Startups Need to Diversify Away from Paying Facebook

Over the last five years ago, a disproportionate amount of venture capital funded paid acquisition on Facebook.  Some very large consumer facing businesses were built, but that gravy train won’t last forever—and signs are that it is seriously slowing down.  Companies are reporting that acquisition costs are trending up, and optimization is increasingly feeling like squeezing blood from a stone. 

Having 90% of your marketing dollars go not only to one channel, but to use just one company’s platform is always a risky strategy—but now, in particular, it feels like Facebook is at a serious crossroads.  Not since it’s pre-IPO days has the company looked so vulnerable. I’d even argue that the company’s continued attention dominance has more to do with the ineptitude of Google and Apple to build compelling consumer facing software than the quality of what Facebook is doing.  The core Facebook offering is declining in usage and engagement—and if it wasn’t for the acquisitions of Instagram and WhatsApp, more alarms would be ringing.

I’m not saying Facebook is going away—but the chance of a major shift in either the platform itself or the way consumers use it is increasing.  If you lived easy on a fancy waterfront property full time, and the chance of flooding went up for 0.1% to 5%, wouldn’t you give serious thought to buying a second home somewhere?   That’s what startup companies need to do with their marketing.

What I would argue is that companies should think more about building their own communities—and that, while easier, the mantra of meet the people where they are may have, to quote Batman Begins, “sacrificed sure footing for a killing stroke”.  Because companies never had to gather communities on their own, their ability to do so withered.  

It’s time to start the long and hard work of rebuilding that competency. 

Consider a thought experiment.  What if you got to keep the same marketing budget but couldn’t spend any of it on Facebook ads—or perhaps even Google for that matter.  You can post all the content you want to these platforms, but you just can’t goose it with ad spend.  Would you be able to, at some point, hit all your acquisition targets at the same cost?  How would you spend it?

Much of this spend would undoubtedly go to content creation, which will tie to SEO, experiential marketing, influencer strategies, referral and ambassador campaigns, events, etc.  You’d be forced to make sure that every bit of marketing you created would be worthy of engagement—attendance, sharing, etc. 

Shouldn’t it be anyway?  Did paying your way to a lot of shares and likes lower the quality of the marketing you produced? The content you create should all hit the bar of “If this is the only thing people saw of us, people would make time to consume it, they would understand what we were about, and they’d subscribe to more of it.” 

The only reason to rethink your marketing is that when you consider what it takes to get that next round of financing, investors are going to want to see you stand out in the ways that value in your business will be created. In the consumer category, the ability to stand out and acquire customers is paramount—and if you’re just mindlessly doing what everyone else is, you’re going to be harder and harder pressed to get a VC excited enough to fund future growth.

 

There are Right and Wrong Ways to Add Amazon to NYC

I’m not a fan of protectionism.

If I’m going to call it out when Donald Trump does it, trying to block the flow of free trade with tariffs, or block the flow of people through immigration bans, then I should be consistent about it on the local level. I would never say that one company shouldn’t be free to expand to a new city.

That being said, I don’t like paying people to do anything they were going to do anyway—and this is especially the case when it comes to economic incentives. It bothers me, for example, when condo builders get tax incentives to build luxury condos in NYC when it’s pretty clear you can still make plenty of money without them—and it’s not like they would pick up and start building condos in West Virginia if they got better tax treatment.

So when it comes to Amazon’s “HQ2a”, my hope is that NYC doesn’t break the bank offering the company lots of free stuff when it’s pretty clear that NYC has the most amazing talent pool on the east coast and is absolutely one of the most desirable places to live. I doubt the city really needed to offer them much in the way of anything to come here—so to be clear, I’m against spending taxpayer dollars to benefit big companies that don’t need the money.

That doesn’t mean I don’t want them here.

The presence of Amazon as a corporate participant in this ecosystem could be a big positive. For one, Amazon has the ability to attract talent from other places much like Google did when they first moved to NYC. Google was a net positive on the NYC tech ecosystem. No one works for big companies forever, so 3-4 years from now, we’ll start seeing Amazon talent hit the market, build companies, etc.

