Bezos Day 1 Letter

bezosIf you are a founder, please read Jeff Bezos’s letter to Amazon shareholders.  He does a great job of distilling why it’s so difficult to build a great company.

What he describes as a Day 2 company would include the majority of businesses around us, including many market leaders.  He describes Day 2 as sometimes taking decades – extreme slow motion.

It is very, very difficult to stay in Day 1 mode.  I am not even sure Amazon’s succeeding there, as it’s also tough to tell.

However, customer obsession is one way you can try to stay in Day 1 mode, and avoiding proxies and celebratory narratives will help you along the way. However, it won’t help you feel good.

Entrepreneurship rarely feels good.

Online Retail Turning a Corner

E-commerce concept image

We have a love-hate relationship with online retail companies.  My partner Evren is the founding investor at Trendyol, Turkey’s online fashion champion.  We have backed Vivense, the leading online seller of furniture that is growing rapidly with healthy metrics.  Trendyol is now one of the biggest Turkish tech success stories and Vivense has become the leader in its focus area of hard furniture.

Our experience, laced with blood, sweat, and tears, has shown us how difficult it is to build a sustainable and healthy online retail business, and we have also passed on a very large number of online retail startups.

Recently, I am sensing a change in how the world views online retail. In the recent months, we have seen some major moves in the sector:

  • Emerging Markets conglomerates are investing into retail e-commerce.
  • Amazon has made a rare market-entry driven acquisition in MENA.
  • The leading local e-tailer in India, Flipcart, has raised a massive new round is rumored to be contemplating buying its largest local competitor, Snapdeal.
  • Walmart paid $3b for, which, at the time, was little more than a large repository of know-how and ambition.
  • Unilever acquired DSC for $1b, showing the potential in smart vertical integration in certain e-commerce niches.
  • It finally looks like Birchbox is profitable (read: perhaps sustainable), providing new hope for subscription models.
  • Trendyol is now nicely profitable, without compromising from its rapid growth.
  • Leaders like Amazon (generalist) and Zalando (fashion specialist) are trading at all-time highs.

I think these headlines are a sign that strong execution, operational excellence, and adequate funding are coming together in select pockets to show that retail e-commerce can work.


simpleWe get approached by ~1200 companies per year and spend some time with about 400 of them.  One of the key filters for us to identify opportunities we may be interested in is how quickly we can grasp the basics of the business’s economics; i.e. how value gets created.

In most cases, the best way to observe this is the income statement.  That is why it’ s important to show some granularity primary line items in the income statement. Viewing the income statement across a meaningful time span, you can start connecting the dots and get a feel of how the business creates value.

However, in some cases, we look at income statements in which the value chain is not obvious.  We view this as a bit of a red flag.  We try to work with the founders to dig and understand the value drivers, but experience shows that if a founder is having difficulty explaining the fundamental economics and the way value is created within a few lines on her business plan, it’s likely that their model is flawed, or worse, they don’t fully understand it themselves.

Warren Buffett warns that a business you invest in should be simple and understandable.  We agree.


Startup Selection Bias

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It is not sexy to write about the $40m acquisition of an 8-year old company with $4m EBITDA. The headline about Snap’s 60+ P/S ratio gets more attention.

The entrepreneurial mythology is full of epic stories, such as those of Apple, Google, Facebook and Amazon.  Yet, the reality is much more boring, as represented in this chart. The selection bias around what you hear about is a trap in the entrepreneurial journey.

We frequently find ourselves in valuation discussions with founders where we think the asking price for the round is expensive.  What keeps us grounded is the data represented in the chart above.  Mind you that the exit sizes in Europe, and especially, Emerging Markets are lower than the global figures.

As an entrepreneur, you would be well-advised to keep in mind that your exit will likely be smaller than what you read about.

Mobile User Characteristics


Mobile first emerged as a favorite buzzword, as penetration and traffic patterns have made mobile optimization and native apps must-haves for almost all consumer-facing businesses. However, mobile comes with its unique characteristics when it comes to customer behavior.

Here’s a quick take on these distinct characteristics:

  1. Limited Real Estate. With no search gateway like Google, you are constantly reminding your user to ask herself whether she’d like to keep your app on her mobile or uninstall.
  2. Low tolerance. The product performance expectations are very high for responsiveness and accuracy. If you disappoint, you lose users.
  3. No returns. When a mobile user clicks away from an app, there is no back button, so it’s usually an exit, not a detour.
  4. Low attention & multitasking. App usage is usually an activity that accompanies another one, such as commuting, waiting for a meal, or sitting in a meeting.
  5. Targeted usage. When a user fires up your app, she usually has a specific thing she is looking for. Social apps are an exception to this.
  6. Shorter sessions. The engagement time of mobile users is about half that of web users.

