122. Customer-centric Startup Investing Down Under, Part 2 (Niki Scevak)

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Today we cover Part 2 of Customer-centric Startup Investing Down Under with Niki Scevak of Blackbird Ventures. In this segment we address:

  • Niki Scevak customer-centric startup investingWhat’s your take on water and the water crisis in Australia?  How do you see innovation happening around water in the country?
  • Would a company like Instacart be within your thesis or not because it requires some localized presence to build out new markets in the short-term?
  • In your estimation, are some companies better off being founded in the valley vs. one of the tech centers in Australia? If so, what type of companies?
  • What advantages do startups founded in Australia have over startups founded elsewhere?
  • What advice would you give to founders starting up in regions outside of the states?

Guest Links:

Key Takeaways:

1- Founder Ideology

The first thing Niki looks for in a startup is what he called the two shits. Why does someone care? Can they get stuff done? He tries to understand what life story led the founder to solve this problem? Why are they going to put everything into building this company? He observes prior work and life experiences for insights into the elusive product-founder fit.

And recall that Niki said the team slide is not about nice headshots and logos. From his standpoint, the team slide reveals itself in the product. Everything from the design to the core function of the product will show the true capability of the team… much more so than any powerpoint slide can. And it’s not just what they’ve put into the product, but also what they’ve left out. Niki is skeptical of those founders that may be too logical and outcome focused. Those that say “China is a big market and if I can only get 1% of the billion dollar Chinese market, then we’ll all be rich.” He looks for strong opinions around seemingly small details. And Niki believes it is those small details that hold the key insights and the magic to why he invests.

2- Global Focus, Narrow Target

Blackbird likes to see global SaaS products, that can be located anywhere and can be scaled with marketing as opposed to sales. W/ SaaS businesses, how to you sell to the worker/user, rather than selling to the CIO? They look for bottoms-up adoption and engagement models, not the forced, top-down, sales-driven business models. And he added that sales-driven businesses can sometimes misrepresent the true opportunity for the product. If you have a particularly charming sales person, they may be effective selling the product to those that otherwise would not have purchased. So this can have the effect of distorting the data and making the business look more scalable than it actually is.

And a global customer strategy does not mean a vague and generic customer definition. Niki advised that startups don’t target customer groups that are too broad and heterogeneous. He discussed SMBs and how it’s a false category. An SMB, by definition, is based on the number of employees a business has. By that definition, Blackbird Ventures would be considered a part of the target market. Instead, Niki suggests that one has a more fine-tuned definition of the market segmentation, the types of customers being targeted and the need profiles therein. In this case, he cited the example of dentists. It’s much more reasonable for an investor to assess whether early adopter dentists are going to be more representative of the mass market of dentists vs. SMBs early adopters being representative of all SMBs in the mass market.

3- It’s all about Engagement

When asked what key metrics Blackbird looks for… Niki cited metrics that are much more engagement focused than acquisition focused. He’d rather see a small number of customers that are highly engaged and really passionate about the products vs. a huge number of customers with only a small percentage that are engaged.

They look at Net Promoter Score… In SaaS, they look for upgrade revenue and low churn. And with any business, they assess if the solution is truly addressing the problem. If the customer has X problem, what percentage of the time do they use the product to solve that problem?  And he attempts to assess all metrics as a percentage. None are absolute values.

During the interview, Niki summarized the definition of a business. And he defined it as the number of customers that come back again and again. He’s seen many businesses that skyrocketed to success w/ great escalating revenue that, ultimately, didn’t work out because they didn’t have sticky, happy customers returning. He cited Peter Thiel’s book, Zero to One, and the importance of building a small monopoly, where one should focus on a small number of people that care very deeply about the product before ever attempting to get to scale. Crossing the Chasm from a few innovators to a large majority is more realistic with a raving base of evangelists leading the charge. Remember Niki’s insight that “there is no stronger forward predictor of success than a deeply engaged user that really really loves the product.”

Tip of the Week:   What Makes SaaS so Special?

*Please excuse any errors in the below transcript

 Nick: Back on, on your marketplaces point, I was talking to I think #Semil Shah about #Instacart and how the eventual goal with #Instacart is to be able to turn on a city just with the click of a button essentially. But in the interim they have to kind of build out in a localized fashion, city by city, install a general manager, a marketing team, some feet on the street, more similar to an, an #Uber model. How would you think about a marketplace like an #Instacart? Would that be something that would be within your, your thesis and your focus area because their ultimate goal is to be location agnostic from a technology standpoint? Or is the local build out site by site, does that sort of preclude you from becoming involved?