One argument I don’t buy into is “Amazon kills small businesses”. Amazon is a retailer—and any commodity item you’re buying on Amazon is, chances are, not something you normally buy from a small business. If anything, Amazon puts more stress on big box retailers. You’re buying things on Amazon you normally would have bought from Barnes & Noble or Best Buy. Sure, retailers take their pound of flesh when it comes to passing you on to their customer base—and that’s why so many business are trying to go the direct route—building online relationships with their own customers. There’s evidence, actually, that retailers that embrace experience are actually thriving in a world of Amazon. The number of indie bookstores, for example, has been growing for years. As it turns out, once Amazon killed off Barnes & Nobel, it created room for indie bookstores to return to the retail landscape, because it was bigger bookstores that were killing them, not specifically the internet.

I don’t mind an economic landscape where if I want to buy paper towel, Amazon sends it to me, but if I want to buy anything special whatsoever, I shop locally or directly with the brands I actually interact with.

One of the key questions people are asking is where all of these people are going to live, how they’re going to commute and what it’s going to do to existing economic inequality in the city.

These are real problems, that the local government hasn’t properly addressed for many years. We still don’t have a big enough housing solution, nor do we have adequate protections for the displacement that happens to certain neighborhoods during periods of economic growth. I would love to see the tech community work hard to lead the conversation on solutions we should adopt to make the growth of industry in NYC a positive and ethnically conscious force for change. I have no interest in seeing tech become the bad guy that it has in SF—but similarly, part of what’s going on there is a lack of will on behalf of the government to fix structural issues that tech is exacerbating.

I’m excited about the possibilities for Amazon in NYC—but cautious that our elected representatives will do the hard work to ensure they land in our community, not on it.

How to Run a Tech Conference in NYC

Over the years, I’ve spoken at a bunch of NY tech conferences—and they vary widely in terms of their success.

A few things remain consistent:

  • Organizers complain how difficult it is to get people to show up.

  • Attendees don’t stay.

  • Even when they do stay, they’re not super engaged.

Here are a few tips for organizers if you’re going to put on a conference here. It’s very possible and I’ve been to some good ones—and the best ones all have some common attributes.

The biggest thing that conference organizers don’t seem to understand is the following:

New York City is not one tech community.

New York is a multi-industry town. We have media startups, healthcare startups, real estate tech startups, fintech startups—every kind of startup you can imagine. The advice, connections, and customers they seek are in all sorts of different verticals, and so it’s unlikely that you’re going to be able to build out a conference where paying hundreds of dollars and spending a day makes sense to someone if only 10% of the content and audience is relevant.

That’s become even more true as startup content flourishes online. In NYC, more and more people have joined startups, so they’re more familiar with the basics. Ten or twelve years ago, you could do a generalized tech conference about the “101” of startup life and a lot of New York founders would get a lot out of it, but now we’ve basically all gotten up to speed, read the posts, watched the videos, etc.

The only way to do a conference here that isn’t vertical specific is to make it about a horizontal—something that all startups have on their todo list that they find difficult, like fundraising, recruiting, marketing, etc.

And if you’re going to do a fundraising one, it needs to have real check writers—partners from known VC funds with deals in their track record people know. It’s ok if you get the occasional principal, but the majority of the speakers need to be people who could lead my deal that I wouldn’t otherwise be able to access. Analysts and associates aren’t difficult to access and they have less experience—and while they’re a smart bunch on the whole, they’re just not going to be a big attendee draw.

The other thing about conferences is that, in general, they aren’t very good—for either the audience or the participants.

People are growing tired of not only the format, but the lack of work actually put into the content itself. There’s a lack of research and vetting that goes into topics, and panel moderators fail to create narrative. Moderating is a skill. Invite people people who are good at it, or train them.

A few tips for panel moderators:

  • Know what you want the panel to say before you ask it. Create the narrative you want to share beforehand, and select your panelists and questions to reflect that.

  • Ask questions that will get at meaningful, specific answers. Don’t ask, “What are you seeing?” or “What’s exciting to you?” because the question is too open-ended to be weaved into a coherent narrative.

  • Don’t ask any question to more than two people on your panel, regardless of how many people are on your panel. You’re better off with less answers to more questions than the other way around, so bounce around, directing questions to specific people they’re most relevant to. After two, the answers get repetitive—and there’s nothing worse than a panelists wasting time with a “I agree with everyone else here” or “I don’t have much to add, but…”

Also, why does every session need to be a panel? Mix up the formats. Ask key, experienced attendees to lead small group sessions. Leave more time for hallway conversations.

