Startup Growth Blog: Trust Starts at 100% and Goes Down

Startup Growth Blog: Trust Starts at 100% and Goes Down

By Elizabeth Yin, former Partner, 500 Startups, and General Partner, Hustle Fund 

Investors (especially those who have been in the game for a little bit) are jaded. Winning over investors is not just about showing traction/progress (although that is a big component to getting investors on board). It’s also about trust. Fundamentally, investors have to trust you in order to invest in you. And, I think most investors will give entrepreneurs the benefit of the doubt…until they cannot.

So, trust in you starts at 100% on first interaction and only goes down from there. Your job is to make sure that you don’t screw that up. But, there are lots of ways to screw it up that you may not even realize that you are doing so:

1) You name-drop and overstate your friendship with a bunch of famous people who don’t know you really well

I cannot tell you how many people tell me they are BFFs with someone important (Person X). If you’ve hung out with someone a few times socially, that does not make you best friends with him/her, and name-dropping here does not help you build rapport.

If you really want to name-drop to build rapport, it’s much more effective to say how a particular person has affected you. e.g. “Person X’s ABC blog has been a great resource for me in my startup journey, and it’s been fun being able to hang out with him once or twice.”

2) You mix up the definition of common software startup KPIs

This is unfortunate. Often, I see entrepreneurs get the definition of common startup KPIs wrong, and it comes back to bite them even if it’s just an innocent mistake. For example, commonly, a lot of entrepreneurs of let’s say marketplace businesses will say they are doing $1m per year in revenue. But, really they mean GMV (in most cases). This is a really important distinction — especially if your business is making money by taking small margins between transactions (such as in a marketplace).

3) You act cagey about information

Early-stage investors understand that there is a lot of work to do in an early-stage startup. And you may not have all the answers (or most of the answers!) But that’s ok.

What looks really bad is when founders try to be evasive about their answers. If you don’t know the answer to something, just own up to it! But then explain your plan to figure out how you will figure it out. At this point, a big reason why people will invest in your company is related to their trust in you and your competency. So how you think about solving problems or getting to answers is actually very telling about a founding team. In some sense, you could say that your ability to answer questions well when you have little-to-no information is actually an opportunity to prove yourself.

But a lot of founders will act cagey and evade questions or beat around the bush when faced with difficult questions. This leads investors to believe that there is something either really wrong with your business or that you, as a founder, are not sharp.

4) You get defensive

I think a lot of founders who get defensive don’t even realize they are doing so. It’s actually really helpful to do mock investor meetings with other people before you start fundraising. (We do this in our program at 500 Startups). Investors can sense defensive founders from a mile away — it’s not just about what you say/don’t say but also about your body language.

You are going to get tough questions. You may even get inappropriate/borderline inappropriate questions. For example, what if an investor says to you, “You know I’ve only invested in founders with CS degrees from MIT / Stanford / Cal, because if things don’t go well, I can always broker an acquihire. Why should I invest in you?” No joke – people ask stuff like this. Investors will ask all kinds of things — if you and your co-founder are married, you will get questions about that. If you didn’t go to a name school, people will ask about that. If you are pregnant, people will ask you about how you will balance your job with your kid. People will ask you about how your race may make it harder for you to fundraise and what you will do about that if you can’t raise.

And some of these questions may be inappropriate so you may not want to take money from those investors. But many other questions will be fair questions but just tough to answer and will take you aback.

Practice mock investor meetings. Ask a friend to ask you the most inappropriate questions possible. Practice taking a deep breath before answering anything. You just cannot get defensive.

5) You don’t/are unable to address discrepancies between your answers

If you have discrepancies in your answers, investors will ask you about them. You definitely need to be able to address this well, otherwise, it will at best confuse an investor and at worst, make him/her think you’re a liar. For example, let’s say you tell me you have thousands of leads for your SaaS product that you cannot convert due to a lack of resources. And then later you tell me that you need money to pour into lead generation. And if I ask you, “Oh, why aren’t you focused on converting those existing leads?”, you need a really crisp answer. Either your existing leads are junk / not qualified, in which case, you should own up to it. Or, you actually have tried to convert your leads into sale but there is something wrong with your conversion/onboarding process. But, whatever it is, something doesn’t add up, and you need to be able to address this.

