Category: best practices

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05 August / best practices
Earlier this year, I read Algorithms to Live By, a book that explains how to use insights from computer science in daily life. One of the rules is the 37% rule. It’s an important rule because it’s broadly applicable. But I had forgotten about it until I listened to the author on the Software Engineering Daily podcast. The 37% rule says that if you have a decision to make, you should spend 37% of the amount of time you have.
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If you must choose a long term headquarters for your startup, call an executive recruiter who focuses in that city. Ask her about each of the key roles your company will need to hire in the next 2 to 3 years. VP Engineering, VP Product, VP Sales, VP Customer Success, VP Marketing, or VP Operations. How large is the candidate pool for each search? Which are the hardest searches to complete in this geography?
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A little while ago, we were lucky to host Guillaume Cabane at Office Hours in a new format: 30 minute 1-on-1s with a few companies. It was a huge success and a format that we will continue because of all the learning. Guillaume was kind to share some takeaways from the event below. If you’re in B2B SaaS, you most likely have a finite TAM. For the love of ARR, please get the exact list of all accounts in your TAM (at least US).
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18 June / best practices / metrics
Over the last decade or so, I’ve compiled a metrics sheet to summarise a SaaS business. While no living document like this is ever perfect, this is currently the best board-level summary of the overall health of a business I have found. I’m sharing it so that others may benefit and improve it. If you have suggestions, please email me. Google Sheet: Redpoint SaaS Metrics Template Direct Download: Redpoint SaaS Metrics Template (xlsx)
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20 May / best practices
As we grow in our careers, we first become individual contributors, then managers of individuals, and then managers of managers. That transition is a tough one, and one that comes very quickly in startups. A bit flips and a leader must begin to delegate. Delegation is the only way a leader of a team or company develops leverage in the organization. A good friend told me about a Vanity Fair interview with former President Obama.
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In a world where there are no secrets, where innovations are quickly imitated or become obsolete, the theory of competitive advantage may have had its day. Realistically, ask yourself, If all your competitors gave their strategic plans to each other, would it really make a difference? In 1986, Amar Bhide wrote “Hustle as Strategy” for the Harvard Business Review. At the time, he was an assistant professor at HBS.
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19 February / pricing / product / best practices
Startups are innovation machines. They identify market opportunities, develop novel products and go out to change the world. Some companies want to change the world in one dimension: a better product or a disruptive go-to-market. Others want to innovate in every dimension and re-invent every discipline from pricing to marketing to support to customer success. Brad Birnbaum, founder and CEO of Kustomer, discussed the challenges of innovating on two dimensions simultaneously on the [Saastr podcast]().
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08 February / financials / best practices
As you build out your startup’s financial model for 2019, a key component will be the hiring plan. You’ll need to calculate the number of managers and individual contributors to achieve your goals. But don’t forget to plan for mishires. You will make mistakes hiring people. We all do and it’s part of the process of building a company. Someone looks great on paper but isn’t a culture fit. Another doesn’t ramp quickly enough.
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28 January / management / best practices
Your startup is growing quickly. To hit next year’s target, you may need to hire many people. Where do you start? Bottoms up or top down? Both are viable strategies, but hiring a strong management team at every level provides some key benefits. First, they help you hire more effectively. Second, they will guide new additions to the team to success. Third, they will reduce unnecessary turnover. As you grow, your company well need to interview and hire large numbers of new people.
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04 December / best practices / strategy / product / books
I’ve wondered what it’s like to work at Apple. I’ve read books and articles about Steve Jobs and the turbulence the company experienced. Ken Kocienda co-wrote the Safari browser and developed the first iPhone keyboard. His book, Creative Selection, is the first book that provides a view of the day to day environment at Apple. It’s full of wisdom. These are my learnings from the book. There are few brainstorming sessions at Apple because ideas are difficult to debate.
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Startups are business machines engineered to grow quickly. The forces of hypergrowth exert enormous strain on every aspect of the company. Internal break all the time as the company moults into a new skin. This is one of the most important things to keep in mind when hiring. Every lead hired today, whether marketing , sales, engineering or product, will have a very different job nine months from now, much less two years from now.
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I met a seasoned executive recently. He made a bold claim. “Management is an art, and one that is overwhelmingly undervalued in Silicon Valley.” I wondered, are we investing enough in our managers? Talent is the largest investment of an early stage company. 80%+ of startup operating expense flows to compensation. Retaining these employees is good business. Especially in such an expensive and competitive talent market. Research shows employees leave their jobs because of poor leadership and poor management.
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There are three types of product features, a seasoned head of product told me recently. MMRs, neutralizers, and differentiators. MMRs are minimum market requirements; basic features that every customer expects and demands. Neutralizers mitigate competitive threat. Differentiators are your startup’s competitive advantage. As a product manager, I’d never thought about this type of roadmap segmentation before. But it made a lot of sense to me. When a startup has established product market fit, the differentiator is clear.
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Your sales team is starting to close some terrific accounts. As your startup grows, your sales team will experiment with different sales techniques. For example, qualification, pricing, positioning, incentives and contract structure. This is a wonderful phase for a startup. However, there’s a common mistake to avoid. Your VP of Finance should model the impact and approve each experiment. Many startups don’t do this at the early stages of go to market.
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You’ve just raised a round of financing. Your next step is to build your management team. There are several criteria for finding the right executive. Competency in the field, cultural fit, communication skills, management experience. All of those should be obvious. There is one that is often overlooked. Network. Recruiting is one of the most important responsibilities for a head of a department. That head will need to scale the team to meet the objectives of the company.
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Imagine you came across this ad. Scientists have discovered a revolutionary new treatment that makes you live longer. It enhances your memory and makes you more creative. It makes you look more attractive. It keeps you slim and lowers food cravings. It protects you from cancer and dementia. It wards off colds and the flu. It lowers your risk of heart attacks and stroke, not to mention diabetes. You’ll even feel happier, less depressed, and less anxious.
