an art than a science. If you’re not fully confident you have a handle on this, instead spend right up to the average, fully-loaded gross profit of a customer’s first order. Then you can focus on driving repeat usage. 

In the beginning, your average CLTV will be low because you won’t have scale. But as you grow, you’ll start to see some of the benefits of scale, such as: 
  • Getting better terms from vendors, because you’re buying more (which drives up your gross margins); 
  • The ability to offer your customers a broader selection of higher-margin, slower-moving SKUs (which increases your average order value, your gross margins, and your customer satisfaction); 
  • The data to offer better product recommendations (which also increases your average order value and improves conversion rates); etc. 
All of these things will increase your CLTV. This kicks off a virtuous cycle: CLTV goes up; you can afford to spend more money on marketing; you start to grow faster; you get more scale —and on and on and on. 

It’s critical to calculate CLTV as accurately as possible, since it will drive much of your marketing decision making. At scale, follow this rule of thumb: If your CLTV is at least 2X the cost of acquiring a new customer, with at least 1X coming in the first 12 months after acquisition, you’re in great shape. If you’re doing any better than that, it’s irresponsible for you not to be spending more aggressively on marketing. (And please, call us so we can invest in your company!) If your CLTV/CAC ratio is less than two, then it’s worth reigning in your marketing spend until you grow into it.

--> Go to Rule #3
--> Return to Introduction / Table of Contents

Thursday, September 9, 2010

eCommerce RULE #1: You must build a brand, but not through brand advertising

The ultimate goal for any consumer offering--and the goal that will frame the remaining nine rules--is to build a brand. If your brand becomes synonymous with a particular category (e.g. books for Amazon, DVDs for Netflix) you gain tremendous leverage in your marketing spend. But exactly how you build a brand has changed a lot in the last decade.

Forget sock puppets and pricey Super Bowl ads. So 1999! Brand strength today is built penny by penny (and order by order) with effective direct-response advertising that can be quantified and measured. In some categories your marketing campaign can attract customers for as little as $10 apiece. If your offering works (more on that later), those customers you snag will generate more than $10 (say, $30) of profit over their lifetimes. Then, you can reinvest that $30 in more online marketing. Rinse, lather, repeat.  You have a growth (and profit) generation machine.

Once you get big enough that you’re spending millions of dollars on direct-response advertising, you can think about more traditional brand advertising. When you can afford it, brand marketing will help you finally convert customers that you probably have touched before with your direct response advertising, but just need an extra nudge. Essentially, if done right, brand marketing becomes yet another form of direct response advertising.

Consider this: Zappos, the online-shoe retailer scooped up by for $847 million last year, didn’t run its first television ad until 2008, even though it was founded in 1999. Clearly CEO Tony Hsieh and his crew knew how to build their company’s brand penny by penny. By the time Zappos went on TV, as many people in the U.S. were searching for Zappos by name on Google’s search engine as were searching for Adidas, a globally recognized brand.

Another tip: As you scale your online marketing spend, run lots of marketing experiments of at least $10,000-20,000 apiece. These might include using different marketing channels like certain comparison-shopping sites that you’ve never worked with, vertical-ad networks or even new advertising techniques like retargeting. Measure the results on a multi-attribution basis and invest in the ones that work well. You may be surprised where the best return-on-investment comes from. Certainly, monitor your ROI and tweak as necessary.

Finally, it’s important to point out that penny-at-a-time advertising doesn’t guarantee you will actually succeed in building a brand. We touch on some of the critical elements of successful brand building in the remaining rules (especially Nos. 4, 5, 8 and 9). While there may not be a clear and concise formula for building a great brand, we’re certain about one thing: It’s virtually impossible to build a brand through excessive marketing. So don't try it. All of your marketing should be measurable and profitable. If you follow the rest of our ten laws of e-commerce, and steadily increase your marketing expenditures in a profitable way, you'll lure more and more consumers to your store--and eventually, your brand will emerge. If it doesn’t, you’ve almost certainly been ignoring several of our other rules.

--> Rule #2.

