Start-up Course: Back to the Future- Changing the world today and tomorrow

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It’s almost impossible to predict the future, whether it be the financial or tech future. There is so much great innovation out there, but when will it reach widespread market distribution? As mentioned in a previous blog, the world has been waiting for electric cars for several years and we are still waiting… we are still not ready it seems. BetterPlace failed to distribute their products to the mass market.

At this week’s startup course we discussed these issues and what the future holds for us. We were fortunate to be joined by Benjy Feinberg of the lending site, Zazma, who provided his insights into business and the future of finance. Zazma shares eToro’s vision of opening up the financial markets to the everyday man rather than it being just constrained to the privileged few. Is this concept also too premature or are we just sowing the seeds of a revolution? Time and history will be our judge, but as Winston Churchill stated, ‘history will (hopefully) be kind to us, for we intend to write it.’

Ultimately the larger the cost of your product the slower the pace of distribution. Facebook and Twitter went viral because they were free, whereas eToro requires a cash investment. Robots and Space travel require extortionate product costs and after 5 decades we are still waiting for both to reach a viable sustainable commercial marketplace. Supersonic commercial air flights were scrapped 10 years ago as they were not economically viable, amazingly we have still been travelling at pretty much the same air speed for 20-30 years.

Very successful enterprise startups tend to have iterative sales models. They achieve a 50-100% growth rate year over year for several years. So the strategy should be to get the smallest customer that is also a good reference customer and build from there. Building the business will take time, but under a realistic scope of growth, this also will reassure your investors and build further VC interest over time. Most sales models fail because people miscalculate the sales cycle. They underestimate just how long it takes to land the ideal clients. So get the smallest, best customers you can, quickly. Jump the easy hurdles first. Then you’ll know more about how to deal with the larger enterprise customers.

We are now living in the programmable world. There are all these gadgets available to make our lives easier, ‘soon we’ll be able to choreograph them to respond to our needs.’ The key word here is soon. How soon will these practical gadgets reach us?

We at eToro are disrupting and democratising the world of finance. The next generation will be more exposed to their own investments than they’ve ever been before. Sometimes revolutions take time whether it be political or technological. The Berlin wall fell several years after round-table talks had begun and the internet only really hit our computers almost 20 years after peer to peer servers were being used. We can’t predict the future, but you can’t change the world if you do not try and whether it be tomorrow or in 10 years, your vision if shared by the masses will at some point reach it’s target audience…

New leadership for a new world- Management 2.0

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We just recently finished our 2nd startup course at the company. It was an awesome ride. Once again another group of employees partook in a journey that allowed them  to explore how best to set up a company and take their creative ideas from 0 to 1. I better watch my back because there were many talented Etorions who partook in the course that have ideas of their own and are now ready to implement them and change the world…watch this space…

 

The whole essence of the startup course is the embodiment of Management 2.0 an ethos embedded in eToro’s culture. Jeremy Stein our Chief of Staff presented to the class his vision of Management 2.0. We believe in putting power in the hands of the employees to change the direction of the company. Our products such as the eToro OpenBook provides the average person with the tools to determine their own financial future. Empowering others allows change and innovation to flourish thus bettering and improving the world around us. Exponential growth cannot be achieved by churning out the same systems over and over again. This is why we must always be looking to change our style of leadership, to modernise and explore other ways of doing things. We have to constantly re-evaluate how we do things.

 

Mohatma Ghandi famously said ‘be the change you wish to see in the world.’ And Apple what do they say? “The people who are crazy enough to think they can change the world, are the ones who do.” But how do we change the world? We need to build the right infrastructure, culture and leadership for innovation and creativity, poignantly, ‘“Everyone thinks of changing the world, but no one thinks of changing himself.” We need to change the way we operate in order to implement change.

 

The same old thinking breeds the same old results, thus stagnation. Jeremy Stein presented the

 

different styles of management.

