Why genius does not exist

Our society likes to glamourize genius, overnight successes and anything that can be attributed to inherent advantages. If you’re remotely close to VC-Twitter you’ll hear talk about brilliant founders; if you’re into sports, journalists talking about talent and in dinner parties where “charismatic” is the common description for successful people. It turns out things are a bit different and if anything, for better or worse, intelligence does not matter a lot.

There’s a few sound arguments against genius myth:

1. The intelligence delta between a “genius” in the top 0.1% and an upper bound average average individual according to their IQ is roughly 30% (average between 110 and genius = 140).

This means that at any given point, someone can be 30% faster compared to another average person at the same topic. Assuming all other personality traits and background to be the same, then it would take the average individual ~ 1 hour more to work through the 3 hour problem the of the high IQ.

Considering that most people spend 1+ hours per day in social media, this does not seem a lot.

2. There’s a few researchers and authors who make a great case that “compounding” returns is what make a difference in achievement; not inherent ability. Malcolm Gladwell talks about this extensively in his book outliers, introducing concepts like the 10,000 hour rule and “concerted education” and Angela Duckworth in Grit where she explains her model that achievement = passion x effort =>Skill x effort = achievement.

In other words, anything worth mentioning takes time and even if someone is 30% smarter, they need to put in years of work to create something remarkable. Then intelligence does matter. But if someone is smart and quits in a matter of months and someone is less intellectually apt yet passionate enough about the task at hand to dedicate years, the winner is clear and it’s not the most intelligent one.

Considering how many people truly excel and the time dedicated, It’s more remarkable and rare to score high on grit and perseverance than intelligence.

3. Take a really fast computer to solve complex problem with a large dataset and run a dumb, inefficient algorithm and you will be disappointed. Take a mediocre computer with an optimized algorithm and rest delighted in the speed differential.

This is so true in humans. Where software, replace with mental models and thought patterns. Our lives and the decisions we make are vastly more complicated than what we can process alone. We rely on collective knowledge and intelligence to survive. Good decision making is much more important than raw processing power and yet it’s not the smartest that makes the most efficient use of mental models or perspective. It takes training, not ability.

4. Capital is the largest intelligence differentiator.

Capital allows indiscriminate additions of intelligence to one’s roster.

Almost certainly it’s better to work with a designer, a programmer and a writer than you doing all these jobs. In fact, mental models imply this would be wrong (context switching costs).

This is also useful in answering the question:”Should you hone your skills or strengthen your weaknesses?”

Slightly tangential, yet I think it’s fair to answer: None of the above. If you want maximum impact, partner with others and let them hone their respective strengths to complement your weaknesses.

Of course this answer only fares well from an organizational perspective but is there a worthy pursuit which only an individual is interested in?

Coincidentally the reasons geniuses don’t exist is also the recipe to productivity, purpose and achievement. Go make your genius.

When Managed Marketplaces Don’t Work And Why SaaS Enabled Ones Do

Sometimes a marketplace is flawed and headed for a tough time before it even begins. But it’s not unlikely that this does not become evident until £20m has been invested. So, it begs the question: how can you know if that is the case and what can you do about it?

Network effects, liquidity, TAM, are some of the many things that a marketplace needs to get right. All very aptly described by Bill Gurley here. The list in the post is informative, concise and certainly correct. But if we were to put these in a timeline, gap related to the execution in the middle emerges. For instance, you can know if you have a big market from the get-go and by the time you experience network effects it all gets easier however, everything in the middle is murky, complicated and multivariate.

In a 2018 post, Eli Chait published a very insightful piece where he correlates the fragmentation of buyers to marketplace success.

Effectively, his research reduces the complexity of the first list to one metric that’s a bit meta; he’s positing that for a marketplace to be successful there is an inherent characteristic the market needs to possess and that is a very large amount of buyers (1 million buyers for one business) and for those buyers to also be fragmented.

This is a useful point because it identifies the principal component of success amongst many other variables and thus simplifies the problem. Can you get a million buyers? If not, then the cards are stacked against you.

Once more, if you have 400,000 buyers already this is a meaningful insight. You can approximate the value per added buyer in the network and roughly calculate if you can escape velocity through network effects.

But what if you’re just starting? What if you have 100, 1000 or even 10,000 buyers? Are the above enough to ensure that a marketplace is the right model for a given industry? How can you tell if your unit economics can mature to reflect a £1bn marketplace?

Perhaps there is a way to know what will NOT work. And there if there’s one thing to steer clear from is services with inherent repeatability of transactions between the same supplier and buyer. If that is the case, then scaling a marketplace to the 1 million buyers, 1 billion GMV will be tough.

And there is both an intuitive and analytical approach to explain why. But first, why is the lack of repeatability a benefit? Uber is a good example.

From the perspective of the supplier (driver), Ubers works like this. A driver can reach clients previously unreachable and get access to a set of value-adding services to make the job easier. In exchange Uber takes a fee per ride. Every time a new rider connects with a driver, Uber has taken care of: finding the client, navigation, safety measures and, seamless payment in the end. But since the whole CLV is (most likely) equal to the value of the ride, the next time the driver picks up a new rider, (s)he will reap the same exact benefits from Uber and Uber will receive the same fee.

In other words, supply and demand see each other as a commodity. Therefore a platform facilitates the transaction. Uber is there to ensure that a code of conduct is enforced (safety, trust, politeness etc) and enables transactions that would not be possible before (eBay, AirBnB are also good examples). This is an example of Bill Gurley’s point on “technology expanding the addressable market”.

From the supplier’s perspective, Uber’s value per ride is the same.

