Looking For The Yawn
We spent some time last month talking to Jeff Lawson and his company Twilio, which provides a drop dead simple (five api calls) cloud platform for building voice apps on the web. Jeff ultimately went in a different direction from our firm and closed a round with Founders Fund and Mitch Kapor which was announced yesterday.
We really like what Twilio is up to and introduced Jeff to a bunch of companies who might find Twilio useful, including Tumblr, which built its 'call in audio' feature in no time using Twilio.
So I think Twilio is on to something quite interesting and I congratulate Jeff and his team on building a really useful and simple voice platform and I applaud Mitch and Founders Fund for backing this idea.
But I just saw proof that this is going to be a great investment. Yesterday, I noted Warren Buffett's words of wisdom on this blog:
I always wade into the comments on every blog post I read. In the comments to Techcrunch's post on the Twilio investment, I read the following:
This is nice functionality, but there are numerous people who have come at this problem from similar perspectives.
Here’s what’s right: telephony apps will be delivered via the cloud,
and they will be assembled from pre-built modules on someone’s app
Here’s what’s wrong: this is still a telco play, meaning the company
is in the minutes business. Margins will approach fractions of a cent a
minute, not the $0.05 cent level they’re hoping to get now. So, fingers
crossed these guys can get people to deliver billions of minutes across
The comps for this are not TellMe. Ribbit is fair comparison, but
this is really something Telera was doing almost 10 yrs ago. Angel is
probably the best comp.
No way the investors understand what they put money into.
Looks like you've got a winner Jeff and I think you've made an excellent investment Mitch and Founders Fund.
Hmm, maybe I’m not thinking like an investor, but I’d find it hard to be working a company that produces yawns. All of my previous companies have been in in the “wow” space (consumer electronics, entertainment, space technology, wine, art…). Are you saying that that’s the wrong move?Or is this something about B2B, which, yes, induces yawns in me, but can be pretty profitable.
it’s about being a contrariandoing what everyone thinks is right is rarely the path to success
Also about doing something which will be useful for some time (and to a number of companies using it in a number of different ways) rather than riding the fad of the moment. Joining the current buzz is great for applause but ideally you’d want to be getting in beforehand.
Yes, but until you get to the step where you can innovate, you have to follow the rest.
haha, so timely from TC! 🙂
VC is a cool business… trying to imagine Vikram Pandit congratulating Wachovia and Wells Fargo for going ‘in a different direction’ instead of blowing his top and ranting about cutting their f-ing lines…
Competitors on one deal are colloborators on anotherCoopetition at its finest!
I previously gravitated towards “new ” and am always impressed when someone uncovers a business model/approach that works using a me-too technology or application. The best part of this approach is that you know there is a market.- you just need to figure out what held back buyers in the past and build a solution that addresses that need: unique customer value + timing + execution. Salesforce.com iis a good example: 10 years late to CRM and 4 years late to ASP (even though they acted like they invented it)More thoughts on this from an old post on my blog: http://dantiernan.com/blog/…
Great post. Thanks for the link
Fred,Twilio is to me one of the most exciting companies I have seen in the past year. We now run an tech+human recruiting service (after a few iterations of our service). We spend an inordinate amount of time using the phone and mostly reach people’s voicemails. When we integrate with Twilio (planned pretty soon), it would really help reduce these costs. Additionally, our consumer facing side would also benefit by lowering marketing and distribution costs.I dont know about the others but I was very excited when I first read about it in TC.Nik
I think Twilio, and their investors, would take a Ribbit return any day of the week. Yawn…. 😉
I think it all depends on who is yawning :)A yawn is another way of gauging the “big hit” potential you need as a VC investor; “betting on yawns” is a higher risk / higher reward play. If the masses already understand it then it’s likely to already be in use, have competition and lack the big growth potential you need as an investor, right?
The ‘callin audio feature’ on Tumblr is pretty cool.Pretty useful way to record an interview and put it right on the web. Three way call the Tumblr toll free number or use a speaker phone.
