Why I invested in VillageLuxe

 

Yesterday I completed my first startup investment of the year in a company called VillageLuxe.

 

Founded in New York City by a dear friend of mine Julia Gudish Krieger, VillageLuxe operates in the sharing economy and aims to be ‘the Airbnb for high-end fashion’, as Forbes magazine put it in a recent article.  Very simply VillageLuxe allows you to rent out your closet to utilise ‘spare capacity’ much like Airbnb does with your apartment; and conversely as a renter to open you up to a whole new world of possibilities without having to fork out the full purchase price.

 

Aside of  the obvious reason of operating in the sharing economy for which I feel very passionately about having ran PeoplePerHour  for a good decade now, I invested in VillageLuxe for the following reasons:

 

  1. I believe in Julia, the founder, blindly. She’s a Harvard grad who started off in Venture Capital and so she’s clearly of high intellect and has seen many businesses succeed and fail. Although she’s young and has a lot to learn, her energy, drive, passion and magnetism will definitely be assets that help her plough through inevitable roadblocks.
  2. Julia has managed to attract some great people early on in building her team. Especially in a place like New York with so many startups fighting over talent, a founder’s ability to both identify and woo them in is a key ingredient of success. If shows good judge of talent to start off, but equally important, persuasion, grit, tenacity and charisma.
  3. Great PR: in its relatively short existence VillageLuxe has managed to generate some impressive PR coverage and get the brand out there amongst influencers. Putting money behind organic marketing is always a safer bet than paying to generate traction – and the latter can be very dangerous as could make the founders bask in the sunlight of fake growth that never sticks. This was also our story at PeoplePerHour – PR was our key jump-starter of growth in the early days.
  4. Downside limitation: even if it doesn’t become the Airbnb of high-end fashion, as a platform businesses it can be  very capital efficient (if VCs don’t push you to do stupid things) and so can reach profitability relatively easily and high Return On Capital ratios. The challenge is to resist over-expanding beyond a point of no return in pursuit of the big dream.
  5. It’s a business i can help and contribute with my experience of building a successful marketplace, so that makes the investment all the more meaningful to me. What’s more i would greatly enjoy working with Julia: she’s smart but not a ‘know-it-all’; she’s thoughtful, has humility and listens; attributes which i rate higher than raw intelligence in the path to success.
  6. The market cannot NOT grow: again the key question (much like a VC would ask on Day1) is how big the market for sharing one’s closet will become. Maybe it will be a huge phenomenon like Airbnb or Uber, but, lets face it: it doesn’t have to be be at that level to make a successful business.  The way i see it it’s highly unlikely that it won’t grow from where it is today: it just makes sense in every way that matters to the consumer: price, diversity, ease of use. And that will only increase as more people get online and get more web savvy which again cannot NOT happen over time.

 

Last but not least – maybe i can rent some stuff myself and become a little more fashionable 🙂

 

Julia – wishing you every success, I know you’ll do great and look forward to the journey ahead!

 

Endurance

We’ve all heard this phrase before: ‘life is a marathon not a race’. Yet how many of us put it in practice?

 

Ironically we’ve been nurtured to worship and admire  endurance. From the preachings of Jesus Christ who endured so much in his life for the good of Mankind, culminating in  enduring the weight of the very cross he was crucified on; to persecuted mythical heroes we grew up in awe of, from Hercules to Tarzan, to more modern characters like Rocky Balboa who beat the odds by never giving up. We revere not their success but their endurance… we envy not the result but the courage they show  in  ‘going the distance’ as the soundtrack of Rocky – by that very name and not coincidentally – reminds us, climaxing our emotions seeing a guy refusing to give up despite the beating he was taking, enduring till the end even if he lost. Or did he? As the expression goes ‘he may have lost the battle but won the war’.

 

Tenacity, grit, persistence are the things that make one endure through tough situations. Time and time again we see those being more instrumental to the long term success in any given situation that the mighty powers of whatever one deploys in the short term: talent, wit, intelligence… I call those ‘situational masteries’. You can master a situation with traits like charm… the ability to outwit someone, talk the talk; you may even hit some home runs with situational mastery. People do after all become overnight hits- sometimes. They do in casinos too! But that’s neither a strategy for success not a safe haven for ones’ hopes or ambitions. It’s dependent as much on luck as on anything else; or in there being just the right mix and fit between the ‘situation’ and the tricks possessed to master it in this notion of ‘situational mastery’.

