Like many of you I tuned into the news flowing out of Apple’s WWDC yesterday. As the nerdgasm of news and features climaxed many began to wonder aloud how this new wave of software releases would impact the ecosystem built around Apple devices As VentureBeat noted:
Many of the new features shown at the WWDC keynote Monday looked very much like ideas first seen in iOS apps from independent developers…Similar tactics won Microsoft opprobrium in the 1990s, when the company incorporated features into Windows that had previously only been available through Windows software created by Microsoft developers. It contributed greatly to the impression that Microsoft was a ruthless company that would even stab its closest allies in the back, if that’s what it took to make its OS more competitive.
As the keynote concluded journalist began to furiously churn out lists of roadkill companies who only hours before were their darlings. The NYT asserted that Apple was trying to put such notable companies as Dropbox, GroupMe, Kik, Instapaper, Remember the Milk and Hipstamatic (among many others) out of business. A damning move for a company who only moments earlier announced having paid out $2.5B to the developers building to their devices.
So, are these companies screwed? No.
The first rule of startup club is that if you’re doing anything interesting you’re in someone’s crosshairs. Get over it. Startups are at far greater risk of putting themselves out of business than having Steve Jobs do it for them.
Take a deep breath and remember that this is still a very emergent mobile market. As Marco noted:
Today, fewer than 1% of iPhone, iPad, and iPod Touch owners are Instapaper customers, despite Instapaper spending a lot of time (including today) at the #1-paid-app spot in the App Store’s News category for both iPhone and iPad. The potential market is massive, but most people don’t know that they need it yet.
Having been involved with a number of portfolio companies in the crosshairs of big company press releases and hostile moves from platform partners, there are worse places to be. Its means what you’re doing matters and the market you’re going after is a real one.
But, life in the crosshairs tends to have a better outcome when you don’t start there; meaning, its best not to start your business as an obvious missing feature or a better version of an existing one. Most crosshairs take aim on what’s at the center of the bullseye. Going after pieces of an emergent platform that would bring them to parity with their competitors will occasionally lead to a small exit, but it’s generally a losing strategy.
We’ve found that creating your audience at the edge of a market allows startups to build and educate a user base on the value of their service before the platform vendor takes note. That existing user base will tend to pull you to other platforms and technologies which will mitigate the competitive risk of being tied to a single platform vendor’s technologies and objectives.
As a startup you can’t out Apple Apple, but you can compete in ways they can’t. And if you find yourself locked in their crosshairs, the worst thing you can do is get scared and freeze. Its much tougher to hit a moving target.
The Anatomy of a Y Combinator Demo Day Pitch
The other night I had an opportunity to attend Demo Day at Y Combinator. It was a fantastic full frontal assault of entrepreneurial energy. 43 pitches, 2 min each back to back for well over 2 hours. It was clear from the outset that these teams were trained to give a certain kind of pitch with their allotted time. For those who didn’t get the chance to attend, I thought a peek into the anatomy of a Demo Day pitch might be helpful or at least entertaining. So here goes:
Slide #1: The elevator pitch. This slide was generally used to give context by associating their unknown startup with a well known company or market. Phrases like “we’re x done right” or “we’re AirBnB for x”. Rather than waiting for an investor to figure out who their analogous company is or who their looming competitor will be, they tee it up right at the beginning. Helpful context for the investor, better context for the founder as they are now pointing to something big and proven and saying “that’s who we can become”.
Slide #2: That company or market we just talked about in slide #1? Yeah, they/it sucks. The founders did this through more than just words- they showed the confusion or lack of innovation through market data, understanding of current workflows and embarrassingly outdated interfaces via screen grabs. This slide leaves you with an impression that the incumbents are Goliaths waiting for a Y Combintor company shaped rock to smack them in the forehead.
Slide #3: We don’t suck. If your hopes for the future were dashed in slide #2, all of your dreams will come true on slide #3, because the Y Combinator company is the answer to your markets problems. This was often conveyed by a screen shot of the new product, quotes from customers or a reengineered workflow that simplifies the mess on slide #2.
Slide #4: We’re the team to do it. Most investor presentations have a slide for bios but these were different. They didn’t just rattle off a list of academic accomplishments and past job titles, they were very specifically tailored to the company being pitched. The bios were streamlined and crafted in a way to suggest that these entrepreneurs were custom made for the opportunities they were attacking.
Slide #5: We’re fast. Often this slide had a timeline which showed all that had been done to date. Some were technical achievements, some were milestones with customers and partners but the theme was clear- we’ve done more in 6 weeks than our competitors have in 6 years and we’re not letting up.
Slide #6: We’re growing…fast. Nearly every presentation ended with a slide filled with logos of existing customers and potential customers or a graph that was up and to the right (often dramatically so). If there were dips in the graphs, there was a researched explanation. If there was a spike in the graph, there was a thoughtful explanation as well.
Given the time constraints, I thought this was a very effective and efficient use of slides. If you have more time with an investor you can add depth to each slide, but overall I think the constraints forced the presenter to only use the most meaningful information in the clearest possible way.
Given that I haven’t been to a Demo Day in 4 years, I had a few other take aways worth noting:
Calling it Demo Day is a bit disingenuous now as no presentations had an actual demo. Too much hassle jumping between screens? Not enough time? I’m sure all of that and more are factors.
PG knows how to push investors buttons. He started our session by saying something like “investors just like you were sitting in your same seats in a Demo Day just like this when DropBox and AirBnB presented. Who from this class will go on to be as big as them? Your guess is as good as mine”. The implication- don’t be the one who doesn’t see the next big thing right under your nose.
This class was very well rounded. These teams weren’t just knocking off other consumer internet ideas. They were tackling problems in a wide range of markets from healthcare and consumer applications to datacenters and marketplaces.
These are real entrepreneurs. I intentionally attended the last session on the last day to see what kind of form these founders would be in after pitching non-stop all week. They didn’t disappoint. High energy pitches followed by engaged interaction with investors afterwards. I left at 11pm and many of the founders were still going strong.
Founders are choosing YC for networks effects. I the early days of YC you could make a pretty compelling argument that the program was more a cult of Lisp and Paul Graham. I don’t think that’s true anymore. I’d ask every founder I met why they decided to go through YC instead of going a different route. Not one ever mentioned money or Paul. It was all about the network of alumni companies and the extended YC network of industry contacts.
The Start Fund seems to have worked, maybe in unanticipated ways. Yes, SV Angel, one of the partners in The Start Fund, had made direct investments into a seemingly large number of this graduating class. So the access story is clearly working for them. But, they also set the terms for may following investors by putting an uncapped bridge in place that many YC founders were adding onto until they could close a $3-$5M traditional Series A. I can’t help but wonder if the stratifying bridge notes that PG was advocating last class have been replaced by these uncapped bridge notes of up to $1M. Will be interesting to see.
Overall, I had a great time at Demo Day and will not wait another 4 years before I return.