Tag Archives | business

Analyzing the Shark Tank – Coffee Meets Bagel Episode [Startups]

I do not really watch Shark Tank, but two recent episodes struck my interest. The first was the episode with Singtrix, which has a connection to my time with RedOctane and Guitar Hero. The other was about Coffee Meets Bagel, the January 9th episode (thanks to Kevin Tung Nguyen for sharing the episode) that you can watch below:

Coffee Meets Bagel (CMB) relates because of my work at FriendsPlus, which we sold pre-launch to Noi.vn, Vietnam’s largest dating service in 2013. Like CMB, FriendsPlus focused on creating a non-meat market dating environment focused on the needs of female users, encouraging offline meets between users who explicitly opted in to each other. Some commentary on the episode and CMB:

  • The team should have been prepared for questions about user numbers. By deflecting the question multiple times, one wonders if they have given different numbers to different people and thus could not say publicly on television what the current numbers were (they would not want to be shown lying), or if CMB is simply at the bottom of the range given (100-500K users). As Cuban implies, there is a big difference between 100K and 500K users, especially considering that CMB has been around for close to 3 years (more on that below) – it suggests limited market or non-compelling and non-naturally sustainable growth.
  • The team mentions that CMB was invested in by a Match co-founder. That person is Peng Ong, who I actually know. Tinder is invested in by Match, the firm. CMB launched in April 2012, 5 months before Tinder, but Tinder is estimated to have 50 million users today. The team cites Match’s 800M in revenue as a sign of their own potential. That’s the same logic that says you should automatically advertise on Facebook because it has 1 Billion users. Yes, there is some superficial logic there, but you need to delve a bit deeper.
  • The Sharks are right in that CMB can easily be copied – look at the popular Noonswoon from Thailand.
  • CMB’s revenue and users are a bit alarming. I discuss it over the next points.
  • Last year, CMB generated $87K in revenue. If that is $0.50 per user on average, this would imply 170K users. This is reasonable for this type of product and follows what the team said. I don’t know how long the average user stays with the product. If they actually have more than 170K users, revenue is actually less than $0.50 per user. Remember this $0.50 figure for later.
  • This year, CMB expects to make $1M USD, but expects to lose $1M, which means costs were $2M USD. Current user acquisition is $0.30 per user.
  • CMB expects to break even at $10M in revenue next year, from 4M users. They expect to spend 3-4M (let’s assume it’s 4M) in to bring on those new 4M users. That is $1 per user. They expect $2.50 per user in revenue, but did not include CMB’s existing users in that revenue figure. This leads me to believe that CMB user lifetime with the service is not particularly long (1 year or less) or that the number of current users and the revenue generated from them is not significant enough to include. This implies the lower user figure in the given 100-500K user range. Increased user acquisition costs suggests this product does not spread virally, something about it does not compel others to talk about it, or you are trying too hard to bring someone who may not be the right fit for your product. If this is the case, the projected gain in average revenue per user (ARPU) for these kinds of users is also a concern.
  • How did CMB estimate $2.50 per user per year moving forward? CMB is going to jump from $0.50 to $2.50 (500%) in 1 year?  How does adding users generate more money per user? Since the revenue is from digital currency / microtransactions, does having more users make the product more sticky? If so, this implies the business is not sustainable now. If that is true, and focusing on this niche is not sustainable, what does this imply about the value the product is creating for its current users? Does having more users actually mean more date / chat frequency which means I need to buy more microtransactions? Again, this is not a meat market like Tinder in which you go on to browse (consume) through people – for Tinder, you need a ton of users. For CMB, you are getting one match per day carefully selected for you. Are there more types of transactions that CMB will be processing in the future that will generate new forms of revenue?
