The Moral Hazard Created by Abundant Startup Funds

I vehemently disagree with a lot of this article, but it’s so well written that I just had to share it. Murad Ahmed from the Financial Times neatly captures the changes that are happening in the London startup scene and the increase in angel investing and venture capital in Europe.

For 4 years I lived through the heyday of this boom in UK startup funding. But my experience was that to go along with the increase in investors, there has been a corresponding increase in startups so that the two have balanced each other out. The good startups that get funded by good investors are still dedicated, hardworking and humble.

I’ve reproduced the article from the Financial Times site below because the article is so important as a record of a certain time in London’s startup scene and it would be a shame to lose it. You can see the original article, if it’s still visible on the FT site.

Enter FT journalist Murad Ahmed

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Lean Copywriting

The Lean Branding process consists of strategy, messaging and design. Of these three, messaging and copywriting is often the hardest to apply lean principles to. Language can be very subjective, so judging how best to create copy in a fast-paced environment is not easy. There are a few lessons I’ve learned from creating copy to help express a refreshed brand position.

Copy and messaging is where your brand comes to life in the written word. People are visual creatures, but language is still one of the most powerful ways to communicate and persuade. In almost every industry copy and messaging is a vital part of bringing the brand to life.

Continuously improving your messages

These days you can use Google AdWords and A/B testing to iterate and improve your copywriting as you go. The thing that I see go wrong with using digital tools to improve copy is that the tests we run aren’t often fed back into the strategy. The key to using digital advertising as a testing and learning tool for copy is to input the lessons back into the strategy so that they can be captured and then repeated.

I see too many startups making the same mistakes with communication over and over again with the marketing team learning the same lessons over and over again and not capturing the information somewhere that the rest of the team can learn from.

The essence of lean branding is continuous improvement. So instead of locking-down copy changes as permanent, I prefer to try and keep my options open to make small incremental improvements to copy and messaging as we learn more from the marketplace about what people want from us.

Just-in-time Messaging

Just in time branding means creating only as much collateral as you need, just before you need it. In practice, this means creating the basic templates in advance, and only generating as much physical collateral as you need.

For example, you might print 50 business cards before going to an event rather than printing 5,000 business cards because they seem cheaper per-card. What most people don’t realise is that even though 50 cards may be on a per-unit basis more expensive than 5,000 cards, the total cost of 5,000 cards is still more expensive. Particularly when you take into account the fact that if you print 5,000 cards you will have to store 5,000 cards, you will have to look at 5,000 cards in the storage unit every time you walk past the cabinet and, most importantly, you will be locked into the same copy and messaging for the next 5,000 people that you interact with.

Always print the minimum number of items that you can possibly get away with any one given time. This keeps your options open to change and improve your copywriting over time.

Faster Copy Approval

I’ve found that when a piece of copy takes a long time to get approved and involves a lot of consultation then it’s tempting to avoid changing it for fear of restarting an endless cycle of feedback. By contrast, when things move from idea to execution quickly then it’s also more likely that people will feel safe to make frequent improvements over time.

Lean Brand Messaging

Lean principles such as iteration, agility and collaboration can all be applied to the copy and message creation process. In fact, I would argue that applying lean methods to your brand messaging is just as important as applying them to any other part of your business. The words you use to describe your business create a large part of the perceptions that your audience has of your business. Your words matter.

Traction: A startup guide to getting customers

One of my favorite marketing books to refer to for ideas is Traction: A startup guide to getting customers by Gabriel Weinberg and Justin Mares. Their first edition was also available as an audiobook on Audible. They are now in the process of publishing a 2015 second edition so I thought I’d take a moment to share some of my favorite parts of the book.

Traction Book
Traction – First Edition

The idea behind the book is to derive practical lessons from how different startups have achieved their early growth. The book is probably the best window into the modern growth hacker style of marketing being practiced in startups today.

The Lean Analytics blog has a link to a sample pdf with the first 3 chapters and the book website has links to several more sample pdfs.  To really get a taste of the depth and usefulness of the book I’ve pulled out a couple of my favorite excerpts below. The quotes below are pulled from the first edition, so be sure to check out the book website for the latest samples and chapter outlines.

Enter Gabriel and Justin…

Traction: A startup guide to getting customers

Chapter 1: Introduction

Before we get started, let’s define what traction is. Traction is a sign that your company is taking off. It’s obvious in your core metrics: if you have a mobile app, your download rate is growing rapidly. If you’re a search engine, your number of searches is skyrocketing. If a SaaS tool, your monthly revenue is blowing up. If a consumer app, your daily active users are increasing quickly. You get the point.