There are a number of other reasons why trust decreases with more interactions over time. But these are the primary ones I’ve seen in my interactions with founders.

This blog post has minor edits by 500 Startups Vietnam. Read the original article by Elizabeth Yin here. Click on “Tiếng Việt” on the menu for the Vietnamese translation provided by 500 Startups Vietnam.

 

To learn more about how to effectively manage investor relationships and successfully raise funds, join 500 Startups Vietnam’s Saola accelerator to work alongside experts who have collectively invested in 300+ startups.

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© 2010-2019 500 Startups

Startup Growth Blog: Raise for Milestones, Not Runway

Startup Growth Blog: Raise for Milestones, Not Runway

By Tim Chae, General Partner, 500 Startups

The most common thing founders are taught about fundraising is that they should raise for 18-24 months of runway (while “adjusting for increase in headcount, etc.”). That’s the advice you should take if you don’t want to fail. If you want to win, however, you should start thinking a bit differently. You’ll also notice that the best companies don’t tend to raise on a 12 month fundraising schedule but either much earlier like 6 months or much later. That’s because they’re smashing through their milestones ahead of schedule or they just don’t need to raise because their revenue is growing faster than the pace they can hire (yes, this happens).

After all, that is the kind of company you should strive to lead as a founder.

Because the “18-24 months of runway” advice is so ubiquitous amongst founders, a lot of new founders tend to miss the reason WHY that advice exists. The WHY is always more important than the WHAT in the road to success.

When a startup needs financing, it’s because of one of three reasons:

  1. need it to survive;
  2. need it for business growth (just a quick PA: headcount growth is NOT growth. It should be the byproduct of a growing business);
  3. because it’s basically “free”.*

*Most startups at the early stages are raising money for a varying degrees of mixture of (1) and (2). Unless you are Slack or Uber, it’s likely not (3) – even if you think it may be.

When an investor invests into a startup, it’s because of one of three reasons:

  1. their money allows for the startup to get to a size that’s multiples higher than where it is now;
  2. their help allows for the startup to get to a size that’s multiples higher than where it is now;
  3. they believe this company will get to a size that’s multiples higher than where it is now – regardless of their money or help.

The common denominator here is that investors invest because there’s a clear outline to it being a likely profitable investment.

So when a founder is looking to raise on “18-24 months of runway” and they communicate it so with their prospective investor without much substance around the business reasons why, it misses the mark completely between what investors want and what the founder needs.

To an investor, you might as well say, “I want to collect paycheck with your money for the next 2 years. I’m sure the business will be bigger in 2 years than it is now, but not sure…”

Investors are NOT funding a startup for it to survive, but rather for it to thrive. As a founder, stop thinking about how much money you need per month with added staffing and marketing costs and multiplying it by 18-24 to come up with the arbitrary number of your raise. Instead, think about what the next fundable milestone for your startup is and work backwards from there on staffing, marketing costs, etc.. THEN, add that 30-50% buffer. Then the funding narrative becomes, “I can grow so you get what you want, I just need what you can easily give (money or help).”

A fundable milestone is an achievement that is able to show next round investors that you have highly derisked the main risk factors of the previous round, while showing evidence of a high (or even better, higher) remaining upside.

I’d love to stop seeing founders raising arbitrary numbers like $1M and rather having founders say something like, “We’re trying to raise our (Current Round) to be able to raise our (Next Round). Based on (Next Round) comparables, we think we need to get to X KPI and prove out A, B, C to have a compelling reason for (Next Round) investors to become part of our story. We THINK we will likely need (add increase in cost events here – ie. “to hire (#) people to keep our growth,” “added marketing costs,” etc.). All that and using our current and low-end projected growth levels we think we can get there in 6-10 months, then adding (30-50%) buffer, we’d like to raise $XXX.”

