How to Build a Very Big Company

How to Build a Billion Dollar App: Discover the secrets of the most successful entrepreneurs of our time by George Berkowski

Do you want to become a billionarie? We do. Actually some of our clients are billion dollar companies. When we reviewed Peter Thiels book, from one to zero, we were hoping we would find the answers and help some of our 10-100 million clients to become billion companies.

Peter Thiel

Peter Thiel suggests you should focus on next practice and create a monopoly based on something unique.

That he total net profit that you earn on average over the course of your relationship with a customer (Customer Lifetime Value, or CLV) must exceed the amount you spend on average to acquire a new customer (Customer Acquisition Cost, or CAC).

That you should only start your company with people you know very well and that purpose, cult and culture binds it all together.

To be honest, his book is near to being glib. It is only interesting because Thiel wrote it.

George Berkowski

George Berkowski also writes about how to get to a billion. But he describes the journey from idea to a billion in detail. Using his work with Hailo as the template. It is a cracker. Should be compulsive reading for every entrepreneur. For every business.

Combines the real life journey with a lot of the latest thinking on design, organisational development, data, marketing, communication, innovation, customer care, finance, fund raising. And because the talks about it in the context of apps and software it is at high speed.

Mobile

Some interesting statistics about mobile

  • A typical smart phone user looks at their phone about 150 times per day’
  • The smart phone in your pocket today is about 5 times faster than a Cray-1 supercomputer (1979 vintage), and as powerful as the most powerful computer in the world in 1987.
  • A Cray-1 couldn’t make phone calls, or tell you where in the world you were standing, or tell which direction was north, or even allow you to read your email.
  • China ended 2013 with 618 million Internet users, of which 500 million were mobile Internet users.
  • In 2015, the number of smart phone users is expected to hit 2 billion.
  • Mobile now accounts for 40 per cent of time spent on social media.
  • Facebook has passed the 50 per cent mobile-usage mark and Pinterest is at 48 per cent.
  • Together, these two players are responsible for 56 per cent of social-media-generated e-commerce
  • In 2013, the average US consumer spent an average of 2 hours and 38 minutes per day on their smart phone and tablet. That’s almost one-fifth of the time we spend with our eyes open.
  • Those consumers spend 80 per cent of that time (2 hours and 7 minutes) using apps and only 20 per cent (31 minutes) on the mobile web
  • 75 per cent of people are always within five feet of their smart phone, and 10 per cent have used one during sex.
  • Sharing information about ourselves is intrinsically rewarding and gives us a few squirts of dopamine every time we do
  • Android will run on 1.9 billion devices by the end of 2014, compared with about 700 million for Apple’s iOS operating
  •  In 2012 there were about 4,000 unique devices running Android; in 2013 it was around 12,000.
  • About 600 different companies manufactured those devices

Wearable

The age of powerful, helpful, life-changing, wearable computers is upon us. From mobiles, wearables, Google glass and Oculus VR. Imagine how the world is going to look like when they reach maturity (and it will be quicker than you think, read “The second Machine age” if you don’t belief it).

THE IDEA AND GETTING TO ONE MILLION

Take your pick

The idea needs to be big and it needs to be global as mass appeal is a core component of far-reaching disruption. Here are 67 human univerals that are global in its appeal:

Age grading, athletic sports, bodily adornment, calendar, cleanliness training, community organisation, cooking, cooperative labour, cosmology (study of the universe), courtship, dancing, decorative art, divination (predicting the future), division of labour, dream interpretation, education, eschatology (what happens at the end of the world), ethics, ethno-botany (the relationship between humans and plants), etiquette, faith healing, family feasting, fire making, folklore, food taboos, funeral rites, games, gestures, gift giving, government, greetings, hailing taxis, hairstyles, hospitality, housing, hygiene, incest taboos, inheritance rules, joking, kin groups, kinship nomenclature (the system of categorising relatives), language, law, luck superstitions, magic, marriage, mealtimes, medicine, obstetrics, pregnancy usages (childbirth rituals), penal sanctions (punishment of crimes), personal names, population policy, postnatal care, property rights, propitiation of supernatural beings, puberty customs, religious ritual, residence rules, sexual restrictions, soul concepts, status differentiation, surgery, tool making, trade, visiting, weather control, weaving.

