Dear Reader,
Welcome to the 42nd edition of the good reads newsletter by Malpani Ventures. Sharing your weekly dose of articles for this weekend’s reading!
The future of loyalty
https://sytaylor.substack.com/i/95055242/weekly-rant
Companies spend anywhere between 8-22% of their revenues on marketing activities. Still, the author mentions, eCom repeat rates are only between 25-30% i.e. 7/10 customers don’t come back. Thereby defining a business use case for loyalty.
The author unpacks the next big thing in fintech - sharing where loyalty fits, types of loyalty, its infrastructure, and opportunity for fintech companies. We’ve seen a fantastic company building fintech infrastructure in this space and believe the loyalty, customer engagement & retention space is ripe for disruption.
Is there a startup you know which is revolutionizing the loyalty & retention space?
A Playbook for Startups
https://www.joincolossus.com/episodes/61719/maples-a-playbook-for-startups
Notes & key points
What makes a startup stick?- A scalable startup only has one opportunity to succeed. And that is if they offer a choice in the direction towards a different future. People don't want something incrementally better from a startup, because human beings are conditioned to like things. And if you're too much like what they already know, there's not room in their head to believe that you can credibly do a better job than a very large incumbent as a startup.
Three important markers are:
Inflection points
Teams
Insights
Key mistakes made in investing journey
Right about insight, wrong about team
Right about team, wrong about insight
Side note: 90% of profits made by the VC were from pivots while backing the right team
Start dead, take out the risks as you grow - A startup starts out, it starts out dead and has to prove it's alive. Take the very biggest risk and crush it first. Why is that? Well, if we fail to crush it, we're not going to succeed anyway. But if we crushed the risk, we've created the most profound possible value that we could in the time that we had. How do we take out risks? Hire the right people. Like with SpaceX, when they're launching rockets at outer space, you better have some really good aero-astro engineers. If building a social network, hire someone who can get the market & distribution right.
Focus during zero to one - “In board meetings, I'd have a slide, and it would have the 30 customers we chose for this year, of which we want to get 10. We wouldn't even talk to any other customers. We spent all of our time talking to those 30, and we ended up getting 12. It's very counterintuitive, but if you get it right, if you're correct about who the innovative customers should be, and you get them, they're going to take you to the promised land, because they are living in that different future. You're building what's missing for them in that different future. It's going to give you a huge learning advantage. It's going to give you an acceleration, because they tend to be bellwethers for other customers. Word of mouth spreads that.”
Not investing in Airbnb - "Airbnb, which I passed on, I failed to tease out Brian Chesky's earned secret. Brian didn't have much money, wanted to go to a conference in town, put up his apartment and and air mattress on Craigslist and got several hundred people wanting to rent it. And he was like, "Wow, that's really curious. Why is that?" And then he found out it's because there's no hotel space. He's like, "I wonder what's up with hotels in the first place? How long have hotels existed? Why are there hotels?" He had a hypothesis that hotels work because people trust them versus a stranger or someone. But he's like, "If you had a ratings and reviews system and you took really awesome photographs, couldn't you create trust in people's houses?" Well, if I'd heard that explanation, I would have invested for sure. But the problem is he comes to the meeting, he's got cereal boxes, Obama O's and Cap'n McCain Crunch. And he says, "Hey, Michael Seibel...", who had introduced us from Justin.tv at the time, "... says you prefer seeing product demos to slides. I'm like, "And how." And so he tries to launch the product and it doesn't work. And so I'm like, "Okay, well let's just look at the slides." And he's like, "I didn't bring any. I was going to show you the product." And so we're sitting there looking at each other in this room full of cereal boxes. And we hadn't made any progress. I really wish I'd figured out how to tease that earned secret out if him. It was only later that I learned that earned secret.
How PayPal cracked a $100mn churn problem?
PayPal used first principles to identify the root cause of the problem and came up with a simple checklist:
Focus on behavioral churn, cancellation is too late
Separate activation from retention - use different fixes
Focus only on addressable & regretted
Account churn vs. revenue churn - is your revenue concentrated?
Then, dig into the details!
What worked for them?
Applied exclusions - what looks like churn but isn't ? i.e. Account closures, low # of transactions
What is most likely churn - dark accounts (not transacted, but not closed i.e. behavioural churn)
Differentiated between onboarding & activation problems during behavioural churn
Looked for well-transacted, mature accounts that went dark
Narrowed further down using the Pareto principle - power users by revenue
Identified the root cause of the problems by going to every transaction, risk, compliance, customer service history to create scenario mapped to each - flagged potential churn to each of the flags and work with customers to fix that problem!
Until next time folks!