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09 May / best practices
I remember the first time I wrote an OKR (objective and key result) at Google. “You should set your goals so that you attain 70%. That’s success,” my manager told me. “Even better if you have a moonshot goal in there, with a 5% likelihood of success.” I was uneasy with calling 70% goal achievement as success. The habits formed from 17 years of schooling and a 100 point scale run deep.
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04 May / best practices
There’s the challenge of dealing with uncertainty, where you’re operating in the weird zone that you’re making decisions that have significant long term impact or that are difficult to reverse or course-correct in the face of great uncertainty. Uncertainty is often unnecessary in the sense that you could, in principle, reduce the uncertainty. You could go research the question more. You could obtain more information, or run an experiment.
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22 April / best practices / management
“When I die, I want all the people with whom I worked on group projects to lower me into my grave, so they can let me down one last time.” Someone once sent me this e-card as a joke. I laughed and laughed, and never forgot it. I can’t remember a school group project which teammembers contributed equally. Paradoxically, I bet everyone in the group felt the same way.
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The Ideal Customer Profile. The perfect customer. Can you describe it for your startup? The more precisely you can describe it, the better. That will simplify disqualification. But articulating the ICP well isn’t enough. Vague ICPs are problematic. The company will focus on too broad a customer base, waste time and effort with unqualified prospects, and blunt their sales pitch with irrelevant value propositions. Clear ICPs can also be problematic.
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04 March / sales / startups / best practices
It’s one of the most important questions a CEO can ask. Why does our sales team lose potential sales? One of the companies I work with, Chorus, listens and analyzes sales calls to provide insights to heads of sales and account executives. Chorus explored the reasons account executives lose sales opportunities. Set aside losses from competition. Of the remaining lost opportunities, 48% of prospects lacked budget. A further 38% demonstrated no urgency to buy.
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You’re two or three years into your startup. You have hired a great team and want to retain them. It’s time to consider refreshing their stock options to motivate them to stay longer. How many options should you grant to each employee? Startups should pay key people market rate to retain them. Otherwise, they may leave the business, lured by the promise of greater compensation elsewhere. Let’s walk through an example.
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11 February / management / best practices
20 years ago, a newly minted billionaire worked in his office. Fluorescent lights, a dingy purple carpet, and a CRT monitor resting on a door. Not a desk - those were too expensive - a door supported by 4x4s, brackets and wood screws. In his 60 Minutes profile, he drives around in a Honda Civic. His rationale? “It’s a perfectly good car.” The founder of course is Jeff Bezos.
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02 February / best practices
This is one of the best pieces of advice I’ve collected about writing. Put each sentence on a separate line when you write. When we read, we hear a rhythm. There is a rhythm to the words. And when we read, we look to find that rhythm, which pushes us through the end of a sentence, so if I write a really long sentence, and the reader isn’t expecting it – like this one – the reader will find it really hard to follow and understand where I am going.
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03 December / management / best practices / books
A friend suggested that I read the Five Dysfunctions of a Team over the weekend. Though I’m passionate about business books, I rolled my eyes. I had seen this one on best seller lists for a long time, and never thought it would have much to offer. I admit my book-cover bias was wrong. The author has a counterintuitive assertion. Meetings shouldn’t be boring. The book is a fable, describing the journey of a new CEO, Kathryn, who takes the helm of a struggling high-growth startup.
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30 November / best practices
“Evidence from science suggests that business people must be insane to use brainstorming groups.” That’s a shocking statement. Adrian Furnham, a professor of organizational and applied psychology at University College London, said it. It turns out it’s completely true. Participants in interactive brainstorming groups rated their performance quite favorably…[and] felt that interactive group brainstorming was more productive than individual brainstorming…However, actual performance data [showed] …interactive groups generated fewer distinct ideas.
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11 November / best practices / management
Disagree and commit. I first read about this idea in the 2016 Amazon Shareholders letter. But the idea can be traced back to Andy Grove at Intel. Grove wrote about this topic in High Output Management. Disagree and commit is a management technique for handling conflict. There are two parts to it. First, expecting and demanding teammates to voice their disgreement. Second, no matter their point of view, once a decision has been made, everyone commits to its success.
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15 October / best practices / management
A startup’s competitive advantage is execution speed. That quickness stems from a CEO’s ability to decide and this ability separates the great from the good. According to a recently published Harvard Business Review article, one of the four key behaviors distinguishing exceptional CEOs is deciding with speed and conviction. [We] discovered that high-performing CEOs do not necessarily stand out for making great decisions all the time; rather, they stand out for being more decisive.
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31 August / best practices / management
Your startup is growing. You suspect you have initial product market fit. Time to hire the first head of each department. Sales, marketing, customer success, engineering, product management. Some founders might have experience or exposure into one of these teams. But rarely do they understand every one well enough to hire the right department chief. How should you do it? I’ve observed three successful strategies. First, do the job yourself.
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27 August / trends / saas / best practices
I commuted to my first job on a bicycle. With my parent’s help, I bought a lemon yellow second-hand road bike that I pedaled 20 miles each way from 30th and N streets in Georgetown, Washington DC, over bustling Chain Bridge and the languid Potomac to an office park buried in Tyson’s Corner in Virginia. That was my workout each week. Then I moved to California and retired the bike.
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I’ve been reading Fred Kofman’s book, Conscious Business. Written in 2006, the book summarizes Kofman’s experiences as a management consultant to some of the great leaders in technology and other industries. In the book, Kofman lists 12 questions Gallup used to identify great managers in one of the largest management surveys conducted. As I read this list of 12 questions, I started answering them for each of the different roles I’ve had.
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When I was taught Michael Porter’s value chain analysis, I learned to analyze at the industry level. A beer supplier sells to wholesaler sells to distributor sales to retailers sells to customer. But as I went back last night and reread Porter’s Competitive Strategy, I was surprised to learn that Porter’s intended value chain analysis to be used also at the business unit and at the company level. The more interesting of the two for startups is the company level.
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07 April / best practices
Intel’s Business Plan Every once in a while, I receive a FedEx from an entrepreneur I haven’t met. Inevitably, this mail contains a modern rarity - a business plan. Ten to twenty pages describing the idea, the genesis, the business model, the team and its structure, customer acquisition strategy, sales model and other key details of the business. A plan for how to start a company, and a defense of the idea.
