- Identifying Pain is the First Step in a Sales Process – Here’s How
- Lessons I Learned from My Dad
- Why Your Startup Needs a Sales Methodology
- Why You Should Give Before You Get
- Here’s What’s Driving Collaborative Consumption and Where the Market May Head Next
- Why Startups Need a Well Articulated Strategy (And How to Think About Yours)
- Come Check Out a Very Important LA Tech Event on June 1st
- What Would it Look Like if Elon Musk Pitched a VC Today?
- 8 Tips To Get the Most Out of Your Investors and Board
- As Populist as it May Feel, 98% of VCs Aren’t Dumb
initially appeared on Inc. If you haven't already followed me on Twitter, that's the fastest way to get blog updates. Click here. In my first enterprise software company we developed a methodology for sales that we called PUCCKA. This post is about the “P” or pain. The point of PUCCKA was to develop a common methodology to make sure our whole team approaches sales with the same mindset and to give us a language to talk with each other about our prospects, as in, “have you identified your customers pain point yet?” Having a methodology instead of just going on random sales visits helped force a bit of rigor and honesty amongst team members about how well or not we thought we were doing. Pain. It’s a reminder that unless your prospect has a need to solve a problem they are not going to buy a product. Customers sometimes buy things spontaneously without thinking through what their actual need is. But often there is an underlying reason for a purchase even if the buyer doesn’t bring it to the surface. Take for example the years 2010-2012 where every brand out there seemed to be buying Facebook "Likes." In truth many companies had no idea why they actually needed Facebook Likes but there was still a pain point. The pain was that somebody senior in the organization had read about the importance of Facebook for business and had begun asking loud questions about why the organization didn't have a strong Facebook presence. That is still "pain." It's a reason a company would buy. That a boss is a dolt with no economic rationale for what he is asking to be achieved does not disqualify pain. Just watch Mad Men and you'll know that. Pain. Too many sales reps walk into customer meetings with their pre-canned sales decks and proudly squawk through 30 of their favorite slides without engaging the customer in a discussion. The reason they do this is that it’s far easier to go through talking points you’ve said 100 times than to engage the customer in a dialog about their business challenges. I call these people crocodile sales people – small ears and a big mouth. It is not effective because while you leave the meeting feeling great about yourself you really don’t have any further knowledge of the customers “pain.” I call this sales approach "tell & sell" and I don't recommend it. The best sales meetings are discussions. The goal is to get the customer speaking about their organization. And the best kind of questions to ask are open-ended questions. I’ve also seen the converse too many times – sales reps who walk into a meeting and spout out, “so, tell us what’s not working in your manufacturing process!” I hate when people do this to me. My first thought is, “You asked for the meeting – why am I going to give you a bunch of ammunition to sell to me?” There is an art to teasing out pain points. I recommend starting with a brief overview of you, your company and your solution. And by brief I mean BRIEF! You’d be amazed at how long some people rattle off their life stories in an introduction. Nobody wants to hear your life story other than your mom. After a brief overview of you, your company and your solution I recommend putting up some example clients you’ve worked with, although you obviously need their approval first. These references make for great discussions with customers. If you have enough references in your arsenal you obviously want to pick out ones that you believe will resonate with your prospect due to job function or industry. And then there’s the key transition slide, which I call “What We Find” (WWF) or some variation of this. WWF gives you the ability to tease out the problem having just shown similar cases where customers have this problem. “What we find is that many of our customers have been accumulating Facebook Likes because they thought they were supposed to. Now they have a few thousand Likes but haven’t been able to figure out whether this is improving their bottom line. They don’t have a way to measure the effectiveness of a Like.” “Do you see that at all inside your department? Have you found a way to best link your potential marketing leads in social media into activity that leads to more business?” Often if a customer has heard similar problems described in other customers (not hearing your solution pitched at them but a real business discussion about the pain point) then they will start to open up and have a discussion. Even if they start to debate with you whether this is a real problem or not, you’re having a much better meeting then just flipping through slides. If they’re going to take the time, energy and logic to try and debate with you then they’re at least engaged. People prefer to hear themselves speak rather than to listen to you. It’s just human nature. So throughout the meeting your job is to tease out as many discrete pain points that are near enough to your solution set to begin talking about what it is that you do. Write down the customer pains so you'll have them for later. Ask questions the whole time. The best form of sales is “active listening” where you’re engaged in what the customer is telling you. And please resist the temptation to cut off the customer with a story of your own. You know, the blah, blah, blah I heard you but now let ME tell you this great story I have. Most people naturally do this at cocktail parties (everybody does) but not in sales meetings. Never. When you cut off customers with your stories you lose valuable insights that might be exposing more pain points. Open questions equals a treasure trove of information to mine for pain points. Show your knowledge and charm through great questions not great anecdotes. In many ways it's more enjoyable to learn about other people than it is to spout BS about your company or products. In the words of Dale Carnegie,
_"You can make more friends in two months by becoming interested in other people than you can in two years by trying to get other people interested in you."_Or in words that I first heard from one of the greatest sales gurus of all time, Zig Ziglar
_"People don't care how much you know until they know how much you care"_Apparently Zig got that from Theodore Roosevelt if the Internet is to be trusted. But it is so true. I think every big sale I have had in life came because I genuinely cared about the person buying from me. In many ways, the "sale" made me feel more committed in my role at the company because I felt a huge sense of obligation to live up to the expectations the buyer had entrusted in me. Ask more. Listen more. Care more. Problem solve. Good things will come. Thank you to Jeff Hughes for reminding me of the Ziglar quote. SUMMARY If you get your prospects talking about problems you’ve solved the first step of sales, “Why Buy Anything?” Frankly if you can’t sit with prospects and tease out pain points then you ought to be working in a different department than sales or executive leadership. Everybody has pain points – believe me. And once you manage to tease out some problems you can then begin to pivot the meeting importantly to your solution and how it may solve their problem. But that’s the next post, “Unique Selling Proposition” or USPs.