Curation of attendees and speakers is incredibly important—which is why you really need industry insiders to be in charge of the content and speaker invites. Just because someone raised a round or two of capital doesn’t make them a great speaker with a compelling narrative—nor should they be asked how to run a successful startup, because they aren’t successful yet. Vet panelists and topics with the kinds of people you’d love to see at the conference before you invite anyone.

Diversity is not difficult—you just need to want it.

There are a ton more interesting people with unique perspectives on a topic that aren’t all straight, white and male. Just because they don’t sign up right away doesn’t mean it’s too hard to find them. Reaching out to communities of women and/or color with specific invites will help—as well as making sure these potential attendees can see people with similar perspectives participating at high levels at the conferences

If you want influential/VIP type attendees to stick around at the conference, you have to give them something to do. If someone is speaking at 2pm, they’re not going to necessarily come for lunch unless they’re captaining a table conversation. They’re not going to stay after unless you’re organizing some people for them to meet.

Every conference needs a Code of Conduct. Here’s one that I used previously. There’s no better way to empower victims of bad professional behavior than to explicitly state how people should behave, giving clear indications of organizers wanting to be aware when people step over the line..

Lastly, logistics is important to NYC conferences. If it isn’t near a subway, you’re going to be hard-pressed to get anyone to attend—unless you’ve already got a community following or you’re an oversubscribed conference to begin with. First year conferences really need to focus on lowering the barriers to participation.

Shut Up and Invest? Investors Weighing in on Politics

For the last two years, I’ve been pretty vocal about politics on social media, in my weekly tech community newsletter and on this blog.

As I’ve gotten older, I’ve gotten more progressive—which is a big shift for me because I grew up conservative. More and more, I’ve felt the need to speak out—but the question was asked of me recently whether or not it does more harm than good for me professionally.

It’s an entirely fair question—and the risk is that limited partners, founders, or other VCs might not want to work with me because I’m vocal about my political views.

Most people don’t think about it, but VCs need to raise money from high net worth individuals and institutions to have the money to put to work. These groups are much more likely to be more conservative than your average NYC or SF tech entrepreneur. (I mean, just about anyone is more conservative than the average tech entrepreneur, so it’s not exactly a high bar.) I suspect, though, there are even some founders out there who could be put off by the things I write and probably how I write them.

As a solo General Partner, my firm is me—and there isn’t a difference between investor Charlie and personal Charlie. When you get an investment from Brooklyn Bridge Ventures—you get me. When you ask me what I think about something—I’m not juggling two hats. My investment thesis is shaped by the sum of my personal experience and so are my values. My goal is to make Brooklyn Bridge Ventures the most accessible VC firm not just because I think it’s good business, but because I think it’s a based on good values. I don’t believe that your gender, school, socioeconomic background, race, identity etc. has predictive value for whether or not you can be a successful founder—and I think the next great 50 companies are going to be majority founded by people not in anyone’s “inner circle” today.

I also believe in treating people with respect and being helpful when I can—treating the world like a community where we all benefit from generosity and things aren’t always zero sum. These are both my business principals and my personal values.

The struggle I have with politics these days is that it doesn’t quite feel like a discussion of principals anymore. If you want to sit down and debate what the size of the government should be those are arguments I’m happy to have and can stay pretty respectful around.

But I don’t think that’s where we are today. It’s hard to ignore that some policies aren’t just disagreeable or not optimal, but they just seem, well, wrong. They feel wrong because they violate some basic values I think our country should be built around. They’re wrong because they seem more like power plays than positions—inauthentic political theater. They’re wrong because they’re clearly not working, or they’re only benefitting the privileged at the disproportionate expense of everyone else.

I understand that when you draw a right/wrong line, it makes people feel alienated and unwilling to engage—no want wants to have their values questioned.

I used to think that—that you could concede and negotiate in the search for common ground around values. For example, I used to debate the best tactical way to get to marriage equality—because I didn’t think that people in Arkansas or wherever were “ready” for it, and so I would say we should go state by state first, showing people that it wasn’t the end of families as we know it, and eventually have it spread everywhere

That was before I thought about what it would be like to be gay in Arkansas—and how sometimes tolerance of things we see as wrong can be just as bad as the wrong in itself, empowering those who would discriminate. Today, I’ve come to realize that calling out where you see injustice and wrong is the better thing to do, even if it offends some people.