 

 Management 1.0                                                                                                                                                          Management 2.0
Power
hierarchy, in hands of a few                                                                                                                               in the hands of many
Knowledge
restricted                                                                                                                                                                       shared
Trust
low                                                                                                                                                                                    high
Opportunities
limited                                                                                                                                                                              diverse

     Growth

                                                                                                                              time dependent                                                                                                                                                      dependent upon YOU                                                                                                             Management

 

 

 

 

 

 

 

 

               nstructive                                                                                                                                                           Development

 


Certain institutions do not want drastic change such as militaries and prisons etc. Placing in power in the hands of the individual to take control of their own destiny in these institutions would be counter-intuitive. However many styles of leadership need to adapt to the way the world is moving. We have moved into a web 2.0 world soon moving into 3.0,  management needs to make necessary changes to be in tune with where the world is and provide the next generation of leaders the ability to continue these changes 10x.

Start-up Course- Deep Thought. AI, Are humans dying out?

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Start-up course- Deep Thought

There is a lot out there that we don’t know; deep in the oceans, deep in outer space and there is technology that is perhaps more advanced than ourselves. AI– artificial intelligence and computer science has developed to such an extent that it can outperform humans more efficiently, dramatically changing the way we live. Are we ready for this?

At this week’s startup course we were fortunate to be joined by Mark Gazit, CEO, President and Board Member in Fast Growing Global Companies (Cisco, Skyvision, Deltathree Inc) and Professor Amir Averbuch of Computer Sciences from Tel Aviv University. Both explained how robots can detect certain patterns of behaviour that humans cannot such as fraud and other crimes.

Mark, explained how if and when we are hacked we often have no idea as the ‘who and the why’ unlike conventional crimes where there are ransoms and clear motives. The cyberspace has become more and more complex and therefore AI answers and solutions are required to solve this. But what does this mean for us?

If robots replaced humans where would that leave millions of people working in manufacturing. Who wants to crush the working class, thus potentially having catastrophic economic consequences. Robots may seem practical on a micro scale but on a macro scale maybe they are not? There are some advances in technology that we are simply not ready for.

Despite this there is no doubt we are moving into a programmable world, where our lives are becoming more determined by machines and technology rather than human beings. The prices of food at a supermarket can be ‘live prices’ adjusting every second depending upon the day’s supply and demand and currency rates. Even though we are rightfully nervous to replace human behaviour with machines, they are certain practices that we follow that are outdated and potentially holding us back.

Neuroscientist Henry Markham set out his vision in 2009 to build a complete model of a human brain-from synapses to hemispheres- and simulate it on a supercomputer. What will be the consequences of this? His mantra on innovation though is applicable to all of us budding entrepreneurs, ‘my mantra is diversity. I clone my mentors. I copy everything they do, and then I innovate on top of it.’ I suppose this is one of the central themes of having a startup course here at eToro. We want our employees to embrace the ideas of the founders of the company, learn from their vision but also identify as to where we can build the company and be more creative.

AI is innovative and creative, but whether it will benefit the world on a macro scale in the near future remains to be seen.

 

irobot

Start-up Course Web2.0…There Once Was a World Without Web.

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After web 2.0

My kids will grow up and they won’t understand how I lived and coped in a world without the  web. I always found it amazing how my parents never really had a television growing up. How did they live their lives?!

We now live in the web 3.0 world, it is almost hard to remember what the world was like in the web 1.0 world. Do you remember how we had to dial-in our internet. The world has moved on a lot since then.

A brief history of the world wide web.

Web 1.0 Access to a new world- dial-in internet, netscape- ye that extinct company.

Web 2.0 Shared Economy. The birth of generation Y, social media and user-generated content.

Web 3.0 Collaborative economy. Cloud software. This is kinda where we are now.

We now live in a world that is more open than ever before driven by user generated content, social networking and collaboration as greatly envisaged by Jeremiah Owyang of Altimeter Group. We are entering into a world of uncharted territory. No one knows what the future holds. Great innovation serving our needs does not always win. Better Place just recently went into bankruptcy. The idea that the world doesn’t need electric cars nor that Better Place’s product is useless is simply not true. At some point at some time Better Place’s vision will be implemented on a large scale, unfortunately they will not be around to reap the benefits.

The Better Place bankruptcy teaches us about the importance of timing when creating a business. You may have a profound vision and an innovative product, but will it be possible to distribute it? Sometimes some things are too big or too great for their time. Great products often do not reach the mass market and sometimes our hopes and dreams may take a little longer to be fulfilled.