The billion dollar founder statistics

  • 0.07 per cent of funded startups become billion-dollar companies
  • Only 43 companies managed it.
  • It takes 7 years. The average age of founders is 34.
  • The average number of founders is 3.
  • They have worked together for many years before.
  • All founders have a technology background.
  • 80% had earlier start up experience.
  • 33% were from Stanford.
  • The majority of founders had a technical degree.
  • More then half are based in Silicon Valley.

The 5 business models

1. The first is gaming, where users pay for a virtual service or good.

2. The second is e-commerce / marketplace, where users pay for a real world good or service.

3. The third is advertising (or consumer audience building in the case where the company has not yet switched on the advertising).

4. The fourth is Software as a Service (SaaS), whereby users pay for cloud-based software (typically via a subscription model).

5. And the last is enterprise, whereby companies pay for larger-scale software (again, via a subscription-type model).

The first steps

Start with a big problem, a novel solution and a huge market ready to adopt it. Then build a great product that users love, and then prove they love it with data showing they are willing to pay for it. Combine that with a robust strategy that attracts users systematically and at a cost that is less than what users will potentially generate in revenue for your app.

Get out there and test your great idea for an app, put it on paper, and start getting feedback. As you flush out a great design, start prototyping it. Test all the time.

His tips at start up stage:

  • Three key roles need owners:
    • someone must lead the product vision
    • someone needs to build the technology
    • and someone needs to be focused on getting users and generating money.
  • Ideas are a penny a dozen. It’s execution that’s worth money.
  • Once you’ve combined your huge idea with a huge market, it’s time to find a cofounder. Look for chemistry, skills and passion. Get a test drive. Go on holidays together. No experts, advisors or coaches.
  • Creating the identity for your business . Creating a robust name and brand from the very beginning is critical.
  • A great name is 10 times better than a good name. First Impressions count. Is your name short, catchy and memorable? Is your name distinctive? Is your name clever? Can your name become a verb? Do you own the domain? Spend money on designing logo, branding
  • The most important question you can ask yourself, as an entrepreneur, is, How much do I want to sacrifice to achieve success?
  • The companies that generated revenues from day one are the ones who wield the real power, create the most value and, most importantly, control their own destinies.
  • To iOS or to Android? A great approach is to focus on one platform and make it a success. iOS is easier.
  • Focus only on the absolutely necessary and ensure wow. Learn from the best and study screen shots. Then
    • Start with paper and screen shot
    • Test everything
    • Map out the wire frames (and test them)
    • Test the user journey (and test them)
    • Create a slide by slide PowerPoint outline (and test them)
    • Get a designer involved
    • Translate your wireframes into pixel-perfect mockups of your app (and test them)
  • Focus on function
  • Use Protio.io
  • Start coding
  • Get a user group
  • Measure
  • Test everything

The metrics

Acquisition: users downloading your app from a variety of channels and users enjoying their first ‘happy’ experience on your app;

Retention: users coming back and using your app multiple times;

Referral: users loving your app so much they refer others to download it;

Revenue: users completing actions on your app that you’re able to monetise.

CAC, or the Customer Acquisition Cost, the price you need to pay for someone to download and install your app.

CPD, the Cost Per Download.

If you’re looking for investment

  • You should be able to show a solid download-to-user-acquisition rate of around 80–90 per cent (always shoot higher).
  • You should be able to activate upwards of 50 per cent of your users.
  • In terms of retention, this depends on whether you’re a gaming app (where the leading apps keep people coming back daily) or an e-commerce app (typically, users come back 1–4 times per month).
  • You’re generally going to see only a small proportion – generally 2–5 per cent – of users who actually invite a significant number of others to download your app.
  • At this stage, any metrics around revenue are going to be great news – and a bonus.