However, there are industries where the above hold true and still have fundamental issues in their economics, because of the loyalty repeat transactions create. Take therapy for example. The more therapists, the better the matching. A marketplace can expand the market via remote therapy, matching and also by creating the necessary privacy and trust for clients to make the first step. It’d be closer to how eBay grows the market (remove friction) than how AirBnB, Fiver or Uber do it (without them it’d be impossible).

But still, in the UK alone there are at least 2,500,000 people that will receive privately funded therapy per year. Trust is necessary initially. Structural and attitudinal barriers can both be addressed by marketplaces and therapists have a constant need for new clients as some come and some go. Yet, a therapy marketplace won’t work. Why? Because of the repeatability of transactions. A therapist is not able to see more than 25 clients (max) per week (50-75 uniques per year) and a client will only see one therapist.

That would not be a problem if the marketplace could capture a chunk of the value across the lifetime of therapy. However, the value-add of a marketplace declines after the first session because the client forges a trust relationship with their therapist. By definition, therapy is about the trusted relationship.

From the perspective of a therapist, a therapy marketplace exists for referrals.

In fact, from the perspective of the therapist, the marketplace doesn’t only stop adding value but can detract value. After the first session, a therapist will start adding notes for a client, have constant communication with them via their preferred medium (e.g. WhatsApp), receive the payment in a centralized way (e.g. PayPal) and agree on a fixed schedule which on a per-client basis at least, is simple.

Consequently, after the referral is done, the marketplace introduces a cognitive cost to use its add-on services (e.g. automated payment collection). If the therapist wants to use the marketplace they have to do extra admin on another space to keep their operations centralized.

Therefore, taking the client away from the platform is natural. Disintermediation is inevitable and thus, CLV real < CLV expected, which leads to unsustainable economics and does not allow the marketplace to scale.

Enter SaaS enabled marketplaces, or SEM

So, repeat transactions present a structural barrier for the marketplace to achieve strong unit economics and scale. Still, suppliers do need services to grow and manage a practice.

This is where a SaaS-enabled marketplace can provide a solution for a few reasons.

  • The positioning of the product is not necessarily around lead generation
  • Consequently, pricing is not pegged on “getting more clients”
  • Finally, the supplier might bring the clients onto the platform voluntarily which alleviates the platform from the burden of CAC but also positions it to capture value across the lifetime of the client.

From a cash flow perspective, this allows for a direct reinvestment of revenue per supplier to acquire new suppliers. Eventually, when there is a critical mass, then the platform can aggregate them and introduce a new service on lead generation but without the pressure of that being a promise. Shopify’s Shop app is a good example of that.

So, are repeat transactions intrinsic between supply and demand in a market? If so, it will erode the marketplace unit economics and pose challenges in scaling to network effects. Looking at the “come for the tool, stay for the network” approach is the more appropriate strategy for these kinds of markets and can still take to the same end point but in a more sustainable way.

The tangible contribution of a strong brand to top line growth

Allocating budget and effort to brand awareness has always been a struggle for me. During my time at Timewith, I have witnessed firsthand the importance of a solid brand. It’s therapy, one of the human services where trust is the industry currency. But despite being so obvious, I was never able to articulate the exact function of brand to the marketing mix.

It does not take an MBA to understand that a strong brand is important. It’s not an exaggeration to say that sometimes a strong brand is everything. For FMCG this is true. Just a look at cleaning products should satisfy even the most deep-rooted doubts. Tesco’s antiseptic surface cleaner: £1/500ml. Dettol antibacterial cleaner: £1.75/500ml. We are talking about 75% difference for a product category that is arguably commoditized. That is crazy and what’s more, more people buy Dettol. The same trend exists across categories. Detergents, dishwasher tablets, food, candy. A strong brand brings about this elusive halo effect that can elevate a product or service to what was previously unimaginable.

But it’s not measurable

But here is an issue. How do you build and then how do you measure the importance of a brand? How does that correlate with your budget allocation?

See, for someone coming from an engineering and business background where “data is king” seeing ads on the tube, buses made me squirm for a while. “What a waste of money” I’d think.

At Timewith we recently expanded our product line with Assistant, a better way to manage one’s practice. While, I dislike the phrase and the positioning, Assistant could be classified as a practice management tool. Practice management is very different from therapy services because without search ads, it’s difficult to target clients at the right context i.e. identify purchase intent. And because practice management is a loyalty product, implying a high CLV and thus CPC and Google Ads are prohibitive.

So, we invested a lot on content marketing, community building and social media. I started seeing my LinkedIn following grow but I was still not clear on how this will convert, nor how to attribute value.

Understanding the value of a brand

But last week, I received a LinkedIn message that genuinely changed my world view. A therapist reached out to me directly to ask me some advice about her practice. We set up a call without really knowing how I could be of help and right off the bat she said:” I don’t know if you guys offer this, but I am interested in getting a better way to book my clients. I didn’t know who does that and immediately thought Timewith might have a solution for my practice! Do you guys offer anything like that?”

“Yes, we do”.

I felt the dots connecting for the first time. It was illuminating.

Brand awareness sole purpose is psychological priming. Priming occurs when a first thought or stimulus is tightly linked to a second thought. When we think “blue” , we might think “sea”. when we think “soft drink” we think Coca Cola. When we think “Michael Jordan”, we think Nike.

Two things are important here.

  • For my client “practice management” and Timewith were linked because of us posting on Social media insights, statistics and strategies for private practices.
  • Equally importantly, when it was time to look for a solution, instead of “thinking” from scratch or searching on Google she relied on her existing knowledge, and tried to think who’s “top of mind” and thought of Timewith. Why? It’s easier, and faster.

So if we combine and generalize the above two, we can come up with some conclusions.