You can always get more traction. The whole point of a startup is to grow rapidly. Getting traction means moving your growth curve up and to the right as best you can. Paul Graham, founder of startup accelerator Y Combinator, puts it like this:

“A startup is a company designed to grow fast. Being newly founded does not in itself make a company a startup. Nor is it necessary for a startup to work on technology, or take venture funding, or have some sort of ‘exit.’ The only essential thing is growth. Everything else we associate with startups follows from growth.”

In other words, traction is growth. The pursuit of traction is what defines a startup.

Summary: Nineteen Traction Channels

After interviewing more than forty successful founders and researching countless more, we discovered that startups get traction through nineteen different channels. Many successful startups experimented with multiple channels (search engine marketing, business development, etc.) until they found one that worked.

We call these customer acquisition channels “traction channels”. These are marketing and distribution channels through which your startup can get traction: real users and customers.

We discovered two broad themes through our research:

  • Most founders only consider using traction channels they’re already familiar with or think they should be using because of their type of product or company. This means that far too many startups focus on the same channels (search engine marketing, public relations) and ignore other promising ways to get traction.
  • It’s hard to predict the channel that will work best. You can make educated guesses, but until you start running tests, it’s difficult to tell which channel is the best one for you right now.

When going through these traction channels try your best not to dismiss them as irrelevant for your company. Each traction channel has worked for startups of all kinds and in all different stages. Get one channel working that your competitors dismiss, and you can grow rapidly while they languish.

1. Viral Marketing

Viral marketing consists of growing your userbase by encouraging your users to refer other users. We interviewed Andrew Chen, a viral marketing expert and mentor at 500 Startups, for common viral techniques and the factors that have led to viral adoption in major startups. We also talked with Ashish Kundra of myZamana, who discussed using viral marketing to grow from 100k users to over 4 million in less than a year.

2. Public Relations

Public relations is the art of getting your name out there via traditional media outlets like newspapers, magazines and TV. We interviewed Jason Kincaid, former TechCrunch writer, about pitching media outlets, how to form relationships with reporters, and what most startups do wrong when it comes to PR. We also talked with Ryan Holiday, bestselling author of Trust Me, I’m Lying and media strategist, to learn how startups could leverage today’s rapidly changing media landscape to get traction.

3. Unconventional PR

Unconventional PR involves doing something exceptional (like publicity stunts) to draw media attention. This channel can also work by repeatedly going above and beyond for your customers. Alexis Ohanian told us some of the things he did to get (and keep) people talking about reddit and Hipmunk, two startups he co-founded.

4. Search Engine Marketing

Search engine marketing (SEM) allows companies to advertise to consumers searching on Google and other search engines. We interviewed Matthew Monahan of Inflection, the company behind (before its $100 million acquisition by to learn how Archives relied primarily on SEM for their growth.

5. Social and Display Ads

Ads on popular sites like reddit, YouTube, Facebook, Twitter and hundreds of other niche sites can be a powerful and scalable way to reach new customers. We brought in Nikhil Sethi, founder of the social ad buying platform Adaptly, to talk with us about getting traction with social and display ads.

6. Offline Ads

Offline ads include TV spots, radio commercials, billboards, infomercials, newspaper and magazine ads, as well as flyers and other local advertisements. These ads reach demographics that are harder to target online, like seniors, less tech-savvy consumers and commuters. Few startups use this channel, which means there’s less competition for many of these audiences. We talked with Jason Cohen, founder of WPEngine and Smart Bear Software, about the offline ads he’s used to acquire customers.

7. Search Engine Optimization

Search engine optimization is the process of making sure your website shows up for key search results. We interviewed Rand Fishkin of Moz (the market leader in SEO software) to talk about best practices for getting traction with SEO. Patrick McKenzie, founder of Appointment Reminder, also explained to us how he uses SEO to cheaply acquire lots of highly targeted traffic.

8. Content Marketing

Many startups have blogs. However, most don’t use their blogs to get traction. We talked with Rick Perreault, founder of Unbounce, and OkCupid founder Sam Yagan to learn how their blogs transformed their businesses.

9. Email Marketing

Email marketing is one of the best ways to convert prospects while retaining and monetizing existing ones. For this chapter we interviewed Colin Nederkoorn, founder of email marketing startup, to discuss how startups can get the most out this traction channel.

10. Engineering as Marketing

Using engineering resources to acquire customers is an underutilized way to get traction. Successful companies have built micro-sites, developed widgets, and created free tools that drive thousands of leads each month. We asked Dharmesh Shah, founder of Hubspot, to discuss how engineering as marketing has driven Hubspot’s growth to tens of thousands of customers through tools like their Marketing Grader.