 

Building endurance is, on the other hand, a strategy. It’s a sustainable, dependable and more predictable – or a more backable – route to success. I’d much rather train for a marathon than the 100m sprint (although admittedly I have done neither). By the nature of having a longer path from the start point to the end you have just much better odds of finding a way to win; to muster the energy and stamina needed to keep going. I’d much rather bet on a team committed to building something – anything – for the longer term. Be it a business, climbing a mountain, building a family.

 

Warren Buffet put it perfectly when asked how is it possible that he beat every other investor with the least sophisticated of strategies, purely by sticking to fundamentals. He said:  “because no one wants to get rich slowly”

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How Athens helped us build a successful global startup

I started PeoplePerHour.com in a basement in London back in 2007. I had no idea – even in our wildest dreams – that a few years later we would be serving 1.5 million people across 150 countries and be the source of inspiration, financial freedom and independence for so many people the world over. To date we’ve matched close to a million freelance projects with Small & Medium sized companies all over the world, across disciplines such as design, software development, web building, but also translations, data entry and administrative services. Freelancers on our platform, or ‘GiGsters’ as some call them today, have earned over 100 Million Euros to date from us, and growing

 

It’s been a journey blessed by good fortune, a roller-coaster of emotion, a tonne of mistakes from which we learnt from, a lot of laughter, some tears, intense pain at times and great fun at others; all mixed in with a good pinch of faith and luck. Somehow, nine years on, we are still here!

athens_team_small

Least of all we never expected to have – by 2016 – the vast majority of our team based out of Athens, Greece. Without that admittedly the company could not have survived. So how did we end up in that situation?

 

It all started in 2010. Just after we raised our Series A funding round and the first amount from Venture Capitalists (Index Venture) to a tune of c.a. 8m Euros, we needed to expand rapidly. Which in our line of business means hiring more engineers to develop and improve the PeoplePerHour platform. UK at the time was deep in recession, as was Europe, and the startup culture hadn’t yet caught up to the levels it is today. We simply struggled to convince risk-averse people to leave secure jobs to come work for a startup of 4-5 people in a basement.

 

One cold yet sunny Saturday morning in early December, just after we closed the funding round, I was having my usual Sumatran roast coffee pot walking around my flat pondering how to buck this trend when I got on the phone to a good old friend of mine, Spyros in Athens. Spyros at the time was running a small web shop in Athens and coincidentally was also my first outside investor in my previous company (which pivoted into PPH in 2007). Within minutes he told me he could find me 10 -15 engineers by March. Incredulous as I may have been back then, he delivered on the promise.

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The Vanity Sandwich

What an MBA means to a startup!

The Entrepreneurs’ Dilemma: To Quit or Not to Quit?

Unfortunately, entrepreneurs get bad advice all the time. There are many misperceptions around success and the journey of building a company, such as ‘entrepreneurs take big bold risks’ (they, in fact, take very calculated risks) or ‘failure is good’ (there’s nothing good about failure, but sure you can learn something from any experience). I can’t address all of them here but the one I’d like to focus on is ‘never give up’ (we’ve all heard it before).

True, in theory, if you never give up, you technically can’t fail. But you can end up spending a lifetime pursuing the wrong dream or being blinded from the stark reality of what it is you are doing.

 

entrepreneurs advice

Source: gratisography.com

Entrepreneurs – or worse yet, people giving advice to entrepreneurs, like investors – often like to present themselves as heroes or villains. The ‘macho’ daring people who had the guts to do what others couldn’t. Hence, they like to keep hammering this ‘we never give up’ mantra while drinking their  own cool-aid. It boosts their ego.

 

 

The reality is that knowing when to quit is super important and quitting sometimes just makes absolute sense. ‘Quit while you’re still ahead’ is much better advice, in my opinion. And here’s why: everyone is capable of having bad ideas. Even the best entrepreneurs, like Richard Branson, did and still do. Virgin Cola was not a success, so he shut it down as one should. Would it be smarter to spend the rest of his life and valuable dollars trying to beat Coca-Cola just so that he could save his own ego?

Equally, even the best ideas may simply be attempted at the wrong time, or with the wrong group of people. There are so many ingredients that are needed to make a start-up work that no one (however smart) can predict or be in control of them all.

So the question then is when does one throw in the towel? For me, the acid test is these two questions:

  1. Do your micro-fundamentals stack up?
  2. Are the macro-fundamentals there?

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Why culture matters – again!

In a previous post of mine I write about Why Culture Matters. This was back in 2011. My company PeoplePerHour was in a totally different stage back then, and so was I. As we’ve progressed and grown up I’ve reflected back on this post to compare the then and now.