Can I prove that I’m right about my opinions? I can’t prove that I’m right about any of this stuff any more than I can single-handedly prove climate change as a non-scientist—but I’m pretty sure we’re fucking up the environment and I’m definitely going to judge you for support of any policy that makes it easier to pollute, because you think climate change is debatable or that somehow economics justifies the destruction of our planet.

But what does that judgement even mean?

Perhaps I’m judging you, but so what? What right does anyone have to live their life free of the judgement of others? We get judged all the time. Limited partners judge my investment acumen. Founders judge whether or not they think I can add value. I judge founder ability and the level of homework they’ve done on a plan.

A co-op board is going to judge me at my next apartment.

Opinions are a dime a dozen, and if you’re not happy with someone’s opinions or their opinion of you—there’s really only three options. You can either take them to task—because maybe you think they’re wrong and you want to call them out and have a debate. You can just put on your thick skin and ignore them. Lastly, you can usually choose not to have that person in your life.

I’d hate for the third to be an option that gets taken too many times. I wouldn’t want to lose my relationship with my parents just because they’re conservative—no matter how many times we argue. I wouldn’t want to lose an investor because they disagree with my politics—because I strongly believe I can make great returns for them by investing in impactful companies. I wouldn’t want to lose a deal because I know how hard I bust my butt for founders.

But does that mean we can’t talk about it? Is it better to avoid the subject or to have those difficult conversations?

It’s probably going to happen that I’ll lose a few opportunities along the way—but I also think it’s going to happen that someone reaches out to me because of what they heard and wants to work with me because of it. In fact, I know it has. I know I get deal flow because founders want an investor who is going to be direct and tell them what they think—about anything. They want an investor who works from a set of shared values and not purely on a set of economic algorithms—because this is a people business highly short on data to make anyone’s algorithm work that well anyway.

Plus—the values of today’s innovators are getting more and more progressive everyday. They’re looking for better ways to share, to run cleaner businesses, and building more accessibility into power structures. They’re questioning capitalist models as the best solutions to every problem and examining where and how they feel comfortable profiting.

As investors, we’re in positions of power—and as we know from Spiderman, with great power comes great responsibility. We have to be conscious of our privilege and try to use our stature in the community to improve the world around us. Quietly sticking to investing means wasting the opportunity to do good. You should always feel comfortable talking to an investor about their values and their politics—and you have every right to work with people on the same page as you, no matter which side you support.

The Moments that Define Investor and Founder Relationships

In almost every single investment I’ve ever made, I can think of a singular moment in my relationship with a founder that, no matter what came before or what might come after, defined our relationship. Often times, it came in a very vulnerable and down moment for the founder—perhaps they just lost out on a big opportunity, had someone from the team leave, or they’re running low on capital before sales have come around. It happens to everyone regardless of how well the company is doing—because no path to success is a straight line.

While it might be a low point for a VC’s expected return on investment, it might demand of an investor a high point in their generosity and empathy—because a founder is going to remember who was there for them with confidence and motivation, and who either abandoned them or tried to take advantage of the situation.

Not only that, but the venture community is extremely small when it comes to investor reputations. Founders are tremendous advocates for investors who have their backs—but if you put a founder through the ringer unnecessarily, everyone in their circle is going to know about it, if for nothing else because they’ll need to talk through it with others in real time for guidance.

The key to having difficult conversations with founders is setting expectations. The worst thing you can do as an investor is to go back on indications of support or to blindside a founder that you’re changing the strategy around your professional relationship. If you’ve lost the confidence needed to follow on in a deal, that needs to be signaled right away. If you’ve decided not to invest in the first place, you need to say so as soon as you know it so you don’t string a founder along. If you’ve left your firm or have other deals that require more time, you can’t just become a ghost or check out on a founder after negotiating all sorts of legal incentives for the founder to be motivated for the long term, which makes someone assume you’ll be doing the same.

Failure stories are going to be told just as often as success stories—and investors need to make sure that even when the decisions are tough, they come early, consistently, and with transparency, or they’ll be one of the villains in an oft-repeated tale.