  • What is the purpose of Brand awareness? To attach a strong link between a customer and an entity, function, product category.
  • What is the tangible result? Direct conversions. The customer will come and attempt to shop from the recognized brand before searching elsewhere.
  • What is the unique function of a brand in the marketing funnel? That it’s top of mind and trusted. Hence the user “does not need to think” and incur a cognitive load. In other words, the brand will not be compared.

Using Google Search to uncover brand priming

Yep, Nike is the only brand that comes as a recommended result when I type “basketball shoes”. Is it such a surprise? Isn’t Nike obviously a shoe company?

But it’s so much more than that. It’s about performance, sportsmanship, nice jerseys.

Tuns out there is a way to look at what are the most common associations of a brand. Simply type the name of the brand on the Google search bar and look at the recommended results. These are the things that people have linked strongly with the brand.

Again, no surprises here. Nike is undeniably linked with: Trainers, Basketball, Jordan and the Swoosh Logo.

Let’s go a level deeper. Let’s examine second level associations where the strategy takes off. What do I get if I type “Swoosh Logo”, the Nike Logo?

Suddenly the connections expand. It’s not about trainers anymore, which was the only product that Nike sells that came up in the first search. Suddenly the Nike brand is linked to trousers, hoodies, joggers, pants too.

In other words, priming can be passed on downstream. This explains why Nike wants to support top athletes. Because by supporting Michael Jordan it becomes the de facto brand in basketball, by supporting Tiger Woods, it is the brand for Golf and so on.

So a general framework emerges.

A brand makes sure to create a priming effect with concepts that are important to it e.g. celebrities and then let’s the value be created downstream from the associations that emerge.

And just like that, brand awareness becomes a tangible, budget worthy pursuit even for startups.

The (near) future of therapy is not online

As creative disruption teaches us, innovations start small. The original concept satisfies a small use case, seemingly innocent to cast doubt over the established modus operandi, but offers distinct advantages to a few niche users.

Online commerce was like that in 2000. 

Online therapy was like that in 2010. 

And then online commerce started growing steadily. Initially it was an add on, a nice to have but eventually it has brought the high street to its knees. 

Remember, there were really good arguments for retail to begin with: “no one buys something they can’t try. No one trusts paying online. Do you know the product is genuine? Can I risk giving a stranger my credit card? On the shop, I can try the item, look at it and feel it, get advice, purchase safely and use it on the go.”

It’s not that long ago that using a credit card online was considered risqué.

And here lies the question: Is the same thing going to happen to therapy? Is online therapy, accelerated by the advent of Covid-19 going to replace the way practitioners help people? 

It is not a dissimilar conundrum. 

Traditional therapy has similar characteristics: it relies on real estate (therapy room) to be delivered, claims that for the relationship to flourish physical presence and a holistic sensory input are required and is bound by a strict and centralised code of ethics which dictates even the logistics of it (e.g. payment). 

Online therapy, indeed, still feels like the lesser good for a lot of people and therapists alike. But it is more cost efficient (or can be). It is more immediate. It’s more convenient. For few, it has been a life saver. 

So, It seems fair to draw a parallel and ask: 

Is therapy going to experience its own existential crisis?

But here’s an inherent difference: Therapy is about feelings & thoughts. Those are very often around about relationships with others. I bet > 90% of people in therapy talk about their relationship with others often.

And during Covid, which media seems to be touting as a general disruptor and propeller of online therapy, there are two categories of people locked in: Singles and non-singles.


And whilst, to my regret, I don’t have data to prove this nuanced detail here’s my assumption: For those that are forced to stay indoors with their loved ones, online therapy is not feasible.

Why? Because for all intents and purposes, the people they want to talk about are the ones they’re locked in with and they don’t feel they can maintain the necessary privacy. As a result, a new appreciation for a physical, safe space emerges. And that safe space might require a set of walls and a far-from-home location. 

And that is a fundamentally an opposing wave to “online is accessible”. 

More likely scenario is that therapy will adjust with the fitness industry. Working from home kits, courses that can be booked online have been available but the need for a dedicated space, sharing a workout with others is very much in trend. Really, it’s a different experience. 

So, prediction? If and when we go back to “normal”, online therapy’s popularity will certainly not be anywhere near traditional, in person therapy. It will keep on growing inevitably but the true revolution is yet to come. 

The true revolution will require a few things that are currently not available. 

  1. A full investment from both parties (no notifications and distractions) 
  2. A sense safety and privacy 
  3. And a sense of physically be present in a shared space.

VR covers a lot of the above but leaves one exposed to their surroundings so it requires a safe communication method which for now hints at Neuralink’s way. I hope this post ages well but… gut feel? None of that is coming soon. 

Things Netflix taught me about how people buy products

Reading how the coronavirus lockdown has led to a 60% increase of content consumption, the usual culprits were popping (Netflix, Amazon Prime etc).

Of course there was not mention of the free streaming solution: piracy and its enabling technology, BitTorrent.

In 2020, you might think: but of course, it’s illegal. Then again, more than 10% of the UK population has pirated a movie in 2018.

Combine that with the fact that Netflix alone, not to mention any other of the streaming players, has overpowered its free competitor by 2.5X in the UK (Netflix UK subscribers, UK piracy participants) and an interesting question arises.

Netflix: Paid service, allows users to see some movies.
Torrent: Free service, allows users to see any movie that has ever existed. Before Netflix. In good quality.

What did Netflix do so well to have people buying a subscription in swarms?

People don’t buy the price tag, they buy product value 

“FREE” is a very misunderstood pricing tool. FREE can actually be dangerous. Perhaps a good hook you’re selling a commodity amongst commodities. My electricity company can make me switch for a FREE month or so – but then hope I don’t set a reminder to got to the next one and the next one. 

But a FREE month of the newest great email client won’t make me drop my Gmail. If anything, it’s more likely to drop my gmail if I have to pay for email, making me wonder how good can it really be! 