Niki: Yeah. Usually it would. So, you know, in general, you know, we would look for global marketplaces. And obviously we’d miss things like #Uber and #Instacart which are, are local marketplaces and, you know, could be good businesses. I think #Uber is a, a wonderful business. #Instacart I think still has a, a lot to prove out, but it will be a, a great business. But, you know, in general, you know, for us, we spoke of our strategy, I would say we’d unfortunately miss out on, on both of them even though it would have been a great investment returns, particularly in the case of #Uber. I think, you know, where we would make exceptions around sort of true technology advances. So, you know, as, as I said, robotics. So, you know, we’re an investor in a company called #Zoox, which is trying to reinvent sort of the notion of what comes after the car. So you don’t have to have a steering wheel and you don’t have to have all of these conventions of a car. You know, what kind of user experience could you create. And, you know, notionally it’s a similar kind of ride sharing model but, you know, with this sort of true deep technical insight as to how the user experience can, can dramatically change. So I think, you know, things like robotics. You know, another company we’re an investor in is, is #Flirtey, which is a drone delivery company that delivers food. And so again, you know, notionally competitive with #Instacart or #DoorDash or something like that. But you don’t have people delivering the food, you have drones delivering the food.


Nick: Pretty cool. You know, when I was living in Australia, part of the, the dialogue of the media and, and the public had to do with water. And it was something that was totally foreign to me. Having grown up in the States, I had, I had never been a part of like a water crisis or a significant lack of water. I grew up very close to the great lakes. And water was constantly a topic in Australia and something that people were concerned about. Do you, do you see a focus, a sector focus or, or innovation that has to do with, with the water industry?


Niki: Yeah. I mean, look when you think of the, water is like the chief input of life. Like obviously you’d drink water but, you know, there’s so much water that goes into the production of food, whether that’s plants and fruits and vegetables or meat. So I think particularly around how do you, you know, better and, and more efficiently produce food. And, you know, water being that chief input, I think in Australia in particular, obviously it tends to be a fairly, you know, most of Australia is kind of a desert and, you know, most of the country lives on, on the coast, coastal lands of Australia. So, you know, it has a particular kind of climate. You know, and also because it is such a large country and a small population, agriculture does tend to be a pretty big industry in Australia. But I think, you know, the, the water input and the role that technology can help with is, you know, how do you more efficiently produce food in, you know, perhaps with global warming, an environment with, with less water.


Nick: So, in your estimation, are some companies better off being founded in the Valley versus one of the tech centers in Australia? And if so, what type of companies?


Niki: Yeah, I would say companies almost entirely I think companies should be founded outside the Valley. And what I mean by that is, you know, in the initial stages of building a product and, and building a product team, it’s almost entirely likely that you will have a competitive advantage founding a company and hiring a product team in some other area of the world, whether that’s another city in the US or whether that’s another country in the world. And so, so that, that first kind of inception moment from a company team building moment, it’s probably better to, to not be in Silicon Valley. Where it might be better to then take advantage of Silicon Valley is in the scaling stage where you know you have built a product and now you’re building a business. And I think the, so the, the kind of democratization or the dispersion of great product teams, I think has already happened. They are, they are already around the world. It’s unlikely that you’ll hire, you know, a, a, it’s so hard to hire great product people in, in San Francisco. And it’s so hard to keep them around and it’s so expensive to, to do so. Where the, the sort of business builders, those who have built small technology companies into large ones, I still think Silicon Valley has a great advantage and a great concentration of people who have done that. So it’s the stage that kind of Silicon Valley is, is used. I think the very early stages it probably makes more sense and you have more chance if you do it somewhere else. And I think, you know, once you have something and you’re scaling company, you know, the gravity of Silicon Valley will inevitably pull you there. You know, what we tend to see with our companies is, is the product team, is it built out in Australia. And as the business starts to scale, they still keep the heart and soul and the, and the product team in Australia but they’ll open up a US office for kind of more customer facing, customer success, marketing, sales and, and so on, to, you know, be in San Francisco or other areas of, of the US. So I think it’s not really an either-or as well. I think, you know, all companies that are successful end up with multiple offices around the world. But I think, you know, the, the sort of step one of the sequence is to build a product team. And then step two, build a sort of US office that’s more customer facing. That tends to be the, the common story around startups. And I think even if you look at startups in Australia and even if you look at Silicon Valley startups, it’s almost, you know, Silicon Valley tends to be the, the facade of a company. Or you look at the company and it looks like they’re in Silicon Valley, where, you know, the product is built outside of Silicon Valley. Like, you know, #Intercom is mainly built in Dublin, or #Stripe in London, or #LogMeIn in Hungary, or #Atlassian in Australia. So even though it looks like a, a Silicon Valley company, it’s, it’s, it’s not a Silicon Valley company. Or the majority of employees of #Zenefits being in Phoenix, not in San Francisco. So I think again, Silicon Valley has a, a monopoly or not a monopoly, a, a great concentration of business builders. But I think products and, and great engineering teams are anywhere in the world.


