May 1, 2013 § 1 Comment
Whenever I analyze a salesperson for a job, I first apply the lens of whether she fits the role. There are four possible sales roles:
1. Existing products to Existing customers
This is the easiest type of sell. Not saying it is easy. Just the easiest of the four types. It is the easiest because the key to sales is trust. The first rules of sales is that clients buy from people they like and people they trust. That’s just how it is. So when you hire a person to support/sell to an existing customer, the trust is already established. Now the salesperson still has to maintain that trust and be likeable. But she starts in a good place. On the Hunter-Gatherer spectrum, these salespeople are considered Gatherers. Note, this label is neither a negative nor positive, just a statement of the role and skill set.
2. New products to Existing customers
This is next in order of difficulty. But again, trust is already established with the customer. Therefore, the same salesperson as in role #1 can often fill this role. It is certainly a more challenging process than #1 because the salesperson needs to uncover needs and budget, etc. But since she already has a trusting relationship established, the salesperson can navigate the client’s organization to get this information. This is hunting, but in a friendly forest.
3. Existing products to New customers
This role is orders of magnitude more challenging. As you can guess, the key is still trust. There is no established relationship yet between the sales person and the buyer. Often, the first meeting is the first time that the customer was introduced to the salesperson. But the good news for a salesperson in this role is that since it is an existing product, some level of trust has already been established, ie trust of the brand/product. The salesperson has to demonstrate an ability to find the decision maker, budget holder, need, etc. Also be able to fight off competitive challenges tactfully. The salesperson has to be able to deal with all kinds of issues in an environment which no one is fully on her side…until the deal closes. A salesperson has to find the internal support and manage that person/people like oxygen. This is a pure hunting role. The salesperson has to relish this high risk, high failure environment.
4. New products to New customers (aka startups)
As you would expect this is the most challenging sales role, by a wide margin. Not only does a salesperson have zero trust yet with customers but her company is actually distrusted due to its newness. The first hurdle to cross is “I have never heard of you.” A company has to cross that for the salesperson by solving a real pain point or doing something radically better than an incumbent product. The brand name should be professional and the product should look like it is real. These are no small challenges for a startup. But if the company cannot cross these hurdles, then a salesperson can’t either. This is one of the key reasons that the founder has to be the first salesperson. If a founder can’t sell her product, NO ONE else can/will.
Once this barrier is crossed, the salesperson still has a ton of hard work ahead of her. This is hunting in its rawest form. I mean war paint on your face, dropped in the middle of unfriendly forest type of hunting. This type of salesperson has to thrive in an extreme failure/extreme risk environment. The key skill here is figuring out who the right customer is. Simply put, most customers will not use a startup’s product no matter how great the pain is or how cool the solution is, because of the reputational risk due to an abrupt shutdown. The salesperson needs to find her initial customer sponsor, uncover information and then figure out how to navigate the rest of the organization. And while the company established some credibility with the initial lead, the fact that the product is a startup will come up over and over again. A salesperson has to constantly sell against that risk at every level. Competitive products will come up over and over again. Often referencing competing products is just a cover for “let’s not take the risk on a startup.” A salesperson in this role has to be great at building a large pipeline, because the close rate will be lower than normal. The salesperson has to be an extreme self-starter. No one is going to navigate the day for her. She has to be hungry. Have a fire in her belly. Be passionate about her product and the market. Be knowledgeable too, because the detractors in an organization are going to throw a lot of stones. She will consistently find herself in meetings where there is a very vocal critic. Just looking to kill the deal. That person is often scared of something new, which translates into work for him. And he will work really hard to avoid learning a new product. So the salesperson has to be a bit of a psychologist too. To find a way to make that person feel comfortable. She can’t fight that person. Angry becomes transparent. She has to kill him with kindness, supported by facts. Remember, people buy from people they like and people they trust.
The most important action a salesperson in this role can take is to land a reference-able customer. Someone who is credible and willing to be quoted publicly. This reference will be used over and over in every subsequent sales meeting.
When hiring a salesperson for a role, I believe that that person has to have demonstrated these capabilities in past roles or demonstrated the right skill set. It is important to be open to the challenges with the candidate.