Dealing with investors

Key lesson at this round with investors. Make sure you understand everything and don’t sign if you are not comfortable.

GETTING TO TEN MILLION

You now should have an app that users LOVE. That means that at least 40 per cent of users saying they would be ‘very disappointed’ without your product.

The triggers

You need to discover the triggers that drive people to want to download, use and talk about your app. Ask yourself:

  • The top five emotions you want your app to elicit
  • The top fifty words that describe your app
  • The top fifty words that describe your brand
  • The top customer needs your app satisfies and benefits it delivers • The top problems your app solves
  • The top fifty words that describe your competitors’ apps
  • The top fifty words that describe your competitors’ brands.

The engines

You now need to build the engines. The growth engine and the revenue engine. You need a systematic way to grow your user base. That involves being able to test new user-acquisition channels, test their effectiveness and then figure out what kind of lifetime value (LTV) they generate.  Similarly, you need to validate how your app is going to make revenue.

And you need to start recruiting. You need to start building a communication infrastructure. You need n organisation structure.

His learning:

  • Small teams
  • Become product centric
  • Test, try, measure
  • Say “no”, keep focus
  • Keep shipping
  • Do not outsource development
  • Get a VP of engineering
  • Always recruit
  • Kill features to find out what users really love
  • Create an organisational  DNA of customer support
  • Deliver delight
  • Use Net Promoter Score
  • The customer is always right
  • Create new metrics
    • Average transaction value  (ATV)
    • Annual revenue per user (ARPU)
    • Life time value (LTV)
    • Customer Acquisition Cost (CAC)
  • Share the metrics across the company
  • Don’t put in analytics too late
  • Focus on emotion (love or hate). Do not get stuck in the middle. Get a reaction.
  • Explore the new channels
  • Allocate 3 to 6 months for A round

HUNDRED MILLION

The rule

‘Simply put, does adding $1 in sales and marketing resource generate $2+ of revenue? That means focusing on business model, profit margin and product development.

The questions

• Should I go for growth (acquire more users, generate more revenue, at the cost of profitability)?

• Should I aim for profitability (sacrifice some user and revenue growth but retain more control and potentially position myself to fund my own growth and not give away more of my company to investors)?

His tips:

  • Share and learn from your VC portfolio brothers and sisters
  • Get a VP in marketing
  • Branding becomes more important
  • Measure everything
  • Do not rely on traditional channels
  • Focus on Facebook
  • Focus on big data
  • Keep users coming
  • Measure retention
  • Build a CRM system
  • Find the fanatics
  • Stay relevant
  • Focus on empathy with your customers
  • Start focusing on internationalisation
    • Be smart in your strategy
    • Languages
    • Every character on the screen counts
    • Look at China
  • Create a playbook
  • Ensure your customer acquisition cost (CAC) to be less than your lifetime value (LTV)
  • Focus on virality
    • Your viral coefficient, K = X × Y × Z, where:
      • X is the percentage of users who refer or invite other users to download your app;
      • Y is the average number of people they invite (over a specific period of time);
      • Z is the percentage of people invited who download your app.
  • There is another metric that affects your virality: cycle time. This is the average amount of time between when an existing user initiates a ‘referral’ (invites a new user to the app), and the moment the new user downloads the app. The shorter this period is, the faster you grow
  • Hire for tomorrow, not for today
  • Know your organisational chart
  • Keep recruiting
  • Organise Friday updates
  • Organise all hands meetings
  • Create clarity on targets and goals
  • Communicate the metrics daily
  • Hire a scrum master
  • The typical timing between closing a Series A funding round and landing a Series B round is around 600 days

FIVE HUNDRED MILLION

The moment you have been waiting for

At this point all the rules change. You have reached an inflexion point. Scaling is where you – the founder and entrepreneur – create the most value and generate financial rewards. This is, after all, the moment you have been waiting for – the time to show the world that your app can become the undisputed leader