This is also the reason why closely matching the price of a competitor is a good tactic whilst avoiding competition based on price which can erode long-term shareholder value.

For instance, take the streaming wars that have escalated in the past year. Netflix, Hulu, HBO, Disney, Apple, Amazon. 

I am signed up to Netflix and Amazon Prime video. I don’t know how much I pay at this point for Netflix ( premium account, up-sells, multiple devices) and I think* that for Amazon I only pay via my general Amazon Prime subscription i.e. that I have not purchased extra content.

A couple of things: 

  • I have never thought: “Amazon prime comes for FREE. Why am I paying for Netflix?”
  • I also have no idea what the competition (Hulu, HBO, Apple) costs. 

I was not buying a “streaming service for shows”. I was buying Netflix.

And what this meant was that as long as the price didn’t give me the chills, it was not part of the consideration.

Product value is beyond the feature set 

Think of enterprise software. Hubspot. Salesforce. How many features can you recall? 3? 5? there are x,000s. Literally. This only makes sense because on the enterprise level you’re not buying features, you’re buying a solution. 

Do you know exactly how many titles your streaming service offers at any given time? What about movie quality? Is it set at 720p or Blu-Ray? I doubt you do. What about about rich metadata, trailers and extra content? You know why? Because that is not what was important.

In consumer, and I would argue in SMB SaaS, no one buys a product as a result of a deliberate comparative analysis.

This is something business schools got really wrong. “Benchmarking” on features is wrong. 

It assumes that people make purchasing decisions following an analytical, logical approach in a sterile, static environment. Which is not the case.

People buy product value and that is inseparable from the context the user buys a service. Timing is context. The political environment is context. What their friend bought is context. 

Positioning is Product value 

Social representations and connotations that come with the product are also part of the context. 

People don’t sign up to Netflix because it has more movies or it’s faster than Amazon Prime video. They do because there’s became inextricably related to cultural standards of millennial audiences. We think of unwinding and we think of Netflix. We think of cool shows and we think of Netflix (original content). We even think of dating in relation to Netflix aka “Netflix and Chill”.

People buy product value and that is related to the brand, the context, the features, the price and every other connotation linking the company entity to our entire social fabric.

And engagement.. which is very much a habit. 

And there’s a final element which follows but also solidifies all the previous. Habits. It’s what keeps a user from switching. To be clear I am talking about dopamine inducing, visually stimulating, thoughtfully designed.. habits. The ones you just can’t help but do all the time.

For a long time I have been getting surprised how streaming services became such a huge industry when there’s piracy: an obvious, free, relatively low risk alternative. 

The argument is strong: If you were told that you can go to the movies and watch a movie for free, or you can pay, it’s reasonable to assume you’d take the FREE version. 

And so, for a very long time I was thinking the same analogy applies to streaming services vs piracy: Why would people a) wait way longer b) for something to maybe arrive on their streaming service c) only for then to have to pay to watch it? 

And it turns out the answer is very simple: 

  • Because Netflix did a great marketing job to create a solid brand (positioning)
  • and later because people don’t want to think – Netflix became a habit i.e. no cognitive tax for the action.

Piracy has two main disadvantages.

  • It relies on one form of peer to peer sharing or another – therefore it’s prone to lagging while streaming or requires upfront time to download. 
  • It requires a set up to transfer the movie from a computer to another device e.g. a Home cinema station.

In other words, you need to think 10’ minutes in advance to download the show (Any show you can think of!) and you need to port it on your TV either with cable, Bluetooth, usb. 

Yet the numbers are telling; people prefer to open their media streaming kit on their Smart TV (e.g. Fire TV, Apple TV etc), compromise on what movie they’re going to watch AND pay (if it’s a paid one on Amazon prime) to watch it. From an economic stand point it’s interesting because initially it looks that the rational agent theory goes out of the window. But I think it’s simply a matter of what “rational” means and what is the currency we are trading.

People are using their emotional, short-term reward seeking, hacky side, what Thinking Fast and Slow baptized “System 1”. We don’t want to think. We want rewards to be quick. We want no inconsistencies and disruptions. Under that light, it’s obvious why people will choose Netflix again and again. No bugs, no lags and above all, it’s convenient. No Extra work.

So there’s a few reason altogether that lead Netflix to be easier to find out about, sign up and keep using.

First, people by definition are deterred from being vocal about their online piracy related excursions. On the contrary, people are very vocal about what they watch on Netflix:

It’s easy, safe and “common” to subscribe.

Strong recommendations and autoplay like features activate users immediately and teach that you can get a reward (watch a nice movie) without lifting a finger.

And so even if the movie is not on Netflix, it might be the case that money-wise paying Amazon for the movie you’re searching costs £2.99 ( random number) but carries the cognitive cost of 1 thing to think or, in technical terms, 1 Elementary information process: choosing a movie.

Measured in terms of EIPs BitTorrent is much more expensive: 

  • Select the movie. 
  • Find the right torrent to download. 
  • Turn a VPN on (ideally if you don’t want to be tracked) 
  • Port the movie in a usb / find and connect a cable. 
  • Sync subs if necessary
  • Play from the computer and standup to pause OR add an app to control your PC from your phone 

This is 6 EIPs and TIME associated. 

So it turns out that it’s not FREE. It is costing you time and effort. 

So choosing the movie from Amazon video comes at a lower cost altogether. 

And sticking to it? Well, that’s easy right? You choose the movie, click play and 99% of the times you simply have a great experience with metadata, subs synced and the movie in HD quality. 

But here’s the most interesting thing streaming services and the king of the hill, Netflix act like they know all too well: People get used to the cue, not even the reward itself. 