Far too often a salesperson from role #3 will leave a big company and go to a startup (role #4) thinking the skill translates..only to flame out. Certainly some skills translates, but that salesperson has to understand that the challenge is materially greater. To me, the key to a great sales hire for a startup is not only skill set, it is passion. Passion for the product, passion for the challenge ahead of her and passion for working with the team. Ask yourself, has this person demonstrated the passion needed to overcome the extreme ups and downs. Is she a fighter? What motivates her? If she is motivated only by money, as many salespeople are, then do NOT hire that person into a startup. People who are motivated by money are also very, very unhappy with quarterly cash flow swings. Chasing the gold ring is fine so long as her downside is protected. And a startup simply can’t guarantee that. Sure, money is an important factor for everyone. People have to live and pay bills. But to overcome the extreme ups and downs of a startup, the sales candidate has to have a true passion for the mission.
April 5, 2013 § Leave a Comment
Culture is everything.
Culture determines who you hire, what products you build, how you build those products, and thus ultimately the value of your business. If you set up the wrong organizational culture you are doomed to failure, no matter how talented individual employees are or how attractive the market you are attacking.
Are Your Winners People or Ideas?
Last night I went to a meetup for Product Managers. We had a 45 minute discussion on the value of arguing in an organization. Note, the topic was on arguing, not debating, but that’s a separate point. What became clear to me during the discussion is that many organizations set up cultures where people are winners or losers rather than ideas. The result of that is that there is a lot of pressure put on picking winning ideas. Not surprisingly, those environments are highly political and thus have a lot of arguing.
There is a BETTER way!
Don’t take it from me, go read Lean Startup. In it, Eric Ries explains the best culture for innovation. Great companies build a culture of testing, rather than arguing. In this culture, everything is a hypothesis regardless of who authors it. Every hypothesis has a key metric that is set (along with the baseline) before the test. Tests are set up to be run as quickly and as labor light as possible. Test are pushed as frequently as possible. The results of the test determine the answer, NOT a person’s ability to out argue (or rather out shout) another person. Repeat this over and over. That is what the word “iterate” means. And in my experience it is the ONLY way to build a product unless you are Steve Jobs, which you are not.
But I Can Make The Numbers Say What I Want
Bullshit! You can’t “massage” the numbers. Set up the measurement of a key statistic and run the test. Give everyone access to the dashboard so they can see the data. No one keeps the data secret and builds a Powerpoint presentation. The data is out in the open.
Continuous Deployment…no Sprints…and certainly NO WATERFALL
To fully achieve this culture, you have to move to continuous deployment. To my understanding Etsy is the leader in this. I highly recommend you read their blog, Craft as Code. When I first heard about continuous deployment, I was very nervous to try this approach. What if a push breaks something big? But once we moved to continuous deployment, I fell in love. And I will never go back. There is truly no better way to iterate on a product. Lord help you if you are still doing waterfall.
Inertia is hard to change. Especially if you are not the CEO of a company, and even then it is really hard (see: Marissa Mayer). If it is too daunting for your organization to make a massive culture change, then don’t start there. Pick a small project or feature release to try this new approach with…I.e. start with a test.
March 27, 2013 § Leave a Comment
In my last post I wrote about why I shut down my last product after only 3 months. At that point, I had a decision to make – Give the remaining money back to investors (~25 cents on the dollar) or Start the process over. I gave myself a few weeks to find a pain that needed solving or I would give the money back. At least that’s what I told myself. Realistically, since I never give up, I likely would have given myself more time. But the time pressure helped (as it always does) and within a few weeks, we landed on a problem that needed solutions. Here is the process we took to get there.
Step 1: Define the rules
The first thing I did was re-read Paul Graham’s well written blog post on how to pick a start-up idea. It is very long, so I will summarize it for you:
Solve a problem that you have (ie Dropbox example – lost USB card)
Turn off the filter “could this be a huge idea / will this market be huge”, while being cognizant of business realities (ie AirBnb example)
Crowded markets aren’t necessarily bad idea areas
Founder has to strongly empathize with the product
Build something that people will pay you for / revenue is a true test
Design – solve a pain point and users can look past less-than-great designs for first versions – ship fast – focus on UX over design
Strip down to core product and the pain point it solves – bells & whistles can come from user feedback
I liked it so much that I required the entire team to read it. We then had a conversation about it and agreed that these would be our rules to live by. Anyone on the team can call Bull Shit if we strayed from these rules. We wrote them down on the white board and also emailed them out to everyone.