  • Let’s compare CMB to a Facebook type of product. Facebook generates more revenue by adding more business models. Example, Facebook could sell different types of ad products, and can charge more money with an increased user base (market power) increasing the efficiency of those ads. It can also take a share of revenue that is generated within the platform (apps, games), or sell emoticons. Thus, more users could lead to more revenue, but you also need to add more models for those users, it’s not automatic. This concerns me about CMB – it currently just sells digital currency.
  • Why is there such a high burn rate (company spending)? With $2M in expenses, this is over $150K in burn per month. You might want to look at CMB’s jobs page to find out where the money is going: https://coffeemeetsbagel.com/jobs/. From my experience: company trips costs a sh*tload of money. Based on LinkedIn, I found about 15 full-time employees at the company. Let’s say on average, each employee costs the company $100,000 each per year (this is low when you include office space, benefits, etc.). The founders mentioned they each make 100K, which for the Bay Area, is low. Based on CMB’s $1M revenue, and $1M in losses figure, however, the team is suggesting they spend 133K per employee per year, which is possible. (This doesn’t include marketing, which at .30 per user at 170K users, would only be about 50K and can be ignored for now). I know that the Bay Area is a different beast with employee expectations, but in my opinion, startups in need of cash need to learn how to conserve cash better.
  • CMB will break even at $10M in revenue and 4M+ users. With $4M going in advertising, where does the other $6M go? If you stick to the $133K per employee figure, the company would need to grow to 45 people. Perhaps some people are getting raises. Infrastructure should not be a particularly significant cost yet. I don’t think you can have 45 people in a co-working space either. If the cost goes to $150K per employee, that is still 40 employees. If the team can cut the fancy office, parties, trips and focus on profitability, I expect there is a good amount of fat that can be cut. (One of RedOctane’s first offices was a big warehouse with no air conditioning in Sunnyvale – no frills worked out for them)
  • I wonder if CMB’s quoted revenues include the 30% share that is given to Google Play and iTunes for microtransactions. Otherwise, there is no cost of goods (COGS).
  • Why does CMB need to grow to be profitable? This, along with CMB’s slow user growth after nearly 3 years troubles me. I could understand the growth in the sense it’s not a meat market app. It’s for people who want quality, real relevance over gross quantity. But why can’t it be profitable now? This makes me question the revenue model. Is CMB going against its core by going to mass-market advertising? If the app is not for everyone, it should be positioned accordingly. I don’t see how growth rescues them long term.
  • So what should CMB do? I would consider changing to a premium / subscription model to get revenue from more (higher % of users pay, but less overall users) users at higher rates and focus on that smaller niche audience to reach profitability. Do people pay for love? Yes, as long as it is provides real value. CMB seems to be providing that.
  • The Mark Cuban $30M offer: I don’t think he is actually making the offer, he is saying “what if”, to which the proper response to a hypothetical is of course no. If you say yes, you have publicly given a limit to what your company is worth (the team has suggested a $10M valuation with $500K for 5%) for no reason. You would never want to create the sense you do not believe in your product to preposterous levels. If it were a legit offer, I believe they should have taken it. 3X valuation is nothing to joke at, as much as the team may claim to look at Match’s $800M in revenue or Tinder’s billions in valuation. The team suggested CMB is a cash hungry business intent on growth. CMB received $2.8M in venture capital last May, which would not cover its marketing budget for this next year. Yet, its is only asking for 500K from Shark Tank. This leads me to believe CMB is mainly on Shark Tank for the PR and don’t want to give up very much equity, has another round coming, or does not intend to go with its stated marketing plan at all – it would not have the money for it. If it needs to grow massively to become profitable, CMB has no other option than to take the buyout offer.