11. Targeting Blogs

Popular startups like Codecademy, Mint, and reddit all got their start by targeting blogs. Noah Kagan, Mint’s former director of marketing, told us how he targeted niche blogs early on, and how this strategy allowed Mint to acquire 40,000 users before launching.

12. Business Development

Business development is the process of creating strategic relationships that benefit both your startup and your partner. Paul English, co-founder and CEO of, walked us through the impact of their early partnership with AOL. We also interviewed venture capitalist Chris Fralic, whose BD efforts at were a major factor in eBay’s $350 million acquisition of the company. We’ll show you how to structure deals, find strategic partners, build a business development pipeline, and approach potential partners.

13. Sales

Sales is primarily focused on creating processes to directly exchange product for dollars. We interviewed David Skok of Matrix Partners – someone who’s taken four different companies public – to get his perspective on how the best software companies are creating sustainable, scalable sales processes. We also take a look at how to find early customers and have winning sales conversations.

14. Affiliate Programs

Companies like Hostgator, GoDaddy and Sprout Social have robust affiliate programs that have allowed them to reach hundreds of thousands of customers in a cost-effective way. We interviewed Kristopher Jones, founder of the Pepperjam Affiliate network, to learn how a startup can leverage this channel. We also talked with Maneesh Sethi to learn how affiliate marketers choose what products to promote, and some of the strategies they use to do so.

15. Existing Platforms

Focusing on existing platforms means focusing your growth efforts on a mega-platform like Facebook, Twitter, or an App Store and getting some of their hundreds of millions of users to use your product. Alex Pachikov, on the founding team of Evernote, explained how their focus on Apple’s App Store generated millions of customers.

16. Trade Shows

Trade shows are a chance for companies in specific industries to show off their latest products. We interviewed Brian Riley of SlidePad, an innovative bike brake startup, to learn how they sealed a partnership that led to over 20,000 sales from one trade show and their approach to getting traction at each event.

17. Offline Events

Sponsoring or running offline events – from small meetups to large conferences – can be a primary way you get traction. We spoke with Rob Walling, founder and organizer of MicroConf, to talk about how to run a fantastic event, how it can benefit you, and the type of work that goes into pulling off a successful event.

18. Speaking Engagements

Eric Ries, author of the bestselling book The Lean Startup, told us how he used speaking engagements to hit the bestseller list within a week of the book’s launch, how he landed these talks, and why he chose to use this channel to generate awareness and book sales. We also interviewed Dan Martell, founder of Clarity, to learn how to leverage a speaking event, give an awesome talk and grow your startup’s profile at such speaking gigs.

19. Community Building

Companies like Zappos, Wikipedia, and Stack Exchange have all grown by forming passionate communities around their products. In our interview with Jimmy Wales of Wikipedia, he detailed how he built the Wikipedia community that’s created the largest repository of human knowledge in history.

Takeaways from the Nineteen Traction Channels

Every one of the nineteen traction channels has proven an effective means to get initial traction for both enterprise and consumer companies. It is hard to predict exactly which traction channel will be best for your company at a particular time. You have natural tendencies (bias) toward or against certain traction channels. Which traction channels are you biased for? Which traction channels are you biased against?

Chapter 2: Traction Thinking

If you’re starting a company, chances are you can build a product. Almost every failed startup has a product. What failed startups don’t have are enough customers. Marc Andreessen, founder of Netscape and Venture Capital firm Andreessen-Horowitz, sums up this common problem:

“The number one reason that we pass on entrepreneurs we’d otherwise like to back is their focusing on product to the exclusion of everything else. Many entrepreneurs who build great products simply don’t have a good distribution strategy. Even worse is when they insist that they don’t need one, or call [their] no distribution strategy a ‘viral marketing strategy’.”

A common story goes like this: founders build something people want by following a sound product development strategy. They spend their time building new features based on what early users say they want.

Then, when they think they are ready, they launch, take stabs at getting more users, only to become frustrated when customers don’t flock to them.

Having a product your early customers love but no clear way to get more traction is frustrating. To address this frustration, spend your time building product and testing traction channels – in parallel.

Building something people want is required for traction, but isn’t enough. There are many situations where you could build something people want, but still not end up with a viable business.