Step 2: Ideate
With the guidelines set, we all started brainstorming. Everyone had a day to go away and think about pains that needed solving so long as it adhered to these rules. You might be thinking “is a day enough time?” Yes it is. If you can’t figure out within a day a problem that needs solving, then it is not a big pain. Start-ups should only focus on big pains.
The next day, everyone got back together and pitched their ideas. It was kinda like American Idol, where I was Simon. Everyone got 2 minutes to pitch and we gave feedback.
This process was ok, but not perfect. The reality is that any idea had to fit rule #4, meaning, I had to strongly empathize with the product. This reality proved to be frustrating to some team members. Some felt it was a waste of time “to just do what Steven wants to do!” That was a fair criticism, but the process ended up productive.
Killing Good Ideas
We had some very good ideas that ended up getting killed because I couldn’t answer “Yes” to the question “would I hire me to be CEO of that company?” One example was the suggestion that we build a product that helps women get professional coaching on what to wear based on what’s in their closet. Seems like a good idea to me, however, since my wife buys all of my clothes and I wear jeans every day, I don’t think that I belong running a clothing consulting company. Maybe Julie could run it. But she already has a very important job running our family.
The Point of Rule #4
There are very important reasons that rule #4 is there. The reality of any start-up is that:
- Founders are the Chief Evangelist. If a founder can’t sell the product, no one can.
- No one stays awake at night thinking about the product/team/business/cashflow like a founder does.
- Unlike employees, Founders never leave unless they are booted out by the Board, and that is rare.
The Process was Not Completely Useless
While this process frustrated some, it actually proved to be productive. Not coincidentally, Noah (our VP of Engineering) and I came to a similar idea. We also found a few other ideas that fit the rules and merited further research.
Step 3: Customer Research
After narrowing it down to two ideas, we set out to get customer feedback and validate the pain point. We tried to include as many team members in this process as possible. Many teammates joined calls or went out and talked to customers. We reported on our results to the team and kept debating the merits.
Validate with Investors too!
I also included my lead VC (and Board Member) in the discussions. I wanted to know her opinion. Doesn’t make sense to start an un-backable company. Ellie correctly steered me away from one business idea and provided good feedback throughout.
Step 4: Time to MVP
The customer interview process proved fruitful, and by the end of December, we felt good that we identified a pain that needed solving (not coincidentally Noah’s and my joint idea). We also had a rough idea what a solution looked like. We took the last week of December off completely and came back in January ready to build an MVP. I will get into that process in the next post.
March 20, 2013 § 11 Comments
In early 2011 I had an idea. I was planning a trip and thought, wouldn’t it be great if there was an easy way to search all of my friend’s travel content (pictures, itineraries, social data, etc) when planning a trip. A ton of travel content already existed. I knew people would gladly share their travel content with friends. And I knew that we could build a great Lead Gen business off of it once it had critical mass. It was a simple concept in a fun industry. So I took the plunge and started a new company.
In late 2011 we built a prototype and tested a basic product concept. The limited set of testers seemed to like the concept, but the feedback was clear that our site had to be beautiful. The container for the travel content had to enhance the viewing experience to be truly differentiated. With that feedback, I made a decision, that turned out to be a big mistake. The mistake was, that I took the prototype offline and started a 5 month long design and build process (I explain why this was a mistake below). We were sure we had a winner on our hands, we just needed to make the site beautiful.
In May we launched our private beta, and spent the next few months working out the bugs while a limited number of users tested it out. I wanted it to sparkle when we officially launched so I kept it behind a private gate while we added features and fixed bugs. I wanted everyone to be wowed by their first experience with Irrive.
In September we launched to the public and got very good press reviews. The early usage data was promising too. Our sign-up rate for the first 3 months remained around 20%. And the key viral event (the creation of a scrapbook) proved to have a very good viral coefficient, as we had hoped. It was the first version, so we had a lot of plans on how to improve those already decent metrics. But only 3 months in, I decided to shut the product down and sell the code to TripAdvisor for a fraction of what I invested to build it. Why make such a quick decision with decent metrics?
