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Yesterday, I spoke at Columbia Business School. We had a conversation about the role of incubators and accelerators (or the moniker of your choice) within the startup ecosystem. Given the volume of first time entrepreneurs and the broad growth of interest in entrepreneurship, I think these programs are invaluable. To entrepreneurs, these programs offer up to seven value propositions, listed in order of importance, as I see it. Education - Examples include General Assembly runs a substantial education program and YCombinator operates Startup School and First Growth’s Venture Network Startup-in-a-box - TechStars offers legal help to incorporate a company, PR and marketing support for launch, banking partners, business development contacts, developer tools discounts all with the goal of eliminating as much friction as possible and helping founders focus on product/market fit discovery and execution.
Every investment requires a leap of faith, an emotional act that’s not pure reason, and that’s got to carry you through in the inevitable many months, sometimes years, of horrific bad stuff that comes with the company. And you’ve got to have that energy, that sustaining belief to carry you through, because if you don’t, then you regret having done it. So when I have regret, it’s when I didn’t have that, and I’d logically talked myself into [the investment] and checked the boxes.
We are in the heyday of SaaS. The conference spanned 20+ buildings, served 60,000+ attendees and was sponsored by more than 300 vendors. Free food everywhere. Skullcandy wireless headphone giveaways. DJs in every corner. Four square play areas on fake grass outside. It is one huge party. Benioff delivered a tremendous keynote. I wish I could speak in public with his confidence, control and passion.
Dreamforce created the perception that Salesforce is at the center of a huge ecosystem of their own creation, which inspires confidence in customers and partners.
At a recent meeting, David Barrett, one of the founders of Expensify, drew this diagram when explaining his company’s structure. He has overlaid the core teams of a company with a conversion funnel. It’s brilliantly simple.
As every SaaS startup transitions from development to growth, the company must supplement the engineering and product capability with sales, marketing and account management. This diagram is the simplest way to show how they work together harmoniously at a strategic level.
The throwaway line in pitches these days is “we’ll sell our data.” Most of the time, this notion is wrong. Data is the most valuable outcome of building a successful product. It’s the insight, the secret, the keys to the kingdom. Don’t sell the keys to the kingdom.
Data provides economies of scale and insights used to develop huge barriers to entry and it should be kept within an organization.
SMB SaaS companies cannot afford to pay for distribution. At 2 to 4% conversion to paid rates and $5 to $10 monthly subscription fees, the breakeven CPC for these products on search is $0.40. The average Google click costs three times this and the iOS average cost-per-install is more than twice as expensive. The most successful SMB SaaS companies (Zendesk, Expensify, Square) build communities to drive distribution. Those communities reinforce and build a brand.
Culturally, we tend to associate leadership with extroversion and attach less importance to judgment, vision and mettle. We prize leaders who are eager talkers over those who have something to say.
Must great leaders be gregarious?
Susan Cain wrote an OpEd this weekend in the Times containing the quote above. In Silicon Valley, the culture seems very much to embrace the idea of introverted leadership. One might even say the two kinds of leaders live in harmony.
Last year, I set a goal of adding 100 followers each week starting at 2000. I crossed the 3500 follower mark on Twitter this week. I’ve fallen a bit behind that goal but I have a wonderful group of people who actively engage with me on Twitter who are interested in the same things I am.
As I’ve been cultivating this audience and community, I kept asking myself a question: who are most of these followers?
When serving B2B customers, your pricing will be dictated by your customers' margins. The more money they make, the more they can pay for new technology. Most businesses fund new initiatives including marketing and technology projects from profits. The more profits a company generates the greater their willingness to pay for services and ultimately the larger the market size for a startup.
Let’s compare the margins of grocery stores to restaurants to software companies to prove the point.
“Facebook has built the cities, they’ve built the town squares” Dave Morin, founder of Path
Is building a social network is like building a city? I watched Urbanize, a documentary describing urban design and the affordances cities must make to cultivate vibrant communities. The words of urban designers echoed many of the challenges faced by networks as they grow.
First, both must balance growth and community. Growing a city from 1M to 10M is like adding 900 semi-close friends to your top 100.