My MBA Interview with Accepted.com [Kellogg, MMM]

MBA/MMM Interview with Kellogg Student: Using Empathy to SucceedRecently, I was interviewed by Accepted.com for its series of MBA Student Interviews. I just saw that it was posted today!

You can see the original article at: http://blog.accepted.com/2014/12/12/mbammm-interview-with-kellogg-student-using-empathy-to-succeed/ or the text below. Many thanks to the team at Accepted for the honor.

This interview is the latest in an Accepted.com blog series featuring interviews with current MBA students, offering readers a behind-the-scenes look at top MBA programs. And now for a chat with Michael Nguyen, a student at Northwestern Kellogg’s joint MBA/Masters in Design Innovation program.

Accepted: We’d like to get to know you! Where are you from? Where and what did you study as an undergrad? Where are you currently studying?

Michael: I was born and grew up in the San Francisco Bay Area. I was unfortunately a mediocre student at Cal (UC Berkeley) because I spent a lot of my time playing video games. Thus, even though I started in Computer Science and really enjoyed it, I eventually changed to Comparative Literature (which is actually really difficult – I did not know this when I switched) after a couple of years. However, the time spent in both majors has helped me immensely throughout my career.

I am currently at Kellogg (Northwestern) in its newly revamped MMM program, which is a dual-degree MBA and Masters of Science in Design Innovation program run in conjunction with the McCormick School of Engineering and Segal Design Institute.

Accepted: Can you tell us more about your joint degree? What does “Design Innovation” mean? What do you plan on doing with your degrees?

Michael: The MMM program ends at the same time as the normal Kellogg two year MBA program but now starts one quarter early, in the summer. Though this does come with additional cost, this also means you get to enjoy the summer in Chicago! Another great benefit is that you will become very close with your MMM program mates, the other 59 students (the program is limited to 60 per year).

I personally define Design Innovation as an end-user empathy lens for looking at the world, but one that is not just relevant to developing products. If you manage a team, you need to be able to put yourself in team members’ shoes before you can create a rally point. If you are trying to sell a product, you need to know what your target customer is thinking – who they are, why they do what they do. It’s not that someone is just “stupid” or one of “those people” you can generalize. Everyone is unique and design thinking helps you use those lessons in your career.

From my time working in Southeast Asia, I used empathy in order to succeed at creating compelling products for different types of people as well as to win trust and motivate teams despite cultural and language barriers.

After the program, I am looking to return to smaller tech startups or perhaps start my own. However, the range of careers that others in the MMM program are seeking is very broad. Many are looking to enter into consulting, with more top firms now embracing design innovation, but there are also students looking to go into finance, consumer packaged goods (CPG), and technology.

Like the MBA, I think the Design Innovation degree is a toolset you can adapt for any career trajectory. Simply, the Innovation is the change you make in an existing product, process, or organization; the Design is the user-driven approach.

Accepted: It looks like you’ve got an interesting work history! Can you talk about a few of your most recent projects?

Michael: Previous to Kellogg, my professional background for the last decade has been in Business Operations at multiple startups. My first work experience was helping RedOctane become acquired for the Guitar Hero game franchise by Activision. I ran its e-commerce operations, including shipping logistics and customer service.

I then spent 7 years in Vietnam, becoming COO of the first social networking service there, Cyworld Vietnam, a 70 person startup funded by SK Telecom and IDG Ventures Vietnam. During my time in Vietnam, I worked closely with partners such as Nokia, LG, and Yamaha as well as local mobile carrier giants such as Viettel within the restrictions of one of the rare capitalist-socialist governments in the world.

During this time, I co-founded the most popular Vietnamese microblogging service, Mimo.vn, in 2010, helping it grow to 2 million users. Before I left Vietnam, I also worked on another side project which became a dating app called FriendsPlus. It was sold pre-launch to the largest dating service in Vietnam, Noi.vn, and the technology and service concept was integrated into Noi.vn as a whole.

In general, I have a deep interest in how different types of people connect with and add meaning to each other’s lives.

Accepted: What is your favorite thing about Kellogg so far?

Michael: When you are in a good class (happens more often than not thankfully), you can compare it to seeing a brilliant performer, whether that be musical, athletic, or theatrical. In many ways, that’s exactly what it is – a professor with a tremendous academic and real work pedigree who is educating you about different aspects of business. Because of this, I actually like to sit in the front to get the best view. After all, I am paying over $60,000 a year for this show!

What most surprised is me how every class links to each other. In a business setting, that wouldn’t be surprising because well, that’s business. If you run a company, you cannot just be a product guy with no understanding of finance and vice versa. But in this class format, you will see each class bring in aspects of the entire MBA education. Thus, if you are taking Finance, you are not asked to just do math. You are asked to think about what firm and market strategies change the math in the real world and how you sell that story to someone else (your boss, management, investors, etc.).

I feel that in every class, you are not challenged to solve the problem but to create and then sell the story so it can be implemented in a company.

Accepted: If you could change one thing about the program, what would it be?

Michael: In the busy lives of the MBA students here (classes, groupwork, recruiting, competitions), it’s not easy to make deep connections with others in the student body. I think this problem likely exists at many schools, so despite Kellogg’s reputation as a great school to make friends and be around team-focused individuals, no school can create the perfect social setting for everyone.

