Has Mobile Killed The Fast Follower Strategy? Sure Looks That Way…

Has mobile killed the “fast follower” strategy? The ability of a second-mover company to mimic (copy?) a more innovative competitor and eventually own the market? In 2010, Entrepreneur Steve Blank suggested the data shows you’re better off fast following than originating – citing companies like Google who benefited from combining somebody else’s business model with their search technology.

Now just a few years later, it feels like mobile has increasingly rewarded being first to market with a product that people want – especially in the Consumer market. Instagram, Snapchat, Line, Twitter, Foursquare comes to mind as mobile-first innovators who have been able to hold off imitations by larger tech companies and fast follow startups.

Here are some hypotheses why:

  • Time to Market Delayed By iOS App Store Approvals: On the web you could just push code and control your own release cycle. iOS inserts a delay while Apple reviews and approves your app. The first mover has already cleared this hurdle and subsequent app updates have less friction due to Apple’s familiarity with the product. Fast follower needs to essentially get approval to launch.
  • Discovery Has Changed: iOS App Store promotion and word-of-mouth via social media are much bigger distribution forces today than three years ago. Sure a fast follower with a marketing budget can drive paid installs and ad-based promotion, but organic and editorial discovery is more important with mobile. This favors the innovator, not the mimic. When was the last time Apple featured a fast follower app? They want to drive the new, hot, best-looking apps because that’s what keeps iPhone as the platform of choice.
  • Changing Impact of Social: Using Facebook Connect, Twitter Followers and address books, access to social graphs have become a commodity. Sure you can innovate on virality, but smaller first movers can scale quickly. Fast followers typically exploited their existing distribution footprint but this isn’t as meaningful an advantage in the social mobile world. Purely anecdotal, but clicking on a link is easy where I’ll often need to hear about an app from a friend before I go through the multiple clicks required to install.
  • Apps Tend to Be Single Purpose So Bolting Feature Into Larger App Doesn’t Work: Classic fast follow move was to just ship someone’s product as a feature on your already bloated client software or as another tab on your website. Mobile apps tend to be designed for speed and single purpose – you click on a “button” (app icon) and something is expected to happen. Facebook just adding another feature to what is already a very complex app isn’t as much of a threat to startups anymore.
  • The Impact of Design: Ok, stay with me here. The rise of “good design” as user expectation is often understood to be about pixels and beauty. I believe it’s deeper than that, especially on mobile devices – these phones and tablets you lovingly caress in your hands and hold close to your face; which literally get warm with use. Purrrrrrrr. Love is a component of good design. That is, innovators usually really really love what they’re building and this comes through in their design. Little flourishes. Fast followers are driven primarily by fear or greed. I’d hold that these root motivations can be unconsciously felt in their products. I don’t have specific examples – maybe Instagram vs other photo services with filters; or Snapchat vs lookalikes.

This post is definitely a work-in-progress – perhaps there are many examples of fast follow mobile apps that have gained tremendous usage or the strategy will become more successful again as mobile matures, but as an investor in mobile applications, definitely thinking about these questions.

Founders, “Why” Matters as Much as “What” & “How”

tldr: mission-driven founders kick more a$$

As Homebrew ramps up its investing, I’ve been really impressed by the quality of founders we’re seeing raising seed rounds. Although any investor ends up saying “no” 99 out of 100 times, many of the companies that weren’t a great fit for us have gone on to raise strong rounds and I’m sure many will be quite successful. Satya and I enjoy being transparent about our values and happy to iterate in public, so here’s something we believe:

Founders who can answer “Why” have a competitive advantage over those who can’t, and tend to be better fits for Homebrew.

The average pitch contains substantial time dedicated to the “what” and the “how.” What is the market you’re serving? What is the product you’re building? What is the customer pain you’re addressing? How will you build your product? How will you recruit a team? How will you get customers? All of these questions are essential and certainly factor into any investment decision we make.

That said, “what” and “how” haven’t been sufficient to get us to YES. In the handful of investments we’ve made to date and the termsheets we generated this week (it’s been busy), there has consistently been a strong “Why” as well.

Why are you taking years from your life to work on this problem? Why does your company deserve to exist and why is the world a better place when it succeeds? Founders who can answer the “why” are usually called “mission-driven.” It doesn’t mean they’re necessarily curing cancer or solving global warming (although they might be). Rather there’s a deep conviction that they’re on a personal crusade, one which you need to get on board with RIGHT NOW.

Mission-driven founders energize us. Mission-driven founders also have a competitive advantage in the marketplace. We believe they are better recruiters – not just warm bodies, but the best, most talented people who have many choices and want to work for something which matters. Mission-driven founders seem to commit a little more to their startups because they are giving their heart, not just their brain to the effort. Mission-driven founders build strong cultures.

“How” and “What” can be logically derived. “Why” needs to be felt. And just like funk, it can’t be faked.

If you are a founder who knows Why and you’re working in the Bottom Up Economy helping SMBs, developers and consumers drive economic growth, Homebrew would be honored to hear from you.

If you’re a superstar working for a CEO who you think can’t answer the Why, we’re happy to try and find you a new home because, hey, why not? 🙂

I Don’t Want to Meet Your Company at Demo Day

As a new seed fund you might imagine Homebrew hustles to incubator demo days, taking notes and then chasing down founders to make an in-person connection. Nope. If you see me at a demo day, it’s likely to show support for the incubator itself, not to discover the Next Big Thing. Why? Because if I’m meeting a founding team for the first time on demo day I messed up. Given Homebrew’s commitment to go “all in” for our founders (leading financing rounds, operational guidance) and our fund’s thematic focus (the Bottom Up Economy), if I’m doing my job we’ll have found one another earlier, even if fundraising activity hasn’t begun.

It’s not because I want a sneak peek, or to try and pressure you into taking money before you have the chance to make a market. Rather I’m hoping we can see how each other work, maybe even work together by hopping off a whiteboard to talk through a design issue, product strategy or distribution hack you’ve been struggling to solve. I’m more interested in the way you think, communicate and lead, than your Keynote pitch skills. A termsheet should be just another milestone within a long relationship. When you talk with Homebrew, we don’t act one way before we wire you money and different afterwards.

Some founders (or incubator founders) will read this and raise an eyebrow, assuming there’s a hidden agenda on our part, or that there’s signaling risk in talking with investors in a staggered fashion. Maybe insisting that the unveiling of a company and subsequent funding auction yields the highest valuation. I realize that in aggregate some of these statements may be true (well, not the hidden agenda part). Thankfully we don’t want to invest in the aggregate company. And we have no problem being part of competitive/collaborative fundraising efforts. You want to kick off your raise on demo day and close quickly to create urgency? No problem, we’re excited to support that but the probability of our participation increases dramatically if we’ve had the chance to see you develop as a company and know that you too have had the opportunity to get to know us.

Making 10 or fewer investments each year gives us the ability to look for opportunities where there’s great culture fit between Homebrew and founders. Deal terms matter but people matter even more. We want to work furiously to help mission-driven founders build the companies they imagine. Ones that last a long time.

Aside from our model and ambitions, I’d suggest that if you’re in an incubator, early on identify a handful of funds that you want to get to know better. Funds that are likely to lead or otherwise participate in your seed round. Express that interest and spend some time together before you hit the stage with your ‘up and to the right’ graph. At the end of the day do this not because it’s what investors may want but because it will help inform your decisions.

So see you at demo day, but it’ll be sitting in the first few rows giving you a thumbs up for the progress you’ve made, not leaning over to the person next to us asking “what was that company’s name again?”