In other words? Even when the pirated movie comes conveniently at the ease of one click within your streaming service (see Cinema V2, popcorntime for Amazon video) we are still more likely to click the Netflix thumbnail and spend our time looking for a movie there first. Why? Seeing Netflix’s thumbnail is already flooding our brain with chemicals, as if the reward that comes after having watched an enjoyable movie, has already occurred. 

And thus, even though we have a free alternative we are “hooked” on clicking on the paid version. 

Build value and they will buy it

This logic applies to other costs. Sharing data. Spending time.

So next time your company or investment is up against fierce feature, price or marketing budget competition, ask yourself: How are they delivering value beyond features and price?

The obstacle is the way. But why?

Is the obstacle the way? Why is struggle so important after all? I always agreed intuitively but recently thought about it a bit further.

The first premise lies in the recognition that Truth is the ultimate value. And to acknowledge any truth you need to become aware of it first. And this is where pain and struggle are invaluable. Because pain is not something you can neglect. You have to face it, accept its truth and with it, your limits.

Acceptance allows for mental closure and rest irrespective of the result, or further action. You now know.

And isn’t this acceptance, the prerequisite for equanimity?

Perhaps this is where the answer starts to become more clear.

For to find truths that lead to acceptance, you need to get uncomfortable, relieve yourself of the fear and prejudice that casually cloud the judgment and let go in uncertainty, in the struggle.

It’s in those moments that nuggets of truth are discovered as you see what you’re made of. To your liking or not, it is the truth.

And if you’re aiming at truth and equanimity this only comes from challenge. From obstacles.

And so, the obstacle is the way. The way to the truth, the way to equanimity.

Lessons from unconventional fundraising.

By the time I got to my first venture, I was clear that the path to money was going to be hard. A soul-grinding, mind numbing, frustrating experience. I did believe however that it would be straightforward.

I thought: “There’s a doctrine. You study it, and you’re good”. It goes something like this: First make a 10-15 page deck engineered to attract enough positive attention to get you a meeting. Take the meeting. Show you’re good at business development. You get basic finance. You know how to market. You follow the rules, you tell a great story, you’re full of morsels of market wisdom. You get funded. Right?

This method works – it’s not just folklore – but it didn’t work for me initially. I was lacking the network, the numbers, the experience. And oh, God, did I try in the beginning. 

Early on though, I realized a few of things.

First, if I have to do this thing for months at a time I need to do it in a way that I feel alright during the process. 

Secondly, history is written by the victors. In this game, no matter what you do, no matter what your personal goals and values are, it’s the result that will deem you successful or not for the world. So follow the path that works, not the one that comes recommended. 

Last but not least, always be forthcoming with facts, tell the truth. It saves a lot of time and helps discern the “yeses” faster. As with most other things in life, fundraising is a numbers game.

Digging in. 

When fundraising, make sure you feel good. 

When undertaking a tough and lengthy task, it’s crucial to feel good. Now, there’s a difference between feeling good and feeling comfortable. Uncomfortable is good. Keeps you on your toes. Keeps you sharp. But there’s also a difference between feeling uncomfortable and exposed. “Exposed” is the state when your actions and your beliefs are in dissonance. Exposed also equals “stressed” and stressed is counterproductive. Anything that spikes your cortisol above acceptable limits should be banned. You’re an exec fundraising, the last thing anyone wants to sense is fear. Maintaining composure is imperative. And if a relaxed countenance is not achievable certainly abstain from stress inducing situations, set ups and choices.

For instance, don’t “prettify truths”. Don’t try to extort intros. Don’t front. Irrespective of impact, abstain from anxiety feeding behaviour.

Generally, no matter what advice you receive, make sure you feel good with your actions. Alignment of actions and beliefs is crucial for consistent performance.  

Following what works, not what’s prescribed

The first time I raised money, I raised ~£200k. Of that, ~60% came from people I had no previous connection to. No intros. No common friends. No school classmates. 

Would I have done it again? 100%. Was it my first choice or recommendation? Certainly not. But I didn’t have the option. So it was decided. I was going to get complete strangers to close my first.  

In contrast, here’s the traditional wisdom: 

Find founders and/or people that can intro you to others. Take coffee meetings. Be nice. Help them. Then eventually ask for an intro to investors. Blah Blah. 

And I did that as much as possible. There’s merit to this approach. But in my case, burning money like crazy, coming off a corporate spin off and having two months of runway at the time was not providing the stable footing required for building this kind of long winded relationships. Also, how many coffees can one drink per day really? 

More importantly, I didn’t have a large enough network in investment, and my friends’ intros were either not enough or would not pan out in the desired timeframe.

What I did have was a fundamental belief that we are a good team. Resilient and adaptable. We were worth the bet.

If I spoke to enough people, a few would share my belief and we’d bank the needed cash till we can form a more concrete view of the business.

If you have a good idea, try it

So I decided to proceed in an untraditional approach to fundraising. I went cold. First, I spent a day stitching together data from AngeList, LinkedIn and other networks. That provided me with a list of professional investors. To get started and test my approach I qualified leads (investors) based on really rudimentary parameters i.e. stages invested, number of investments, connection degree. Finally, I blasted every single investor that passed my lead qualification stage. I think I ended up with something like 2.000 leads in my first list. 

To diminish manual work, a bot was tasked with connecting and initiating conversations with people on LinkedIn. I would pick up conversations once signs of engagement were present. It was a very elaborate scheme, one that got complex as I was moving on, and probably deserves its own post but let’s just say that it working really well.  

It only took a few days and I was suddenly connected to 100s of angels, VCs, family offices. Eventually this process became more targeted but initially I didn’t care. I just went on a whim. Experimented.