As seen above it is becoming easier to scale cheap and free products to millions of users, but getting people to part with their hard-earned cash as never been easy and this still remains a challenge for all innovation in today’s world.

Gone in 60 Seconds, Startup Course- The Pitch,

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You’ve got a great idea. That’s great. Well done congrats. I’m busy, but I am willing to listen, I’ll give ya 60 secs on my way out the office. Pitch it to me…in the elevator.

Like we mentioned in previous blogs a great idea does not sell itself, YOU have to sell it and sell it quick. In the ruthless business world when people will barely give you a minute of their time you have to capture their imagination, capture their attention, you have to pitch to them something they have never seen before. Good luck.

It all comes down to the pitch. No second chances, no invites back. If you don’t impress someone the first time you’re most likely not going to get the chance to impress them a second.

How does one impress in such a short space of time, under such pressure? No matter how good your product is if you don’t pitch it well enough it won’t sell. In fact a poor product pitched brilliantly can gain the upper-hand on its ‘superior’ competition.

In this week’s class our talented employees at eToro had their own chances to present to the class their own business pitches. We heard innovative pitches ranging from ‘how to build your own teddy-bear’ to ‘removing homelessness’. They got a feel of what it’s like to stand on stage and to be judged and scrutinized. Everyone gave their feedback and thoughts as always.

Some basic rules about pitching:

– Make sure your first business pitch is not to someone too senior. The less senior the more willing the employee is to make a deal- to get the ball rolling in their career.

– Pretend you’re pitching to an idiot. Assume they know nothing about your product. Your presenting the idiots guide to your product. However treating them like an idiot won’t get you far…find a balance.

– Pitch when you don’t need money. Don’t do the chasing. People can smell it when you’re desperate. The is the way the world works, just like how your high school crush suddenly fell in love with you when you were in a relationship.

– Be honest

– Know who you are pitching to

– Use visuals, think different, use an ice-breaker if need be, but also be professional, serious and be yourself.

– Your pitching yourself as well as the product. Investors invest in people not just products.

– Use a storyline. Explain the problem, how you going to solve it and how your product will change the world.

– Leave them with facts that make you stand out. Space X has a great elevator pitch: “Launch costs haven’t come down in decades. We slash them by 90%. The market is $XXbn.”


Often a great pitch is like a great date. If you ‘have he or her at hello’ it could be the beginning of a long-lasting relationship…

 

 

Gone-In-60-Seconds-Desktop-Wallpaper

pitch

Startup Class 5 – The Mechanics of the Mafia

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Startup Class 5- The Mechanics of the Mafia

 

Openbook. Openspace. Open views. Openness- this is the way we conduct ourselves at eToro and this week’s class was no different with our students giving their weekly insights into how they think a successful company should be structured.

 

Close relations harvest a successful company. As expressed in the blog, Thiels Law a company with high trust people breeds innovation and breeds success. It allows ideas to flourish and allows employees to use their imagination free from constraints and rules.

 As mentioned in previous blogs setting up a company is like establishing a family, it is built upon trust and shared values. As the company grows more people need to buy into these shared values and a mafia like structure emerges, as seen in many successful startups like Paypal.

Innovative startups create for the customer rather than chase after them. Traditional forms of trade go after the customer such as a baker, consultant or to some extents 20th/21st century lawyers. Startups on the other hand bring customers to them through creative means. The idea that many social innovations have emerged virally is testament to this theory.

There are 3 stages of how a successful company develops similar I suppose to how one climbs the ranks of a mafia family:

1 The first stage is being a soldier- fighting for your place amongst tough competition.

2 Innovation ‘consigliere’- creating something new, that makes you standout from the crowd and allows you to escape into a blue ocean away from the competition of the red ocean. In eToro’s case this was when became a social investment network

3 Monopoly ‘godfather’- fighting within our own territory. Dominating the market, scaring away competition and earning respect from the crowd.

As seen above within a mafia family there are different roles and responsibilities. Everyone must buy into the vision, but also each member requires different skill sets. In a startup you need a combination of nerds and fighters. You have back office and front office. People to carry the fight to the customer and people that need to create the product. It is important for there to be a diverse group of individuals cooperating and tolerating one another. People should feel free to express their opinions. As mentioned in a previous blog its ok to tell your manager to fuck off…within reason. Recruiting people with different opinions and views allows others to learn from one another, it creates an ideal environment for new ideas to flourish, after all a successful company must share the concept of 10x, to be great you need to think big, think different and think creatively.

