The Consumer Internet Feedback Loop
A few weeks ago, I wrote a post about a framework I’ve found myself using to analyze consumer internet products. I was seeking to reconcile common traits among apps and products that have resonated with me, particularly over the course of the last 6 months or so. While I settled on the fact that the product ideally should be both a diversion and a utility in order to have the highest likelihood of long-term success, one point I didn’t address is the “consumer internet feedback loop.” This increasingly short feedback loop is the result of a number of factors (a new type of early adopter, an abundance of choice, and and has consequences for both startups and investors.
When I wrote this post nearly three years ago comparing new apps to toys, it was implied that the earliest users of services like Twitter and Quora were the only ones who bothered to dabble with new apps. Today, that is far from the case. Nearly everyone is a candidate to be an “early adopter” – some of today’s most popular products were originally cultivated by “mainstream” users. Tech, more precisely, consumer internet, is defining (if not, a new form of) pop culture.
The majority of startups now don’t have the luxury of having an initial user base of traditional tech early adopters that tend to be more patient and forgiving (i.e. remember all the Fail Whales?), understand the difficulties a new product may encounter, and thus, don’t churn as quickly. Now, in general, with a less tech savvy initial install base, you need to nail the first interaction that each person has with your product (if they even download it / sign up to begin with). You need to solve the enigma that is push notifications to ensure a good user experience or that they’ll even use your app at all, as [Brendan Mulligan](twitter.com/mulligan) so carefully outlined in a must-read post last week. And if you don’t accomplish these objectives, then the app likely won’t land on the home screen, and it’ll get buried in some folder or on the person’s fourth screen, never to be seen again. [Chris Dixon](twitter.com/cdixon) mentioned this cycle in a post yesterday, and I’m sure most people reading this post have a bunch of apps on their phones that fit this exact description.
Exacerbating this situation is the fact that we now have more choices than ever when it comes to what to download and which apps to use after doing so. Consequently, the paradox of choice surfaces. Having more options to choose from actually leads us to being sub-optimally satisfied as we question our decision, ultimately resulting in a high rate of “app abandonment.” Assuming that the startup hasn’t successfully cleared all the hurdles outlined above (and the vast majority don’t), then, we often take to platforms like Twitter, Facebook, and others to broadcast our feedback / displeasure for whatever app we’ve used for an unfairly short amount of time to provide a reasonable assessment. For example (and to stick with the startups from my post from a few weeks ago), Secret’s critics said the app was about to crater just 45 days after its launch, and some people have declared Jelly all but dead.
So, what does all of this mean for investors and the startups that they back?
Given the dynamics described above, early stage investors are presented with an interesting opportunity in order to separate themselves from the pack. Now, having the conviction and intestinal fortitude to invest at the seed stage can be a differentiator because the factors above may make it riskier than ever to invest pre-product / pre-launch. My friend [Kanyi](twitter.com/km) Tweeted something to this effect yesterday; rounds become way too competitive if you wait to rely on too much social proof (both in the form of traction and investor interest). [Charlie O'Donnell](twitter.com/ceonyc) wrote a post yesterday about how he’s encountering NYC investors who are moving away from traditional seed stage investing for similar reasons, and [Nick Chirls](twitter.com/nchirls) wrote about conviction investing recently as well as a counter to the social proof of investor syndicate.
Additionally, while many argue that it’s easier than ever to start a company, it’s arguably harder than ever to acquire and retain your earliest users. There are new apps coming out every day vying for people’s attention, in addition to the litany of incumbents that already take up people’s time. And, as described above, the feedback loop is shorter than ever. Companies essentially have one shot to win over someone who has just taken the leap to download their app. It needs to be polished and immediately demonstrate value, in some way, to the user. Regardless of what you think about their prospects for success, the first versions of apps like Secret and Jelly were incredibly refined and buttoned-up. Pre-launch user testing with a variety of different cohorts will become that much more critical to the product’s chance of success. Teams will need to be even more thoughtful about user experience prior to sharing their product with an increasingly unforgiving audience. Jelly wasn’t available to the public for a rather long time, and while they may have taken it to the extreme because they had that luxury (founder and team, amount of capital raised, etc.), I believe it’ll be a trend that consumer apps will take longer to “officially” launch as they seek to mitigate as much risk as possible before showing up in the App Store.