In short, the more we grow, the more we mature, the more I’m convinced of the main thesis of that post: that if you get culture right, almost nothing else matters.

You may ask: really? That sounds too simplistic and bold. What about people? What about the product ? What about the market, processes, etc etc. What about all the other stuff business schools and books rant about?

First, lets not forget that culture cannot exist without people. Culture is the fabric that brings people together to do great things. So of course you cannot have a culture without people. And for culture to work you need like-minded people who are simply ‘on the same page’. Bonded by chemistry more than by hierarchy, roles and definitions.

Similarly, without a product you can’t have people either. So yes, product is the starting point of any business. You build a product, you amass a team, and then its about growth and scaling. THAT’s when culture becomes the key ingredient.

Why? Because it renders a whole host of things that are just impossible or too painful, time consuming to get right, almost obsolete. Like rules and processes. Like lists of do’s and dont’s. As a young business you will not have time to compose a thorough ‘how to’ manual for everyone to follow, and even if you did you wouldn’t (and shouldn’t) have the time to train everyone on them, and even if you did you would not be attracting or retaining the right people in the first place! Smart people operate much better in a climate where they know the overarching goal, they see the destination, but they’re given freedom as to how to get there.

The role of the leader

Defining the role of a great CEO or leader has and will remain a subject of much debate. The more I mature as a CEO I see my key responsibilities narrow down and crystallise to these 3 and these 3 alone.

  1. To hire the smartest people I can for each role
  2. To provide a clear vision and very clear & tangible goals (vision and gaols are different)
  3. To set the right culture for them to work together to get there.

If you do those 3 things right you almost don’t have to do anything else. Or in the very least you will have more leeway for all the other things you’ll get wrong. It’s very refreshing. You will find (as I did) transcending from managing to leading. From doing too many things yourself to just setting scene and the actors for them to get done without you. A great CEO as they say should make him/herself redundant just a little more every singe day. That’s a sign that you are doing those things listed above.

Often confused: vision is not the same as goals. Some CEOs think that a bold, magnetic vision is enough. Its enough only to get peoples appetite going. Its not enough to feed it. It’s enough to inspire people but inspiration is not enough. They need goals & targets that take you collectively closer to that vision. Vision is how you imagine the future to be and how you and your company are changing it. Many entrepreneurs make the mistake of thinking that everyone can see what they can — they cannot. And thats a good thing! A world full of visionaries would mean nothing gets done. Its your job as an entrepreneur to translate how that vision manifests itself into reality by setting milestones along the way.

So in short, if you do that, and hire the smartest people you can who are like minded, culture will take care of everything else.

What is culture?

Culture itself can be a vague idea. For me culture comes down to practical things like: what you as a leader expect of people; when should they ask and when should they get on with things; what sort of ‘reasons’ for things not happening do you tolerate… Think about they way you are with your friends, spouse, or kids if you have any… If a kid misbehaves and you tolerate it that sets the tone for future action. If a friend is always late and you tolerate it, they will carry on being late. If you answer every little question that comes your way, you can be sure that more will come.

Culture therefor is not this abstract idea that lives up in the either. Its the collective behaviour of your team and it’s defined 100% by the tone the leader sets.

I will illustrate by reflecting on our culture at PeoplePerHour so its not just a vague concept.