 

 

mafia family

Get Married in Delaware- Startup Course Thiel’s Law and Follow the Money

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Thiel’s Law and Follow the Money

 

This class focuses on Peter Thiel’s mantra, ‘that a startup messed up at its foundation cannot be fixed.’ To further explore this principle we had the pleasure of being joined by telecoms entrepreneur Haggai Barel. Haggai’s Orca Interactive was acquired by France Telecom that later merged with Viaccess. Haggai established Orca in 1996 and his innovative vision and commitment took it from a small media startup to a global telecoms enterprise.

Haggai provided us with profound insights into how he set up his successful ventures, sighting that a successful marriage amongst the founders was crucial in providing a startup with long-term success.

haggai barel

 

Founders and founding moments are very important in determining what comes next for a given business. If you focus on the founding and get it right, you have a chance in getting the company from 0 to 1.

 

Foundings are obviously temporal but how long they last can be hard the question. Its like forming a family, a stable family requires a solid long lasting marriage (founding partnership) and requires children that grow and develop into mature adults (investors). There must be an intrinsic trust and shared vision amongst the investors and their founders.

 

Founders should stay in charge to take the company from 0 to 1, once the paradigm shifts to n, the founding is over. At that point, executives should execute.

 Focusing on the principle of a family, a solid family is built on trust and this is no different from a startup that is committed to growing from A-Z. A family is often chaotic, where people don’t play by the rules. You’ve got the rebellious ill-disciplined teenagers that don’t have any patience for authority (thankfully my kids haven’t reached that stage yet…), however despite this there is an undercurrent of trust where everyone wants the best for one another and is pulling in the same direction. This is mirrored in start ups and some of the great companies of the 21st century such as Google, with high trust people operating within a low alignment structure without a whole lot of constraints.

 The low trust, low alignment model is a dog-eat-dog sort of world. People who you might not trust can do a lot of whatever they want. This is the environment of ruthless competition. An environment not suited to breeding creative ideas.

 The ideal is the combination of high trust people with a structure that provides a high degree of alignment. An atmosphere where people trust each other and together create a good culture, therefore a good structure.

If founding is like getting married, then taking on investors is like having kids,  Things get extra tricky when one has kids, it become much harder to just give up and divorce after you have kids…

 

Some simple principles for tech startups:

– Make sure there is equity alignment between founders, employees and early investors.

– People must be either fully in the company or not in it at all.

– Vest equity over time depending upon performance and relationship.

– When raising money, never have a down round. It should always be up on the previous one.

delaware

 

Growth Hacking – Why Geeks are the Salesmen of the 21st century…Startup Class – If You Build It, Will They Come?

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This class focused on how one builds, sells and markets their products. The class was privileged to be joined by eToro’s VP of Online Marketing, Nir Orren. The class focused on how distribution plays a pivotal role in allowing a company to maximise its value, using the methods of sales, marketing, PR and media and as Nir explained the emergence of growth hacking.

The class acknowledged that there are great ideas and great products, however these do not often reach the market nor maximise their own potential value. Therefore how does one get a product out to their customers? How does one maximise the potential value of their company?

The key is distribution.

The concept of distribution acknowledges that the best product does not always win. Great products do not sell themselves. Quantitative analysis recognises that in order to build a great business in a world with friction and uncertainty, customer lifetime value (CLV) needs to be greater than the cost per customer acquisition (CPA). This means a company must have a distribution strategy. A company selling expensive software or data to governments will have a different sales strategy to a company selling cheap cutlery in a department store. However each strategy requires a thorough means of how to distribute the product. The product needs to come to the customers not the other way round.

‘This product is so good that it sells itself”, a sentence heard many times, that ussually means shit. This is almost never true. Companies say this in order to absolve themselves from the responsibility to create a distribution strategy . Sometimes we need to be humble and accept that no matter how good ‘we’ think our product is- ‘they’ need convincing. Will ‘they’ simply just come after product? No. The product needs to get to them first.

People are not willing to part with their hard earned cash like the flick of a switch. Does a product sell itself or does the sales pitch?