The danger of not thinking about the actual reason why you raise a certain amount (usually if it’s just based on an arbitrary runway) is that there is no winning scenario. Likely survival scenario is that you’ll either over raise, give up too much equity, and overspend to accomplish the same milestone you could have hit for less. Likely fail scenario is that because you have more money in the bank than what to spend it on, you end up spending it in all kinds of unnecessary channels and never end up getting to your next milestone (like extra hires here and there, extra promotions here and there, focusing on way long term stuff without executing on what’s needed now, etc.). Yes, you can overfund yourself to your death. Either way, it’s likely a non-winning scenario.

For your next round, start thinking about which milestone you think you need to hit to get an investor excited and work backwards in coming up with the amount and what that represents from a time standpoint. That will help you raise quicker and get to your milestones efficiently while optimizing for equity upside for you and your team.

Read the original article by Tim Chae here. Click on “Tiếng Việt” on the menu for the Vietnamese translation provided by 500 Startups Vietnam.

 

To learn more about how you can effectively approach investors in your next funding round, join 500 Startups Vietnam’s Saola accelerator to work alongside experts who have collectively invested in 300+ startups.

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© 2010-2019 500 Startups

Startup Growth Blog: 11 Reasons We Didn’t Invest in Your Company

Startup Growth Blog: 11 Reasons We Didn’t Invest in Your Company

Fundraising for startups is never easy. One of the many difficulties is hearing a lot of no’s from investors. Very often, they don’t even share the reasons why. If you have ever been in such a situation, this blog post by Phil Nadel, co-founder and managing director of Barbara Corcoran Venture Partners, is for you. Read on to learn how VCs make investment decisions so you can better prepare for your next funding round.

Like most VCs, we often review dozens of deals each week. We have developed a funnel that enables us to quickly eliminate those that do not fit our general investment criteria (e.g. industry, stage, model).

The deals that survive this initial culling process are subjected to much greater scrutiny and due diligence. This process includes a thorough review of the deck, financial statements and projections; discussions with the founders, customers, and other investors; and a review of third-party information relevant to the company, its product, and industry. Companies are eliminated from further consideration during various stages of this process and, in the end, we ultimately invest in a small percentage of the deals we review.

When we decide not to invest in a company, we always take the time to explain to the founders the reasons for our decision. The purpose of this article is to provide a review of the 11 most common reasons why we choose not to invest in companies in hopes that some founders will find it helpful in improving their chances of raising capital.

#1 Lack of transparency/candor. If we detect that a founder is not being forthright, we immediately lose interest. Venture investing is based on relationships; being opaque makes for an inauspicious beginning of a relationship.

#2 Nothing proprietary/defensible. If a company doesn’t have something that is proprietary that makes it defensible against potential competitors, then its success will lead to its downfall.

What do I mean by that? Without a moat, the company’s success is easily replicable. The more success it has, the more competitors it will attract. But if it has a secret sauce — which could include technology, processes, knowledge, relationships, etc. — its odds of sustained growth are far greater. And while the first-mover advantage is helpful in the early stages, it usually doesn’t mean much in the long run (e.g. Myspace).

#3 No proven, scalable paid marketing channels. We like to invest in companies where our capital can be used to fuel revenue growth. If a company has not yet identified cost-efficient marketing channels that are scalable, they are more likely to burn through our capital experimenting and testing to find them.

We prefer to invest in companies that have already done at least enough of this initial testing so they can use our investment to scale the channels that are working. And we have a strong preference for founders who intimately understand paid customer acquisition and don’t reply to our questions about growth by saying “We’re hiring a growth hacker.”

#4 Don’t know your Key Performance Indicators (KPIs). We find there is a direct correlation between the depth of a founder’s knowledge of the company’s KPIs and the company’s success.

First, founders must demonstrate they understand which metrics are important to their business. Second, they must demonstrate they are properly measuring and calculating those metrics. Finally, they must know which levers to pull to affect each KPI and which KPIs need to be tweaked for the business to succeed.

#5 Short runway. When we invest in a company, we like to see that it will have at least 12 months of post-close runway. Raising money requires a lot of time and effort and distracts founders from growing the business. We want the company to have adequate resources to enable the team to focus on growth without having to worry about quickly raising another round. Also, the next round becomes much easier to raise if a company has demonstrated 12 months of improving KPIs and growth.

