How to develop products and create social networks.

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Editor’s note: Fred Wilson is a top venture capitalist in Silicon Valley and co-founder of venture capital firm Union Square Ventures. Since the late 1980s, Fred Wilson has been investing in technology start-ups. This article is divided into two parts, combing and summarizing his experience and opinions on products, management and investment. This article was compiled from CBInsights, the original title “11 Lessons From Venture Capitalist Fred Wilson”, this article was partially cut.

Since the venture capital firm Union Square Ventures (USV) was founded in 2003, Fred Wilson has invested in many highly successful Internet start-ups over the years. Since 2011, the total amount of startups invested by the company has reached at least $1 billion a year, including Twitter (IPO market value of $14.2 billion), Indeed ($1.4 billion), and Etsy ($1.78 billion).

The year of the creation of USV also marked the beginning of the Wilson prolific blog (avc.com) career. He publishes a blog almost every day covering everything from technology and investment, from policy issues such as patent law to how to create and run a team. Among them, there are suggestions for the founder and advice for investors. Here, we summarize some of his views and suggestions on how to conduct product development, create social networks, and invest and manage companies from Wilson’s blog and other articles.

Product Development

1. Start with a simple intention and vision

“Choose some simple things, fix it first. Then use another relatively simple action to proceed to the next step, fix it, and then move on to the next step.”

When entrepreneurs make financing Pitch to investors, they often do not feel that they have begun to paint a grand blueprint for the future development of the company. This may include not only the prospects of product development, but also the company’s development. The annual plan and how to achieve significant business growth through the hockey stick effect, create billions of dollars in valuation, and successfully listed.

Fred Wilson does not agree with this, and he suggests that entrepreneurs may wish to think simpler in this regard. He pointed out that if you are going to the Olympic Games, then if you want to winIt is necessary to strictly implement a series of very precise, technically and very challenging actions. But starting a startup is different. The founder of the company should be like an entry-level diving athlete. It only needs to work hard to “make a simple diving action and ensure perfect water”. In other words, at the very beginning, you only need to focus on a unique idea to create a great feature or service. This is the beginning of everything.

Wilson pointed out that if a simple idea can be implemented and implemented well, it is likely to develop into a large-scale business. Twitter is a good example. The essence of Twitter is a state sharing tool. The first function is to let users share what they are doing or what they are thinking. But then, subsequent iterations of Twitter are not limited to this, but can serve a variety of different purposes and functions. For example, it extends its services to the video space by establishing streaming partnerships with media companies such as BuzzFeed and The Verge.

These features are far beyond the scope of Twitter’s initial expectations, and a simple start can give the product ample room to grow, naturally expanding more features and services.

Besides, simple intentions and visions are also good for risk control. There are a lot of things that start-ups in the early stages have to deal with, and building an unnecessary complex product at this time will bring them more risks, and it is likely to make the already very difficult startup work more and more It is difficult.

In the subsequent stages of development, start-ups always have the opportunity to iterate over the product. If the first version of the product does not fully realize its potential, then the startup can expand it at any time during the next development process. However, if the startup team implements all of the possible features in the first version of the product, the wasted time and money can’t be recovered. In other words, start-ups don’t need to fully understand the way users interact with products from the beginning, but should gradually understand the needs of users and adjust accordingly as products are introduced.

2. Early income growth is not necessarily a positive sign, but should focus on product-market matching

“In the early days, income growth was often created by a passionate founder, but it is likely to be a ‘fake action’, try not to be blinded by appearance.”

For the founders of start-ups, solid revenue growth seems to be a way for start-ups to fight against uncertainty. After all, if someone comes to buy a product, that means the team is doing the right thing. But Wilson believes that early-stage revenue growth from start-ups, especially from large sales, can be misleading.

In the long run, the most important thing is whether the company isA reliable product that can solve problems for customers. Strong income data can sometimes prove this, but it is not always the case. Having a charismatic founder or using some clever marketing strategy can also achieve this effect, complicating the problem: “The founders or CEOs who are good at marketing can often hide the flaws in the product… because they It is often possible to persuade the market and consumers to accept and purchase their products through personal charisma and marketing techniques (perhaps the product itself is not too good) to achieve revenue growth.”

Wilson recalls a company that happens to fall into such a trap and can only be sold at a reduced price. The company quickly achieved significant revenue growth in the early stages, attracted a large amount of external financing, and used these financings to expand its workforce. However, it was later discovered that the company’s customer churn rate is high and cannot be reduced. So in the end, despite the high income growth rate, the company ended in failure.

The concept of a sales learning curve proposed by Stanford University professor Mark Leslie can explain the problem. Before a startup can effectively sell a product, it needs to understand how the customer will use the product and understand whether the customer can continue to acquire the value of the product over time. After launching the product, the company may need another half year, a year or even longer to achieve product-market matching. If the startup founding team made a fuss about sales before this, it would often be a rock to smash their feet.

After product-market matching is achieved, the company has plenty of room to expand its workforce and iterate over the product. If a development strategy does not work, re-plan and try again. Wilson said that the company has invested in companies with many revenue models that are inconsistent with the direction of the strategy, because these mistakes are not fatal, but the inability to achieve product-market matching is a fatal flaw.

Create a social network

3. Social networking can get the most out of it when combined with other services

“Social networks are still effective, especially when it becomes a feature of Web services, it can play an important role beyond the social network itself.”