Advertising is a 95 bill business, if products sold themselves then there’s a lot of people wasting their time. There are plenty of great products that want to expand the reach of their product beyond their own conventional borders. How do you build and expand your company’s reach?

Sales and advertising are subtle means of doing this. These methods are often hidden. Hidden for a reason. No one wants to admit that we’re being sold to. However we have become so used to living in a world with advertisers and sales that we feel uncomfortable if a product is not sold to us in one way or another.

Product sells itself, no sales effort= Does not exist (imho – rarely exists)

Product needs selling, no sales effort=You have no revenue.

Product needs selling. Strong sales pitch= Sales-drive company.

Product sells itself, strong sales pitch=This is ideal.

To succeed, every business has to have a powerful, effective way to distribute its product. Great distribution can give you a terminal monopoly. It can take you from being the first mover to the last mover. A unique product requires a unique effective method of distribution. Space X for example, under the leadership of Elon Musk has aggressively marketed itself, to the extent that it now has governmental support in helping it launch rockets into space and in sending a man to Mars. It has become a new face in an industry previously controlled by old traditional institutions.

If you cannot solve the distribution problem, your product doesn’t get sold- even if it’s a really great product. Zynga invested a lot of money on targeted advertising despite its viral growth. They monetized users much more aggressively than people thought possible. Then Zynga used that revenue to buy more targeted ads.

Nir Oren explained to the class that growth hacking is playing a crucial role in distribution- the ability to combine traditional marketing skills as mentioned above with product developing skills. Such as building features to expand the number of users you have. Nir presented to us a number of slides, growth hacking is effectively high-impact, high velocity marketing. It has become a mainstream method in allowing companies such as PayPal to be able to expand their user base. Companies that invest in growth hacking at the right stage outpace and outmanoeuvre their competition. Growth-hacking is the present and future of distribution.

geek salesman

Viral marketing is a key means of distribution. This is harder than most people think. If you’re the first mover who is able to get a product to grow virally, no one else can catch up. Depending on how the exponential math shakes out in a particular case, the first mover can often be the last mover as well. Viral marketing requires that the product’s core use must be inherently viral. The emergence of viral marketing has been born out of the emergence of the new peer led revolution that we are witnessing. See how Facebook reached a billion users.

In an idealized world perhaps distribution would not be necessary but it matters in this one. Distribution isn’t just about getting your product to users. It’s about selling your company to employers and investors. Moulding your company as one, with a unified tight-knit strategy is fundamental in laying the foundations of distribution. Just like the mafia I suppose, but in order to understand this similarity you’ll have to check out my blog next week…

 

Last Mover Advantage – With Guy Gamzu, startup class 4

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This week at our weekly startup course we went through  Startup Course 2013 Class 4, we had a unique opportunity to look  into the mind of an angel, Guy Gamzu. Guy was the lead angel investor in eToro and is on the board at eToro, he is one of the top angel investors in Israel, and has been a mentor for me while building eToro. Guy is fascinated with people, from the early stages of eToro he has helped us identify what we need  to do and who we need to recruit. We started discussing what it takes to create and set up a successful company.

The class started the debate with… “People often talk about ‘first mover advantage.’ But focusing on that may be problematic; you might move first then fade away

We went through the slides everyone prepared about the Last Mover Advantage, the idea was simple, everyone read the notes, and present one slide that captures their insights from the course, its interesting to see how everyone captures the ideas of the course.

The concept os the last mover advantage is the danger there is that you simply aren’t around to succeed, even if you do end up creating value. Rather than being the first mover it is arguably more important and significant to be the last mover. You have to be durable…‘you must study the endgame before anything else.” Sustainability within a company is key to maintaining its durability. There are three simple steps in creating a truly valuable company:

1) Find, create discover a new  market.

2) Monopolise the market

3) Expand the monopoly over time.

Moving first isn’t always an advantage. Think about poker. If you’re the last to bet, you have the most information. The endgame is where the most decisive moves are made.

So, then the class started to wonder, is it often the last mover that wins the market in the long-term?

Is Microsoft the last operating system?

Was Google the last search engine?

What about MySpace?

We went over the examples of Facebook, LinkedIn, Google, Zynga, Groupon and Ebay and discussed their first mover advantage Vs their last mover advantage.