A feature not a business
One of the key learnings in talking to our Promoters was that they viewed Irrive as a product that they would use only a few times a year. And these were our biggest fans!
The simple point is, there are two type of consumer web business models – e-commerce and content. Content businesses need huge pageview scale to build a reasonable advertising business. Same thing with lead generation businesses which is what Irrive was. The flaw with Irrive is that you can’t get scale fast enough when your Promoters (ie your most viral customers) only used your service a few times a year. Irrive belonged as a feature within a larger business (eg TripAdvisor) rather than as a standalone business.
The big mistake I made with Irrive was taking the prototype offline, rather than leave it as the base and improve it incrementally. I made this mistake for good reasons, but that’s irrelevant. Leaving it up and iterating on it would have taught me a lot. The outcome would have been the same, because the model was flawed. But, critically, I would have figured this out 5 months sooner. And that’s big.
“No Points for Second Place Maverick” – Iceman in Top Gun
When you are a start-up, you are under a constant ticking clock. There are no moral victories. When the clock runs out, you are done. No one cares how close you were to building a business but your family. It doesn’t matter how cool your product is. Your goal is to build a business, not a cool product.
So, once it became clear that Irrive wasn’t going to obtain the necessary scale before we needed to raise capital, the decision was easy for me.
Why not pivot?
For those non-start-up types reading this, a Pivot is the business equivalent to what a basketball player does to get away from a defenseman. That is, he keeps one foot on the ground and turns the other foot. A business pivot is the same thing. You keep your roots, but adjust the model slightly.
One of my most trusted advisors suggested we do just that. A guy I really, really respect. So we spent some time thinking about how we can change our product to make people use it more frequently. But that process quickly devolved into an exercise of a Product Looking for a Problem. And that is a recipe for failure. So I shut down that process too.
Capital & Talent Left
The good news is our team was able to identify a problem, and built a cool product that established a loyal (albeit small) customer base. The bad news is we picked the wrong problem. That’s on me. However, we still had enough capital left and a talented team to make another run at it. Returning $0.25 on the dollar just didn’t seem like an optimal option to me. Plus, I am a fighter. I never give up…ever!
So we started a brainstorming process and landed on a new problem that needed fixing. And in January we started over. I will expand on that process and the new product in a future post.
A Founder knows
Deep in their heart, a Founder always knows if they are sitting on a winner or not. With my first start-up, I scraped and clawed for almost 3 years, and ended up with a great outcome. But I knew pretty early that Irrive was different and didn’t deserve the same sacrifice. Irrive’s model was flawed. It was time to start over.
The sad truth is that not all Founders are willing to face the music, and so they ride it out. Until the bitter end. It is a terrible thing to watch. Danielle Morrill is a talented young entrepreneur who wrote a great post on this too. So did Sam Shank. It is important for all entrepreneurs to self reflect. To really ask themselves if they are self-aware enough and self-confident enough to face the facts. That is a question that all entrepreneurs should ask themselves.
August 28, 2012 § 3 Comments
Wouldn’t it be nice if a great wedding meant a great marriage? Oh…life would be so easy. You could just hire the best party planner, invest all of your savings and would be assured a lifetime of happiness. Bummer that’s not true. As we all know, a good marriage requires a lot of work. To have a long-term, happy relationship with one person takes listening, ongoing communication, objective self-reflection and personal adjustments.
I think product launches/ongoing business success is analogous to weddings/marriages. Based on anecdotal evidence, I believe that there is a low correlation between a successful launch and long-term product/business success. So low that I think that too much emphasis is often put on a start-up’s “launch”.
Of course, I am not suggesting that positive buzz and free press aren’t a good thing…they are! What I am suggesting however, is that the emphasis placed on launch is too often overweighted relative to its long-term business value. Releasing your product to the web is like a wedding, it is just the beginning of the work. In today’s highly connected, social world, great products can spread very quickly. And since start-ups never have a great product at their initial launch, they often get very little bang for the launch buck. The emphasis of a start-up should be on building a great product and that takes listening to your users, objective self-reflection and continuous adjustments…just like a marriage.
To that end…I need your help.