The result is that I pitched around 40 people I have had no previous connection to and closed the money I needed. More than money, I formed meaningful connections with individuals I respect and have kept in my close network. Oh and definitely, opened up doors that previously were closed.

Were mistakes made? Obviously. Does it matter? Not really. Did the funding close? Yes. Did we ‘win’ against all odds? Yes. 

If something seems like a good idea, try it. People advising to the counter should serve as a caution, not a mandate to follow. Do what works for you. 

Pitch like you’d pitch your friend’s friend. 

Everytime I write an email to a new connection, investor, partner or client I imagine that I’m talking to a person I like but I am not familiar with.

I aim to write with friendly tone, get straight to the point, raise my request yet not in a pushy way. Above all, maintain transparency. 

During fundraising founders often seek advice and feedback on their decks, business etc. Feedback will rarely be music to your ears. For some, this can be overwhelming and try to conceal or prettify their weak points.

Acceptable? Maybe. Factual? Yes. However, is this how you’d communicate your business to a friend’s friend? Perhaps not obvious at first, this is counterproductive, leads to time waste and misunderstandings.

What do you do instead? You lead with weakness. You tell the truth. The truth does not need to be bent to be attractive. Nor am I suggesting of course regurgitating the problems of the business as a conversation starter. It is narrative that presents an opportune moment. Example:

  • We have found problem X for person Z.
  • We have solution Y. We believe the solution is superior because of abc, the timing is great and the market is sizeable and up for grabs. 
  • Now is the time to act and solve 1,2,3 issues (weakness) that stop us from a homerun.
  • Want to work together on this? 

Also remember, a marriage. Your relationship with each investor might span the duration of the company’s remaining life. You don’t marry on first date. You wanna see the ugly side first. So do that, present your weakness. Don’t lie; stay true to your narrative. Explain why these issues are not insurmountable. If you get a call for a second or third meeting (sometimes you need to wait a bit, feel the environment, it’s not always good to rush) you’re on a good path. Else, you’ve saved a lot of time. 

This is perhaps the most important lesson I have picked up along the way. Here’s another way of looking at it.

Version A: pitching life at the prairie where everything is rosy. 

First call/meeting: 100 people. 

Second call/meeting: 80 people. 

Follow-up: 60 people.

(due diligence or consideration)

Term sheet: 0-2.

And consider the cost of relationship management at those numbers. Juggling 60 names and email threads at time compounds. This is why most people say fundraising is a full time job. 

Now, version B: The 8-mile-final-battle approach. Say it as it is but with style.

First call: 100 people. 

Second call: 50 people. 

Follow up: 20 people.

(due diligence or consideration)

Term sheet: 0-10 People. 

I have done both. The latter works so much better.

Meanwhile the team won’t miss a founder because fundraising takes 40% of your time leaving 60% for working on the product/business instead of giving 10% to the job (barely catching up with what’s going on, no input) and 90% discussing with investors in vain. 

To conclude…

Fundraising sucks.  And as much as I try to reframe the process, think of it as a terrain to practice on self control, patience etc, really, it’s a grind.

So do it in the way that works for you. Conventional wisdom is good, but business is a game, the most complex of them all. Crafting your own path might mean the difference between reaching your destination or not. 

Random connections today, friends tomorrow. A note on cold messaging.

Throughout my life, connections with strangers have consistently shaped what was about to come. Originally social acquaintances, later friends and recently business partners and investors.

Connecting to strangers via the internet is great. It transcends inherent network limitations. It creates a much needed sense of serendipity. It allows for business, cultural and intellectual leaps. And on a practical note, in an era of increasing automation, connecting directly, human to human can be very rewarding.

That said, most people don’t do it. It is not the norm and initially feels uncomfortable. So much so, that everyone spends hours thinking what to write, how to avoid coming across as invasive, persistent, misunderstood. There is also good reason behind that. We are not used to receiving highly relevant and/or rewarding communication from strangers. More often than not we have annoying, spammy, automated campaigns top of mind when we think of messages from strangers. And somewhere between the inherent anxiety (“what will they think?!”) and needing to get a message across, the “Send” button gets eventually pressed.

When you want something, thinking how to frame your message is inevitable. And given that on the other side there’s stranger and you have no in, it’s even harder.

So, how do you go about reaching out to the world without spending an hour at at a time pondering on the perceived nuances of each word and ruminating on all possible responses?

To that, here are some points that I found useful:

  1. Most of the time, the world does not care. 
    This is important to remember. There’s a high likelihood that a cold message won’t get a response (the first, second, third time..). This happens less so because of the contents of the message and more due to people being busy. As a stranger, you’re another message in one’s inbox. It’s not good, it’s not bad, it’s just a fact. And so because people don’t care, they also forget quickly. So, feel free to say what you want, most of the time there’s no downside.
  2. Write like you’re addressing a friendly acquaintance (you don’t know well). 
    This has been the most efficient framework for me. I have this ‘friend’ I always think about when I get stuck. To be precise I have met her about of 4-5 times in my life. She’s a friendly acquaintance. Someone I enjoy speaking to, can express my opinion, would happily spend time with should the occasion arise, but also one whose call I find rather unlikely to receive. In other words, a person that I’d feel comfortable when writing to but in the same time I don’t know very well. That’s how I aim to write every message. If I get stuck, I substitute the recipient with her in mind. Helps me be friendly, positive and above all, genuine. As a result, no energy is spent pondering on future, hypothetical outcomes. It’s her! She’s great. And I like her. 
  3. Be genuine with the rest of your actions. 
    By the way, this helps me follow up without guilt. Would I not follow up with my friend? A positive mindset and friendly attitude means that people around you might be so too. But even if that’s not the case your attitude ensures you won’t get defensive. Would you get defensive with a friend? (Hopefully) No.