Tuesday, September 7, 2010

Bessemer's Top 10 Laws of eCommerce: Introduction

The dot-com bubble is long behind us, but online commerce is still red-hot. In the late 1990s, the conventional wisdom was that the transformation from “bricks to clicks” for retailers would happen almost instantly. Yet over the past ten years, it’s become clear that the shift to the Web was not a two- to three- year revolution, but a 15-20 year evolution.

According to comScore, non-travel/auto/gas/food e-commerce sales represented just 7.1% of total retail sales in the US in Q2 2010. But, significantly, online sales have grown at an annualized rate of 9.7% since 2006 (vs. the 2.3% annualized decline in total retail sales over that same period, which includes the Great Recession). Leading online retailers, like, are growing even faster—30% per year for the past several years. This growth in e-commerce should only accelerate.

Companies like Zappos, Bessemer portfolio company QuidSi (operator of and, Vente Privee, Netflix and others are creating new online-retail categories and pulling offline dollars onto the Web. But a lot has changed since the heady—and money-losing—days of eToys and Today’s successful e-commerce sites don’t just throw products up on a Web site and spend tens of millions of dollars on traditional brand advertising to promote them. The rules of the game today are much more complex and, in many ways, scientific: They involve astute use of targeted, direct-response advertising, for instance, and careful calculations about the lifetime value of each customer. Those leading the e-commerce pack today also display a laser-like focus on customer service, including offering fast and/or free product delivery. (Consider Zappos, which ships customers their shoes overnight.)

At Bessemer, we’ve been lucky to have participated in each successive wave of retail innovation since the mid-1980s, starting with our investments in “big-box” retailers like Staples, The Sports Authority, Dick’s Sporting Goods and Eagle Hardware & Garden. In the late 1990s, we funded several first-generation Internet retailers. Some of these early-stage investments, like Blue Nile, became successful public companies and went on to embody the initial promise of online retail. Others, like eToys, burned brightly for a time but faded quickly in the face of the uneconomic (read: way-too-expensive) customer acquisition model that plagued many early Web pioneers.

Together with the e-tail industry at large, we learned lots of hard lessons about building sustainable and valuable e-commerce businesses. That can only be done, in our view, by focusing on the smart development of a consumer brand through profitable customer acquisition and extraordinary customer service. Among today’s successes, according to those criteria: QuidSi (operator of and, Delivery Agent and Onestop Internet. Moreover, we continue to invest in other types of category-leading companies that play in the e-commerce ecosystem, like Criteo and Convertro, which are becoming indispensible tools to help e-tailers exploit the increasing complex opportunities in online marketing

So now, we offer our own rulebook for this dynamic and rapidly growing sector—Bessemer’s Top 10 Laws of E-Commerce.  I'll publish each rule here on my blog for the next five Tuesdays and Thursdays.  We intend to turn this into a white paper eventually, so to the extent you have any feedback or thoughts, please let me know!  So without further ado:

  1. You must build a brand, but not through brand advertising (link)
  2. Customer Lifetime Value (CLTV) is your new pulse (link)
  3. The 6 “Cs” are your vital signs: Ignore them at your peril! (link)
  4. Your goal: cheap, fast and free (link)
  5. It’s the service, stupid (link)
  6. Only lemmings focus on last-click marketing (link)
  7. Affiliates are risky. Don’t let them pick your pocket. (link)
  8. WWAD (What Would Amazon Do)? (link)
  9. Identify your best customers, encourage customer loyalty, and motivate the evangelicals (link)
  10. Keep it social, but keep your data too (link)

Thursday, August 5, 2010

How to Give Good Phone

I still haven't gotten used to this two blog thing, so in the meantime, apologies for the cross posting.  But just posted a new post on EarlyStager on "how to give good phone", following up on the thread from my last post, In Defense of Phone Pitches.

In the meantime, have a 10-part blog series cooking on eCommerce.... coming soon!

Tuesday, July 20, 2010

In defense of phone call pitches

Fred Wilson has a post on his blog about not doing a full pitch on the phone. I agree with Fred and the many commenters that in person meetings trump phone call pitches, but lest Fred's advice be taken to the extreme, please don't avoid them all together.  I think they are a great first step.