Please try out my product, Irrive.com [<<< click on this link to get past private gate]. Tell me what you think by sending me an email, email@example.com. Don’t hold back. I have very thick skin. Just keep it constructive. Tell me how to make the product better for you. What is confusing? What is a useless feature? What features would make your life easier? I am ready to listen, reflect and adjust.
June 18, 2012 § Leave a Comment
“Every entrepreneur starts her company with a clear vision for success. You will create an amazing environment and hire the smartest people to join you. Together you will build a beautiful product that delights customers and makes the world just a little bit better. It’s going to be absolutely awesome.
Then, after working night and day to make your vision reality, you wake up to find that things did not go as planned. Your company did not unfold like the Jack Dorsey keynote that you listened to when you started. Your product has issues that will be very hard to fix. The market isn’t quite where it was supposed to be. Your employees are losing confidence and some of them have quit. Some of the ones that quit were quite smart and have the remaining ones wondering if staying makes sense. You are running low on cash and your venture capitalist tells you that it will be difficult to raise money given the impending European catastrophe. You lose a competitive battle. You lose a loyal customer. You lose a great employee. The walls start closing in. Where did you go wrong? Why didn’t your company perform as envisioned? Are you good enough to do this? As your dreams turn into nightmares, you find yourself in The Struggle.
About The Struggle
Life is struggle.
The Struggle is when you wonder why you started the company in the first place.
The Struggle is when people ask you why you don’t quit and you don’t know the answer.
The Struggle is when your employees think you are lying and you think they may be right.
The Struggle is when food loses its taste.
The Struggle is when you don’t believe you should be CEO of your company. The Struggle is when you know that you are in over your head and you know that you cannot be replaced. The Struggle is when everybody thinks you are an idiot, but nobody will fire you. The Struggle is where self-doubt becomes self-hatred.
The Struggle is when you are having a conversation with someone and you can’t hear a word that they are saying because all you can hear is The Struggle.
The Struggle is when you want the pain to stop. The Struggle is unhappiness.
The Struggle is when you go on vacation to feel better and you feel worse.
The Struggle is when you are surrounded by people and you are all alone. The Struggle has no mercy.
The Struggle is the land of broken promises and crushed dreams. The Struggle is a cold sweat. The Struggle is where your guts boil so much that you feel like you are going to spit blood.
The Struggle is not failure, but it causes failure. Especially if you are weak. Always if you are weak.
Most people are not strong enough.
Every great entrepreneur from Steve Jobs to Mark Zuckerberg went through The Struggle and struggle they did, so you are not alone. But that does not mean that you will make it. You may not make it. That is why it is The Struggle.
The Struggle is where greatness comes from.
Some stuff that may or may not help
There is no answer to The Struggle, but here are some things that helped me:
- Don’t put it all on your shoulders – It is easy to think that the things that bother you will upset your people more. That’s not true. The opposite is true. Nobody takes the losses harder than the person most responsible. Nobody feels it more than you. You won’t be able to share every burden, but share every burden that you can. Get the maximum number of brains on the problems even if the problems represent existential threats. When I ran Opsware and we were losing too many competitive deals, I called an all-hands and told the whole company that we were getting our asses kicked, and if we didn’t stop the bleeding, we were going to die. Nobody blinked. The team rallied, built a winning product and saved my sorry ass.
- This is not checkers; this is mutherfuckin’ chess – Technology businesses tend to be extremely complex. The underlying technology moves, the competition moves, the market moves, the people move. As a result, like playing three-dimensional chess on Star Trek, there is always a move. You think you have no moves? How about taking your company public with $2M in trailing revenue and 340 employees, with a plan to do $75M in revenue the next year? I made that move. I made it in 2001, widely regarded as the worst time ever for a technology company to go public. I made it with six weeks of cash left. There is always a move.
- Focus on the road – When they teach you how to drive a racecar, they tell you to focus on the road when you go around a turn. They tell you that because if you focus on the wall, then you will drive straight into the wall. If you focus on how you might fail, then you will fail. Even if you only have one bullet left in the gun and you have to hit the target, focus on the target. You might not hit it, but you definitely won’t hit if you focus on other things.
- Play long enough and you might get lucky – In the technology game, tomorrow looks nothing like today. If you survive long enough to see tomorrow, it may bring you the answer that seems so impossible today.
