What startups can learn from Snapchat’s great coup

Photo credit: TeroVesalainen.

So, Snapchat’s IPO is a big story in the technology world right now. The IPO started at a value of US$17 per share, with stocks closing at US$24.48 last Thursday, a whopping 44 percent increase, making the company’s value US$28.3 billion.

Though tech stock prices post-IPO can be volatile as shown by Twitter, which is trading at 40 percent lower than its IPO price, it is evident that Snap has done well for itself on day one and has pulled something of a coup here. Let me elaborate on the coup part:

Snap’s great coup

Snap was a complicated company to decide on. With overt dependence on other tech giants through contractual commitments, huge burn rates, widening net loss figures, and the volatile nature of the advertising industry, here were the major concerns that plagued investors:

1. Existing social media sites have the muscle and the necessary offerings to clone Snap’s important features. The recent launch of WhatsApp Status and Instagram Stories, for example, saw Snapchat’s growth in DAU slow down. Also, the notion that individual content producers find the reach of Instagram to be better is a major concern. Scott Galloway, a marketing professor at NYU, puts it into perspective: “Mark Zuckerberg wakes up in the morning thinking about Snapchat and goes to sleep thinking about Snapchat. Facebook is so clearly going after them.”

2. Snap is not popular in emerging economies. Apart from its competitor, Snow, which is quickly establishing itself in Asian markets, the fact that pictures, videos, and the app itself consume a lot of data might be a factor impeding its growth. These markets can boost the growth of a social media company as proven by Facebook and WhatsApp.

3. Snap’s investors (public) do not have any voting rightsand by the company’s own admission, “no other company has completed an initial public offering of non-voting stock on the US stock exchange.” Though founders retaining a controlling stake in the company is not new, this is one of the first’s where shareholders (even as a group) have no say in running the company. Even if one of the co-founders leave, they would still have their say in decision making.

4. There is something nagging about the product itself. I have tried using Snapchat quite a few times but I doubt I will go back to it. For one, there was no network effect. But one of the larger issues for me was that I just couldn’t wrap my hands around the product and user interface. I thought it was a one-off thing, but I came across this line on The Economist: “The app makes little effort to help new users understand its appeal (a built-in user guide is buried deep within the app).”

But what went right for Snap?

How did it manage to ride a successful IPO when investors were being cautious about internet businesses and despite Twitter releasing its disappointing quarterly earning reports 20 days ago?

Apart from the positive macroeconomic conditions and dearth in tech IPOs since Alibaba in 2014, Snap planned on a beautiful strategy and executed it perfectly. After tracking the company closely, here are a few points that I believe we can learn from it:

1. Build a big picture