Nick: Sure. Well, while we’re talking about Australia, what, in your estimation, are the advantages of startups being founded in Australia versus startups founded elsewhere?


Niki: Well, I think the, the access to, to great product people, that’s the advantage of being able to hire a great person for a reasonable cost, and that person sticking around over a long period of time. And so being able to build a great product team in the beginning stages, that, that first 10, 20, 30 people. I think companies have, have a great advantage in, in, you know, particularly Sydney and Melbourne in Australia, to, to be able to do that relative to San Francisco. I’m not sure whether it’s a great advantage relative to other cities around the world. But certainly if you build the first 10 or 20 people in Sydney or Melbourne that, that are mainly developers, designers, product managers, and so on, it’s probably, you know, a better and more easy task to do that in Sydney or Melbourne versus San Francisco. You know, beyond that though, usually as the, the sort of customer success, the marketing, the sales, the, the business building positions, that’s when I think San Francisco has a huge advantage over Sydney and Melbourne. But again, you know, that, that’s step 2. Usually it’s an Australian office or core of an Australian team supplemented with a, with a US office.


Nick: Well, SF doesn’t have ——footy


Niki: No, exactly. And,


Nick: #Niki, what advice would you give to founders starting up in regions outside of the States?


Niki: I think it’s just to have the confidence that they are no different than, you know, founders who are starting up in, you know, meccas like Silicon Valley. I think people tend to overestimate that there’s a magical kingdom of startups in San Francisco. And people are walking around handing out silver bullets. And I think the reality is that everyone is in, in such a, you know, such the same kind of disappointing, low probability position as everyone else. And I think, you know, to have to confidence that they are just as good or just as bad as anyone else in the world. And just to go and do it and not be fearful and, and not kind of put up these mental barriers between them and, and actually doing a business and solving a problem. And I think sometimes people who think about kind of like is this a good ecosystem or is this a good time to start a startup, or, you know, they tend to be not the real founders. I think the real founders are kind of infected with an idea and become obsessed about a problem. And, you know, there’s no kind of consideration  given to all of these other kind of external factors. It’s just they have to do it. And I think, you know, having more people like that and just having more people with the confidence to do that, that, that’s what it’s all about.


Nick: Great point. #Niki, if we could address any topic related to startups or venture, what topic do you think should be addressed and who would you like to hear speak about it?


Niki: Yeah, I think, you know, the, the most fascinating topic to me in venture capital is the, the people like #Founders Fund or #Social Capital, that are really thinking about the investment business as, as investing in great companies rather than saying we invest in early stage companies or late stage companies. I think people have sort of ignored the fact the definition of venture capital has actually expanded dramatically in the last decade, where, you know, people in ’99 or 2000 used to go public with $20 million of revenue. And now, you know, that might be a Series B round of a, a venture fund that then goes and invests in the next 3 or 4 financings. And even public market investing in, you know, if you would have invested in the IPO of Google 12 years ago, I think Google went public at a $23 billion valuation. If you invested in that IPO, that would have been one of the best venture investments you could have ever made, you know, of the, of the 2004, 2005 time period. And so I think the, the definition of venture are all the, the people who view it as investing in great companies versus investing in early stage companies. And, and, you know, certainly the inspiration for me personally has been sort of the thinking of #Social Capital or, or #Founder’s Fund. And taking different approaches to that. And even, you know, taking different approaches to we only invest in the early rounds and not investing even hundreds or millions of dollars into the later rounds of a single company. And, and having a, a deeply concentrated position within the fund of a, of a single company. I think those sorts of rethinking or, or questioning of the wisdom of some of those choices, I think is fascinating to me. And it would be awesome to hear other people discuss it as well.


Nick: So it sounds like there’s some firms that provide some inspiration for you. Are there specific startup investors that have inspired and influenced you a great deal, and why?


Niki: Yeah. I, look, I have, I have only met #Peter Thiel once. So I don’t know if he’d remember me. And I haven’t met #Chamath yet but, you know, the, the thinking of the two of, two of them have really forced me to shape, you know, how I think about the world of investing. You know, I also deeply love #Warren Buffet and, and #Charlie Munger. I think, you know, again, they, if you had to sum it up, have really studied and, and thought about what makes a great business versus what makes a ordinary or a bad business. And I think you might think that the, you know, the two groups are on opposites side of the spectrum. But I think they have so much more in common than, than not. And, and it’s all around this kind of appreciation of what makes a great business.


Nick: And finally, #Niki, what’s the best way for listeners to connect with you?


Niki: Yeah, I’m on Twitter. So @NikiScevak, or just email me at niki@blackbird.vc


Nick: Perfect. Well, thanks for much for the time. It was, it was great getting the perspective and hearing more about #Blackbird. And I look forward to the next time.


Niki: Absolutely. Thank you. Cheers!