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Snap’s IPO has major challenges, but they have a plan

(BUSINESS NEWS) Snap is losing a whole bunch of money based on their IPO, but don’t worry, they have a plan.

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Trouble ahead?

Uh oh, Snap is losing a bunch of money. Like, a lot a lot. Pro tip for those who also weren’t paying attention: Snap is the company that owns Snapchat. Despite being a compulsive user, I only just learned this. I feel like someone I’ve known as Robert their whole life is now insisting on going by Rob and it just isn’t sticking.

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Unfortunately, I’m kind of worried about them now. Snap’s recently released S-1 has many drawing comparisons to Twitter, but not in a nice way. Like Twitter, Snap is losing leverage and its growth rate is slowing. Chart lover Ben Thompson at Stratechery throws down some comparisons of Snapchat to Facebook and Twitter at the time of their IPOs.

Thompson looks at Daily Active Users in relation to the cost and revenue of each user at the time of each company’s IPO. Unsurprisingly, Facebook, Twitter, and Snapchat’s daily active users have all steadily grown since their onset.

IPO standings


At the time of their IPO, Facebook was winning at the not losing money game. Though the company wasn’t gaining much leverage, it wasn’t losing it either. While Facebook’s total cost per user has increased since their IPO, average revenue per user has has also gone up.

According to the graph, Facebook had to spend a bit more per user, but its profits would continue to grow so long as either average revenue per user or total users increased overall. Lucky for Facebook, both of those things happened.


Twitter also had a flat cost of revenue at the time of its IPO, but its total costs were higher than Facebook. However, Twitter wasn’t able to grow revenue per user or increase the total number of users in a meaningful way.

User growth slowed and costs never flattened. Thompson notes, “had the company simply kept its pre-IPO cost structure it would be in far better shape today.” At the time of their IPO, Twitter and Snap are losing money on users.


For Snapchat, costs per user have surpassed revenue per user. Snapchat now pays more per user than Facebook or Twitter at the time of their IPOs. Snap needs to grow users faster than costs or figure out how to grow revenue per users.

Snap’s S-1 states their strategy is investing in product innovation through their camera platform.

The game plan is to engage users who they can then monetize through advertising. Click To Tweet

Snap’s strategy

Snap points out that as their user base grows, they will incur additional costs.The more people join, the more content is consumed and shared.

Snapchat isn’t fun if there’s no one to send snaps to, so user growth is exponential as new adopters and veteran users convince friends to download the app.

This means additional employees are required, as well as increasing computing infrastructure and development costs.

However, they have a plan: television advertising money. According to the S-1, worldwide advertising is expected to increase by over $1 billion in the next three years. Mobile advertising is predicted to increase nearly three times. Snap notes that people’s focus has shifted from television to mobile screens, particularly in its core demographic of Daily Active Users.

Snap is confident that its concentration in the US and access to high quality ad units make it desirable for advertisers. If Snap captures the best customers by delivering innovative products, even if those innovations are costly, they will profit. That’s banking pretty hard on the idea that TV advertising money can successfully tap into mobile, but we’ll see.

Snapple

Thompson points out that Snap’s focus on innovation is essentially Apple’s go-to strategy. However, Thompson says the problem with this approach is that it didn’t work out for Apple initially. When Apple first took to the market with Mac computers, they didn’t stand a chance against Windows. Microsoft had leverage by playing on already established standards in computing, creating backwards compatible software and tapping into IBM as a sugar daddy.

Likewise, Facebook currently holds queen bee status over Snapchat for the simple fact of its market saturation. While both companies managed to digitize offline relationships, Facebook has a tighter stranglehold on marketing.

However, Snap’s camera company might be what can put them ahead.Snap said they envision the camera screen as a “starting point for most products on smartphones.” In fact, Apple introduced a quick swipe feature allowing users to access their cameras without having to unlock or open up the camera app.

Like Apple, Snap thinks beyond form and function, instead focusing on delivering what the user doesn’t even know they want.

Five years ago I had no idea that my favorite app would be something lets me send out disappearing messages, but here I am preaching to anyone who will listen about the glory of Snapchat.

Snap cares

And bless Snap, because they really do care about all of us selfie addicted kids out there. Their S-1 states, “We believe it’s always worth trying to build something that will empower people to express themselves, live in the moment, learn about the world, and have fun together — even when it’s not clear that what we build will be successful or make money.”

This is why I love Snapchat.

Even though there are bumps in the road–some of those sponsored filters are really obnoxious–at its core, Snapchat believes in communication innovation.

They know they’re working with something revolutionary and are willing to take risks to continue serving their loyal consumers. I’m rooting for Snapchat, and apparently so are investors. They’re valued at $18.5 BILLION dollars, so let’s all cross our fingers and hope for the best.

A special thanks to Ben Thompson for keen analysis and wicked awesome chart skills.

#vivasnap

Business News

Keep your company’s operations lean by following these proven strategies

(BUSINESS) Keeping your operations lean means more than saving money, it means accomplishing more in less time.

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The past two years have been challenging, not just economically, but also politically and socially as well. While it would be nice to think that things are looking up, in reality, the problems never end. Taking a minimalist approach to your business, AKA keeping it lean, can help you weather the future to be more successful.