Chapter 3: Bullseye Framework

With so many channels to consider, figuring out which one to focus on is tough. That’s why we’ve created a simple framework called Bullseye that will help you find the channel that will get you traction. As billionaire PayPal founder and early Facebook investor Peter Thiel put it:

“[You] probably won’t have a bunch of equally good distribution strategies. Engineers frequently fall victim to this because they do not understand distribution. Since they don’t know what works, and haven’t thought about it, they try some sales, BD, advertising, and viral marketing—everything but the kitchen sink. That is a really bad idea. It is very likely that one channel is optimal. Most businesses actually get zero distribution channels to work. Poor distribution—not product—is the number one cause of failure. If you can get even a single distribution channel to work, you have great business. If you try for several but don’t nail one, you’re finished. So it’s worth thinking really hard about finding the single best distribution channel.”

Chapter 4: Testing out Traction Channels

The testing step is where you put your ideas into the real world. The goal of this step is to find out which of the traction channels is worth focusing on. You will make that decision based on results from a series of relatively cheap tests. These tests should be designed to answer the following questions.

  1. Roughly how much will it cost to acquire customers through this channel?
  2. How many customers do you think are available through this channel?
  3. Are the customers that you are getting through this channel the ones that you want right now?

Chapter 5: Moving the Needle

Your traction strategy should always be focused on moving the needle for your company. By moving the needle, we mean focusing on marketing activities that result in a measurable, significant impact on your company. It should be something that advances your user acquisition goals in a meaningful way, not something that would be just a blip even if it worked.

From the perspective of getting traction, you can think about working on a product in three phases:

  • Phase I – Making something people want
  • Phase II – Marketing something people want
  • Phase III – Scaling your business

At different product phases, moving the needle means different things. In phase I, it’s getting those first few customers. In phase II, it is getting enough customers where you’re knocking on the door of sustainability. And, in phase III, your focus is on increasing your earnings, scaling your marketing channels, and creating a truly sustainable business.

Some traction channels will move the needle early on, but will fail to work later. Others are hard to get working in phase I, but are major sources of traction in the later phases (PR is a good example). On the other hand, some channels will be great in phase I but useless in phases II and III because they simply don’t have the volume required to move the needle.

To read the the full book, check it out on Kindle and paperback on Amazon.

The second edition of Traction has a new subtitle, Traction: How any startup can achieve explosive customer growth. Personally, I quite liked the old subtitle, but the book is absolutely awesome and the relaunch of the new edition will take the material to a whole new audience.

Traction Book Second Edition
Traction – Second Edition

You can also check out the authors at their Traction Book Website and they have a great series of articles about Traction on the blogging platform Medium. The audiobook of the first edition was excellent, so I’m also looking forwards to the relaunch of the audiobook for the second edition.

Equity Crowdfunding Books

The equity crowdfunding industry is still so new that best practices and lessons from real life haven’t yet made it onto paper. But there are some very valuable lessons to be learned from related industries and reading these three books will give anyone a crash course in equity crowdfunding.

Venture Deals by Brad Feld

Venture capital can be confusing at first. Some people treat equity crowdfunding as just Kickstarter with equity, but the best players take the capital raising process seriously and have woven the best of how venture capital deals get done into their platforms. Venture Deals by Brad Feld clearly summarizes the world of venture capital. It covers everything from cap tables, convertible notes, term sheets and liquidation preferences.

Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist

Angel Investing by David Rose

David Rose is the founder of the online angel investing platform Gust and a leading New York angel investor. Angel Investing by David Rose book is a solid introduction for new angel investors. It’s perfect for someone getting to know the world of equity crowdfunding because it treats startups as real businesses to be understood and invested in on a rational basis.

Angel Investing: The Gust Guide to Making Money and Having Fun Investing in Startups

Transforming Customers Into Loyal Owners by Jonathan Frutkin

This book changed my approach to the entire investment industry. We know in practice that investors in an equity crowdfunding round are a mix of: people on the platform, people who are connected to the startup, and new people who are attracted to the campaign. Equity Crowdfunding by Jonathan Frutkin opened my eyes to just how important turning customers into shareholders can be.

Equity Crowdfunding: Transforming Customers into Loyal Owners

Venture Capital at SeedInvest

I recently joined the SeedInvest team in New York. SeedInvest is a leading equity crowdfunding platform that is streamlining the startup investing process so that new types of investors can invest directly in early stage companies. I’m responsible for digital marketing and helping startups promote their campaigns to investors. It’s been a big couple of months for me, so I thought I’d take a moment to update you on what I’ve been up to.

1. I’ve moved to New York

New York has always been a centre of financial innovation and the earliest venture capital investors almost all started out in New York before moving to Silicon Valley. I’ve always wanted to live in New York. In late 2014 I won the green card lottery and we have now relocated permanently to the USA. So far, we’ve been using AirBnB to experiment with different neighbourhoods and have fallen in love with Tribeca, Nolita and Brooklyn Heights.