Thus, if you are an international student or more of an introvert, Kellogg’s emphasis on big social group events may be uncomfortable at times. CIM week can feel like a rehash of your undergrad years where the majority of students solidify their social groups within the first few weeks and do not go outside their comfort zones to befriend people that may be unlike them.

It is something that Kellogg is aware of and looking for initiatives to help address the issue. In fact, a friend and I are working on a mobile product that we hope will help with this and we are looking to get the Kellogg administration’s support for it as well.

Accepted: Looking back at the MBA application process, what would you say was your greatest challenge? How would you advise others who may also be facing that challenge?

Michael: I actually decided to apply to MBA programs two months before Round 1’s began, and I also wanted to make sure I applied for Round 1. This meant I needed to prepare for the GMAT and every other part of the application in a very short amount of time – an MBA was something I had not seriously considered for the previous five years. Fortunately, things worked out, and I got into a great school.

However, others should not follow this route. An MBA program is a very serious time and financial commitment, one that is essentially your last chance to use an academic setting to create a long term impact on how people view you professionally. Do spend the time (at least 1 year in advance) to prepare your applications properly to maximize your chance into getting the program that’s best for you. Beyond that, also use that time to get a proper understanding of which schools you can actually get into.

I am not a big believer in backup schools. If you there is a school you absolutely want to go to, and your background is a good fit for that school, spend the most time on that school. Even if that means working an extra year to improve your professional accomplishments, I say do it!

Accepted: Do you have any other admissions tips for our readers?

Michael: Although we are asked to pretend we know what we want to do after our MBA, few people really do. Because of this, don’t be worried if you really will follow-up on everything you talk about in the application. What’s most important is to think about what you would want to do right now and think through how going to a particular school is well suited to help with those specific goals. I think schools like Kellogg are not judging your ambitions but your ability to construct plans and build towards them.

For Kellogg MMM specifically, it’s a great program that is not getting a lot of publicity right now, likely due to the recent curriculum change. However, I recommend (to everyone) to look at it more closely and talk to people in the program (like myself). Many people I’ve met at Kellogg regret not applying for it because they had misconceptions about the program or thought it wouldn’t be relevant to their career. Once they better understood how the program works, however, they realized its applications were much more broad than the words “Design Innovation” may initially suggest.

How Long Should I Wait in Line for “What the LeBron”? [Economics]

imageI was listening to this NPR podcast on the fashion sneaker economy and I got interested in the people who wait 12, 24, or even over 36 hours to purchase and then resell the shoe. Is it really worth it?

I absolutely believe in time is money, in the sense that any time you waste should be considered at a labor rate. This isn’t much different from waiting in line for a new Xbox or Sony Playstation console either. In November 2001, my friend Mike and I slept overnight outside Best Buy and Walmart in a Milpitas shopping cart in hopes of getting an Xbox. We did, but at the time we were both students who had nothing better to do and also made about $8.00 an hour in our part time jobs. We also only waited about eight hours or so – even though people were waiting in line at Best Buy, no one actually went to Walmart and we got our Xboxes easily that morning.

Now that I am an adult, the economics are different. Let’s answer two questions:

1) How much is it worth for me to pay in premium rather than wait in line for the new Nike Lebrons or Jordans that are released?

2) If I look to resell the shoes, how much do I need to profit to make it worthwhile to wait in line (versus taking care of my children or just flat out working another job?)

First Scenario:

$20 an hour, $800 a week ($40,000 per year)

(Assuming 40 hours of work; let’s avoid taxes and benefits reductions for simplicity. As a side note, the average salary in the US is $1000 per week.)

The chart below shows, based on how much the shoe originally cost ($250 before tax), your expected returns and salary based on waiting (this dismisses transportation, shipping costs, etc. This also doesn’t account for the times you may actually lose out on the shoe – yikes!)

If you are looking to buy and you make at least $20 an hour at your job, it is worth it for you to buy a $250 shoe at any of the prices listed in green. For example, if you think you would need to wait a full 24 hours in line to secure the shoe, you should be willing to pay up to $700 for the new Lebron rather than wait in line. If you purchase the shoe for $700, you are paying someone else $18.75/hr to wait in line for you, which is less than your own salary.