Finally, even if you don’t get a response, keep on engaging. Someone has been politely emailing me for a long time. I kept failing to respond until recently they posted something on LinkedIn that I found interesting. By now, I feel as if I know them and as we are connected on LinkedIn I commented. Guess who’s top of mind next time I think about the type of service he’s offering. Counterintuitive perhaps. But it’s also true. The more we see of someone, the more familiar they become to us. Call it personal brand awareness.

The gist is this: Connecting to strangers is beautiful, powerful and might even change your life. Sometimes random connections turn to meaningful relationships. And being genuine, friendly and direct makes it all that easier. No reason to be cold to a (future) friend.

Why is there no dominant marketplace in therapy yet?

Lately there’s a business fascination with Mental Health. The majority of people who want to get involved with mental health and specifically therapy, think that it is about to break out; become the next gym; the next yoga; and every time we talk about that, it never happens.

While there is a lot of room for innovation on the client side, the current landscape does not accommodate the needs of the most important player: the therapist. And that seems to be overlooked. What is it that therapists really want after all?

The therapist journey

Therapists, like every other professional, go through their own journey of professional maturity. Besides honing their therapy related skills they also have to deal with figuring out how to run a business. And whilst therapy might be quite an esoteric profession, like any other business, there’s a traditional path in the life of a therapist. So, what does a therapist trajectory look like from a business point of view? 

  1. First, a therapist needs to find their first clients.
  2. Once the first few clients are there, the need for operationalization kicks in: Find clients who are a good fit, deal with practice admin and start building a brand.
  3. Once that’s done now it’s time to optimize. Process and revenue improvement.
  4. If they get above all three, then the therapists start thinking about consulting, writing books, opening up a clinic or of course stay happy with a full practice.

And it is very important to see the industry through this lens because these are the use cases that have shaped the industry. 

As you can imagine, the first big players were formed to tackle what was top of mind for therapists in the beginning: getting clients. 

And so the first successful business model that was born was “directories”.

Directories aka traffic uber-alles

From a business perspective these companies were the first matchmakers and put therapists who didn’t have the resources to create a personal website on the map and are currently thriving due to a mixture of things: domain authority, brand, dominance in search, network effects, and as discussed later, the inability of platforms to innovate effectively. These platforms work as marketing services providing referrals and auxiliary marketing services such as profile statistics and other branding opportunities such as content publishing (which works in a self serving way for the platform). 

For that, therapists pay a base subscription which essentially lists a profile but does not guarantee any traffic to it; following the typical classified model of the 2000’s, therapists can upgrade to get additional traffic. 

However, the economics underpinning this subscription model are flawed for a few reasons.

The first and foremost being that incentives between the directory and the therapist are misaligned and consequently lead to negative aggregate marginal benefit. 

What does this mean?

The no.1 priority of the directories is to list more therapists given that this is how they make money. Their no.2 priority is to up-sell said therapists. Everything else is an add-on and that is evident simply from the fact that there has been no attempt towards innovation whatsoever beyond the first two.

And here is why incentive misalignment is bound to create inequality and therefore a negative sum game.

First, the existing premises of the game. Directories in the UK have xx,000 of therapists subscribed. Therapists see that and of course this is attractive. If it was not working, why are so many others paying for it? It’s social proof. So here is what happens.

Step 1. Action: A therapist lists their profile and start paying.
Step 1. Result: Competing for views with more than 1.000 other therapists in any given area, there is a high chance that the therapist won’t receive a client. This happens for two reasons: the directory cannot ensure demand increases proportionally with supply and don’t collect enough data to tailor search results for each user (matching).

Step 2. Action: The therapist now decides to upgrade (50% extra cost) their subscription.
Step 2: Result: Now the therapist ranks highly in the location search and therefore starts getting clients, disproportionately to the price increase they have paid. They’re happy and decide to stick. 

At this point it’s important to note a couple of things: 

  • Users searching therapy result sets act similarly to as if they’re searching on Google. The implications is that the top 10 results get 99% of the clicks.
  • There are more therapists in each given area than top positions.

Result? For every therapist that pays a premium listing, another therapist loses. 

Predictably, there is a clear threshold for when the curve of value / fee starts declining. And that is the time when more than 10 therapists are paying a premium listing to appear in a given area. Then they are all collectively eroding their ROI. At least one will not benefit by not being in the top ten even though they’re paying extra.

But this realisation has a lagging effect. By the time people are realizing their listing performance is going down, we don’t have 11 contenders, we have more like 30.

Result? Initially they stall, but eventually they churn from being up sold.

What you might be thinking is: But aren’t the clients using the network increasing? Why is there a problem?

This is a good question and traditional logic has it that the more therapists on one platform the more demand comes. But then again: 

  • The site itself does not have as a priority to market to clients; rather it has its eyes on more therapists. Additionally, since these organizations started as marketing organizations, it’s not in their core skillset to be thinking of market equilibria and distribution optimization (liquidity). It’s in their mind to sign and upsell.
  • The no.1 obvious marketing benefit resulting from more therapists in an existing network is that of unique content and thus, organic traffic. But again, not the case for a couple of reasons:
    • Legacy platforms are already receiving most of their traffic from SEO/ organic search which indicates that a new therapist’s profile listing is not going to provide a novel and previously lacking answer to a user’s search engine query (imagine that queries on google are “therapist in London”).
    • Therapists profiles are actually duplicate content! Because no one platform can guarantee an influx of clients, therapists end up being on multiple platforms all of which are trying to do the same. Thus, they copy paste their profile pages and the case for unique content becomes null.

So we conclude that subscriptions to provide marketing facilities is not an optimal model to create, deliver and capture the value of the therapy industry. To summarize:

  • Your happy clients don’t pay more then your unhappy necessarily,
  • value in upsells goes down the more participants in the network get sold and acquisition of new clients is organic (search)
  • but there is no lock-down which leads to churn.

