The post recession recovery has been surprising, since the recession ended in June 2009 America has entered the second longest economic expansion in its history. And if the economy continues to grow until june 2019, it will officially be the longest economic expansion in US history (CNN Money).
While commenting on the overall shape of the economy is difficult to do without going into the nitty gritty, it is safe to say that Wall Street's recovery, and president Trump's tax breaks, have made a lot of capital available for companies to invest. This means more VCs are actively looking for investment and in an age of abundant capital, start ups have the chance to seal lofty valuations.
Interestingly enough, the number of deals closed per year has been falling since 2015, its down close to 20% in 2 years (Venturebeat). The amount of capital invested however, is now at its highest level since the burst of the dot com bubble (Venturebeat). So fewer deals are taking place, but those deals are larger in size; higher upsides for companies that can secure funding.
Inventing new technology, or coming up with a new idea has always been a driver of business. But intellectual property laws and the sheer number of start ups mean that often multiple early stage ventures will be working on the same product. Everyone knows startups are risky, in fact only around 1.28% of venture portfolio companies end up becoming a unicorn (CB insights), and yet Startups are increasingly being created and also starting to attract top talent.
So why do so many startups fail?
Intuitively, it would seem that most companies simply run out of money i.e: can’t become profitable quickly enough or cant attract additional investment. Surprisingly, in a study carried out by CB insights, by far and away the most common reason startups fail is because there is no market need (CB insights). In fact of the 101 reasons reported in the study, most had either something to do with UX or were out and out UX issues. (including user research, e.g: market need 42%, Ignore customers 14%).
Only 17% of the failed companies identified poor product as a cause of failure (CB insights). So clearly, creating a product is an important step in the journey, it is part of a startups work - but startups need to focus on value addition in every step of the product life cycle.
Let's take a look at the online dating market. Once exclusively used by older individuals, apps like tinder have virtually monopolized the entire market by making it easier for younger people to use these products. Tinder doesn’t have a magic algorithm that helps you find that special someone. It uses social media interests, that people often pay no attention to, to match users. It relies on the belief that by giving you access to such a large number of users you will, using trial and error, find someone you like.
Okcupid and Match.com, both older than Tinder and both ex-market leaders require complex forms that essentially act as micro barriers to entry. By removing these UX barriers, Tinder has not only monopolized the online dating market in the west it has future proofed itself by being the preferred app of the young user. In the coming years growth in countries like India, which is now the fastest growing mobile application market in the world, will help tinder. Tinder is the second most popular app in the country behind Netflix (economic Times), with a massive youth bulge, high population, high growth countries like India will drive Tinder's growth in future leaving traditional dating sites far, far behind.
Another indicator of the importance of UX for any company that's looking to expand, is the failure of successful tech companies to break into foreign markets. Ubers foray into China sticks out like a sore thumb. In 2016, Uber announced that it was loosing $1bn a year in China (The Guardian) because of the local ride sharing app Didi. Later that year, Didi bought Ubers China business and maintains the right to continue to use the Uber brand in China (Techcrunch). China is unique perhaps, with local companies dominating the tech landscape there. But Uber faced similar problems in South Asia, South-East Asia and the Middle East.
In India, non-traditional addresses meant it was difficult for users to be picked up in the correct location using geo-tagging. And so, users turned to Ola which allowed users to drop a pin on the pickup location. As a result, while Uber's revenue still grew by 10% (economic times) in India in 2017, its competitor Ola grew by 70% in that same year (economic times). In the Middle East, Careem's model of accepting cash and allowing drivers to act as financial intermediaries has helped it gain market share in users who don’t have access to credit cards. Users have the option to pay the driver in cash and instead of receiving change, the user gets credit worth the amount into their Careem account, redeemable for any ride.
The product is the same virtually in all of these cases, in fact, Uber prices compared to Ola in India and Careem in neighboring Pakistan (both combined have a population of close to 1.5 billion) are reported to be Lower than the local competitor (The Tribune Pakistan)(NDTV Gadgets). The difference is that the local companies have adapted their product to the market, in doing so they have understood their user and designed the experience accordingly.
In 2006 Teehan + Lax came up with a hypothesis; companies that deliver great user experiences will see that value reflected in their stock price. They set up what was called “the UX fund (medium.com). They identified the top 10 companies that delivered the best user experience, and invested $5000 in each. In a year they achieved a return of 39.3%.
The same year the best performing national index (NASDAQ) in the united states achieved a return of 29.1% (medium.com) To put that into perspective, Hedge funds averaged a return of 8.5% (Financial Times)last year, and between 2003 and 2013, Private equity funds averaged a return of 16% (investopedia). Additionally, Forrester Research (forrester) identified customer experience leaders and laggards, and between 2007-2012, stocks for leaders achieved a return of 22.5% and stocks for laggards lost value by 46.3%(Forrester) (This includes the financial crises and so returns are considerably lower for both laggards and leaders).
Clearly, investing in User Experience produces real returns on investment for most companies.
It’s simple folks, you can make the best darn doohickey on the planet but unless you focus on user experience you’re going to find yourself in trouble. A business is a business is a business, innovation is good, but, it’s only worth something if someone buys it. There is a solid case for investment in user experience and any company that chooses to ignore it does so at its own peril.
Share this Blog with colleagues