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06 March / best practices
Every software company competes with another — if not directly, then at least for budget. With global IT spending flat to down in 2015 and 2016, software businesses are fighting for share of wallet. At this point, the critical marketing imperative is to start a conversation with a receptive buyer, and do it thousands of times per year. But how? I met a master software marketer last week, and he shared some of his wisdom.
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26 February / best practices
Draw an image of a bicycle that depicts how the bicycle works. You might draw something like this bike above. Or this one. Or this one. But as Gianluca Gimini discovered when he asked 50 people over the course of six years to draw a bicycle, most people cannot - despite their great confidence of the contrary. Gimini rendered these drawings (on the right) to highlight incorrect most people’s understanding of a bicycles anatomy truly is.
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16 November / data analysis / best practices
Imagine you’ve just been named the head of a bustling New York City restaurant challenged by one issue - customers complain about the customer service. A data-driven person, you search for a metric to evaluate the current customer service to validate the complaint and then track as you experiment with the restaurant’s operations. What metrics would you employ? You might run a survey of customers at exit. You could follow with customers by telephone the day after the meal.
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07 September / best practices
In Startups are Risk Bundles, Leo Polovets outlines the risks startups face as they grow. In particular, Leo identifies common mistakes when addressing that parcel of peril. Addressing minor risk by spending time and effort on low priority or low impact risk a common failure mode for companies. The business isn’t focused on the most critical issues. One founder I met recently took this idea to heart. On the last slide of his presentation, he listed the four key existence risks facing the business today.
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23 February / best practices
Each new year, I try to implement a new productivity hack. Getting Things Done. Bullet Notebook. This year, I’m trying to manage my to do list with my calendar. I realized a few years ago no arsenal of productivity hacks will prolong the working week, this February’s 29th day notwithstanding. That’s the challenge with to do lists - they lack commitment devices. A commitment device is a “way to change one’s own incentives to make an otherwise empty promise credible.
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03 December / best practices / office hours
Last night, SaaS Office Hours at Redpoint welcomed Maia Josebachvilli, the VP of People and Strategy of Greenhouse. Maia is a thought leader in human resources. Specifically, she champions a metrics-based approach for developing world class recruiting teams. Because of her position, Maia has observed recruiting patterns in hundreds of companies, and has developed best practices for startups. Maia reports these five strategic recruiting metrics to the executive team each quarter.
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24 November / best practices
It’s the end of the year, time for performance reviews, self-reflection, and planning for next year. In addition to preparing our goals for our teams and our businesses, we should prepare goals for ourselves. Oftentimes, it’s easy to let the company’s ambitions drive our OKRs. But there’s something more to consider. In 1999, Peter Drucker, the greatest management thinker of the twentieth century, wrote short book called Managing Oneself. In it, he stresses a critical idea:
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25 October / best practices / sales
Last week, I interviewed Tien Tzuo, the former CMO & CSO at Salesforce, and founder/CEO of Zuora. During our conversation, he spoke about one of the major challenges facing fast growing startups. He called it recognizing the breaking points of management. At the founding a startup, the structure of the company is flat. Everyone is effectively a peer. At about 8 people, a leader must emerge to shepherd the growing team, and so the first management layer is created.
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11 October / best practices / sales
In sales processes, showing a product is always better than talking about a product. Better still is co-customizing the product with the customer during the sales pitch. This customization could be as simple as integrations or changing colors. There’s no better way for customers to understand a product, imagine how it would fit their needs, and become committed to the purchase than customizing their instance during the sales process. I’ve watched this brilliant sales tactic fuel tremendous growth at Looker, a fast growing analytics company.
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01 October / best practices
“What is the one equation that describes our business?” asked Scott, our new director at Google, during one of our first meetings. I had been there only for a few quarters, so I was startled when he asked. I had never viewed our business this way, but after he asked the question, I wondered why I hadn’t. It seemed obvious in retrospect. What started as a simple question became a complex and insightful exercise.
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13 August / best practices
No matter the stage of the business, startups need to manage the size of their Employee Stock Option Pool or ESOP. The ESOP contains the shares set aside by the company for hiring and retaining employees. Like a financial budget, ESOP budgets help a startup plan how to finance its growth. Most Series A companies create pools of 15-25% of outstanding stock. When a startup is young, the equity has the potential to be quite valuable, but isn’t worth very much at the time.
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“People don’t buy what you do, they buy why you do it.” This line from Simon Sinek’s TED talk captures the power of a values based marketing campaign. Simon contrasts feature-based marketing - start with what the company is selling continue to how they do it and finishes with why - to value based campaigns which reverse the story-telling order. Values campaigns start with the why. Starting with why is a simple but powerful framework for startups to develop a unique marketing message, particularly in a competitive marketplace.
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24 June / best practices
When startups achieve hyper-growth, many of the key internal processes begin to fail under the strain of a newer, larger organization. So they must be reinvented. One of the most important internal processes, but least considered, is scheduling meetings. As Anne Dillard wrote, “How we spend our days is, of course, how we spend our lives.” Most of us spend our days in meetings. Meetings, like a snowball rolling down a mountain, develop ever greater inertia, roll down a path of their own - different from their initial purpose - and ensnare increasing numbers people as a business grows.
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Financial discipline is a hallmark of great companies. It’s what enables businesses to build exceptional go to market models, weather difficult times, and ultimately succeed. Sometimes, financial discipline in startups is imposed by financial markets, like in 2008 when the total amount of venture capital investment plummeted after Lehman imploded. Other times, financial discipline is imposed by founders and management teams. The tweet above is from Lew Cirne, founder and CEO of New Relic, a $1.
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Compensation structures are one of the most interesting questions facing customer success organizations in software startups. How should customer success leaders structure their team’s compensation in order to align the objectives of individual customer success managers with those of the larger business? At the Customer Success Summit, Boaz Maor, VP of Customer Success at Mashery presented his rubric for answering this question. I have copied his table below. Management ObjectiveExamplesWeight Product AdoptionConsistency of feature usage, the fraction of active seats10% Program Expansion New use of other product features and services; new department using product15% Value to CustomerIs the customer measuring ROI from our product?
