UX is not something that was newly coined or invented with the advent of digital businesses and startups.

The official Wikipedia definition is:

User experience is a person's emotions and attitudes about using a particular product, system or service. It includes the practical, experiential, affective, meaningful and valuable aspects of human–computer interaction and product ownership.

Source: Wikipedia

Now that is what I call saying a lot without really saying anything. Sorry Wikipedia!

However the concept of UX has really been around for a while, we merely have to think back to our offline experiences whenever we queue to buy movie tickets at a cinema, check in and out of hotels, move through immigrations at an airport etc.

Credits: Google

My own layman interpretation of the domain of UX is broader and anchored by design thinking which itself is an application of First Principles Thinking.

UX is the optimisation of the user’s journey (both digital and physical) towards achieving their goals and motivations with the least amount of friction, from the user’s perspective.

A Common Cents definition

Key takeaways from the podcast

For this episode, I have Edmund who used to lead Product Design back in Traveloka and Sweet Escape as our guest. I learnt a fair bit about Product Design from him while we were collaborating together on a major product development project in Traveloka back in 2017.

An element that most UX and Design Thinking literature out there don’t cover is the friction or tension between Product Design teams and business objectives. As with other Product related domains, the most important aspect is learning to say no and stakeholder management. During our discussion, Edmund shared some of his learnings in helping his team strike a balance with business objectives and acting as a counter balance to leadership’s ambitions.

Empathy sits at the core of UX and Product Design and again, customer centricity is a key pillar in creating products that your users love. However, a good product does not always make a good business (i.e. pre reforms WeWork) and Product leaders need to be cognizant of both the macro operating environment and the company’s strategic objectives.

Edmund also shares a non conventional view of where Vision ranks in importance vs the Team, Process and Analytics. We have been taught by mainstream media profiling tech moguls such as Steve Jobs that Vision is the most important factor behind great products. On the contrary, a high performing team with a repeatable and sound process is likely more critical for success.

For example, it makes a lot of sense (and cents) to focus the ideation - prototyping -test phases on validating or invalidating your “Most Risky Assumptions” rather than chasing an airy-fairy vision that is sold to investors (oops?).

Tune in to the episode for more nuggets of wisdom derived from Edmund’s experience!

3 main pillars make a brand and they are:

* Brand voice and identity

* Consistency

* Trust

Customer centricity is key to building quality content which engages your target audience and builds a relationship over time. And you can only be customer centric if you know your audience well and you can only know your audience well if you talk to them every chance you get.

How does content create and strengthen a brand?

When you create a piece of quality content that entertains, informs or solves a pain point for your audience, you build social capital with your target audience. And if you maintain consistency in building a pipeline of quality content, you will eventually come to occupy a mind space with your audience.

For example, Traveloka Vietnam aspired to become your travel buddy who speaks and acts very much like a best friend you have that knows a lot about travel.

Such brand images will become closely associated with your core selling proposition and propel you to the top of the consideration funnel whenever there is a trigger associated with it.

For Traveloka Vietnam, the trigger could be “I am burned out at work, let me dream a little about my next getaway” and instead of going to Google, they land on one of Traveloka’s owned channels to discover their next destination.

This is something paid marketing tactics cannot achieve as you remain beholden to the Google and Facebook ad ecosystems, playing by the same rules as countless other marketers vying for the same audience, trying to outbid each other.

Push vs pull:

* Quality content over time builds a relationship with the audience which forms the foundation of your brand and creates a pull effect.

* Paid marketing tactics are pushed to your audience and have to compete with thousands of other ads everyday to get noticed.

How do you measure performance?

Google trends is a simple and free tool to quickly get a pulse on your brand’s traction for word of mouth. See screenshots below for Traveloka Vietnam’s journey.

From Zero in 2016…

To challenger in 2017,

And hero in 2018!

Bonus trivia!

What is the most successful piece of content marketing ever made that is 90 minutes long? Join me and my guest, Chi Ngo who used to lead Traveloka Vietnam’s content team in the podcast to learn the answer!

As a result of increases in liquidity, GPs now have an abundance of dry powder that needs to be deployed within a short period of time. There appears to be a rush to do deals, especially, when a fund has just done a first close from LPs and needs to amass Term Sheets to attract more LP commitments for subsequent closes to hit their desired fund corpus.

The tendency to skip third party financial due diligence (“FDD”) is slowly becoming the norm, especially for round sizes below $20 million because the costs of FDD cannot be "justified" and most of the transaction expenses budget (reimbursed by the fundraising company) is allocated to lawyers to ensure the deal closes - I call it "rubber stamping".

Don’t get me wrong, the legal elements are an important and necessary part of deal making but all the downside protections, indemnities and warranties in the world cannot fully guard against a flawed business model and/ or fraud.

The implications of skipping financial due diligence with a robust scope of work will usually rear its ugly head when the company is about to enter a trade sale or IPO and the costs of third party due diligence should be perceived as purchasing insurance against companies that defraud and/ or fudge their numbers.