Think of a phone pitch as IMing/messaging on before actually having a first date (I guess that makes your product your profile?).  If you're local to the VC, keep the phone pitch short;  I tend to do 30 mins, which is longer than the few mins Fred suggests, but I can't help myself from asking questions and wanting to get to know you once I hear the elevator pitch.  For me, the call is not about a go/no go on an investment, it's about a go/no go on investing more time.  

In 30 mins, I think I generally have a pretty good sense of whether or not I want to take it to a first date (an in person meeting).  If I went right to an in person meeting each time, I would only be able to speak to 1/3 the number of companies.  The way I do the math:  when I meet with companies in NYC, I typically have a one hour meeting, and then a 30 minute buffer for overflow and commuting to the next meeting. When I have a phone call with a local company, I usually keep it to 30 mins (though I'll admit when I'm excited about a company, that will spill into an hour).  Even if I had an office in the city and was able to have entrepreneurs visit me in my office (alas.... I'm in leafy Larchmont, the startup capital of Westchester!), I would still be 50% less efficient because I would spend one hour with each pitch.  For companies that aren't local, I tend to schedule 45-60 min phone calls (and often times a second 60 minute phone call), but that saves a lot of flying time!

I doubt I'm alone. Consequently, if you took Fred's suggestion to the extreme and universalized it, with every entrepreneur requiring an in person meeting for a pitch, while the entrepreneurs that get a meeting will have all the benefits of a face to face meeting, as a whole, it's going to be harder for entrepreneurs to get meetings, and those that do will have to wait longer to get that meeting.  

So please, say yes to an intro phone call!  Flirt a little.

Wednesday, July 7, 2010

Microcap Bubble? One metric.

I've got my first EarlyStager blog post up today.

There has been a ton of talk on microcaps and whether there is "a coming super-seed crash".  My personal opinion is that while there is a ton of activity, it's just too early to tell whether what is going on really resembles a bubble.  But one thing I had been noticing anecdotally is that it did feel like there were a ton of new "super seed" (aka microcap) firms being founded or funded.  Being the data wonk that I am, I thought I would try to dig up a little data on microcap funds raised.

A lot of googling and crunchbase-ing later, I put together a rough list.  I'm sure I'm missing a ton of firms... there isn't a definitive list anywhere that I could find, so while I tried to be thorough in my sleuthing, I can't imagine I found each firm.  Even so, I think the data point confirmed my observation.  2010 is shaping up to be the year of the microcap.  Though when firms like True Ventures and First Round dip their toes back into the LP waters, 2010 might look like a warm up lap....

Anyway, check out the full post! Microcap Bubble? One data point.

Tuesday, June 29, 2010

EarlyStager blog launch

After posting the live feed of the BP spill in May, I had been hoping that I would be able to end my blog posting silence with a "phew, BP hole finally plugged.  I'll take down the depressing video feed now."  Unfortunately, the BP disaster continues, and it's time to take my silent protest elsewhere.

Today, I'm excited to announce the launch of a new blog I'm co-writing called EarlyStager.

I have the extreme pleasure of working on EarlyStager with three awesome, rockin' ladies:

While the three of them will write from the operator's perspective, I'll try to add a little VC spice to the mix with a post every month.

If you ever have any topic suggestions, trust me, I'm all ears!  I often find that picking a topic to write about is the hardest thing about blogging consistently (I don't know how Fred Wilson does it).  And as anyone who is a subscriber to my blog knows.... I'm not exactly a consistent blogger.  Heck, I can't even tweet consistently!  (Ssssh don't tell them that....)

So enough of my blabbing for now.  Go check out EarlyStager!  Our inaugural post was a lot of fun to write: The EarlyStager Approval Matrix.

Wednesday, May 26, 2010

The BP Disaster

Really devastating....

Wednesday, May 12, 2010

Random Musing re: Swipely vs. Blippy

I just signed onto Swipely for the first time, having played around with Blippy.

One of the super interesting choices Swipely made is that they don't give users a choice to pull in non-credit card feeds.  If you want to play, you've got to go all the way.  Blippy on the other hand, at least as far as I can tell, wanted to let users warm up to Blippy by adding more innocuous feeds like their iTunes purchases or Netflix queue.