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McKinsey developed the 9 Box Matrix in the 1970s to help GE prioritize investments across its 150 business units. Not all business units were equally attractive. Some should receive investments and others should be divested. The 9 Box Matrix evaluated business units on two dimensions: industry attractiveness and competitive strength of the business unit. At some point in the last 40 years, Human Resources teams co-opted this model as a talent management tool, and replaced the two industry axes with people specific ones: performance and potential, as depicted above.
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02 April / best practices
In 2013 with 40 employees, Stripe adopted email transparency, a policy that makes most emails public to everyone in the company. They posted an update in late 2014 about the success of email transparency with 164 employees. At first blush, it may seem radical to funnel emails of 164 other people to everyone’s already overflowing inbox. But it works brilliantly because it creates a policy around Institutional Memory, something very few companies do well.
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03 February / best practices
At Google, Product Reviews were held on Fridays at 130pm in a big room with a long table, two projection screens at one end and red couches along the walls called Marrakesh in Building 42. Each week, Eric, Larry and Sergey invited three product and engineering teams to present their progress each for about 30 minutes. On several occasions, I updated the executive team on the status of our team’s project, social network monetization.
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20 January / best practices
The best teams share two common attributes, according to MIT research: Relatively equal contribution by each member Members with high emotional intelligence. The first characteristic makes sense. A team led by a single dominant person will perform according to the strengths and weaknesses of the (benevolent) dictator. Another team in which the strengths of one member complement the weaknesses of another will certainly be stronger. The second quality, high emotional intelligence, while talked about quite a bit in interviewing training and management training, surprised me.
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15 December / best practices
Are you a Barry, Jill, Buzz, Angel or a Devil? This is the question Best Buy store managers posed each time a potential customer walked into one of its stores when the company decided to segment its customer base in 2005. Barrys are high-income family men. Jills are soccer moms. Buzzes are gadget lovers. Angels are the best, most-profitable, customers and buy new products at full price. Devils, on the other hand, erode Best Buys’ profits because they use coupons, find the best deals and return products frequently.
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12 December / best practices
Crisis in startups is inevitable. Products break, deadlines are missed, legal issues arise, customers raise issue, employees quit, bad press circulates. To survive, founders and management teams have to respond well and quickly. In Managing the Unexpected, two University of Michigan Professors examine the characteristics and behaviors of great teams during crisis. Factory workers, miners, fire fighters, aircraft carrier flight deck hands, railroad operators and many others. The authors call these teams HROs for High Reliability Organizations.
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02 December / best practices
I’ve been reading a book called Legacy Of Ashes, which is an exhaustive history of the CIA since its founding more than 50 years ago through to 2007. Reading spy stories is always enthralling, but surprisingly, the book is a fascinating case study in management. The major theme of the book is the value of intellectual honesty, a principle which was often forgotten according to the research compiled by the author.
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12 November / saas / sales / best practices
The modern SaaS startup asks marketing to fill the top of the funnel, sales to qualify and close leads, and customer success to retain customers. Conceptually, this trinity works in unison to grow a business rapidly. But sometimes, SaaS companies struggle with this model, particularly when churn rates increase in a business. The knee-jerk response may be to ask how to change the customer success team’s structure or incentives to increase the revenue at risk save rate (the fraction of dollars that might have churned, if not for the efforts of the customer success team).
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24 October / saas / best practices
I met a really smart vice president of sales a few weeks ago working in a company with mid-market customer values in the $10-100k per year range. When I asked her about her sales process, she described how her team employs statements of work (SOW), which isn’t something I hear about very frequently in startups, despite the fact they are very powerful sales tools. Statements of work describe the proposed working relationship between a vendor and customer.
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26 September / startups / culture / best practices
The startups that build and retain the best teams develop a huge competitive advantage. It’s no surprise that managers are the most important influencers of team development and retention. The most frequent and consequently most powerful tool for managers to coach, develop and lead their teams are one-on-ones, weekly meetings between a manager and his or her individual reports. Most one-on-ones are ad-hoc, loosely structured 15-30 minute meetings. While extemporaneous meetings can work, leaders who manage their teams this way forgo an important opportunity to further their team’s success.
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17 September / best practices
Startups are intense experiences. Driven by a burning passion to change some aspect of the world, startup teams push, push, push to grow as fast as possible. Without the right balance, though, teams burn out - a terrible outcome. One of the most important responsibilities of every startup’s management team is to shepherd their teams to maximize their performance and prevent burnout. But how? Tony Schwartz founded The Energy Project, a consultancy that focuses on educating managers on how to manage their team’s energy, to maximize long-term team performance and well-being.
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21 August / startups / best practices
Earlier this week, Google celebrated the tenth anniversary of its IPO. I re-read the Founder’s IPO Letter and found this passage which captured so much about Google’s values: Google is not a conventional company. We do not intend to become one…We will not shy away from high-risk, high-reward projects because of short-term earnings pressure. Some of our past bets have gone extraordinarily well, and others have not. Because we recognize the pursuit of such projects as the key to our long-term success, we will continue to seek them out.
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20 August / startups / best practices / product
Though the term k-factor, a measure of the virality of an application, has waned in popularity since Facebook’s sheep-throwing glory days, the idea of spreading a product through referrals lives on. We all know a good referral mechanism when we see one. Dropbox’s invite-a-friend feature which awards free storage for both the inviter and the invited is the canonical example and resulted in torrid growth for the company. In April 2010, Dropbox users sent 2.
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14 August / startups / best practices
Yesterday, I spoke to a small group of people at Google. By coincidence, the presentation was held in the same building I used to work in, and a wave of nostalgia swept over me. Participating in Google’s speaker series brought back memories of when I was in the audience seven or eight years ago. I’ll never forget the first time I met Paul Graham in that very same room right after the first Startup School.
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I’ve listened to thousands of fundraising pitches in my six years so far at Redpoint. Some with demos, some without. Some with hockey-stick charts, and others just an idea. I’ll never forget one meeting when the founders presented an entirely hand-drawn deck on 12 pieces of paper. The extent of founders’ creativity is hard to over-state. Most founders do cover the essentials of a pitch in their presentations. But what distinguishes the best pitches?