The trick seems to be, to enter the market late enough to avoid being crushed by future competitors, but not too late where the market is now closed to new entries. A balancing act that is easily perceived in retrospect, but is a challenge when considering what market to enter and when to enter.

In order to own the market, to move from being the first mover to the last mover, one must build a brand in order to build a monopoly. Take Apple for example, in the 80s they had innovative products but they only established a brand in the late 1990s and are now probably the greatest tech company today; owning an entire value chain in software, hardware and locking in hundreds of millions of customers through their own ecosystem. Apple’s brand has allowed for greater opportunity to make money on services and goods that were previously unprofitable.

True intelligence is to enter the  market after the future competitors have showed their cards, but not so late when the market is already monopolized and therefore  impossible to compete in. Timing is everything…

We ended the class with Q&A together with Guy Gamzu, most of the class questions were around the same theme :

How do you choose which startups to invest in ?

How do you choose which areas to invest in ?

Guy told the class that for him there are no specific rules, its all about the people and how HE connects to the idea.

He  concluded with these significant anecdotes, “”The last mover advantage motivates us not to take current success for granted” and that 2 axes form the basis of a company: (1) Volume- “how many people is this idea/product relevant for?’ and( 2) Value- “how valuable is this solution?” Two crucial coordinates in producing a durable successful company…

The video of the course will be published by demand 🙂

Fucking Valuations- Out With the Old in With the New… Startups course class 3

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We are in the second round of eToro startup course,  below are some insights following Startup Class 3 on Value Systems.

As usual the week’s class was attended by an eclectic group of the highly talented people that we have here at eToro along with one or two visitors checking out the scene. Just before tha class I was out of line with one of the students, which lead me to say I am sorry in a very special way, we started the class twitting   “its ok to tell your manager to go fuck himself, if he is out of line or annoying you”, reaffirming the openesss (perhaps insanity) of eToro’s culture. Haven’t had anyone take me up on this generous offer so I a guess I’m fine. I am not sure this is the kind of culture that would be encouraged in the competitive environment of an investment bank or a global law firm, which I suppose brings me onto value systems…

The class was about how the valuation of companies have changed over time; value was previously determined by what the company said it was, compared with the present today where a company is valued based on its long-term potential.

The great companies of today create value, are lasting and durable and capture at least some of the value they create.

Previously valuations were based upon formulas such as PER ratio (price earnings ratio) or PEG ratio (price per share, earnings per share, annual EPS growth). However the class learnt that to accurately value a company one must take into account growth, the time value of money and variable cash flows. New means of valuing companies are constantly evolving. Today many tech companies lose money and their value is restricted to the future, ignoring the traditional 10-15 year thinking…

A company’s valuation only makes concrete sense if it has long-term durability. The ‘first-mover’ advantage as outlined in the class is therefore crucial. However if one wants to maintain value being the last-mover is as important as being the first mover. Sustainable innovation is the key to long-term value.

Supply and demand are useful in capturing value. Within this context the class discussed the positives of operating within a ‘blue ocean’ compared to the ruthless competition of a ‘red ocean’. The most desirable aim would be to become a monopoly rather than operate within a ‘perfect economy’, where a large number of firms enter the market and swallow up profits. However in order to monopolise one must innovate and continue to create value that can be sustained over time. Google operates by the mantra 10x where they constantly aim to create products and services 10 per cent better than that of the competition.

Effectively competition is overrated. The idea of graduating from Stanford Law school and then going on to work insanely hard for a good pay package amongst ruthless competition where the odds are stacked against you is hardly rewarding. Startup life can be tough and full of risks, but also less pointlessly competitive. You know where the end game lies. Winning by a large margin is better than ruthless competition if you can swing it in that direction.

Technology starts from the idea that the world is Mount Everest. If the world is truly flat its just crazed competition. Well-defined, well-understood markets are harder to master.

There is a dynamic that arguably characterises all great tech companies i.e. last mover monopolies. These businesses create value. They last. And they make money. Successful businesses are trained to focus on sustaining innovations, innovations at the profitable, high end of the market, making things incrementally bigger, more powerful and more efficient.

To create value one needs to be bold and brave and perhaps do the unconventional, like telling your manager to go fuck himself.