I actually think Swipely tact is super smart.  In a way, the other feeds Blippy lets you pull in act as a privacy signal.  Because I can add feeds that don't feel that private or sensitive (like my iTunes purchases), it creates a baseline for my privacy comfort.  I then compare sharing my credit card feed against my iTunes feed, and it feels like a huge difference.

But with Swipely, you don't have the same frame of reference.  Are you in, or are you out?  My guess is they'll have a lot more success getting people to enter their credit card numbers, not because of their alleged super-duper security, not because they let people check each item before it gets pushed to their feed, but because when compared to nothing, adding your credit card number doesn't feel too crazy.

Sunday, April 18, 2010

Pitch Deck Study Hall Cheat Sheet

It’s been a couple of months since I “hosted” a Pitch Deck Study Hall in which I solicited pitch decks and offered to give some feedback on the decks. The response was great – definitely soaked up the two hours I allotted (and then some), and I still have pitch decks coming in.

Unfortunately, I couldn't get to all of them. So in reflecting on the decks for which I was able to send some feedback, I realized there were a few things I found myself repeating. For the people who haven’t yet sent me a deck or did but I haven’t been able to review, I thought I would consolidate a few tips:
  1. Words words words. The piece of feedback I found myself repeating most often was: way too wordy. This is how I think about it: Pitch decks aren’t made to be read, they’re glanced. A person should be able to glance at a slide and in 5-10 seconds “get” the point of the slide. It shouldn’t take 15-20 minutes to read a 15 slide deck. Think about what it would be like if you were presenting the slides. Would you expect the audience to focus on reading your slides instead of listening to your presentation? Of course not. They should be able to glance at your slide and get the point so they can focus on what you’re actually saying. My favorite decks were simple and elegant. They showed, not told. And did so with just enough words.
  2. Looks matter. Sorry, it's not just in your dating life :) The easiest way to make a great first impression on a VC, Angel or potential customer is to have one fine-looking deck. Some decks I saw just felt clean and professional. I could tell the person who put the deck together understood consumers, and that he or she would bring that same design aesthete and attention to detail to the design of their product. Other decks took away from the content of the slides with their unpolished presentation. Basically, you want your deck to be attractive and have a good personality. Does that mean you need to pay a designer to design a ppt master slide layout? No. But do what you can -- it goes a long way.
  3. Tell a story. A pitch deck is an opportunity to tell a story. When a reader effortlessly flows from one slide to the next, you have total control over that voyage. A choppy, random assortment of slides creates friction for your reader (or "glancer"). To test your story, try reading your slides out loud – does it flow? If you’re having trouble figuring out the right order for your slides, when I was working at a consulting firm, I remember I went through a workshop on the Pyramid Principle. You only need to read the first couple of chapters (at least that’s all I did – whoops!) but I really think it helps you think about how to structure the flow. That, or you can read my colleague David Cowan's great blog post, How to NOT Write a Business Plan (the ultimate pitch deck cheat sheet!).
Hope that’s helpful and look forward to hosting another Study Hall some time soon.

Sunday, April 4, 2010

The NYC Echo Chamber (It's a good thing!)

I've been lucky to be involved in the NYC tech community for almost four great years now. It's really been wonderful to see how the scene has come into its own, especially in the last 12-18 months. Although NYC has always been home to a vibrant group of companies, NYC's newest generation includes a bunch of rising stars ranging from FourSquare to Invite Media to Rent the Runway to Learnvest to Venmo to HotPotato to Stickybits to Kickstarter to Tracked to Aviary to Knewton to OMGPOP to Hunch (disclosure: last three are bvp investments), and many more. As these companies continue to succeed and reach new heights, I'm noticing there is a virtuous cycle taking place in NYC that hasn't existed before. Call it the NYC Echo Chamber.

With each new employee these startups bring into the fold, the NYC tech scene becomes an increasingly dense social fabric. We hang out together, drink together, go to NYC tech events together, follow each other on Twitter and on each other's blogs. The net result is that when a new (often times consumer internet) startup is launched in the city, it's not unusual for the startup to get some great NYC grassroots "press".