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29 July / startups / best practices
One of the most important changes is the workplace in the last 20 years is the notion that most employees are free agents. We are hired and fired and resign at will. It’s a markedly different era than the career salarymen of IBM’s heyday who remained with the company for decades from college graduation through retirement. In this highly-competitive talent market, where every employee is a free agent, hiring and retaining talent has become a key strategic advantage.
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25 July / startups / best practices
“Advice is one person’s experience generalized”, an entrepreneur told me once. “It’s a single point of view with all kinds of survivorship and attribution bias. Advice can be a terribly dangerous thing, because it can be used as a shortcut for thinking.” When I asked how he responded to requests for advice, because as a successful entrepreneur he was often solicited for it, he replied that he first shared the structure and the framework he used to look at the problem.
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11 July / best practices
Listening is hard, as my friend once said, because you run the risk of having to change the way you see the world. That line stopped me cold when I was reading In the Light of What We Know because it’s so true. To set aside the way we’ve thought about an idea in the past and consider it as if it were a totally new concept is what a Buddhist might call Beginner’s Mind.
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Benjamin Morris, a writer for arguably the best computational journalism publication, fivethirtyeight, published “Lionel Messi is Impossible” which describes in words, statistics and charts why Lionel Messi is one of the greatest players in the world. Even if you’re not a soccer/football fan, the article is worth reading because it’s one of the finest examples of synthesizing data and a story to convey a point I’ve read in a very long time.
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A terrific SaaS VP of Marketing once told me, “If the sales team is focused on hitting this quarter’s revenue target, then the marketing team ought to be focused on next quarter and the following quarter.” In SaaS companies, one of the marketing department’s primary responsibilities is generating sufficient customer interest to enable the company to achieve their revenue targets. If that’s the case, determining how and when to scale a sales team in a SaaS company is contingent upon the marketing team’s metrics.
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Recently I met a startup founder who explained a technique for building his product roadmap in a novel way. “We research what our users are doing three minutes before they start using our product and the three minutes after.” I like the idea because it is a simple and ingenious mechanism for brainstorming product ideas, and this type of product development exploration evokes empathy from a product team, which is a the first step of the Stanford d.
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Predictability is sexy. Startups that have tuned their growth engines well enough to accurately forecast their growth, presuming these growth rates are attractive, will command much higher valuations in the market, simply because there is less risk in the company. As a result, investors prize these companies disproportionately. The challenge with predictability is predictability isn’t an end state. A business doesn’t become predictable one day and remain in that state in perpetuity.
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Some of the best content to be found about startups is locked in books. Thomas Kjemperud asked me yesterday for a 140 character recommendation of one book for founders. Reducing my list to just one and condensing an argument for why founders ought to read it in just 117 characters was just too great a challenge for me. Instead I’ve written a blog post about the nine favorite books I’ve read over the last five years have helped me understand startups and the processes that make them successful.
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At a board meeting last week, one of the VPs of Marketing I’m lucky to work with presented a brilliantly simple way of explaining the evolution of a startup’s marketing tactics. I’ve drawn a diagram of the idea above, which borrows heavily from McKinsey’s 3 horizons. Startups have many different marketing options at their disposal: SEO/SEM, print, radio, TV, mail, affiliate, content marketing…The list goes on and on. Faced with this litany of options, how does a startup maximize their marketing effectiveness?
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28 April / startups / best practices / sales
The chart above compares the contribution of two hypothetical inside sales people with $400,000 quotas to an early-stage startup’s finances. In this case, contribution is the 18 month revenue of sold customers tallied cumulatively minus the salary costs of $100k annualized of the sales person. I’ve modeled a six month linear ramp for the sales person to reach 100% of quota. The red line shows the case for a successful sales hire.
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One of the key metrics that I don’t think gets enough notice when reviewing the health of a SaaS business is revenue-at-risk or RaR. For SaaS businesses with quarterly or annual contracts, each month some subset of the customer base’s contracts must be renewed. The RaR is the sum of the revenue from these customers in a given month or quarter. RaR is a useful measure because it captures the company’s opportunity to minimize lost customer revenue.
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16 April / startups / best practices
When the meeting first appeared on my calendar, I incredulous at the idea of a management coach. “A business shrink who would sap another hour from my frenetic day,” I thought. I was a few months into being a product manager at Google and stressed because I was in over my head. Most difficult of all, I lacked any type of formal authority. Google structured its product teams to have authority through influence, not direct management of engineering teams or marketing teams or sales teams.
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Imagine a city council meeting with three agenda items: a $100M power plant zoning approval, a request to build a $10,000 bike rack for city sidewalks and and a $100 proposal to buy refreshments for the annual picnic. The power plant discussion takes all of 3 minutes to reach approval, as does the refreshment budget. But the $1000 bike rack debate drags on for hours as council members debate the right materials, the best color scheme and the right way to announce the project.
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27 February / startups / best practices / culture
The process of creating the right culture in a startup has always been mysterious to me. Each company’s culture evolves in its own way. I’ve wondered whether the culture is set by the personalities of the founders, or prominently displayed value statements and mission, or biases purposely imposed in the hiring processes like Google’s googliness filter. Or is understanding the psychological forces at play among employees the most important element?
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31 January / startups / best practices / culture
OODA was a technique coined by John Boyd, one of the leading military thinkers of the last 100 years, based on the German’s Blitzkrieg-style warfare which prioritized speed and surprise over the traditional win, hold and grind attrition techniques of trench warfare. After @pmarca tweeted about the concept, I read one of the books on the topic called Certain to Win. Boyd’s thesis is that leaders of successful teams have to enable their organization to move rapidly, which means empowering people at all levels to make decisions.
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22 January / startups / culture / best practices
When I worked as an engineer, I loved crafting code and feeling the satisfaction of having built something each day. But there was one thing about coding I never grew to love, despite its importance: forecasting my coding time. Every two weeks, I trudged into a planning meeting that exposed my incompetent forecasting. During these meetings, each person in turn would review their commitments for the last two weeks and provide an update.
