Thread by @ryan_caldbeck

1/ Was at a dinner recently with five VCs. All great folks, smart, thoughtful investors. We got to talking about Halo Top and what drove its growth.

2/ I talked about product differentiation for @HaloTopCreamery and the importance of highlighting meaningful differentiation effectively in the packaging.

Basically a 60 second summary of this:

circleup.com/blog/2018/02/0…

3/ Then I dropped the bomb- the co. is worth >$1b and has raised in total <$5m.

“Wait. So the only thing that was different is that the ice cream had fewer calories, and then they highlighted that on the packaging?”
Yeah
“Wait….seriously?”

4/ They couldn’t tell if they should laugh or be cynical or what. I get it.
But what immediately came to mind for me was @ICQ.
icq.com/windows/en

5/ For those of you who don’t remember, ICQ was a killer instant messaging system about 20 years ago (it wasn’t amazing, but in 1997 it felt like magic). I’m not saying it isn’t great now but…..ummm…..their DAUs have been cut a lot.
en.wikipedia.org/wiki/ICQ

6/ OK so here is how it ties back to that dinner with VCs. They didn’t mean to be disrespectful or make fun of HT, but they also couldn’t understand how such a small difference in a product (“it’s just fewer calories? I don’t get it.”) could matter so much.

7/ They were respectfully (and rightly) asking how could something that “small” drive $1b+ in equity value? (yes... that’s a B)

8/ Soooo……..here was my question. Why is @SlackHQ valued at >$8b right now while ICQ is…..well……not. Here is where I think it gets fun.
techcrunch.com/2018/08/07/sla…

9/ People that know Slack, and some that don’t, will jump in w/ commentary about how much better Slack’s product is than ICQ. Or talk about launch strategy, hype, team, ability to fool around w/ the product while the team pivoted from Glitch, etc etc.

businessinsider.com/stewart-butter…

10/ But show Slack and ICQ to your Grandmother. Or heck show them to some smart 30-year-old that hasn’t heard of either (rare, I know). Then ask them to articulate clearly the value prop that makes Slack worth [20]x? as much as ICQ.

11/ Slack is a better product, a better marketing & launch strategy. But the differences upon first encounter, IMO aren’t so immediately obvious that everyone would have jumped on board.

I’m talking about predictability of success in the early days, not after it was a sensation

12/ So in this dinner, what I found interesting is that the tech investors - all smart & thoughtful- were (literally) throwing their hands up in the air upon hearing what drove Halo Top’s success. One implied that this is why he doesn’t invest into CPG- it isn’t predictable.

13/ Hmmmm. So was it obvious that the world needed ANOTHER Instant Messaging service beyond ICQ, AIM, WeChat, What’sApp, Skype, FB IM, Yahoo Messenger, Trillian, Pidgin, etc? But letting consumers eat a pint of ice cream in one sitting w/o feeling guilty is less obvious/valuable?

14/ I think that’s a bit biased and insular. If we take off our tech vc hat, I think most humans would find more obvious differentiation in Halo Top’s innovation (v. Ben & Jerry’s) than Slack’s (v. ICQ). I’m not saying Slack isn’t valuable. I’m talking about predictability.

15/ Hindsight is 20/20 in everything. But think about this. To find Halo Top, you could have used the following data (all available publicly):

16/ A: Product uniqueness- looked at the ingredient decks and nutritional profiles of all ice cream companies. Found that Halo Top was in top X% in terms of most differentiated from the average. Then made a decision “do I think consumers care about that dimension of uniqueness?”

17/ B: Brand strength- looked at the brand intensity with the consumer. How intense and positive is the relationship between the consumers and HT?(use data from social, reviews, blogs, etc)

18/ C: Distribution (breadth & quality)- looked at points of distribution for HT. Basically every single customer for HT (retailers are the customers in CPG, the shoppers are the consumers). # of SKUs, price pts of SKUs, # pts of distribution, quality of distribution.

19/ If you’re tracking it you can see how all of that data- Product Uniqueness, Brand strength, distribution change every single month and how they compare to every other ice cream company.

20/ That data gives you the ability to identify very specifically that there is a product uniqueness (A) that resonates with consumers (B) and the company is being paid for it (C).

I’m not saying that information advantage is 100%. But it is still a heck of an info adv.

21/ Add on to that the fact Halo Top has had to raise 0.42% (<$5m v. >$1.2b) of what Slack has raised to be successful……..intriguing. I’m not saying HT will be bigger than Slack. I am saying I like capital efficiency and I like predictability.

22/ What is the equivalent data that I would have looked at with Slack that was publicly available for me to see from afar? Not after it hit, but let’s talk about an equivalent Seed Round. What data really would have existed publicly?

23/ Perhaps that's why they say to be a good tech vc you need to do it for 10 years. That’s fine….but is it predictable and repeatable?

24/ Fun ending to dinner. Someone said “do they even make the ice cream themselves?” (implying it would be less valuable if they outsourced their production).

I didn’t mention this about Slack: a core asset- the early design- was effectively outsourced:

medium.com/@awilkinson/sl…