To calculate the post-close runway, founders must know the current cash burn and must have formulated detailed projections of how they will spend the funds they are raising and how much cash they will be burning each month post-close. This calculation can be done assuming: (1) zero revenue, (2) current revenue with zero growth or (3) reasonable revenue growth based on historical trends.

#6 TAM is too small. We often see companies that have innovative, sometimes ingenious, solutions to a problem faced by a relatively small group. For a company to achieve exit velocity, it needs to be addressing a large enough market to make its upside revenue potential meaningful to an acquirer. If a company can’t demonstrate to us that the size of the market that its solutions address is reasonable (for us, that is usually north of a $1 billion-per-year market), we usually pass.

#7 Pre-revenue or pre-ship. We find there is a disproportionate decrease in investment risk relative to the increase in valuation when a company makes its first sale. In other words, the risk decreases more than the valuation increases once a company graduates from pre-revenue to building and shipping a product for which someone is willing to pay. Thus, we think it prudent to invest after a company has made this first sale and has shown some early evidence of product-market fit.

#8 No vision. We like to invest in companies whose founders have a clear vision for how to grow the company to 100x its current size. While getting there will certainly require the company to deviate from this vision, not having a vision makes it infinitely more difficult. A North Star keeps founders on track, even in the craziest storms.

#9 Don’t intimately understand your competition. Companies often tell me “we have no competitors.” I generally find this difficult to believe and push back with “How is your target market currently solving the problem you intend to address? That’s your competition.”

Beyond this rudimentary knowledge, founders should thoroughly understand the solutions being offered by their competitors, which market segments they are addressing, and how they are selling. A company’s potential customers will be comparing the company’s product against other available solutions, and sharp founders will have properly positioned the product for success.

Not being extremely knowledgeable about these other options and differentiating your product accordingly is a recipe for failure.

#10 Lopsided founding team. Products need to be built and products need to be sold. These tasks require vastly different skill sets that are rarely possessed by the same people. We prefer to see a founding team with experience in a variety of disciplines, from engineering and development to sales and marketing.

Having all disciplines baked in from the founding of a company helps ensure that it creates both great products and products that can be sold. Yes, companies can hire talent in areas in which they are deficient, but then that deficient area is not really part of the company’s DNA. Plus, it’s always preferred if the folks managing the hired hands have experience in the relevant area.

#11 No skin in the game. We want to see that founders are 100 percent dedicated to the company before we jump in. At a bare minimum, they need to be working full time on the business. Ideally, they have invested a relatively significant amount of their own money in the company, as well. Paul Graham wrote that once founders take steps such that it becomes “unthinkably humiliating to fail,” they quickly become “committed to fight to the death.” We agree.

This list is not exhaustive, but hopefully, it gives founders a helpful checklist to make sure they are addressing some of the most common reasons why we (and probably other early-stage investors) pass on deals. And, by the way, if you’re doing all of these things right, we’d love to hear from you.

Read the original article by Phil Nadel here. Click on “Tiếng Việt” on the menu for the Vietnamese translation provided by 500 Startups Vietnam.

 

To build a winning fundraising strategy, join 500 Startups Vietnam’s Saola accelerator where you can work with experts who have collectively invested in 300+ startups. Find out more about the program and apply for the next batch at Saola Accelerator.

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San Francisco, CA 94103, USA

© 2010-2019 500 Startups

Startup Growth Blog: AARRR Funnel for Startups

Startup Growth Blog: AARRR Funnel for Startups

Successful startup founders start by understanding their customer journey through which a visitor becomes a paying customer. They can do this by using the AARRR Funnel developed by Dave McClure, investor and founding partner of 500 Startups. In this article by StartitUp, we will examine how the AARRR funnel is applied for businesses and highlight two key metrics that early-stage startups should focus on.

Acquisition, Activation, Retention, Referral, Revenue.

This is the AARRR (Must Read!) startup metrics model developed by Dave Mcclure. These 5 metrics represent all of the behaviors of our customers.