For example, I remember not too long ago, Venmo caught fire on Twitter. Many of us in the NYC community know the company's co-founder, Kortina and thus were both curious and supportive of his newest venture. As Kortina's inner circle started to experiment with Venmo, suddenly announcements of people Venmo-ing money ricocheted through my twitter feed and inbox from one New Yorker to another (and therefore beyond the NYC community). At least for me, for a couple days, NYC and Twitter felt like a Venmo echo chamber. Soon thereafter, Venmo closed a seed round from NYC-based RRE Ventures, Betaworks and Lerer Media Ventures.

As far as I'm concerned, this is fantastic. SF-based companies have benefited from this effect for some time (even in pre-twitter times given the focus of more traditional media on SF-based companies). But it's taken some time for NYC to reach the critical mass to belarge enough (and tight enough) to be able to serve as a great catalyst for many up and coming NYC-based startups. All in all, this is one echo chamber I'm honored to be a part of, and hope it continues to get louder.

Sunday, March 28, 2010

Online Retailers are Innovating: Customer Service is #1

There's been some talk recently about the online retail ecosystem is finally changing after a decade of staid innovation. Notably, Josh Koppelman has two great blog posts on this subject. Josh makes the point that when you look at the top-15 most trafficked sites on the internet vs. the top-15 most trafficked online retail sites, there has been very little change in the top-15 online retailers whereas the top-15 most trafficked list is dominated by a collection of relatively new names.

I agree with Josh's analysis: up until recently the level of innovation online retail has seen has been no match for what's happened in the broader internet ecosystem. But I think it would be unfair to say that online retailers haven't innovated; it's just that their innovation has taken an old-fashioned form: customer service.

I was reminded of this discussion while thumbing through STELLAService's recent ratings of online retailers in online customer service. STELLAService is an independent agency that ranks the top 150 online retailers across several different dimensions of customer service. I wasn't surprised to see current BVP portfolio company ranked #2 (behind #1 customer service king, Zappos):

#1. Zappos
#2. (current BVP portfolio company)
#5. Amazon
#6. LL Bean
#7. Crutchfield Group
#8. Sears
#9. Best Buy
#10. Apple

Why is it no surprise that the customer service charge is led by two relatively new online retailers?

Established brands have a huge advantage in the online customer acquisition game. For every customer they pay to acquire directly using PPC and other methods, they get a customer essentially for free or at very cheap price compared to less established competitors because customers either search for their brand or recognize their brand in sponsored link results or the natural search results (for more on this, check out my previous post, The Staples 2.0 Effect). When you average in all those free customers, it's a lot easier to make the equation "customer acquisition cost is less than customer life time value" work.

New eTailers don't have this luxury. The only way people are going to find the site initially is if the eTailer pays to acquire them. When each customer needs to be acquired directly, the"customer acquisition cost is less than customer life time value" equation becomes a finely tuned machine. As my colleague Jeremy Levine wrote in his post Penny-at-a-time brands, if it costs the eTailer $100 to acquire a customer, the customer must in turn generate more than $100 of marginal contribution (i.e., gross profit) for the model to "work." No ifs, ands or buts.

Essentially, when you are building a brand, there is no free lunch: every penny spent must result in a positive ROI. To say the least, this is a tall order. And here is the curve ball: it's been my experience that many eTailers don't even make back their acquisition cost with a customer's first purchase. They need the customer to become a repeat buyer for the equation to work.

Neither Zappos nor
has ever had the luxury of brand marketing to build their brand (though now that Zappos has a brand, it is investing in brand marketing). Instead, they've realized that if you give your customers fantastic customer service at every opportunity, they'll not only come back again and again, they'll also tell their friends. And thus, they've built their brands penny by penny, and customer service call by customer service call.

This is why in my opinion, Zappos and are two of the most innovative online retailers around, and it's no surprise they are at the top of STELLAService's list.
That they both figured out how to make above-the-call-of-duty customer service work for their business is great innovation in my book, even if it is a little old-fashioned.

