How we look at market traction
Two conversations with founders this week got me thinking about how we judge whether a company is getting traction in the market. The aim of this post isn’t to say what “good” metrics are and what metrics should be used by founders when presenting their company to us or anyone else, but rather to articulate some of the thought processes that we go through at Sports Loft in evaluating companies in front of us and how the things we look at change between a B2B or B2C company.
The first company, a consumer facing app, told us “we’ve got 1,000 users...without any marketing spend”. Was that good? What if it had been 500 or 5,000 or 50,000? A number without context is meaningless. “10% of users upload an activity to the platform everyday” they added. That’s 100 people per day. What if daily usage grows as the userbase increases with network effects or, on the other hand, what if it that percentage drops as the hardcore users become a smaller part of the entire population? Strava has 19 million “activities'' uploaded every day and Twitter has 145 million daily users. These are established companies. What would be a fairer comparison, perhaps the early usage rates at MapMyRun, Nike+ or Endomondo? or the usage rates of other companies currently starting up in the same space? 1,000 users is small, but everyone has to start somewhere.
What about the growth rate? “It’s consistent, with the same number of people being added each week”. Naturally we prefer accelerating to linear growth. “But when we add feature X, the growth will increase” they said. I’m not a fan of the “silver bullet” feature that will be the miracle cure to growth problems and typically treat it as a warning sign. However, In this case it was the ability for users to bring their friends into the platform, something that was hugely successful for companies such as Dropbox, Airbnb and Harry’s. What if every user then brought three new users to the platform? What if they each brought 10? What if 10% of users referred their friends? What if it was 60%? Would it change my opinion that 100 users per day felt small if they all ended up referring like crazy? Equally, what part of the product functionality would make people refer? A referral mechanism is fine, but people need to think that their friends will get genuine value from this product if they are going to refer them. So what is so viral about the product?
What about how active the users are? “Our top 20% most active users all post an activity at least four times per week” That sounds like very strong engagement. However, what happens to the remaining 80%? Do they lapse? On Twitter, in the US, 10% of the users contribute 80% of the tweets and on Instagram, 63% of US users return daily. Twitter now reports “monetizable users” in an effort to reflect the difference between people that use the platform and those that are just registered. The hard bit is getting benchmarks that are genuinely comparable across different companies, and often different industries.
These are three examples of the discussions we had when looking at whether this company was getting “traction”. At this stage, it feels too early in its development for Sports Loft and how we can best help them, but I like the proposition, the founders and where they want to go. I’m not sure how they monetise their audience, but let’s give them a chance, they’ve got to grow the audience first. If we were early seed stage investors (we’re not!) this could be interesting, but for us it’s a “watching brief” over the next six to 12 months.
The second company was a B2B product selling into the performance groups at teams in multiple sports. They told us “we’ve got twelve customers across three sports...all of whom are paying a fee”. Big tick, customers are seeing enough value to pay for it. Everybody likes that. The number of customers is hard to judge. There’s 20 Premier League teams, 18 in Bundesliga, 20 in La Liga, 20 in Ligue 1 and 20 in Serie A; plus 30 in MLB, 30 in NBA and 32 in the NFL. So almost 200 teams across these elite leagues. So 12 isn’t a huge number, but it’s a very good start and they’ve shown real “hustle” to get those along with a number of others in the pipeline. For context, Catapult has almost 3,000 clients. One immediate question was whether having 12 customers across three sports meant they were spread too thinly at an early stage and whether they were better off concentrating on one sport? It’s also worth looking at whether they were trying to target the elite teams, the next rung down or the mass of teams. There’s a big difference in selling to the top six in the Premier League and the rest.
“The last three clients came to us” they said when talking about the sales process. This is great and shows that they are getting recommendations within the industry. It can also speed up a notoriously slow sales cycle in elite performance sport. The performance community is both tight-knit and competitive, if they can get performance directors thinking “I can’t be the one without this technology” then the numbers will grow quicker. They also had a client who left one team and joined another, subsequently introducing the technology into the new team, another big plus as it shows that this person felt they were getting good value.
Usage of the product is always an important factor for us. It’s one thing selling the product “vision”, but another thing to get people consistently using it. Are the users logging in regularly? If they are not using the product, then it won’t generate the case studies and they won’t get renewals from the teams. Are there multiple users across the organisation, showing that it is being more ingrained with the team than just one champion? In this case, there weren’t lots of users at each team, but those who did were using it heavily. “We’re making their jobs easier” they said, which has been borne-out by some initial inquiries we made. That’s good. If the users feel threatened by it they would not advocate for it.
Ultimately in a B2B product with a relatively small number of customers, we always look at their case studies. Are they delivering value for the customers in a way that absolutely justifies the spend on the technology? At Sports loft, Satisfi have shown that they can create new sponsorable assets for clients and create new revenue, Spalk have shown that they can significantly reduce costs for broadcasters, Fevo have shown that they can increase ticket sales numbers, Zone7 have shown that they can reduce the number of days lost to injury and the list goes on… How easy is it for the client to make a business case for using the technology? In this case, the product provides a clear benefit to the teams from using the technology but it is hard to put a precise monetary value on it, often the case with performance technologies. The case studies they have are compelling and I can see why other teams would follow. Early-stage companies often struggle in regard to case studies, as the clients are often hesitant to talk publicly about the value that they are getting.
So will this one become a Sports Loft company? There’s a real possibility. The case studies are strong, the management team know how to sell in the club environment and they are evidently getting talked about amongst the teams.