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14 January / startups / best practices
In “Why Winning Streaks End”, Rosabeth Kantar, a professor at HBS, explains the key to maintaining momentum in any company is maintaining the discipline of every day processes. Similarly, Atul Gawande’s book Better echoes this idea. For surgeons, the best way to keep patients safe and healthy is ticking through a checklist before each surgery. As I’ve watched a handful of startups grow, the pattern I see emerging from most of them is their ability to persistently transform chaos into process.
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02 January / startups / best practices / culture
Like many others, during my work day I fall into the firefighting trap, a time mis-allocation problem that leaves me focusing on urgent, but not necessarily important tasks. Firefighting is addictive because it’s fast-paced, nonstop and fun. But firefighting is exhausting and leaves me feeling as if I haven’t made progress toward my goals. In addition, firefighting inhibits effective time allocation. A week can pass and I find that the non-urgent but important projects like preparing for a board meeting and researching a new sector like Bitcoin have been starved for time.
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20 December / startups / best practices / culture
You’re walking down the hallway at work from one meeting to the next. A colleague or report stops you en route, asks for a minute and presents an important problem. It’s easy to respond with “let me think about it” and duck into the meeting. In that half-second, all the responsibility of the decision has been transferred. Unlike a minute ago, you have the monkey on your back. The challenge with these situations is two-fold.
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Financial statements are a Rosetta Stone for startups. They reveal the strategies and the tactics of how to bring a product to market. These are the ten metrics I look at when sifting through a startup’s operational model, whether when considering an investment or in a board meeting. Revenue growth indicates how quickly a company can grow under the current way of doing business. The top line shows whether the market affords steady growth (SaaS) or lumpy revenue growth created by the long sales cycles of big customers (Telecom) and whether the company must sell one product or a collection of complementary products.
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11 December / startups / best practices
The traditional theoretical price demand curve is often drawn like this. The chart makes two points: there is some relationship between price and demand / revenue opportunity, and customer segments underpin that relationship. Each segment demands different products to satisfy different needs and presents a different revenue/profit opportunity. Even if the details are very hazy, price demand curves are useful tools to inform product strategy and prioritization. To make PD curves useful requires marketing research.
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A key component in a startup’s formula for success is educating customers about the product and driving sales. The sales and marketing teams of a startup are responsible for this. There are many ways to structure sales and marketing teams. The diagram above outlines a sales and marketing team structure that I’ve observed across many startups. It is consistent with the organizational design Salesforce used to drive revenue from $0 to $100M, described Aaron Ross’s book, Predictable Revenue.
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22 November / best practices / data analysis
I first learned about Sankey diagrams in my thermodynamics class and they’ve since become one of my favorite data visualizations and analysis tools. Sankey diagrams, like the one above of visitors to this blog, show the flow of things. Originally created for measuring the flow of energy through powerplants, they are incredibly useful for content marketing analysis, visitor analysis or any other kind of funnel analysis. The best Sankey diagram ever created is Charles Joseph Minard’s depiction of the Napoleonic War, which was made famous in Edward Tufte’s Book, The Visual Display of Quantitative Information.
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20 November / startups / best practices / culture
At its core, a startup’s advantage in the market is the speed created by focus. When a team is well orchestrated, they can accomplish amazing things. Creating an environment that fosters communication best is therefore an essential part of startup management. But how best to do it? Founders have to balance span-of-control with span-of-managerial-responsibility. In an article this week’s New Yorker, Amazon’s founder/CEO Jeff Bezos is quoted on the subject with a contrarian point of view:
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15 November / startups / best practices / culture
In response to yesterday’s post on management design patterns, many readers asked for examples of best practices. So I’m going to write about the management best practices I have been taught and I have observed in startups. This is the first post of that series. The first management technique is called Situational Management, one that my wife, a terrific manager at Google, taught me. A manager’s most important function in a startup is to motivate employees to accomplish the business’s goal.
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14 November / startups / best practices
Earlier this week, I chatted with a friend of mine who has founded an incredibly successful business, which he and his co-founder have been scaling impressively. I asked him about his biggest learning over the past few years. He said before having started his company and having built the team, he perceived management as a Band-Aid, as a fix for something wrong in the organizational design, communication or day-to-day operations of the company.
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21 October / startups / best practices / culture
At all hands meetings on Tuesday afternoons, our 75 person AdSense Ops team reviewed the most important metrics for the business: top-two box customer satisfaction scores, revenue growth and customer churn. But unlike every other all hands meeting I attended, these meetings ended with a monkey and a dog. Our director, Kim Malone, would stand up and call for two stuffed animals, first, Whoops the Monkey and Second, Duke the Dog, both of whom employees had carried to the meeting.
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17 October / startups / best practices
Freemium SaaS and free-to-play games have a lot in common. If you’ve ever harvested crops on Farmville or raised an army in Dragons of Atlantis, you’ve experienced an aspirational product. The same is true if you’ve signed up to use a freemium CRM, expense reporting tool or note taking app. Freemium SaaS businesses, like free-to-play gaming companies, seek to build a large funnel, extract data from the free users, and leverage that data to increase the conversion and retention of users into long-term paying customers.
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01 October / saas / best practices
A technology advantage isn’t enough to build an enduring enterprise SaaS company because at the core, all SaaS software share the same architecture. A relational database stores data and a web site presents the data. This is true for CRM (Salesforce), marketing automation (Marketo), email (Exchange), content management systems (Sharepoint) and so on. Because SaaS apps use standard databases, engineers can easily transfer the data from one database to another.
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24 September / best practices
I’ll never forget the first large tech conference I attended after joining Redpoint. Held in the movie theater in downtown Redwood City, the TechCrunch conference attracted several hundred entrepreneurs, investors and journalists. Not one of whom I knew. After a handful of conferences and a few awkward quick-name-badge-glance-then-say-hello conversations, I started to recognize faces and became friendly with the conference regulars. Walking into a room and working it by building a network person by person is an essential part of entrepreneurship (and venture capital).