New York's Own Jason Finger Joins BVP as EIR

I'm a little late to writing this post given the press release went out earlier this week, but I'm thrilled to announce that Jason Finger, Co-Founder and former CEO of NYC-based SeamlessWeb has joined Bessemer as an Entrepreneur in Residence.

For those that never spent a late night at an investment bank or a consulting firm (lucky devils!), SeamlessWeb is the service that lets you easily order food delivery in 14 cities from thousands of restaurants. The company has won numerous awards including Time Magazine's 50 Coolest Web Sites for 2006, while Jason himself was recognized as the Ernst & Young Entrepreneur of the Year for eServices in 2007.

SeamlessWeb is a great success story. Jason and his team had to master the tough art of local sales to restaurants and enterprise sales to clients at the same time. Moreover, I think Seamless Web might be the only company I know of that managed to start as an enterprise product and trickle down to consumers.

Jason joins our team of All Star Entrepreneurs in Residence: Jason Putorti, Designer in Residence from Mint (by the way, if you haven't read his post on how Mint acquired 1.5m users, you should do so now!), and Gary Messiana, our sales guru and former CEO of Netli (acq. by Akamai). gradebook.

Now if I can just get Jason to have SeamlessWeb focus on Larchmont!

Tuesday, March 16, 2010

The Importance of Removing Features

Recently, I had coffee with a product manager of a venture-backed software as a service company. The company’s product has been out on the market for a couple of years, and while they are starting to see their hard work pay off with the beginning seeds of a user community, he still felt like they could be growing faster, and believed that community feedback would be the key.

From a product design perspective, user communities are incredibly valuable sources of product feedback. It's no wonder startup gurus like Sean Ellis and Steve Blank stress the importance of constantly talking with your users to achieve product market fit. But as my product manager coffee-mate started to walk me through his methodology for prioritizing which features he was going to add to the product from a long list of feature requests he was getting from the community, I couldn’t help but ask him “Yes, but how do you prioritize which features you should remove?”

Everyone knows that simplicity is king for product design, but all too often, the focus of product discussions fall in the “What’s next?” camp. i.e., What are the new features? When will they be rolled out? The converse – which features to remove— doesn't have as loud a voice. User feedback almost always skews towards which features to add instead of which to subtract. Consequently, as product development becomes increasingly driven by users, it’s never been easier to forget about the need to remove features.

This can be dangerous. I'm sure everyone's had the experience of looking at a new web app and not knowing where to start. Too many features slows early consumer adoption. That said, the user community actually does provide passive feedback on which features you should consider losing: by not using the features. It's not as in your face as a user begging you on a forum or twitter for a new feature, but it's just as important. That’s why tracking feature engagement is critical and I've always found it to be an important part of the product design workflow for all the great product managers I've met.

My product manager friend didn't have a process for removing features because he was focused on satisfying the user requests. Eight times out of ten, you should focus on building out the featureset. But sometimes, it’s better to ignore what your users say, and focus on what they do.

(Hat tip to SpringPadIt for the inspiration for this post, and blogging about not just which features they added in their new product release, but also which they removed.)

Thursday, February 25, 2010

Pitch Deck Study Hall

There has been a lot of chatter in the NYC VC ecosystem lately about Office Hours. The idea is a VC hosts a 1-2 hour time in which entrepreneurs can stop by and spend 15 minutes with the VC to get some feedback on their startup.

I love the idea of Office Hours, but my firm is based in leafy Larchmont, so I'm not sure anyone would make the trip. :)

Not to be deterred, here's my Manhattan-challenged twist: Pitch Deck Study Hall.

If you would like confidential feedback on the structure of your pitch deck, the content, a section, the idea itself, or anything else, send me your deck. I'll block off 2 hours on my calendar next Friday to go through as many decks as possible (first come first serve).

I'll send any notes I scribble on your deck your way, as well as any other quick thoughts I may have.

I promise to keep the deck (and my feedback) completely confidential.

And in case you're wondering what's in it for me, I will direct you to my blog post on VC's freemium model.

So if you're interested, please feel free to shoot me an email at sarah [at] bvp [dot] com.