  1. Brutal Honesty: I tell my team: I do not tolerate anything BUT brutal honesty. I cant stand ‘wishy-washiness’ and beating about the bush. I can smell BS from a mile and it makes me want to puke. So we have a very direct and outspoken culture, without fluff and waffle. Everyone in my company knows that waffle and BS doesn’t fly with me. It’s not for everyone. But for those who do fit in it amplifies results and cuts back on time wasting. And no doubt it stems from intolerance of anything other than brutal honesty
  2. Numbers, Numbers, Numbers: Similarly we have a culture around strong numeracy and measurement. We are all quite a numerical lot, and everything we do must be measured. I don’t tolerate people’s request for something unless its benefit can be quantified. I am allergic to pie in the sky kind of thinking thats not rooted in some form of ROI measurement. Hence that’s part of our culture. And again that’s probably my engineering background and obsession with knowing exactly what I get out of something I put in.
  3. Ownership & Accountability: We have a culture of accountability and ‘can-do’ attitude. Again. The tone is set by my lack of tolerance for‘reasons why something isn’t done’. I’m astonished how common this is in other companies. They foster a culture of ‘effort matters’. It doesn’t! Life does not reward you for effort: not in sport, not in the arts and not in business. You dont make it to the Olympics juts because you tried! You make it because you achieved a good enough result. Anyone who’s worked with me will know that when they come to me with a laundry list of why something didn’t happen (even though they tried hard) they well get shot down. Brutally and openly . Often humiliatingly. Is it right? I don’t really care. It’s irrelevant. Its how I do things and it sets the tone and expectation for the whole team. Come to me with results, and why things DID happen or WILL happen (at worst). I hire smart people and so I expect more than excuses from them. Otherwise i may as well hire gibbons and pay less.
  4. Less is more: We have a culture succinctness, snappiness getting to the point. I joke about the ‘3 lines rule’ : that if an email doesn’t get to the point within the first 3 lines i stop reading. It may be said half jokingly but its largely true. The result: people get to the point or get ignored. That avoids time wasting on long convoluted emails, memos, talks, presentation that have little substance in them
  5. Openness: everyone can and is encouraged to voice their ideas or concerns about something. Often this results in long team email trails, chat groups, and lengthy debate but, again, as people know that we also have a no BS, no fluff culture almost always these debates are for good cause and lead to something. It may be a new practice, a product feature, a new / team event, a new process… Its shows that people care more than just getting their own job done. They care about the overall outcome
  6. Humour: we tolerate and encourage people to laugh, say silly things and have fun while working. It wasn’t always like this, in the early days I think the company and team were too highly strung and intense. We weren’t having fun. Why ? Because I was too highly strung and intense. I probably still am compared to most people but compared to myself back then im now a Budhist monk on coolaid! Why ? Because the worst part is gone, the company is out of the red and whilst there are still many challenges a huge weight has been lifted off my chest knowing that come what may, unless we REALLY screw up, we will stay in business. And also because I’ve simply grown up! Again: the tone is set by you! If you are stressed, everyone else is stressd. If you crack a joke, and have fun others will too.

The list can go on and on. There is no definitive limit to what defines culture. It simply is the way you behave, its the way you do things, Its the things you do and you don’t do. If you have a tightly defined culture the litmus test is to ask yourself: would this (whatever ‘this’ may be) fly in the company? If the answer is a definitive ‘yes’ or ‘no’ then you have a tight culture. If it’s a ‘hmm not sure’ then you don’t.

Alas, with the right overarching vision and goals, with the right people culture is all that’s needed.

If you want to build a ship, don’t drum up people to collect wood and don’t assign them tasks and work, but rather teach them to long for the endless immensity of the sea”. — Antoine de Saint-Exupery

Valuation vs. Value

 

There is no question that tech valuations are frothy (to say the least) at the moment. People however try to argue that ‘this time it’s different’, amongst other reasons a commonly cited one being that tech companies today deliver ‘real value’, have real revenues, scale etc etc.

 

Firstly : there’s never been a bubble in history during which a certain few were not convinced that ‘this time it’s different’. Unfortunately for the rest of the people those ‘certain few’ are often the influencers and not surprisingly the ones with the biggest vested interest in profiting from the inflated valuations that they so help drive. In the subprime mortgage bubble it was the same: a certain few convinced themselves that ‘this time it’s different’, fundamentals don’t matter, and that people could be handed mortgages way above their affordability , no matter if they couldn’t repay them, because ‘this time it’s different’.

 

It’s easy to cook up why this time is different. It’s harder to de-clutter the noise and figure out why the fundamentals still remain the same (as they always do).

 

Whilst I don’t disagree for one second that todays tech companies do actually deliver real value (after all I am a tech entrepreneur myself and I see that both in my products – PeoplePerHour.com & SuperTasker.com and the ones I use so avidly), whilst I don’t disagree that the way we live and do business is rapidly changing and being disrupted by tech, I think the ‘Valuation vs. Value’ argument is intrinsically flawed for a few reasons

 

  1. Value is not enough

 

Its not enough to just deliver value. You need to do it in a way that’s sustainable in the longer term and builds on fundamentals. You can shoot for the moon overnight and fall to ashes just as fast if you’re building a business without fundamentals. Many examples come to mind, from Fab.com, Colour, Joost to more recent from our space – HomeJoy – who filed for bankruptcy a few months ago after raising ca. $100m. All of these were once amongst Silicon Valleys darlings, had multi billion valuations and some achieved hundreds of millions in revenues. Yet that wasn’t enough.

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Of fools and unicorns

 

I caught up with a good friend of mine for brunch this weekend who is also building a tech company. We’ve both been at it for roughly the same amount of time and our businesses are roughly at similar stages.