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18 September / best practices
As a PM at Google, I carried a laptop to every meeting I went to. I typed notes, jotted down action items, and distributed the minutes of almost each one of my meetings. I stayed organized and tracked my teams’ progress this way. But, as I learned when I starting working at Redpoint, outside the rainbow bubble of the Googleplex very few people take notes on laptops during meetings. It’s just impolite.
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17 September / best practices / data analysis
After I wrote a post on six important cohort reports, I received a handful of questions about how to interpret cohort charts effectively. When I review cohort data from companies I work with, I look into three different trends to evaluate a product’s performance. This is a cohort chart of hypothetical product indicating percentage of monthly active users each week for 12 weeks. There’s great data here and but the amount of data can be overwhelming.
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16 September / best practices
I’ve been reading Scott Berkun’s book The Year Without Pants which details his working life at Wordpress. The book reveals a thought-provoking collection of lore behind Wordpress and in particular, the day-to-day operations of a distributed volunteer team who built a technology that powers about 20% of the internet. Scott embeds insightful gems about daily startup work life into his stories. My favorite so far is this one: “Most people doubt online meetings can work, but they somehow overlook that most in-person meetings don’t work either.
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09 September / startups / best practices
It’s not engagement. Engagement, (time-on-site, page views, number of sessions per day) is the wrong concept because it doesn’t apply to most products. The best metric is share of habit. Engagement fails the majority of products as the best metric to optimize because maximizing engagement/time-on-site contradicts the product’s purpose. Google relentlessly whittles down the time it takes for users to complete a search. Sparrow reduces email client use. Online travel agents and e-commerce companies minimize conversion funnel duration.
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05 September / best practices / culture
I have never worked for a company that was dogmatic about project postmortems but I have always wished I had. After all, project postmortems teach us so much. Learning from the mistakes and experiences of others constitutes the better part of our business education. It’s why we ask successful entrepreneurs to coffee and hang on every word when they speak at conferences. All those stories are postmortems. Postmortems condense all the experience and learning into a nugget of shared wisdom.
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Cohort analysis provides deep insight into customer bases because cohorts expose how customer accounts grow, evolve and churn. Plus, cohort analysis provides a framework to evaluate product releases, marketing pushes and advertising campaign performance. The Six Cohort Reports I Use to Understand Trends Below is a list of the six reports I create when analyzing cohorts. The combination of these six reports provides a robust summary of the state of a customer base.
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From time to time, entrepreneurs ask one investor for referrals to other investors. After all, investors network frequently, work together and have long term relationships with each other so a referral should go a long way. But not all introductions are equal. The most successful investor-to-investor referrals are those where the referring investor is investing in the business and is seeking to fill out the round with complementary capital. By investing, the referring investor sends a strong signal to others about his/her excitement about the company.
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This week, I visited a startup whose office had a very unusual feature: a usability lab. There I was in a soundproofed room with a table in the center flanked by two chairs, one for a user and one product manager or UX researcher. On the table, a constellation of web cams record a user’s facial expressions and interactions with a mobile phone or laptop while a microphone captures the user’s voice.
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The reason most startups go out of business is they run out of money. The CEO bears the responsibility for raising money, managing those assets and growing the business into profitability and ultimate sustainability. But the CEO shouldn’t bear this load alone. To help defray that critical responsibility, the CEO ought to have a consigliere, an advisor who helps plan, allocate resources, and illuminate the trade-offs between decisions. That consigliere is the head of finance and the most under-appreciated startup team member.
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To many entrepreneurs, hiring the first salesperson is a mystery. When should I do it? How much should I pay this person? How do I structure the work? The great part about sales teams and sales departments is that they quantitative - sales teams thrive on numbers. At the most fundamental level, sales productivity has to exceed costs. So let’s answer the question of when to hire a salesperson by understanding the financial mechanics of a sales team.
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18 April / best practices / culture
Feedback loops are essential components of every person’s role within a startup. The most recent and celebrated feedback loop is the viral coefficient or k-factor which Facebook applications optimize to grow their user bases. The [k-factor](http://en.wikipedia.org/wiki/K-factor_(marketing), a borrowed concept from the study of biological viruses, measures the rate at which an application spreads through the network. But feedback loops don’t solely exist within marketing. For product teams, there is consumer feedback and user engagement metrics.
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01 April / strategy / best practices
Once you have built your product and it’s in the market, there are only three things that matter: distribution (getting the product into users' hands), engagement (validating that you’ve built the right product and that users are using it), and monetization (making money from those engaged users). Some companies call this the 3 Rs: reach, retention and revenue. Whatever you call it, this is your strategy. At board meetings, I’ve started categorizing each portfolio company’s roadmap items into these three buckets.
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When deciding if to raise a venture round, it’s critical to ensure your venture investor shares the vision for the company: both the product roadmap and the financial goals of the company. Most founders never consider the impact on fund size on VC motivations. As long as there are enough reserves to invest as the company grows, a founder might think, that’s fine with me. But this is naive. Fund sizes dictate a VC’s strategy.
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Steve Sinofsky, executive at Microsoft for 24 years penned an insightful post on the five data biases plaguing product decisions. It can be easy for any founder, product manager, marketer or engineer accept a data point at face value as the rationale behind a decision. But understanding the nuances and biases of the data, questioning the data, is often just as important as the result. The corollary point argued in his post is data isn’t strategy - data can’t be blindly used to inform product design and decision making because the data might be “lies, damned lies and statistics”.
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04 January / sales / best practices / books
Daniel Pink, former speechwriter for Al Gore, has written an unconventional book on sales called To Sell is Human. In this well researched book, Pink observes a few surprising evolutions in society and their impact on sales. The hard sell is dead. Enabled by the internet, prospective buyers know more about a product than a salesperson. This is true for cars as much as enterprise software. As a result, the salesperson no longer leverages an information asymmetry to sell a product.
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14 December / best practices
I call the last working week in December Board Week because it’s packed with board meetings. These board meetings are often the most important of the year. By virtue of their place on the calendar, everyone in the room is thinking more strategically, less tactically. These meetings set the tone and strategy for the company for the upcoming year. I’ve assembled a checklist below of top 5 things I’ve seen founders do in and around the end of the year that position their companies for success in the next year.