We want to break down these 5 metrics on your product and look at them separately, then analyze and monitor them so that we can optimize them. A successful startup is one where they are able to optimize every single one of these 5 metrics.

It’s important to understand about AARRR, because only when you understand all the metrics, you will understand where exactly is wrong with your startup, so you don’t guess and make the wrong assumptions. When you understand AARRR, you can become a startup doctor, because you will know exactly what or which part is wrong, and then fix it.

 

Breaking down a business through AARRR funnel

For example, a Chinese restaurant owner opens his restaurant in San Jose. After 3 months his business is still quite poor, so he simply blames that people in San Jose don’t like to eat Chinese food (impossible!).

The truth is that many startups make the same mistake of thinking if something doesn’t work, it must be everything, or they just guess the wrong reason why their business is not working. Like any website or app, a restaurant relies on many things to be optimized. It needs to have a good location. The storefront needs to look good so customers want to go in. When users are in, customers need to feel comfortable with the interior, and they need to be sold on the content in the menu. Moreover, when they go through the menu, they need to feel comfortable with the price point. Also, the user will obviously rate their experience in terms of the service, the taste of the food, etc.

So, while 1 restaurant owner will conclude that people don’t like Chinese food. Another store owner that knows AARRR-fu will find out maybe it’s because his storefront doesn’t look interesting enough, his price point is too high, or what not.

The truth is, any part of a customer’s experience and its details from walking past the storefront, to going inside, finding a seat, ordering, eating, paying, and leaving the restaurant, are all very crucial to the restaurant’s business.

Case Study: Michelin 1 star restaurant chain called Ding Tai Fong focuses on every part of the detail. They optimize everything. They are so detailed that when you are paying for the bill, the cash change they give back to you is always new so that you don’t get your hands dirty. So they have someone who goes to the bank every morning to get brand new cash to start the day off. It’s something as subtle as this, but this way, people love their whole experience from beginning to end and come back again or tell their friends.

 

Website case study: StartitUp

StartitUp is getting 1000 visitors/month (Acquisition), and our Activation (conversion) is 70%, so that we are getting around 700 users/month. Out of those 700 users, only 20% of those users are coming back after their first visit (Retention). Out of those 20% (140 users), only 10% are paying (Revenue), so that we end up with 14 users paying each month. Out of the 700 users, about 10% of those are referring out service to their friends (Referral). The funnel can be illustrated as follows: 

When we look at the example above, we can separate each behavior and try to optimize each separately.

For example:

1. StartitUp has a good Activation (conversion) rate of 70%, which means we are dealing with a real problem and we have a real solution, and we also have a convincing landing page.

2. We want to get more signups, so we look to improve our Acquisition (visitors) by adding more acquisition channels or work on SEO to try to get more users.

3. We then look at our Retention, and saw that our Retention is pretty horrible at 20%, so we build some extra features like email newsletters and gamification to get users to come back so that we have another chance to monetize them. But we realize users are not coming back to our service because our service somehow isn’t delivering the value promise we made – it doesn’t solve their problem or it’s not clear how to use our service. We also create a better tutorial feature to help users get started with the guide so they can properly reap the benefits from StartitUp.

4. We also see that we are not doing a very good job converting users into paying customers (Revenue), so we look at our price structure and our pricing page to see if we are not doing a good job communicating, or if we can build a stronger pricing plan with the main pricing plan that we want people to buy highlighted.

5. Finally, we check to see why we are not being recommended (Referral) to friends and see if we can put in some social sharing features to increase the number of referrals. This could also be that our service doesn’t have any referral value since it’s not good enough.

 

Pro-tip for early-stage startups: focus on Activation and Retention

For early-stage startups, we don’t need to focus on all of the 5 metrics during the MVP (Minimum Viable Product) phase. The 2 most important metrics we want to monitor and optimize right now are Activation and Retention (Retention is King! – If people like using your product and they return to use it, then you will be successful).

These are the 2 main metrics that will determine whether or not you have built a service that people need. A good Activation tells you that your UVP and landing page is convincing and that you successfully get the user to go through with 1 use cycle post logging in. Good Retention tells you that your MVP actually delivers the UVP to the customers.