There is an ideological bridge between this post and your one regarding first principles.Buffett doesn’t care about buzz and hype. He has no interest in finding ‘the next big thing’. What turns him on is making great investments. I’m willing to bet that his so called yawn investments throw off a lot of cash (or ‘float’ as he calls it), and that in every case he got in at an attractive CF multiple.By focusing on core investment principles, and ignoring fads and momentum, Buffet has acquired superficially boring companies and in the process generated returns that are anything but.ps. Whilst I greatly admire Buffett’s intellect and discipline, it must also be said that no fund manager would ever have been allowed the independence that Buffett has enjoyed over the years. This takes nothing away from the great man, but is just meant to emphasize that comparisons with listed funds are unfair, and that many other prospective Buffetts are probably out there, but are not given the opportunity to flourish.
fred: you are a generous soul offering praise for a non-portfolio company, and I’d agree with you that while Twilio might not excite everyone in the comments over at TC, it did excite us enough to become investors.in particular, we kept seeing this funny thing happen: as part of our due diligence we would ask a startup to test out Twilio and they would come back to us not just with a “thumbs up” but with fully-functioning app integrations, and kept using the service as customers even after the helped us with the tech evaluation. after this happened 3 times, we realized that while some folks thought it was a yawn / me-too story, the *developers* were blogging & twittering about what raving fans they had become. as a former developer myself, nothing could be more powerful than hearing the MBAs yawn but the Geeks going Hog Wild. it didn’t take long for us to realize Twilio was going to be a really amazing investment.but all the tech aside, the thing we’re most excited about is the team. Jeff Lawson has a great group old folks along with him, and we believe in them as much as the platform they’ve built.congrats to Twilio and we expect more “yawns” in the very near future 🙂
That’s exactly what happened with the Tumblr app they built on Twilio Dave
Me again.Fred, since you don’t mind addressing tricky questions head on, could you briefly explain how the concepts of ‘yawn’ and ‘traction’ can co-exist in the VC mind?Tks
Well let’s take disqusIt has a lot of traction and even had serious traction a year ago when we made our initial investmenthttp://siteanalytics.compet…But it’s largely a yawn for most people, certainly most VC investorswe think they are on to something big though and maybe we’ll be right
Perhaps 1880% yoy uniques growth pushes the definition of yawn?Ach, I’m just fooling around, I know exactly what you mean. Yawn = not (apparently) sexy.A curious upshot of all this is that it appears to blur the traditional growth/value investing division. Yawn would imply value, whilst traction implies growth (hence my question). However, and here we can close the loop, investment first principles actually make no distinction between growth and value (just over/under valuation for a given growth rate) – and so, by extension, yawn and traction can co-exist in the investor’s mind.And I can hear half the net saying: “Yipee! Glad we sorted that one out” 🙂
Congrats to the Twilio team on closing the round. I have a sandbox account, but haven’t had the chance to play with their API. I would also encourage web developers to check out the company I work for, IfByPhone. We have a simple API as well, and you can build full on IVR using our GUI. http://is.gd/lBUYThere are a number of companies out there doing very interesting things with Voice (Jaduka and Jajah for example), and making it more accessible. Good luck to Jeff and his team in the future.
I love it! You can’t make this stuff up.It’s true that for a lot of great technology we sit up say, “That’s really cool,” but my unscientific guess is that even more great technology we seamlessly integrate into our lives.To paraphrase T.S. Eliot, this is how the future begins: not with a bang, but with a yawn.
Jeff is a very smart guy, and I’m a huge fan of Twilio. For anyone who hasn’t really looked at the platform, the beauty isn’t in that it is amazing technology, but rather how simple they make it to do things that were previously technically challenging. No more re-inventing the wheel, just easily adding phone-based functionality to your web-based app.When I first saw tumblr’s call-to-post feature, I immediately thought “They should have used Twilio,” so I was excited when Marco told me that they did.My naive gut definitely felt a good fit between USV and Twilio, but alas 🙂 Looking forward to seeing what else gets built, and figuring out what I can build with it…
“TheFunded Founder Creates A Startup Camp For Young CEOs” http://www.techcrunch.com/2…Thought you might like this.
I would be interested in learning from folks their thoughts on what the capital infusion would be for? It appears their model is to run real lean, even to the point of leveraging Amazon’s AWS. Would it be more for sales/marketing?
Hi Scott,I’ll happily pipe in, I’m the one spending the $$$ :)You’re correct, we haven’t spent fortunes on enterprise hardware we need to recoup. Instead, we’ve invested significant time writing better software, building a reliable telecom infrastructure on top of commodity AWS resources. Our costs are highly variable, and we pass the variable cost structure on to our customers.So our fundraising is to hire the best and brightest folks to help us take Twilio to the next level. Sales and marketing are high on our list, as well as hiring great engineers to help us expand Twilio’s capabilities.So if you’re looking for a job and you fit one of those descriptions… email [email protected] :)-jeff
if reading these two things don’t make you excited for twilio, specifically, and for future yawns, more generally, well… I don’t even know where to start:”building a reliable telecom infrastructure on top of commodity AWS resources.” and “Our costs are highly variable, and we pass the variable cost structure on to our customers.”edit: good luck jeff and team!