His lessons:

  • Beware of premature scaling
  • Never hesitate to filter out the weak, under performing employees.
  • Don’t hire reactively. Hire because that’s the absolute best thing to do.
  • Over-invest in your management team.
  • Craft a clear vision for what an optimal organisation would be like to take your company global, which helps to recruit the right people into the right roles.
  • Hire big hitters
  • Scale the marketing team
  • Delve deep in the data
  • Your business model will start blurring (online goes off line)
  • Always be recruiting
  • Scale engineering
  • Keep product centric
  • Don’t organise around technology or skills or functions
  • Make sure that you build teams into self-empowered squads or units
  • Apply the two pizza rule
  • Invest in people, not infrastructure.
  •  Hold out for exceptional engineers, the 10x employees, the ones who deliver above and beyond.
  • For all future hires, no matter for what team, the final say would be made by a senior executive with this ‘power of hire’. This ensured that there was an incredibly high – and consistent – bar for hiring.
  • Fire quick
  • Have an onboarding programme
  • Communication is key
  • Understand the difference between makers and managers
    • Minimise meetings
    • Meetings disrupt makers   
    • Facebook has a loose policy called ‘No-Meeting Wednesday’
    • Have a meeting policy and schedule
  • Things that work well at small-scale tend to break at large-scale
  • You need to instrument your system so you can see when things are reaching the breaking point well before they break.
  • There is always one problematic component in a system that causes the majority of the scaling problems and must be rewritten
  • Loose coupling of components is critical. Blameless postmortems are the key
  • Overreacting to a crisis is likely to make it worse.
  • Overbuilt systems are hard to implement, manage and scale.

ONE BILLION

And this is where it gets interesting…..

You need to keep tuning your business model, you need to keep your users ecstatically happy and you need to look out for disruptive innovation. But what is the key lesson?

Culture

Culture, culture, culture. Your advantage is not the hardware. It is your people. So how do you create culture at scale.?You start at the beginning (at start up). You lead by example. You recruit on cultural fit and passion. You recruit the best. You are transparent. You deliver the perks. You let them to get on with it.

More metrics

And the proof is in the metrics. The revenue per employee of Netflix is $ 2.2 mln, the profit per employee for Apple is $ 460,000. So they can afford to hire the best. And keep the best by allowing to play.

Purpose

Telling your staff that the company is a playground (a well kitted out one), for them to solve meaningful problems, that is the ultimate retention tool.

Other billion dollar CEOs

He finished with advice from other billion companies:

  • Delegate, Spread the load at high growth
  • Make decisions fast. It is about momentum
  • Vision and mission statements are important
  • You need entrepreneurs, producers, administrators and integrators on your management team   
  • Be totally transparent
  • Start reading to learn
  • Hire only people who you want in your top 10, even if it number 400 in your company
  • Open communication
  • Create serendipity

In summary

His summary at the end, which is not far off from Peter Thiel:

  1. Build a truly great product
  2. Hire the best and infect people with your vision and mission
  3. Develop a solid business model
  4. Excellence is a product of practice

Steve Jobs

The last page is a quote from Steve Jobs.

Do what you believe is great work. Love your work. Don’t settle.

Other books we covered with Bookbuzz

Everything in this book confirms a lot of thinking that has been described in the many books we have covered in Bookbuzz

  • Overconnected (designed for delight)
  • Digital disruption (platforms)
  • Power brands (marketing)
  • Metaskills (makers and design)
  • How Google works (HR)
  • The Alliance (HR)
  • The Thank You Economy (Culture)
  • Delivering happiness (Customer service)
  • Talent masters (Talent)
  • Reinventing organisations (organisation structure)
  • Do it! (move)

A cracker

And I can go on. An absolute cracker. By a guy who has been there and not only bought the T-shirt, he wore it.

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