If you plan to start charging immediately, then Revenue will be one that we want to monitor as well. Acquisition and Referral are not immediate, but they are the engines to drive new customers to your website, so do keep them in mind when building your MVP.

Important: Before you can get good Activation and Retention, which means that you have proven that your product does indeed deliver the UVP, there is no need to start getting users. The reason is that before you are sure that you have a working solution, the users you get now will leave anyways. You will be depleting your users, and it might also give you bad reviews. Therefore, before we can validate your MVP in a later section, only focus on getting “early adopters” and leave the Growth Hacking for later.

Read the original article by Dave McClure here. Click on “Tiếng Việt” on the menu for the Vietnamese translation provided by 500 Startups Vietnam.

 

The Startup Growth blog is powered by the Saola accelerator at 500 Startups Vietnam where we help early-stage startups find their path to exponential growth. Check us out to learn more about what we do and apply for our next batch coming up soon!

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© 2010-2019 500 Startups

Nhu Tran: Quality Education Delivered To Every Home

Nhu Tran: Quality Education Delivered To Every Home

“Education is the only way for us to get out of hardship,” Nhu’s father explained repeatedly when dropping her off at school every morning. He did so rain or shine despite having to run all over the city to sell construction equipment. A desire to repay such sacrifice motivated her to succeed at some of the world’s top companies and then, recently, co-found an edtech startup. Nhu’s venture, Schola, was built to help devoted parents like hers find quality education for their children.

Born and raised in Saigon, Nhu was an exemplary student, thanks in part to the value her parents placed on education. She received a scholarship to attend Asia’s top university, the National University of Singapore. While there, she encountered a significant setback: her English communication skills were not good enough. Many students in Vietnam can excel in reading, writing, and grammar but lack the confidence, skills, and experience for public speaking. For Nhu, this meant her peers in Singapore refused to work with her on group assignments. On one occasion, a classmate even stole her idea, receiving a good grade when passing it off as her own. Nhu couldn’t effectively communicate to convince the teacher that it was, in fact, her idea.

Nhu fought the desire to drop out and instead dedicated herself to a multitude of extra-curricular activities that helped her improve her speaking skills. Upon graduation, she landed a job at Garena, where she helped launch games such as Thunder Strike, which attracted more than 10 million users in Vietnam alone. She then spent four years at Facebook consulting various Vietnamese companies on digital marketing, helping some of them become unicorns in the country.

 

Making an Unpopular Decision

Nhu’s decision to leave Facebook last year didn’t only affect her. Resigning from a prestigious and high-paying position had ramifications for her family as well. Her parents rely on her for financial assistance, and striking out on her own as an entrepreneur makes their future less certain. Yet she was determined to start Schola to help Vietnamese students overcome the same issues she faced. 

Nhu remembers vividly her encounter with a cleaning lady who works in her office building. Even though she had spent over US$1,000 sending her daughter to English classes, she still couldn’t communicate well. To this mother, it was a huge investment, and yet it had seemingly been for nothing. Stories like this devastated Nhu and further convinced her of the importance of Schola.

Schola, the Latin word for “school”, is the brainchild of Nhu and her co-founder Aditya Gupta, ex-Facebook product manager. It connects students with accredited native teachers around the world for live one-on-one and group classes that emphasize confidence in speaking via an immersive American common core curriculum. For six months, Nhu worked 10+ hours a day at Facebook and then stayed up until 2AM connecting with parents and sharing about Schola. She needed to be sure Schola had potential before committing herself to it fully.

After they delivered 10,000 classes, Nhu knew it was time. Despite the protests from her parents and cautions from her friends, Nhu left Facebook and relocated to Saigon to focus full-time on Schola. It’s been an arduous journey convincing families to part with their hard-earned money. It is especially challenging because when it comes to education, results are often long-term and difficult to quantify. But thankfully they now have numerous real success stories to serve as proof. More importantly, Nhu’s personal story — her family’s sacrifice for her education, her own struggle with English communications, and her effort to overcome such struggle — resonate among many of the parents she speaks to.