The issue with Tellme was they never got ‘web services’ (check out http://www.voip-info.org/wi… though considering Microsoft bought them for $700 million what do i know :)What’s missing on most of these voip api’s is a web browser to voice application like the Mexuar that I helped launched 2 years ago http://deancollinsblog.blog… though you should really check out http://www.PhoneFromeHere.com which is where the technical brains from Mexuar eventually went to.Voice api’s for building smart apps that enable phones to do more are great, just dont forget that accessing voice ‘content’ from a browser makes such great sense.Cheers,Dean Collinswww.Cognation.net
Fred,I completely agree about the yawn theory; because it’s all about the break-away ideas; something that separates a startup from the pack, which may create few yawns here and there.However, I fear that in the modern technology world, people communication is moving more toward text rather than voice. I myself text my friends more than voice calling them, and I expect the business world is heading in that direction.Therefore, I expect a voice based business collaboration may last for few more years (5 years or so) and eventually morph into text collaboration; such as IMs, regular email, or other messaging system. It would be interesting to me to find out how Twillio is going to adapt once that transition of voice to text communication; maybe they’ll change their business model, or be acquired by then, who knows…Good post,-Bedros
I would have to say the recent Twitter round falls clearly in the ‘applause’ category. No yawns there.I was in the voice business most recently as CFO of Mobivox. You do have to go beyond minutes to build something sustainable and relevant. Those startups that were direct to consumer (including mobivox & jajah & many others) are no longer trying to swim upstream and are now embracing established partners. The twilio api is a winner. Look forward to seeing their progress.And kudos for your openness about not closing an investment with them
I also think this highlights the distinction between the value and impact of a platform and the impact of “functionality”.Your excerpt from the Techcrunch posts is perfect. The truly significant new businesses may not manifest visibly apparent or appealing functionality for years, because as a platform the value they enable will manifest itself through functionality that others access or enable. Providing a rich information set, or a powerful core set of capabilities that enable new “functionality” the developer of the platform never imagined or spec’d into that MRD.Platform businesses have some of the same behavioral characteristics of the revenue ramp for a subscription business. There’s a latency to the impact of a platform business, it takes years to develop the exposed interfaces, to understand the inter-relationship between the capabilities you envision and the capabilities you enable with the other applications/services you enable, and most importantly, the ecosystem you must develop and nurture to bring it all to more visible life.This all requires a lot of hard work behind the scenes, and makes for really boring demos (unless you’re paying close attention to the implications), or rather the really interesting sources of leverage and potential may only be demonstrable through boring demos – there’s just not likely a lot of overt sexiness there.But there aren’t many people who have had first-hand experience on the inside of a platform-based business to know what that feels and acts like, and there are even fewer people on the outside who know how to recognize the behavior (going back to the boring demo issue), so there you have it – you will produce yawns, people’s attention will gravitate to the cool thing that shows well, they just don’t know what to look for.Yawn is right, and yawn is good.
Hey Fred-I have been following you for the past 6 or so months between your blog, twitter and various outlets… I am new to the tech crowd as I am launching a new concept this week that incorporates aspects of 4 widely successful sites. Everyone I talk to about it immediately asks about investing, I guess you would say it’s the “wow” response. Amazon invested $7mil last year in a somewhat similar site and it’s funny reading this posts’ comments bc instead of fearing the competition, I immediately became more confident in my idea.At what point do you think I can start shopping the site around for our first round of funding? Being new to the world, I decided to raise only seed capital and use my own financing and credit to develop the site over the past year since I doubted anyone would invest in just my “idea” so I decided to first bring it to life which will debut this week. I do believe it is time to start fundraising as our funds are drying up even though we are a revenue-generating model…Thanks,Lindsey
I’d wait until you have several months of traffic growth and engagement metrics to prove your service is taking off and has captured and is retaining an audience
great, thanks for the advice! i guess what i fear is too much too soon and not being able to pay for my bandwidth (pretty much our only overhead at the moment) with the small operating capital that is left. A good problem to have though…