- Don’t take it personally – The predicament that you are in is probably all your fault. You hired the people. You made the decisions. But you knew the job was dangerous when you took it. Everybody makes mistakes. Every CEO makes thousands of mistakes. Evaluating yourself and giving yourself an “F” doesn’t help.
- Remember that this is what separates the women from the girls. If you want to be great, this is the challenge. If you don’t want to be great, then you never should have started a company.
When you are in The Struggle, nothing is easy and nothing feels right. You have dropped into the abyss and you may never get out. In my own experience, but for some unexpected luck and help, I would have been lost.
So to all of you in it, may you find strength and may you find peace.”
May 24, 2012 § Leave a Comment
“But the multiple is higher than Google’s or Apple’s!”
Two short paragraphs of finance nerd talk..then some interesting stuff:
Nerd Paragraph 1: How to value a company
Valuation is a science not an art. Valuation is literally a math equation. To value a company, you discount future cash flow expectations (i.e. dividends). Multiples are just a short hand way of doing that math. But the math of a multiple has to yield the same value as the discounted cash flow (or “DCF”).
Nerd Paragraph 2: Variations in value
Wide variations in valuation expectations are caused by differing assumptions on a company’s future cash flow. Not the discount rate (or multiple) . With early stage companies, financial models are worthless. The delta on future cash flow assumptions is too great for early companies. However, you can absolutely apply DCF modeling to value companies that have established business models.
Facebook is not the next Google, and that’s bad for Google
The Bear case for Facebook is that its ads do not perform as well as Google’s search and thus Facebook will never be as big. Look no further than General Motors pulling its $10 mil biz and Facebook’s own decreased revenue projections (which the bankers creepily seemed to hide from most investors during the IPO road show). In my opinion, anyone who makes this argument for a reason to sell Facebook’s stock doesn’t actually understand Facebook’s business or is a conflicted day trader.
Facebook ads will never perform as well as search. Nothing matches specific search intent. Certainly not demographic or interest targeting. Being interested in cars or reading a book on cars does not match the lead generation quality of an actual search for local car dealers. No one would dispute that.
It’s All About Payment Processing Baby!
I will grant the Bears one thing, if you only look at Facebook’s advertising business, it is very difficult to justify its multiple. Clearly the growth rate of the ad business has decreased. Mobile is a threat. The low hanging fruit of buying “fans” has been picked. From a high level perspective, Facebook’s current ad products look a lot like cash cows – nice, modest growth, and high margins.
Explosive Cash Flow growth will come from one of two places. 1. Innovation on the ad business (i.e. new products to existing customers); or 2. Payment Processing. I am not sure that even amazing innovation on their ad business can justify the growth required to match the valuation expectations. So to me, it all comes down to payment processing. Huh? Facebook does payment processing?
Facebook’s Most Valuable Asset
In my opinion, Facebook Connect will become a more valuable asset than Facebook.com. Facebook Connect is that Facebook button you see all over the web that allows you to log-in to a site using Facebook, or Send content to your friends or add a comment to an article. It provides publishers amazing data, and so it has wide-spread adoption. This product is amazingly powerful for Facebook because a user is always connected to it while surfing the web.
There are a lot of ways to monetize this uber-connection, but I think Facebook picked the best way when it launched Facebook Credits. Very few people talk about Facebook Credits because the product can only be used on Facebook.com right now, and it is mostly contained to gaming. But since gaming is a huge on Facebook.com, the product has a large established base of users that use Credits and help Facebook refine the product. Oh, and it is producing a half of a billion in revenue.
Einhorn, Finkle…Finkle, Einhorn
To all of those non-Ace Ventura fans out there, Facebook Connect will become the key driver of Facebook Credits outside of facebook.com. They will become one and the same. And it will happen very soon. Facebook has all of the pieces in place to make Credits a humongous payments business. And when I say humongous, I mean very, very friggin big. I mean a huge threat to PayPal, Visa, MasterCard. AMEX, etc. And the margins are really good in that business model.
I am a long-term investor
Let me clarify one thing. I have zero opinion what Facebook’s stock price will be next week, next month, next year. That is not how I think. I think long-term. I am a buy and hold investor on public equities. And I am adding Facebook’s stock to my portfolio.