Nhu brainstorming with other founders in Saola

From Educators to “Students”

Prior to talking to 500 Startups, Nhu’s co-founder, Aditya, had participated in several other accelerators and had grown skeptical of them. That skepticism persisted when they were invited to join 500’s Saola program; however, it quickly went away. “People here really care, and that’s one of the defining factors. When that happens, we can derive a lot of value,” said Aditya about their time with Saola.

Among many lessons, for Schola, diligently setting and monitoring metrics and KPI’s serves as one of the most important. In the past, they had operated via bootstrapping and thus had a somewhat haphazard way of assessing their growth and accomplishments. For Nhu, she found values for Schola through the depth of experience of the Saola growth experts. They were able to not only show her why taking a more holistic approach was important but also how specifically to do it.

Despite many challenges faced as a female entrepreneur, Nhu’s desire to help Vietnamese children thrive compels her to continue dedicating her time, energy and effort. After all, it was the same dedication that her parents gave her, and this is her way to pay it forward.

Written by Paul Christiansen

NOTE: This article reflects the personal views of Paul Christiansen and not necessarily the views of 500 Startups. Nothing in this article should be construed as an offer, invitation or solicitation for investment, or be construed as investment advice. Data provided is as reported by portfolio companies, third-party sources, and/or internal estimates and may not have been independently verified.

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© 2010-2019 500 Startups

Tuan Trinh: Zen and the Art of E-Commerce Recommendation

Tuan Trinh: Zen and the Art of E-Commerce Recommendation

Plummeting three stories and suffering serious injuries to one’s leg, arm, and back could never be considered a positive event, but some people are able to bounce back from such an experience and emerge a better person. That’s what happened for Tuan Trinh. The Hanoi-native spent three months in the hospital and many arduous weeks afterward learning how to walk and return to normal life. The downtime allowed him ruminate on Buddhist texts as well as the lessons he’d learned while studying in Sweden. Simultaneously becoming more willing to take risks and to stop and soak in the “beauty of life,” Tuan recovered and not long after founded NextSmarty, a technology company that allows small- and medium-sized e-commerce companies to more effectively recommend products to customers.

 

Supercomputer, Buddhist philosophies, and European work ethos 

When the computer store staff installed Tuan’s new super-computer nearly a decade ago, they asked if they could take a photo of it. It was the most impressive setup they’d ever delivered and they wanted to show it off. The fact that he bought it with his wedding money that most people spend on a house or children’s education says as much about his commitment to technology as it does his wife’s support of his passion. The purchase wouldn’t have surprised anyone who’d known Tuan for long. He developed an interest in technology during high school when the internet was in its infancy in Vietnam. After first using the Internet to connect with and make friends across the country, he became fascinated by the fundamentals and theories that powered it. Such curiosity led him to study computer science at university.

Even before Tuan adopted a Buddhist perspective on the trappings of earthly desires, he placed limited value on amassing financial wealth. Upon graduation, he turned down more lucrative positions at outsourcing companies and joined the startup where he had interned during school. He enjoyed the freedom, flexibility, challenges, and opportunities to grow that the position offered. But Tuan was quick to admit what he did not know, and during his four years with the operation, he discovered he needed to obtain a more thorough mastery of computing fundamentals to really explore his interests. He thus decided to enroll in a master’s program.

Explaining his decision to enroll at Uppsala University in Sweden, Tuan says, “They are the best for innovations and well-known for their distributed systems.” While there, he observed a difference between his peers’ and professors’ mindsets compared to Vietnam’s more conservative mentality. They “work smarter, not harder,” he explains, “and they take risks.” He quickly embraced the philosophy.

While visiting his family in Hanoi and waiting for Ph.D. enrolment results in Sweden, Tuan suffered his accident. After recovering and with the support of his family, he returned to working remotely for companies based in Silicon Valley as his health forced him to abandon plans to return to Europe to pursue a doctorate. While he appreciated the work, it didn’t satisfy his natural curiosity, and in his free time, he tried to solve technical problems “just for fun.” So when a German jewelry company came to him looking to increase sales by improving their online recommendation system, he took on the task free of charge; he simply wanted to see if he could do it.