The first wave of social media began to fade in the early 21st century. At the time, the number of social networks grew rapidly, requiring management of too many different applications. Many people speculate that platforms like Friendster and Orkut will end up failing because people can’t play two or more social networks at once.

Wilson is one of the active promoters of social networks. He does not admit defeat, but is rooted in the struggle of social networks in that era and developed his own unique investment principle: social networks are no problem, onlyYou can connect it to another service that can create value for your users. For example, Flickr combines a photo-sharing website with a social network, and LinkedIn is a job-seeking website based on a social network that helps companies and job seekers connect.

Now, information technology is increasingly getting the attention of users, so the need to build social networks in this way will not increase. By 2025, users will be less likely to switch between different functional applications, both in terms of time and patience.

In addition, Wilson said that building a social network around a particular service allows users to organize their social graphs based on the service, and users who contact Tumblr may not be suitable to contact Etsy. In this way, it can prevent the social network from being too noisy. Any user will have several social graphs, each with its own uniqueness, so that the problem that emerged in the early 21st century can be avoided.

4. Second-order network effects can create powerful business

“How can I make your business strong?” We thought about this question and the answer was the user, transaction or data network within the software.”

The software itself is a commodity. Wilson believes that the only way to build a strong business model is to create a user, transaction, and/or data network.

Imagine that you are an entrepreneur and you are very upset about the experience of queuing your teeth every time, so you have created a software that helps dentists better manage appointments and treatment processes. And created a successful start-up by selling this software. But over time, you will find that other companies have created the same type of software with less capital investment, so the profit margins are getting smaller and smaller, and your business is getting harder and harder. In the end, some dentists and coders may have joined forces to develop an open source version that beats other similar products in one fell swoop.

Now we rethink, when you didn’t choose to sell software, but created a social network for dentists, patients can create all their dental appointments and visit records into their own files, so that It is much easier to make a referral appointment or a new appointment. At the beginning, you can profit from native advertising, and then you can collect commissions from each transaction: including transactions between dentists and patients; between patients and “dental health care providers”, as well as dentists and “dental equipment and products” Between suppliers”.

Dentistry.com, which uses this model and strategy, eventually grew into a $1 billion company and eventually went public with a market capitalization of $7.5 billion. Wilson tableThe reason why Wall Street analysts love this company is because of its strong development momentum and strong network effects in the market.

In the past few decades, software companies have often only had two outcomes: either finding themselves at the bottom of the price, eventually failing to compete with free open source software, or finding a way to use these networks. The method of profit. The reason why the network can be monetized is because there is what Wilson calls the “second-order network” effect. Each user brings his or her social circle to the app, and then these apps are aggregated across a network, so each user’s social circle adds more value to it.

This way, the application owner no longer has to bother to take possession and control the network of potential customers. Both parties benefit when a new app connects their user base to the network they share. Just as new users sign up for “Dentistry.com,” every dentist benefits because it means their potential customer base expands. Facebook is one of the examples of second-order network effects, because Facebook allows third-party developers to build applications on the Facebook network, which encourages the formation of second-order networks based on their networks.

This principle is also adopted by a social game developer named Zynga that USV is involved in. In addition to developing its own games, the company also allows third-party developers to use its network. This way the network can bring users together in two directions, from existing applications to new applications, as well as new users attracted by new applications. Sure enough, in the first week after implementing this strategy, the Zynga game development platform contributed 75,000 hits to third-party applications, while third-party applications contributed 32,000 hits to Zynga. The taste of the user will change, and personal games will be updated in the process. But this network can last forever, as long as Zynga can monetize it, it can resist other shocks.

5, social networks need to increase the practical value of single users

Social network providers draw a lot of value from connected users, making it easy to use the individual user experience as just a tool for decorating the facade. Wilson objected to this, and he believes that creating a reliable single-user utility experience will not only help build a user base that promotes the formation and expansion of social networks, but also help the network survive forever and avoid the negatives of freshness. influences.

In other words, social network providers need to make the services they offer practical, and that value is not just because your friends are using this social network. For the user, any new social networking platform needs to be an interesting place, even for the first users.This is the case. “Opening a large data-rich social platform is a fun place,” Wilson said. Foursquare is a good example of this. Wilson said that he often uses the app because it automatically geo-categorizes based on the user’s location, and its map view function can act as a walking map in a block or city.

This service is not lacking in competitors. If you want to find a restaurant, bar or museum, you can use Foursquare or Yelp, you can use Google or Apple map, or search by search engine. You can even find other pedestrians directly. What may be different in this is the user history element. The longer a person uses an app, the more data the app has for that user, so the more personalized recommendations you can give. What really matters is the single-user usability experience, which is why Foursquare is able to compete with authoritative services such as Google Maps.

Foursquare is not just a large data collection library. It also makes good use of this data. For example, the “Where to Go Next” feature that it provides can tell users that others are leaving the current place. Where will you go?

More importantly, if a powerful single-user usability experience is achieved, it can help the social network “preserve” even if market conditions change. Hype hotspots can quickly increase the attention of the entire social network in a short period of time, but as users turn to the next hot spot, this hype is likely to collapse quickly. In this case, a good single-user usability experience can help companies retain users who might have left. Wilson said: “If I get a good single-user usability experience from your service, even if this wave of heat passes, even if my friends don’t play this, I will probably stay and continue to use it. It.”

Translator: aiko