Chanos describes the current environment as “a really fertile field for people to play fast and loose with the truth, and for corporate wrongdoers to get away with it for a long time”. He reels off why: a 10-year bull market driven by central bank intervention; a level of retail participation in the markets reminiscent of the end of the dotcom boom; Trumpian “post-truth in politics, where my facts are your fake news”; and Silicon Valley’s “fake it until you make it” culture, which is compounded by Fomo — the fear of missing out. All of this is exacerbated by lax oversight.

Financial regulators and law enforcement, he says, “are the financial archaeologists — they will tell you after the company has collapsed what the problem was.” All in all, it’s “a heady witch’s brew for trouble”.

Source: Financial Times “Jim Chanos: ‘We are in the golden age of fraud"

How a typical deal process looks like

The above illustrates a typical deal process for growth and late stage fund raises. Depending on the company’s readiness around the availability of data and robustness of financial reporting, the end to end process can take anywhere from 3 months to 6 months.

Now you might think that accounting firms and consultants are inadept at detecting these irregularities but I think it goes back to how the deal is run post Term Sheet, whether the scope of work is adequate and whether the FDD team is given sufficient time and access.

This podcast episode focuses on the importance of third party due diligence that usually takes place after a Term Sheet is signed.

Podcast guests and discussion areas

For this podcast episode, we have the benefit of a multi-faceted view from growth and late stage investors and also a renowned Transaction Advisory Services provider.

Special thanks to Yong Cheng from Qiming Venture Partners, Evelyn from General Atlantic, Dawn from Alvarez and Marsal who kindly agreed to be part of this episode and shared many interesting insights.

Some of the interesting areas that we discussed are:

* What is the value add of performing another round of due diligence through third party advisors?

* How extensive should the FDD scope be for various fundraising stages, Series A vs Series B vs Series C and beyond?

* What is a "standard" scope of work for FDD for a Series A+ companies which should already have some basic BI infrastructure and must have a sound financial reporting process?

* What are the red flags to look out for before FDD starts, during a FDD and while performing the FDD?

* What can we learn from the recent headlines around board supervision failures at some well known and publicly listed companies? Can we mitigate these risks earlier on through a well scoped third party FDD? How can we spot early indicators of financial irregularities?

* What are some of the methodologies and/ or techniques commonly deployed by FDD advisors that can provide investors with more certainty over a deal and their investment thesis?

* What is a ballpark fee range for engaging third party FDD advisors?

* Is Tech and product due diligence important? How can we separate the traditional businesses dressed up as tech businesses to command a tech multiple vs “true” tech companies?

Tune in to the podcast if you are keen to learn the answers to the above questions! Also keen to get some feedback on this podcast episode, where you think it can be improved and suggestions for future topics.

Recently, I was part of a Mentor for Hope panel to answer the audience’s questions around the fundraising process beyond Series A. The title above was one of the questions that came out, click on the link above to find out what the panelists have to say about that.

Source: Dilbert

A sense of bewilderment, frustration, curiosity was mixed within the audience’s questions, some of which I will like to share below:

* How do VCs value companies that are loss making?

* Do unit economics only matter at Series B?

* Can you raise Series A with a proof of concept?

* How important is the team Pre-Series A vs Post Series A?

* How much does key-man risk impact fundraising?

The consensus from the panel is that VC valuations are more of a product of the negotiation process (or art) rather than science. To sum it up in one line and to remind the audience of who VCs are:

VCs value you at the point where they can both get into your round and “expect” to make money on exit down the road

Simply put, if a VC writes a cheque for US$10 million at a revenue multiple of 8x, they expect to at least 3x that US$10 million net of dilutions from future rounds and decreases in revenue multiple as the company approaches a liquidity event.

To illustrate, see below for an example with arbitrary numbers.

And this is how the VC’s cash on cash returns are impacted by revenue growth rates and exit multiples.

If a VC’s targeted return is at least 3x, you will need to convince the investor that your revenue growth rates are sustainable while maintaining sound contribution margins so that your revenue multiple does not get compressed.

As a company gets closer and closer to late stage, revenue multiples start to normalise towards public valuations. In the public markets, a rule of thumb is companies with lower contribution margins and/ or high fixed cost structures get lower revenue multiples.

An unintended side effect of high revenue multiples for early stage funding

Raising early stage funding at high revenue multiple implies that management is under the hook to maintain high revenue growth rates in order to maintain its attractiveness for future fund raises. If revenue growth is sustained by burning cash for market share, then it all depends on the attractiveness of the space and whether there have been precedents of peer companies crashing and burning. If there are, such as in the case for co-working, revenue multiples will undergo a huge compression across the space. Companies who have raised at high multiples in the past are then caught in a catch 22 where they cannot raise without a down round to continue fueling their bloated unit cost structures.

Moral of the story is to be clear on why you are fund raising and what you will use the funds for. Also be very clear on your company’s levers for both growth and profitability and to not over-reach no matter how tempting it is when liquidity is sloshing.

The valuation of your company is but a number and is no way a validation of yourself and your business. Building a solid business, rallying like-minded people around a purpose that you are passionate about to create value is the most important goal.

Let’s be clear about that.