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12 December / best practices
Tech startups write a ton of code. Broadly speaking, most of that code base is customer facing. But to be successful, the product must be supported by a litany of great “invisible” technology - the internal tools and products that help a company scale. They are the skeleton of the startup. At Google, there were hundreds if not thousands of small internal tools built to solve problems. CRM tools, email automation tools with canned responses, lead prioritization tools, project databases, weekly snippets for reporting, email lists, and so on.
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26 November / startups / best practices / strategy
Last week I wrote about the importance of a financial plan for startups at every stage. It’s a challenge to balance the predictability the board requests and the ambition the company wants. Often, as startups grow, they adopt two plans: a board plan and a company plan. By creating two plans and presenting each to the right audience, founders can communicate and motivate their teams effectively. The board plan is the more conservative of the two.
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21 November / best practices
Over lunch last week, I asked a Redpoint entrepreneur, who had recently sold his company, how his board could have been more helpful to him. His answer surprised me. He wished the company had built a financial/operational plan sooner. Building an financial plan is challenging and it is often perceived as a waste of time because the plan can be so inaccurate. Lots of entrepreneurs tell me their plans are just WAGs - wild assed guesses.
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14 November / best practices
Yesterday’s post on distribution partnerships for startups elicited a few comments and questions about other important elements startups should consider when contemplating partnerships. I’ve listed a few other major partnership elements below. Qualifying the Partnership Quality of inbound traffic - As part of measuring the cost/benefit of a partnership, it’s critical to understand quality of traffic/customers from a distribution partnership, as @jamesreinhart pointed out. Ideally, a startup should collect data on the performance of a distribution channel before entering into a long-term agreement with a partner.
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13 November / best practices
When a startup is approached by an established company about partnership, it can be a very exciting time. Sometimes partnerships change the trajectory of a startup. Other times, the weight of partnerships can crush startups. Servicing a much larger partner’s needs with a small team can be a full time job and deprive the startup of any time to advance their independent projects. When evaluating a partnership, the most important first-pass analysis to conduct is to understand whether in the success scenario, the partnership is worth the effort by comparing the startup’s progress to a conservative estimate of internal growth.
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12 November / culture / startups / best practices
This morning NPR profiled an education researcher comparing and contrasting the way different cultures approach intelligence and learning in schools. Though the debate about education methodologies is fascinating, I found the one of the stories in the report reminded me of the importance of transparent cultures in startups. In 1979, Jim Stigler, a researcher from UMich went to study education in Japan. Sitting in the back of a fourth grade math class, he watched as the teacher asked the class to draw cubes.
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31 October / best practices / books
Peter Senge has been called the most influential business strategists of the century and in my view Senge is the successor of Peter Drucker, the management visionary. Senge published a book in 1990 called The Fifth Discipline which I think every manager, founder and CEO should read. Great companies transcend their great products. Not defined by one product, these companies adapt, innovate and reinvent. They learn continuously to succeed as their environment changes.
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22 October / startups / best practices
It’s tempting to burrow within a garage or basement or apartment to develop a product for several months and emerge from the darkness with a new shiny product. But the launch will likely fall flat. Products must be launched into ecosystems, in particular, into receptive ecosystems. In my view, there are three types of ecosystems that startups should cultivate. These ecosystems provide distribution leverage - that’s what makes them so powerful and so essential at the start of a company.
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11 October / startups / best practices
For Fortune 500 companies, patents can be offensive and defensive weapons generating billions of dollars worth of royalty and licensing revenues. …if someone at Apple can dream it up, then we should apply for a patent, because even if we never build it, it’s a defensive tool,” Nancy R. Heinen, Apple’s former general counsel The Patent, as a Sword: But startups shouldn’t approach patents the same way large companies do.
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04 October / best practices
Everyone is learning statistics because making sense of data is the difference between success and failure. R, the open source statistics language, is about a third as popular as Ruby and growing fast. Statistics are essential because data is ubiquitous and volumes are growing exponentially, even in startups. CEOs measure key company metrics. Engineers measure application performance and build machine learning models. Marketers measure campaign performance and reach. PMs measure engagement.
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30 September / best practices
Any number of challenges can arise during a startup’s initial years. Some of these changes could be major and may require rethinking strategy. Competitors enter your target market. New products are released into your market which undercut yours. Customer acquisition costs rise dramatically. If faced with these questions, it’s hard to know where to begin or how to structure an analysis to reach an answer. McKinsey uses a 6 step process to frame the process of answering these strategic questions which is profiled in this month’s Harvard Business Review.
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24 August / startups / best practices / books
We negotiate every day in almost every conversation and exchange, whether it’s rescheduling a flight, asking for a product return or responding to a term sheet. I’ve been reading Getting More, a book by Stuart Diamond, who trains the military, Google and many others on negotiation. Everyone should read it. This book is set apart because it recognizes the nature of relationships, emotion and human nature, forgoing concepts like ZOPA and BATNA.
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Developing a sales strategy is critical for software-as-a-service (SaaS) startups. The first step in developing a sales strategy is to build a robust market segmentation. I’ve used data from the US Census to develop a segmentation that reveals some surprising facts about the SMB market and may help inform your startup’s sales strategy. Chart 1: 98% of businesses in the US employ fewer than 100 people. 98% of businesses in the US employ between 1 to 4 people.
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19 August / best practices
Hollywood and Silicon Valley often seems worlds apart. While movie making and startup building may always be very different endeavors, great managers use the same techniques in every discipline to empower their teams, hire the right people, and change the world. Over the weekend, I watched Woody Allen: A Documentary which profiles the great director through the words of his actors, editors and producers. Allen’s management ability shone through every interview.
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19 August / management / best practices
Hollywood and Silicon Valley often seems worlds apart. While movie making and startup building may always be very different endeavors, great managers use the same techniques in every discipline to empower their teams, hire the right people, and change the world. Over the weekend, I watched Woody Allen: A Documentary which profiles the great director through the words of his actors, editors and producers. Allen’s management ability shone through every interview.