If you are thinking, but I have to pay someone, well, think of it as outsourcing your work. How much would you pay someone to do your job? If you make $20 an hour, but you can outsource it to Bob for $18.75, you can make $1.25 an hour from doing nothing. This is an arbitrage, free money off the ground.

If you are looking to sell, the cells in red show your hourly wage rate from waiting in line.

At $20.00 (white highlighted cell), you are indifferent (waiting 5 hours to sell (or buy) the shoe at $350).

imageSecond Scenario:

$25 an hour, $1,000 a week ($50,000 per year, roughly the average pay across the nation)

imageThird Scenario:

$30 an hour, $1,200 a week ($60,000 per year)

imageFor the last scenario, let’s say you do pretty well and make the magical $100,000 a year mark. Because you make a pretty darn good salary (congratulations, by the way!) I expect that you should have an intelligent approach to your time.

Final Scenario:

$50 an hour, $2,000 a week ($100,000 per year)

imageAs you can imagine, the more you make, the harder it is for you to really profit from waiting in line if you want to resell the sneaker, but it’s also more valuable for you to not wait inline if you just want it for yourself. If I had to wait more than 2 days for a shoe and I made the average US salary, it is economically worthwhile for me to pay $1,000 for a $250 shoe on eBay or NikeTalk rather than wait in line. In the podcast, they mentioned how resellers talk about the shoes like a stock, but there is one big difference. The transaction cost for purchasing/selling a stock is minimal. I can make a trade on eTrade for $20 at any time, it’s automatic. You can set it and resell it anytime (no waiting in line as with shoes) you need based on defined amounts, there are no extra fees in terms of storage (you need to keep shoes and boxes in great condition, collectors are picky).

If you make $100,000 a year, you are better off going to work rather than waiting in line longer than one night. Do some research on Campless, for example and find the right timing to make an offer on the shoe you want.

You may argue otherwise, which is fine, but ultimately you should define to yourself how much your time is worth before blindly waiting in line for shoes, video game consoles, or the new iPhone. Especially if you are an adult, with real bills to pay.

How I Would Tackle Black Friday if I Worked at a Big Box Retailer [Business / Marketing]

imageIt used to be that Black Friday started on Friday after Thanksgiving. This year, we started on Thanksgiving itself, with Best Buy opening at 5PM.

My question: is all this really necessary? This is like an arms race, with competitors challenged to see who can open the festivities earlier. If that’s case, perhaps retailers will begin to ask “Why close on Thanksgiving at all?” in future years.

If I were a retailer looking to tackle the competition on Black Friday, I would ask the following questions:

1) Many families travel during the Thanksgiving holiday – if I live in Chicago and then fly to San Francisco to spend the holiday with my family, am I likely to go shopping and bring all that stuff (“oooh, 60 inch 1080P HDTV for $699!” back with me? In not, current Black Friday sales are excluding this substantial customer base.

2) You are probably familiar with the concept of a loss leader – selling a high profile (see TV above) item at below cost in order to attract crowds and associated purchasing – I don’t just buy the TV but since I am at Walmart I might as well buy video cables, and all this other stuff I was planning to buy. On Black Friday, do these trends continue? Do people buy more, the same, or less than if you created that same loss leader on another day? If people were going to buy that stuff from you anyway, but on another day, have you really gained anything except a loss on the TV? If people don’t actually buy the video cables from you, or buy it on another day, then you’re really in trouble. My mental image of Black Friday is massive crowds. Is this really the time to be slowly looking through the store to see what else you might want to get, or do you just want to get that super-cheap stuff and get out?

3) On Black Friday, does this start the buying season or do more people start earlier or even later? (The biggest shopping day is actually right before Christmas). I actually start buying very early, at least 1 month before Thanksgiving.

4) Do people work harder (weekends, overtime) the weeks leading up to Thanksgiving or these normal work weeks? Are they available to shop?

If I work at Walmart and feel this huge pressure to make sure Americans are using their shopping dollars at my retail locations, I realize this is a zero sum game. The more I sell, the less other stores will get, leading to stronger quarters for me, weaker quarters for them. If I stay in business, those guys…anyway you get the idea. With more retailers offering price matching, even against online retailers like Amazon, retailing is a no-holds-barred dirty war. Retailers don’t care if they lose money on some items, they just want customers to pick them for holiday shopping first.