But what if we could go deeper, provide more services that better the recurrent relationship between the therapist and the client which is likely to reach >£1,000 in several cases? 

Marketplace 2.0, the serviced marketplace. 

Psychotherapy as an industry, and especially through the lens of a marketplace model looks very attractive at first sight for a few reasons: 

  • There is a lot of talk about it: government, mainstream media and social media create the expectation of continuous growth in demand.
  • The service itself is costly (average price of therapy according to our own data is £58 in the UK) and there is a decent market size (~£3bn).
  • At least 89% of therapists operate at least partly under a private practice which means there is a lot of fragmentation in the market. 

And the space has become interesting to tech entrepreneurs who understand how to build marketplaces. The story goes something like this: Aggregate the therapists (supply) under a full stack service proposition, charge fees that persist for the duration of the therapeutic relationship and reinvest said fees to get more clients in and keep the loop going. By providing a better service and a performance model (i.e. no subscription costs) these services lower the barrier to sign up. More traffic, better experience, lower CAC. This is marketplace 2.0 approach, or “let’s make the Uber of therapy”.

“We will give you clients, booking facilities, online payments and all that for ~10% each time. How does that sound?” 

Initially it sounds great to the marketplace and good to the therapist. But then issues arise. A deeper look reveals the inflection point: incentive misalignment.

Incentive misalignment

Therapist needs

Initially it might not be clear. Therapists are cryptic and don’t like working with people that “sell” them. Once one peels through the many layers of the conversation and assuming manage to separate business from therapy (not easy at all), what therapists really want is pretty simple:

  • First, they want a steady stream of clients. Depending on whether they’re running a full practice or not that number might be higher or lower but the value is the same. They don’t want to have to stay in the mode of survival.
  • Secondly they want the platforms to stay out of their business and let them manage the relationship with the client whom they view as their own client.
  • Third they want additional services to help them manage their practice efficiently but in a way that does not cost an arm and a leg and serves their existing workflow.

Platform incentives

Platforms on the other hand, have different incentives. Specifically:

  • Platforms need to control the relationship between client <> therapist because otherwise disintermediation becomes a real issue.
  • Platforms are incentivized to provide more tools and services to therapists so as to control the relationship and justify their recurrent margins. However standardizing the experience is imperative to build a model around costs and revenues. In other words, there are rules every therapist must adhere to. Platforms can’t create different user journeys for each therapist nor operate under an open architecture where therapists can plug in their tools because a) that’s not convenient to start with before you have serious cash coming in and b) it invalidates the case for control of the relationship.
  • And what is the control point of it all? The Calendar. Why? Because by having access to read & write in a therapist’s calendar massively increases client conversion rate and reduces CAC. So every marketplace app is vying for the ability to have access to read and write on a therapist’s calendar.

The deadlock

The problem boils down to something very simple. Platforms base their business on two premises: First, that broader servicing of therapists will result in higher Lifetime Value per therapist and secondly that returns increase drastically when the market gets effectively monopolized. Therapy in the UK however is worth £3bn so not that big of a market. Therefore the whole “when we get too big, winner takes all” pitch does not sit very well given the risk reward ratio and absolute magnitude of the two. And that implies that reliance to institutional money with negative unit economics is not an option.

So platforms *need* healthy economics from day one. Any friction between the client booking the therapist needs to be eliminated. Given the newly established paradigm of on-demand services where online booking & checking out happens seamlessly, clients come with increased expectations of therapy platforms. And thus, the lack of visibility into a therapist’s availability is up there in the product problems worth fighting for. Otherwise unit economics are unsustainable**. Result? Cash flow deficit and diminished interest of additional investment. Frictionless experience end-to-end is crucial and the ability to add bookings directly to the calendar key.

On the other hand, the only therapists willing to give (up) their calendar to be managed by a platform are those who don’t have enough clients and once they do, they’d stop updating their availability. Why? There are a couple of good reasons for that.

  • First, therapists want to see clients they can actually help. The fact that a client wants to book a therapist does not mean that’s the right choice for them. Therapists feel they have to do the triaging (and they don’t trust an automated alternative) and should they deem a client a bad fit they would find themselves in the difficult position of having to cancel the appointment the platform booked and disappoint the client.
  • Secondly, this process requires a lot of work from therapists. Every time they get a booking from one service, then invariably they’d need to update their availability in every other platform and that is quite cumbersome. Also, what if their schedule changes? Why would they need to report to anyone?

And so we have the calendar deadlock. Therapists want freedom and no more admin and platforms don’t have enough clients to impose terms.

But the deadlock extends on another dimension which is crucial to answer the titular question: That of competition between the incumbent(directories) and the new entrants (marketplaces).

Without the calendar, marketplaces can’t provide their seamless experience to customers nor service the therapists as they like. And by not doing so, there is no differentiation. They provide a subpar experience, become “yet another directory” and compete in a commoditized game they can’t win (referrals, seo, paid ads).

But if they push for the calendar they lose their therapists as there’s no supplier power and thus, can’t scale. And of course the more platforms created, the more the calendar is requested and the more the problem is exacerbated. For every new platform created the worse the unit economics for every other platform in the short term.

And so there you have it. Therapy in the consumer space remains locked between a model that is inefficient both in terms of economics and user experience and another that does not provide a good UX for the therapists.

And in this industry without the therapists, you can’t craft a great UX for the customer either.

A vicious cycle really.

Notes

*We have interviewed therapists that mentioned they hadn’t received a client from directories for over 18 months whilst paying of course. 

** We have seen up to 200% higher CAC from paid ads when a therapist does not provide their calendar.