Sunday, February 21, 2010

Why aren’t there more women in startups? Some new data.

(Hat tip to Christine -@cklemke, COO of Sense Networks- for help on this post!)

It’s become a common question: Why aren’t there more women in venture funded startups? I speak to venture backed startups all the time. Unfortunately, more often than not, I don’t see a single female on the executive team roster. Over time, I’ve developed a hypothesis. For some reason, in the rare occurrence when I speak to a female CEO, it’s felt to me that I’m much more likely to find another female face on the company roster. It got me curious: Is this true? Are there actually more female executives in female-CEO led companies than male-led companies? If so, there are a number of implications.

To answer this question, Christine and I have done some good ole fashioned data collecting. Unfortunately, this has been a much more time consuming task than we had expected, so we’ve only gone through the US portfolio of three VCs: Accel, my firm Bessemer, and Sequoia (210 companies in total).

Given the small sample size, and the hot-button nature of the subject, let me first disclose what this data set is *not*:
  • It is *not* statistically significant. There were only eight female CEOs in the sample set.
  • It is *not* a complete data set. 210 companies out of several thousand.
  • Christine and I originally pulled this data Sept-Oct 09, so some of it may already be out of date.
  • Also note: I only counted VP and higher level executives and I excluded companies that didn’t list their executives team on their website *and* didn’t have a LinkedIn profile for the company (i.e. I couldn’t get accurate data). I also excluded companies that only had one executive (the CEO) for the obvious reason they haven’t hired any executives.
Given all those caveats, why publish the data? I can’t help but think this is an interesting dataset to understand, and the initial results are intriguing enough that I think it is worth trying to get more data. That said, Christine and I just can’t do it ourselves. So this blog post is actually a plea for help: I’m posting the data set in Google Docs here. It’s read-only for everyone, but if you’re interested in contributing to the document, please email me and I’ll invite you.

Okay, okay. It’s not complete. You get it. So what did I find in the intial sample?
  • There were 1219 male executives (90% of sample) vs. 134 female executives (10% of sample).
  • 3.8% of the CEOs were women (8 out of 210). (Which coincidentally, is around the percentage of women who are CEO of a Fortune 500 company – 3%.)
  • 125 of the 210 companies (60%) did not have a single female on the executive team.

For the 134 female executives, the breakdown of the executive roles held by those women is (I thought this was interesting and not what I expected):

Now the money question: In male-led vs. female-led companies, if we exclude the CEOs in both cases, what percentage of the executive team is female on average?

If this turns out to be directionally correct, there are a number of repercussions. But in the absence of a more complete data set, I'm reserving judgment for now. If you're interested in helping flesh out the data set, please drop me a line!

Wednesday, February 10, 2010

Poking the bear: Twitter should eliminate its 140 character restriction

140 characters. This is the number that Twitter will both live by, and die by. Its simplicity is on the one hand, part of the reason why Twitter has exploded the way it has, but on the other hand, I believe it will ultimately limit Twitter’s potential US audience (and equity value). Sooner rather than later, I think Twitter should eliminate its 140 character restriction in the US.

First, let’s remember the reason why Twitter was restricted to 140 characters: SMS. Twitter was envisioned as a SMS service to communicate with small groups. Because SMS had a 160 character limit, Twitter took 20 for itself and the 140 character limit was born.

This turned out to be a genius move. In a world where efficiency and attention are in short supply, there was something immediately refreshing about Twitter and its character restriction. It created a culture in which people got to the point. You had to. So what started as a limitation necessitated by SMS, became an integral part of Twitter’s identity and culture even as people in the US increasingly consumed tweets via apps or the web. SMS or no SMS, 140 characters it was.

But has the 140 character restriction outlived its purpose, at least in the US? Increasingly less people use SMS to tweet. And 140 characters is, well, restrictive. Facebook, by comparison, is a free world. I don’t know about you, but I love the feeling of “tweeting” in Facebook. I don’t have to edit an update by changing “great” to “g8” or, I’ll admit, condensing two sentences into one. Add to that Twitter’s foreign language of @’s and #’s, and it’s just easier (and less intimidating for a newbie) to type a status update in Facebook than Twitter.

