There's No Accounting For Taste
I was reminded yet again the other night why it is that I have a hard time investing in consumer products companies (and content companies for that matter). I was watching a TV show called "Last Comic Standing" with my brother. The show is yet another reality program in which a group of people live together and at the end of each episode vote out a member of the group. Only this time there's a twist. In this show, the group of people are all comics and the person voted off by the other comics has the opportunity to challenge someone else in the group to a laugh off -- both comics do a standup act and whoever is voted funniest by the audience gets to stay. My brother and I were very amused by one of the guys and we were certain he would be staying on the show. But it turned out that 80% -- yes, 80% -- of the audience disagreed with us. It reminded me of this last Survivor when the really annoying, lazy girl got all but one of the votes and won. How could this be?
As they say, there's no accounting for taste. Which is why I don't try to. If there isn't data to back up a company's assertion that customers are going to love the product, I am going to have a very hard time taking on that market risk. Even if I personally love the product and would be quick to buy it, VCs over the years have learned the hard way that they are not a good proxy for any mass market (just as I am not a good proxy for the mass market for comics or Survivors). Enterprise infrastructure is a lot easier to get a handle on. You can call up the current and potential customers and ask them what they think. But how do you call up a thousand randomly selected consumers and ask them what they think -- and how can you get comfortable that they are representative, telling the truth, etc. While I know that there are VCs out there who are willing to invest in consumer devices, video game developers, retail store chains, etc. based upon instinct, I am not among them. I need to have some evidence of adoption from which I can extrapolate, so I don't pick the wrong comic.
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I am sure David Hornick are right about about VCs being a bad proxy for mass market purchases. However, what about focus groups, surveys and other time-tested methods of determining whether a mass-market product has appeal? I am not saying these tools ... Read More
David is once again exactly right when it comes to VC's insight into consumer/retail deals. Professional investors as a group are the last people on earth that should be making decisions based on what the mass market will buy. Simply put, we tend to fall into the "risk tolerant, early adopter, strongly independent" groups, and make it a personal point not to follow the crowd. This is unlike the other 99% of the consumers our companies are selling to, who really couldn't care less about voting with their dollars. Sometimes more people will pay US$8 to see a bad movie when they won't pay the same to see a good movie, but I couldn't knowingly put my name or my money on the bad one. P.S. On Last Comic Standing, Ralphie May (the fat one) opened for Jay Mohr in Vegas last year at the Paris Hotel. He's a good contestant on the show but I've seen his act twice, and was very disappointed - so my taste in comics must be pretty bad also.