The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
00:25:49 · Harry Stebbings, Luca Ferrari
[00:25:49] S1: Why is rate of user acquisition so tough? I'm sorry to ask, but they tend they tend to be quite baked assets. You've got historical data. You've got very baked customer acquisition channels. Why is it so variable and volatile to predict? [00:26:02] S0: I think it depends on a few factors. One is it depends on more drivers than other key inputs to the success of a product. And these drivers tend to be outside of your control more than drivers that are behind other key factors. Basically, if it's an equation, you have more variables and you control them less. And so your ability to then force the future the direction you want it to go is lower. When you make a mistake there, you generally you don't have a an opportunity to to fix it. Whereas in other cases, maybe you thought something... You could you could achieve something and you thought it would be easier. It turns out to be harder, but you can go the extra mile, allocate a few more resources, somehow you get there. But if the rate at which you're acquiring users isn't where it needs to be, often there isn't much you can do. I mean, can spend more in advertising, but you're gonna lose money. Otherwise, you would be spending it already. Right? So the problem is you can't find ways of acquiring users efficiently and that has to be the end of it. Do you [00:27:04] S1: find scale network effects? And what I mean by that is given the portfolio of products, there's cross promotion, referrals, the ability to increase one's distribution.
00:27:04 · Harry Stebbings, Luca Ferrari
[00:27:04] S1: find scale network effects? And what I mean by that is given the portfolio of products, there's cross promotion, referrals, the ability to increase one's distribution. [00:27:14] S0: Not a factor. Maybe it's because we we we have failed to leverage it, but no no value coming from that. [00:27:20] S1: In the one that worked out really well, what were the lessons from that? We spoke about kind of the challenge of predicting user acquisition. In the one that went to the upside, what was the lesson from that? [00:27:30] S0: Yeah. There there are some small tactical lessons. The bigger lesson is acknowledging the incredibly high level of unpredictability of some of this and bake in appropriate safeguards, particularly a sufficiently large margin of safety. So that when you are wrong, long as you're not massively wrong, it doesn't destroy you. Maybe you won't be happy with that investment, but it doesn't destroy you entirely, and you can move on to live to fight another day as they say. [00:27:56] S1: How do you build margins of safety? Is that in diversification of product lines? Is that in pricing?
00:27:56 · Harry Stebbings, Luca Ferrari
[00:27:56] S1: How do you build margins of safety? Is that in diversification of product lines? Is that in pricing? [00:28:01] S0: Well, that helps. Yeah. Probably wanna do it both on the individual, let's say, capital allocations, for example, an acquisition, but the same concepts would work if you allocate capital in r and d marketing because, know, that's... That that is still cash. It's no less real than if you buy a company. So you probably want to bake in a good margin safety as you do that. And then, naturally, if you have a broader portfolio of initiatives, whether it's multiple products like we do or, you know, multiple r and d projects, then you're further projected. Statistics are are on your side. But risk assessment and mitigation is a fairly complex topic. I think it... We could talk about it for hours. [00:28:37] S1: What do you know about risk and risk mitigation today that you wish you'd known ten years ago?
00:28:37 · Harry Stebbings, Luca Ferrari
[00:28:37] S1: What do you know about risk and risk mitigation today that you wish you'd known ten years ago? [00:28:42] S0: Assume you're not as smart as you think you are. The issue here is that most people will end up making significant capital allocation calls. Generally, those people, they wouldn't be there if they hadn't been somewhat successful by most measures. Sometimes academically and then professionally, but at least professionally. Right? Otherwise, it's unlikely to imagine that someone would be managing $50,000,000,000 or, you know, ask a scale up worth billions. If that's the case, it's very easy to think too highly of yourself and that is very dangerous. The moment you think you're very smart, the likelihood that you make very dumb mistakes skyrockets in my opinion. Now, you need to retain a little bit of self confidence, otherwise, you won't make any moves. But I think a healthy level of second guessing yourself, assuming you're biased in favor of your ideas, that you're lazy and don't wanna look into a certain risk fact because you know it's gonna take you fifty hours of grinding through benchmarks and analyzing data, that you should assume that's the case and adjust your aim accordingly. [00:29:45] S1: Luca, when did you take too much risk on an asset? Too much that you shouldn't have taken?
00:29:45 · Harry Stebbings, Luca Ferrari
[00:29:45] S1: Luca, when did you take too much risk on an asset? Too much that you shouldn't have taken? [00:29:50] S0: Oh, I mean, it's difficult in hindsight. You know, it's it's like if you play a hand of poker. It's quite dangerous to assess whether you played it well based on the results. So I'm thinking based on what I knew at the time and what I could have possibly known. One that's obvious to me, we did buy this app. I'd rather not mention it by name, but a pretty significant product. We made the mistake I mentioned earlier. We were quite bullish that our projections of user acquisition rates were conservative. And I think we were a little bit lazy in really studying the underlying factors driving user acquisition historically. We just looked at it in aggregate and bit naively. Had we done our homework more thoroughly, I think we would have spotted that some of the underlying factors were waning and dropping quickly. And that consequently, the rate of user acquisition was likely to to shrink faster than we had anticipated. Because we had actually projected it to decline, but not nearly fast enough. That's certainly a case where I feel I'm not very proud of the way we handled ourselves. I think we did a mediocre job [00:30:52] S1: there. Did it change how you do it?
00:30:52 · Harry Stebbings, Luca Ferrari
[00:30:52] S1: there. Did it change how you do it? [00:30:54] S0: Yeah, definitely. Every year or so, we we try to spend an hour reminiscing that particular situation, a repeated retrospective. We have dissected our mistakes, ad nauseam, so it's not that we're gonna learn anything new, but I think it's healthy to remind yourself just how lazy and dumb you were at some point, so you don't assume you have become hardworking and smart all of a sudden. [00:31:14] S1: I did love your humility. Can I ask you on the flip side? Was there a time when you didn't take enough risk and you're like, come on, Luca. You should have done more of that. We could have been more aggressive. [00:31:24] S0: I think it's probably one of my greatest shortcomings as an entrepreneur and manager. I feel I'm too concerned, scared even of disappointing others, colleagues, investors. And as such, I believe we have waited a little bit too long to raise capital. We've waited a little bit too long to push, you know, on the accelerator to implement our strategy the fastest speed we were capable of. I feel our level of caution has been, generally speaking, excessive. I think had we been more aggressive, we would have made more mistakes. But overall, I believe we would have created more value for our share owners, our colleagues. You can't really a b test life, and so maybe it's not the case. Who knows? But that that's my read in hindsight. [00:32:07] S1: Luca, do you care what other people think? Do you care?