Consumer adoption is all about easy. How do you make a web or desktop as stupid simple to use so that it can jump the shark from techies to mainstream? Facebook wins that battle easily. Meanwhile, Twitter’s adoption has stagnated.

Don’t get me wrong (before I lose all my twitter followers!): Twitter and Facebook are fundamentally different platforms. For one, you can’t follow people asymmetrically in Facebook like you can in Twitter. Add to that the way Facebook threads comments versus the @ nomenclature of Twitter, and Facebook lacks the feeling of an open community that Twitter has in spades. But my premise here is that people either primarily Tweet or write Facebook Status Updates, not both. While it’s not a zero sum game, Twitter should want to get the Facebook users that are already posting status updates to make Twitter their primary base. Once you do, you get sucked in by Twitter’s community.

To this end, there are several things Twitter can do to improve Twitter’s ease of use. One of those things is to eliminate the 140 character restriction.

What would happen if Twitter eliminated its 140 character restriction?

First, let me admit that the Twitter community would throw a sh*t-show. Changing how RT’s were done was enough. Can you imagine eliminating the 140 character restriction?! Hah! But Facebook has gone through these types of backlashes several times (remember when they rolled out the newsfeed?) and look at where it is now. So let’s imagine for a second that Twitter decided to throw caution to the wind and eliminate the restriction. Would the characters hit the fan?

Facebook should be a good indicator. There is no character restriction (or even concept of characters) on Facebook. Even so, the longest status update I see in my newsfeed right now is exactly 200 characters. Could that message have been pared down to 140? Sure. But it’s not like people are writing novels in my news feed, making me wish I could enforce a 140 character restriction on them. I doubt I have a unique Facebook experience. Instead, I think a “status” culture has been established. Facebook status updates aren’t a diary or a blog entry. Neither is Twitter, with or without any character restriction.

Even if all of a sudden the floodgates opened and Twitter became overwhelmed with new members writing long tweets, you don’t have to follow those people. And anyway, if some of the people you do follow start breaking the 140-character rule, is that really more annoying than the automated spitter you see in your stream? I would take a 200 character tweet over a new badge update (~64 characters) any day.

What it comes down to is, would the elimination of the 140 character restriction (at least in the US) ruin the Twitter we know and love? I just don’t think so, and I’ve been wavering on publishing this post for a couple weeks now. In the end, what makes Twitter so enjoyable is not really its short-and-sweet, get-to-the-point feeling. It’s about the community, the conversations and interactions. That won’t change if people can tweet more than 140 characters, but the community should grow.

Tuesday, January 19, 2010

Facebook Taking Over the World

Google: $187B market cap.
Amazon: $55B market cap.
Yahoo: $22.5B market cap.
Facebook: $14B market cap in SecondMarket
Twitter: ~$1B post-money.

But this chart, which shows the worldwide search volume for facebook vs. yahoo vs. google vs. amazon vs. twitter boggles my mind.

And here you can see it for just the US:

Granted, each of these sites have extremely different business models (or in Twitter's case... no proven business model), and as @adrian_h rightly points out, this graph’s Google data is skewed because most people don’t use Google to search for Google. But if we look at traffic (in this case, Compete’s traffic data), it sheds a little more color on the impending Google vs Facebook cage match:

According to Compete, Facebook has grown its US traffic 77% in the past year (Dec 09 over Dec 08) while Google grew traffic 5%. In Q4 2009 alone, Facebook grew 6.1% whereas Google’s traffic declined (0.4%).

Looking at these graphs, I can't help but think that DST's $10b valuation was a steal. I know I would be a buyer, even at the alleged SecondMarket value (if only I was an accredited investor).

The question of course is how well Facebook will be able to monetize. Google invented one of the simplest and most effective moneymakers out there. They have one revenue stream with ridiculous operating margins that generates the vast majority of its revenues. As far as I know, Facebook doesn't have one truly dominant revenue stream yet. That said, I believe Facebook is becoming a more entrenched part of our online lives than Google. As Facebook Connect log-ins become increasingly ubiquitous, will Facebook displace Google as the most valuable internet property?