My solution is to skip Black Friday altogether. Start the bonanza a week earlier, create your own shopping holiday (like that has never happened before?) when everyone is home and can still buy stuff. Then, offer a price-match guarantee on anything that is bought that weekend for the rest of the holiday season. My goal is to take away as much money from the retail market as possible early before the big battles start, preempt everyone else.

The details:

  • Advertise big, just as you would during Thanksgiving. But because you’re doing it when there is less competition, the ads are cheaper and you can get more coverage for the same rates. BLOW IT UP.
  • Price-matching would be returned through gift cards. I do not care what customers buy from me, if I am going to price match in the future, I might as have them buy everything now.
  • Think of price-matching as a mail-in rebate. A significant percentage of people will not bother to get the price match, but you have injected the confidence in customers that no one is going to beat you this holiday season. That means instant (financial) returns for you, the retailer who was going to price match anyway. I’d rather someone buy first from me and then forget to price match (money is worth more today than it is in two weeks) than someone either coming me to price match and buy something or just not bothering to price match and buying at that original retailer.
  • Using customer-matching technology based on past purchasing, I would offer gift-card rewards based (the more you spend, the higher rewards tier you reach, the higher % you get back) on how much was purchased during the special pre-holiday weekend, further encouraging customers to max out their credit cards at my retailer during that holiday weekend, to be given back on December 25th. I want to optimize for the hoarder mentality. I would send the customer a SMS on Christmas morning with how much they got back in gift card credit – who wouldn’t want to wake up to that? I just spent a ton of money on my family, and (instead of regret from guilt) now I am told I get money for loving them.
  • After this pre-Thanksgiving shopping holiday, I would just offer normal deals as you might expect – all I have done is move the craziness from Black Friday to a week earlier.
  • In case shoppers are still procrastinators, I would mail them a catalog with great gift ideas one week before Christmas, and then redo my super duper price-buster price matching weekend (price match + tier rewards) one more time. I clean up at the beginning, before anyone is competing, and at the very end, in the mad desperation. Again, my aim right before Christmas is to suck every dollar from the wallet but leave the customer feeling great about it on Christmas day.
  • (In case you’re wondering who shops on Christmas day itself, a LOT. As a teenager, I worked at Walgreens on Christmas day, and people would wait 30 minutes in line as cashiers rang up $1,000 shopping carts from customers buying anything available before seeing their families)

How fun would it be to take on retailers this way?

The Solution to the Mayweather-Pacquiao Fight

imageFloyd Mayweather may enjoy taunting Manny Pacquiao, but I wonder if he creates all these barriers to a fight because deep down, he does have some doubt and he wants to make sure he gets paid for the risk. Mayweather has come up with all the reasons to not fight, first drugs then (his own) jail time, and throughout all of this he has wanted a significantly higher share of the fight pot than Pacquiao.

I think there’s a simple solution, however: Winner Takes All.

Alright, if that’s too low, how about $1M USD guaranteed for both, and the rest goes to the winner.

If Pacquiao made such an offer in public, could Mayweather refuse? The most lucrative fight ever was last year’s Mayweather vs Canelo fight at nearly $150M USD. This fight would definitely reach that figure, perhaps it could even reach $200M? Imagine if that’s how the fight was marketed, “Mayweather versus Pacquiao for $200 MILLION DOLLARS”. I think a casual fan would be more inclined to watch if that were the messaging.

What if you threw in a knockout bonus? Pacquiao hasn’t knocked anyone out in five years. Mayweather is known for defensive boxing. An extra $10M to the winner, if he wins by knockout. Wouldn’t even more people watch this?

You announce it, do a Showtime special series for both camps in which the boxers, trainers, and wags (wives and girlfriends) all talk trash about the other camp for six straight months and then you do the fight during Christmas weekend 2015. At the same time, invite every famous boxer to pitch in with their thoughts and give them all front row tickets to the match, like a Hall of Fame fight before the lords of boxing (MORTAL KOMBAT!). Build up that hate for six months in the public, get everyone to take sides (doesn’t this sound like a presidential election) and then unleash the knockout bonus.

Wouldn’t you watch this? I would!