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