Tuan & his team at “500 Startups Demo Day: A Regional Startup Showcase”

Tuan asks this question when explaining the challenges inherent in designing an algorithm for small- and medium-sized online retailers. Visitors to these sites are less patient than Amazon shoppers, clicking an average of only two to three times before leaving the site. To yield more purchases, Tuan tried to use algorithms from larger marketplaces, but sales at the jewelry company didn’t increase, so he spent two weeks analyzing the data line-by-line to better understand customer behaviors.

The algorithm Tuan developed in response to the information he gleaned from such close study proved quite successful with the site’s conversion rates increasing 55% and return on investment rising 11.5%. Others quickly took notice. RecSys 2017, the recommender system industry’s premier conference, published his paper, 3D Convolutional Networks for Session-based Recommendation with Content Features,” which summarized his findings. The research was later added to a reading list for graduate students enrolled in a course at the University of California at San Diego.

Fearing conflict of interest and eager to act on the entrepreneurship that is “in my blood,” Tuan quit his Silicon Valley positions and founded NextSmarty with aims to do for other companies what he achieved with the jewelry company: increase sales through effective, algorithm-based recommendations that rely on data in different ways compared to the conventional methods used by larger companies.

Tuan’s plans didn’t go as smoothly as he’d hoped. He admits that his initial success may have resulted in some overconfidence, as attempts to expand his algorithms to other verticals such as music streaming and online dating took a lot of time and effort. The team later decided to focus solely on e-commerce. It didn’t discourage him, though. Rather, it reinforced with what he’d learned in Europe: one must take risks, which inevitably involves failure. Being humble enough to accept and learn from mistakes is the only path to success.

While Tuan scaled back his ambitious efforts to expand the business, he never lost his propensity for exploring technologies in his off hours out of curiosity. And while he meditates every morning for an hour before going into the office to attain a sense of balance, he says that when he gets overwhelmed, he takes a full week off to read about and tinker with a technology topic not directly relevant to NextSmarty.

 

MBA students are taught to swim on dry land, while entrepreneurs jump into the water before learning a single stroke

The company has grown steadily since its 2016 founding, eventually attracting interest from 500 Startups Vietnam. In addition to giving financial support and advice on a wide range of issues including HR, staffing and growth, they suggested he join their first-ever batch of the Saola acelerator. The timing was perfect. As NextSmarty expanded, Tuan increasingly had to manage day-to-day business operations that don’t come as naturally to him as technical matters. Saola taught him how to better interview customers and interpret their comments as well as get sales and technical teams to share a vision.

A variety of expert lecturers with different backgrounds meet with Saola participants to share tangible advice and theoretical knowledge about many of the business matters Tuan has never formally studied. MBA students are taught to swim on dry land, while entrepreneurs jump into the water before learning a single stroke, Tuan says of his time before Saola. He’s done a great job keeping his head above water up to this point, but the accelerator taught him critical skills to move forward.

After a more-than-one-year relationship together, NextSmarty recently hired its first CEO. For many, giving up key responsibilities may be seen as a loss of power, but Tuan is uniquely humble and realistic about his strengths and weaknesses. He believes a CEO will allow him to focus more on the pinpoint efforts he excels at. This, along with what he learned through Saola, should spur vertical expansion in Southeast Asian markets with the ultimate goal of being the premier recommendation tool for small- and medium-sized e-commerce companies in the region. 

In addition to gaining more clients, Tuan hopes to investigate the interplay between online and offline customer trends. He’s observed an interesting back and forth between the two and is eager to see how AI can facilitate better experiences in both areas. Mindful to supplement these business goals with mental and spiritual health, he says he hopes to go on a week-long meditation retreat sometime soon. Rather than distract from his goals, such moments for reflection helps him maintain perspective and remember “we only have one life.”

 

Written by Paul Christiansen

NOTE: This article reflects the personal views of Paul Christiansen and not necessarily the views of 500 Startups. Nothing in this article should be construed as an offer, invitation or solicitation for investment, or be construed as investment advice. Data provided is as reported by portfolio companies, third-party sources, and/or internal estimates and may not have been independently verified.

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