New York has a great environment to build a startup. The city is alive 24 hours a day and there is a great mix of design, business and technical skills. I love the intense energy and the mix of cultures from all over the world.

2. I’m still working with startups

As soon as I knew that we were moving to the states, I started researching the emerging American equity crowdfunding platforms. I’ve long believed that democratising the financing of small businesses will be one of the greatest shifts in the structure of capitalism since the advent of the public stock markets. Allowing new entrepreneurs and new investors to find each other will create new companies, new jobs and new opportunities. I loved being part of investment platform Seedrs in the UK and with recent changes in US securities laws, the timing was perfect to transfer these skills to the USA.

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Business design

Business design is a new way of thinking about companies as interconnected systems worthy of innovation, creativity and the application of design to the systems themselves. Business design applies the mindsets of a designer to the task of creating the overall strategy and business model.

Brand Personality
Business design looks at the financial model of the company as an area for innovation.

Business design is a useful way of looking creatively at a company in the context of its customers, suppliers and competitors. Every company needs to combine the disciplines of technology, design and business together to deliver value for a customer. But too often, only the crafts of technology and design are seen as real sources of new innovation (with the business function itself just doing the marketing or arranging the finances). In reality, the business-side of innovation can be incredibly important.

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How to value a startup

Company valuation is one of the great myths of early stage company finance. Both investors and entrepreneurs get themselves endlessly tied in knots trying to calculate a startup’s value despite the fact that the whole concept of valuation is entirely artificial. How to value a startup is one of the most common questions I get when I present to entrepreneurs on the topic of venture capital and online angel investing. But talking about valuation distracts people from the real issues of economics (amount of cash invested) and control (percentage equity offered).

Social media for executive profiling
The value of a startup is determined by the willingness of the entrepreneur and the investor to agree on a price that works for both parties.

One of the most common questions that you hear entrepreneurs ask each other is “What’s your valuation”? It seems like a sensible question and it’s a tempting way to compare different companies who are raising capital, but the idea of a single number as an agreed valuation for a startup is a dangerous distraction from the real issues. The term “valuation” is simply a useful shorthand to talk about several independent variables. These variables can be quickly forgotten when you start a conversation with the issue of valuation.

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Dave McClure on equity crowdfunding

Brant Cooper and Patrick Vlaskovits interviewed VC investor Dave McClure as part of their book the Lean Entrepreneur. The Lean Entrepreneur was published in 2013 and I picked up a copy after seeing Patrick Vlaskovits speak at the Innovation Warehouse in London.

Patrick has a really practical and grounded approach to innovation, growth hacking and the world of startups. He’s been an inspiration to me and has contributed a lot back to the community through mentoring and coaching various startups.

After reading the book last year, I got a copy of the audiobook on Audible. Some of the checklists and bullet-points don’t survive the transition to audio that well, but overall the audiobook was excellent and I recommend it alongside the Lean Startup as one of the key audiobooks for entrepreneurs and investors.

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Mark Suster and Clayton Christensen on equity crowdfunding

In 2013 Mark Suster a leading VC investor and Clayton Christensen a leading business author sat down at Startup Grind to talk about disruptive innovation and startup investment. Their conversation touched briefly on the subject of equity crowdfunding. Both Mark and Clayton are extremely cynical about equity crowdfunding. Some of their concerns are sensible questions about an emerging industry. But what they were secretly doing was arguing for the old model. I’m a big fan of Mark’s blog and Clayton’s books but they’re wrong about the disruptive potential of equity crowdfunding.

VC investor Mark Suster and business author Clayton Chistensen at Startup Grind.
VC investor Mark Suster and business author Clayton Chistensen at Startup Grind.

By betting against against equity crowdfunding, Mark Suster is betting against the internet. I believe the internet will do the same thing to early stage finance that it does to all industries. Namely, make them more competitive, connected and democratic.

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Audiobooks to help you get the startup mindset

I’ve worked in venture capital, management consulting and design thinking. But nothing prepared me for the intensity of working inside a startup. I’ve been lucky to have gradually absorbed the startup mindset over several years of working in startup incubators and accelerators. This mindset has allowed me to cope with the intensity of startup life. But the mindset needs to be learned.

Simon Sinek
Start with why is a great introduction to how the startup mindset works in marketing.

Some of the things that you need to succeed in a startup are techniques and information, but the bedrock is the “startup mindset”. This mindset takes time to acquire. I enjoy a good TED talk or conference video. But spending a several hours listening to an audiobook written and read by someone who lives the mindset is one of the best ways you can start to think like a startup person.

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