Numbers, not Percentages

“The company has been growing by 120% YoY.”

We see similar statements in announcements, press releases and pitch decks everyday. The moment I see percentages, I start thinking about what the company is trying to hide. Most often, it is the fact that it is still tiny.

I can understand this when it’s a general announcement.  You want to get the public’s attention amd impressive numbers (even if they are just percentages) rend to achieve that goal.  For B2B ventures, you may not want to remind your clients that you are still very small, so you try to direct attention to growth rate rather than size.

However, when you are talking to investors, I hoghly recommend disclosing absolute numbers early on. Of course, momentum is important. But, so is size and scope. At least expressed as an order of magnitude.


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Last night, Barcelona came back from a 0-4 deficit from their first leg defeat against PSG, to win 6-1 and advance to the Champions League quarter-finals.  It is the most dramatic score in the championship’s history.

The sports press, naturally, is beside itself, lauding the victory as a miracle.

However, it seems like miracles happen to those who have aggregated the necessary resources and toiled tirelessly.  You put Messi, Neymar, and Suarez on your team, and then, sometimes, they pull off the impossible.

We see the same in the best companies.  You sacrifice, bring together the most talented professionals, work, work, work and then one day, you have pulled off a miracle.

Time and “No”


The word “no” is the most valuable tool for founders. It’s the currency with which you buy time, your most precious asset, as you are building your business.

Time is your asset, but it works against you.  The moment you launch your business and start spending money on your team, your overhead, marketing, etc., you notice that they are mostly denominated by time.  Almost all of your KPIs are also time-driven.  Revenues, gross profit, visitors, customers… are all meaningful when you attach time to them. The same with your monthly burn and your runway.  Time dictates your success.

When you say “no” to activities that do not contribute to the few success metrics on which you focus, you are buying yourself time, with which you can continue that focus.

Snap Thoughts


Since the Facebook IPO in 2012, I had not been asked to opine on any new listing as much as Snap. The company had its highly-anticipated IPO last Thursday, and things went smoothly, with the stock popping to $24/share at the opening, a big jump over its issue price of $17.

What do I think of the company and the IPO?

It’s expensive given the numbers. The current $30b market cap is 75X 2016 revenues.  I also think that the quality of Snap’s ad revenue is lower than that of Facebook and Google, as it’s largely intermediated through media planning agencies. Almost all of it is brand advertising.

Still, i was not surprised with the strong IPO. With the small float (scarcity), hey could have priced higher and didn’t. I think the buyers were willing to take the risk of a 50-60% downside, with the hope that this becomes the next Facebook.

I, personally, did not bet on it. Facebook is, at its core, a tech company, whereas I think Snap is more of a media company. With the Facebook, Messenger, Whatsapp and Instagram apps, Facebook is the most dominant force on mobile.  Either Facebook’s 13X sales price is mispriced, or Snap’s 75X.  Both can not be right.

Facebook owned (and still owns) the identity layer of the internet and that makes it very resilient. Snap owns the attention of the (very valuable) US teenagers. Not as resilient.
I have not looked at the allocations that Fidelity, T. Rowe Price, etc. got at the IPO. These public market investors were already shareholders and had an insider’s perspective. If they bought more at IPO, it’s a bullish sign.
The great news is that this was a closely-watched IPO and it will usher in a wave of listings, creating liquidity for VC LPs.  Those dollars are likely to get recycled into VC fund providing the fuel for the global innovation economy.

Absorbing Daily Shocks


It would not be controversial to classify 2016 as a tough year, both in Turkey as well as the rest of the world.  We have seen increased terror attacks globally, and surprises like the coup attempt in Turkey, the Brexit vote and Trump’s election.

Startups require relentless focus on execution.  Yet, founders are human and they, like everyone else, are vulnerable to the distractions caused by the barrage of shocking events.  Add to this the ups and downs of a startup – landmark client wins, finding your company in the headlines, your competitors releasing new features, your co-founder leaving… The list can go on for pages.  With this much hitting a founder’s psyche, they have to work hard at keeping their focus and not get swayed too much by external factors.

I’ve always felt that helping our founders absorb these shocks is one of the ways we as investors and board members can be valuable to our portfolio companies.  We are there to remind them that it’s usually not as bad (or as good) as it feels at the moment, and that they are in a marathon, not a sprint.  They need to keep their  dual focus : one eye on the horizon, at their destination, and the other one on their desk, at their immediate next step.