Here are some tips to help you trim the fat without putting profits above people.

Automate processes

Artificial intelligence frees up human resources. AI can manage many routine elements of your business, giving your team time to focus on important tasks that can’t be delegated to machines. This challenges your top performers to function at higher levels, which can only benefit your business.

Consider remote working

Whether you rent or own your property, it’s expensive to keep an office open. As we learned in the pandemic, many jobs can be done just as effectively from home as the workplace. Going remote can save you money, even if you help your team outfit their home office for safety and efficiency.

In today’s world, many are opting to completely shutter office doors, but you may be able to save money by using less space or renting out some of your office space.

Review your systems to find the fat

As your business grows (or downsizes), your systems need to change to fit how you work. Are there places where you can save money? If you’re ordering more, you may be able to ask vendors for discounts. Look for ways to bring down costs.

Talk to your team about where their workflow suffers and find solutions. An annual review through your budget with an eye on saving money can help you find those wasted dollars.

Find the balance

Operating lean doesn’t mean just saving money. It can also mean that you look at your time when deciding to pay for services. The point is to be as efficient as possible with your resources and systems, while maintaining customer service and safety. When you operate in a lean way, it sets your business up for success.

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Business News

How to apply to be on a Board of Directors

(BUSINESS) What do you need to think about and explore if you want to apply for a Board of Directors? Here’s a quick rundown of what, why, and when.

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What?
What does a Board of Directors do? Investopedia explains “A board of directors (B of D) is an elected group of individuals that represent shareholders. The board is a governing body that typically meets at regular intervals to set policies for corporate management and oversight. Every public company must have a board of directors. Some private and nonprofit organizations also have a board of directors.”

Why?
It is time to have a diverse representation of thoughts, values and insights from intelligently minded people that can give you the intel you need to move forward – as they don’t have quite the same vested interests as you.

We have become the nation that works like a machine. Day in and day out we are consumed by our work (and have easy access to it with our smartphones). We do volunteer and participate in extra-curricular activities, but it’s possible that many of us have never understood or considered joining a Board of Directors. There’s a new wave of Gen Xers and Millennials that have plenty of years of life and work experience + insights that this might be the time to resurrect (or invigorate) interest.

Harvard Business Review shared a great article about identifying the FIVE key areas you would want to consider growing your knowledge if you want to join a board:

1. Financial – You need to be able to speak in numbers.
2. Strategic – You want to be able to speak to how to be strategic even if you know the numbers.
3. Relational – This is where communication is key – understanding what you want to share with others and what they are sharing with you. This is very different than being on the Operational side of things.
4. Role – You must be able to be clear and add value in your time allotted – and know where you especially add value from your skills, experiences and strengths.
5. Cultural – You must contribute the feeling that Executives can come forward to seek advice even if things aren’t going well and create that culture of collaboration.

As Charlotte Valeur, a Danish-born former investment banker who has chaired three international companies and now leads the UK’s Institute of Directors, says, “We need to help new participants from under-represented groups to develop the confidence of working on boards and to come to know that” – while boardroom capital does take effort to build – “this is not rocket science.

When?
NOW! The time is now for all of us to get involved in helping to create a brighter future for organizations and businesses that we care about (including if they are our own business – you may want to create a Board of Directors).

The Harvard Business Review gave great explanations of the need to diversify those that have been on the Boards to continue to strive to better represent our population as a whole. Are you ready to take on this challenge? We need you.

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Business News

Average age of successful startup founders is 45, but stop stereotyping

(BUSINESS) Our culture glorifies (yet condemns?) startup founders as rich 20-somethings in hoodies, but some are a totally different type.

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There’s a common misconception that startups are riddled with semi-nerdy, 20-something white dudes who do nothing but sip Nitro Brews and walk around the open office showing off the hoodie they wore yesterday. It turns out that it’s extremely rare that startup offices resemble The Social Network.

However, the academic backdrop for the real social network story (AKA Harvard), produced statistics that will serve to put the aforementioned misconception to rest. According to the Harvard Business Review, the average age of people who founded the highest-growth startups is 45. Say what?! A full-fledged adult?!

In fact, aside from the age category of 60 and over, ages 29 and younger were the smallest group of founders that are responsible for heading the highest-growth startups. I guess you can accomplish a lot when you’re not riding around the office on a scooter all day.

The study also found that older entrepreneurs are more likely to succeed. The probability of extreme startup success rises with age, at least until the late 50s. It was found that work experience plays an important role.

Many will argue, “Well, what about someone like Steve Jobs?” You could easily argue right back that it took Jobs until the age of 52 to create Apple’s most profitable product – the iPhone.

The study continues to answer questions like, why do Venture Capitalist investors bet on young founders? This goes back to the misconception at the start, and there’s a notion that youth is the key for successful entrepreneurship. Wrong.

There is also the idea that younger entrepreneurs are likely working with less financial options, so it may be common for them to take something from a VC at a lower price. As a result, they could be viewed as more of a bargain than older founders.

“The next step for researchers is to explore what exactly explains the advantage of middle-aged founders,” writes Pierre Azoulay, et al. “For example, is it due to greater access to financial resources, deeper social networks, or certain forms of experience? In the meantime, it appears that advancing age is a powerful feature, not a bug, for starting the most successful firms.”

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