 

We discussed the craziness that’s happening in today’s startup landscape with valuation off the roof and companies allegedly achieving hundreds of millions in run-rate revenues within 12 months. We’re both in it for the longer term, building long lasting, value adding businesses in growing markets, that deliver products and services people find useful (or useful enough to pay for!). Which in todays world makes us sound archaic!

 

Sure if you build a unicorn aka a disruptive rocketship that gets a billion dollar valuation within 12 months, that is ALSO delivering sustainable value, with scalable unit economics then it’s a great achievement. However entrepreneurs today mistakenly make that the goal neglecting two very important things in my view

 

  1. The   greater fool theory

 

You want to build a billion dollar business overnight? It’s easy. Go on the street and sell a dollar for 99cents. You will find there’s a lot of demand for that! In fact it’s guaranteed to go viral. You will have a big and growing hole in your pocket but all you need to do is convince a few nitwits that its temporary and very shortly you will build a ‘brand’ and become a destination. The ‘go to’ place to buy a dollar. Build some hype so that your stock gives return to batch1 of nitwits through a secondary sale to batch #2 nitwits and you’re now hot and trending!

 

It’s called the greater fool syndrome: who cares that you’re only making 99c to the dollar, so long as there’s a greater fool to the last one to buy your stock?! And in todays’ world one thing that seems to be in abundance is greater fools.

 

In more tech talk: its unit economics stupid! If you cant make a profit on your customer acquisition with a reasonable payback that you can fund (the deeper pockets you have the more you can push that out) then all you are doing is building a ponzie scheme. At best.

 

With the latest news on even the best, the most disruptive unicorns around us, such as Uber, allegedly losing over half a billion per annum, there’s many other seemingly amazing & disruptive (aka unicorns) that have questionable unit economics. Right now the ponzie scheme is funded by virtually zero interest rates. Capital is free and needs to be deployed. Even a 99c dollar business seems sexier, especially if gift-wrapped with some wishful thinking around it, than money sitting in the bank!

 

Rates will soon rise though, how soon we don’t know but they will. They cant go lower. The froth will start coming off the cappuccino. Capital dries up or shrinks,   there’s now less greater fools in supply ready to scoop up the stock and alas we have a crunch.

 

Next thing you know is your investors turns up at the next board meeting and goes “say, can you send me a slide on your unit economics? I think we should turn the business profitable” Bam. You’re toast.

 

  1. Building a unicorn is not a strategy

 

The above argument aside, some unicorns may have the right unit economics. However building one is not a strategy. It’s like playing roulette. To paraphrase Warren Buffet “its easier to ride the wave than trying to create it”. So, much like in surfing, preparing for and positioning yourself at the right place and the right time ready to ride the wave when it comes IS a strategy. Trying to create it is wishful thinking.

 

What we don’t see at the outset is that, aside of the fact that a lot of these seemingly super sexy disruptive businesses are essentially a 99c to dollar businesses, even the ones that aren’t were seldom if ever a concerted plan. They just happened. Uber was started as an app for Travis and his friends. Facebook and so many others were just apps that were hacked together by kids in a dorm room and caught fire. Whatsapp, Snapchat and Instagram arguably still aren’t businesses. They’re apps with a very loose idea of how to make money at best.

 

There’s nothing wrong with that if you have the time and capacity to play around enough till something catches fire, and so long as you can convince Zuck to buy it. But you have better chances if you just go to Vegas! Its not a strategy to building a business.

 

The only sensible strategy is to sit at that interjection between delivering customer value via products and services that are building for the future and keep innovating. Pick the right macro, build a great team and hang in there, surviving one day at a time. If you do you can’t lose. You may not get rich overnight but you will build a lasting business, and as Buffet showed will eventually make more money than those nitwits put together. By investing in long term value creation.

 

Fads come and go. Value stays.

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If you don’t cannibalize your own business someone else will!

All entrepreneurs launch with the hope that their businesses will live forever — or at least survive the next hundred years. They develop long-term business plans, chart growth paths, and seek advice from veteran business owners. Those words of wisdom likely don’t advise them to find a way to “cannibalize” their own companies.

But even if your company hits the hundred-year mark, you should always be looking for ways to revolutionize your initial idea before someone else does. No cautionary tale better illustrates this point than Kodak.

Most people would be surprised to discover that Kodak invented the digital camera, but it didn’t commercialize it for fear of jeopardizing its film business. By the time Kodak realized its digital camera prototype was a game changer, it was too late. Read the full article here.