Somewhere between gut instinct and customer reception is the answer to a question most every startup faces.
Pull the plug, or keep building a product in the hopes it becomes a hit?
That was one of the key topics during a panel discussion comprised of some folks from New York-based Betaworks, who came out to last week’s gathering in Brooklyn hosted by Facebook.
Matt Hartman, director of seed investments; Maya Prohovnik, head of community development; and Brian Donohue, CEO of portfolio company Instapaper, pulled the curtain back on how Betaworks combines seed investments with the in-house creation of new apps and startup ideas.
The so-called “venture studio” model has been seen elsewhere around the country, and in the case of Betaworks led to the birth, or scaling up, of startups such as Dots, Digg, Bitly, and Instapaper.
The idea behind Betaworks, Hartman said, was to create something different from incubators. While there have been some acquisitions by Betaworks, such as Digg and Instapaper, teams within the studio frequently develop ideas from scratch. “Investing in outside companies and building companies in-house are two sides of the same coin,” he said.
Those investments are strictly seed-stage, which eliminates the pressure to decide whether or not to back follow-on funding rounds, Hartman said. In general, Betaworks invests in intersections of media technology, such as when it backed San Francisco-based IFTTT (If This Then That), which allows people to control and connect apps and online services. Through IFTTT’s software, if someone posts a picture to Instagram, then it will be saved to Dropbox for example.
But figuring out if an app is on the cusp of success or circling the drain can be hard, said Prohovnik. “There’s the fear that you’re going to shut down something that could have been huge if you made the right pivot,” she said.
Prohovnik works on the hackers in residence program at Betaworks, which spawned companies such as Poncho, Dots, and Giphy. Looking objectively at the traction—or lack thereof—that an app gets when it launches, she said, is a major factor in determining what the next steps will be. However, some context also comes in to play.
Mobile game Dots took off at its launch, Prohovnik said, with rampant downloads ensuing. That was not the case for weather service app Poncho. “It didn’t have a ton of traction in the beginning, because we didn’t put a lot of effort into marketing, but everyone who used Poncho loved it,” she said.
It may seem obvious, but examining audience and customer response to a product is an important lesson for startups to learn, said Instapaper’s Donohue. Instapaper is an app that lets people save webpages, videos, and other online content for later perusal, even offline. “When we acquire a user, we look at how long takes for them to become a subscriber, and then how long are they a subscriber for,” he said.
Hartman said if users pay for a product, clearly it makes it easy to form plans to grow revenue and scale up—yet money alone is not always the determining factor. “A lot of companies we invest in are social media properties where there isn’t a revenue model early on,” he said. “So it’s very much about user time spent.”
There still can come a time when a seemingly good idea just goes nowhere. This year Betaworks killed off Sitedrop after the last employee who worked on the collaboration service finally left. “If you think about shutting it down and it makes you feel a sense of relief, it’s probably the right thing to do,” Prohovnik said.
At the moment, Betaworks is experimenting and having a go at an augmented reality project, she said, despite some initial doubts. Prohovnik gave no details, but said the potential for the idea compelled the team to stick with it. “Even though we didn’t totally know what direction to go in, we kept pushing until we figured that out,” she said.