So she naturally fills my story arcs more easily. But of course we're all a product of both of our parents - if we were fortunate enough to be raised by two individuals. I was. Growing up my dad was everything you could ask for. He was the kindest person I knew. No exaggeration. He was 6 foot 3 (less tall now!) so you already know that I didn't get my height from Dad. I'm 5 foot 10 when there's a strong wind. He grew up in Colombia. Not South Carolina - that's Columbia with a "u." He grew up in South America. In Medellín, actually. Although his father was raised in Romania. Jewish Emigrants. Pogroms and the like. Dad always had a funny accent. It was really deep. As deep as anybody's voice you know. And he spoke really, really slowly. Think Arnold Schwarzenegger saying "I'll be back" but with a Colombian accent. He grew up a Colombian Jew and to this day he still prefers to speak in Spanish. I grew up with Platanos and Arepas as well as tongue and brisket. As Eric Garcetti once called it, "Jewtino." The best way to prove to you how nice my dad was - he was a pediatrician and when his patients came up to him they all thought he was a teddy bear. Nobody was afraid to see him. The kids ran up to give him a hug. Can't say that about just any doctor. What did I learn from my dad? 1. ENCOURAGEMENT No matter what I did in life Dad was my biggest supporter. He wasn't the loud mouth at sports matches proving himself to all of his peers. He was the guy after the game telling me what a wonderful player I was. He was the guy driving me to play and telling me how wonderful I was. He was the guy telling his friends in front of me - how wonderful I was. I wasn't always wonderful. But I sure felt like it. I know some people think we've gone too far by creating a generation of "trophy children" and I think there's some truth to that. I love competition. And I believe winners need to feel recognized and losers need to know what that feels like to help with motivation and with humility. But with your dad you want him to think and say you're wonderful no matter what. It turns out there is a strong correlation between encouraging your children and a feeling of self worth. I always valued myself and felt like I was special. Much of this came from my dad. I try to offer private words of encouragement to team members when they do something well. I take the time to look them in the eyes and say,
_"Please take a moment to recognize what a phenominal achievement this really is. It's easy to just move on to the next thing. Or just write this off as incremental improvement. _ _But seriously … this is really a big deal."_It matters. And Dad taught me that. Praise publicly and often. Dad also taught me to root for the Phillies and Eagles so I guess the world balances out. He made me confident but set me up for a lifetime of suffering. And of course my kids are always wonderful - at everything they do. I can't help myself. And I'm OK with it. And they, too, root for the Eagles. Luckily LA has no football team so it wasn't ever an issue. 2. SUPPORT My dad always turned up. He was at my games - I don't remember ever having a soccer match or basketball game that he didn't attend. I still try to move mountains to be at my kids sports events. Knowing you have support really matters. Knowing that to your dad you're the most important thing in the world let's you feel protected - part of a tribe. I had the childhood memory of my dad working hard - but not late. He was home for every dinner. Life has changed since those golden days of the 1970′s. He trained for marathons and ran many. It was nice to see a sense of achievement and goal setting. He ran them as slowly as he spoke. And he spoke very, very slowly. I knew in life I had to run a marathon since he ran so many. I ran the London Marathon in 2002 in 3 hours, 57 minutes. I ran for Parkinson's Disease and raised almost $4,000. My dad has suffered with Parkinson's for the past 12 years or so. I was your classical "good kid" trouble-maker. Good grades. Other kids parents liked me because I was polite. I was still a "schemer" - like throwing mobile keg parties at the golf course. And "borrowing" the car for a 2-hour trip to San Francisco … a few months before I had my driver's license. But I always had a line I wouldn't cross. And I'm certain of what drew that line. Dad. I never wanted to disappoint him. I know that sounds cliché but it's true. I never worried what teachers or other kids thought about me or my actions. I was fine as long as I didn't disappoint Dad. He gave me all the inches I needed. And I never took advantage. Trust and support matter. I am a control freak. But once you're in my inner circle I try to offer the trust and support my dad gave me. It is not uncharacteristic for me to say,
_"You did the work. I'm going to have to trust your opinion on this. You know the facts better than I do. My gut says X. _ _But I'm not as close to it as you are. What do you recommend?"_Know that as a control freak this doesn't come easily. But I make a conscious decision to choose my inner circle carefully and offer them the support they need to grow. 3. UNCONDITIONAL LOVE Occasionally my cheekiness got me into enough trouble that Dad figured it out. He was disappointed but offered unconditional love. There was the time that we got ourselves into a "situation" with a group of people who were significantly bigger than we were. They had chains. And were threatening us. It turns out one of my friends had let the air out of their tires and they weren't pleased. I called my dad. I asked him for help. I had offered to get their tires filled and that gave me the reprieve I needed to avoid more fists. My dad showed up. He brought his AAA card. He walked right into the middle of the group of people and handed it to me. He wanted to protect me. My dad wasn't strong and wasn't a fighter. If we were going to go down he was going to go down with us. The tow truck turned up, filled their tires and they left. My dad never told my mom. He was disappointed but didn't punish me. I gave myself a self-appointed 2-week break from going out on weekends. If only that were the only situation that my dad had to deal with like this. Let's be clear - I can be a royal pain in the arse on many occasions. But I am also filled with unconditional love for those I am close to. I divide the world into those few people with whom I feel extreme trust and loyalty. They are fewer than I would like but I've accepted that is one of life's conditions. People are never as loyal and supportive as you'd like and you only find out when the chips are down and you need friends. As Eric Clapton said, "No one knows you when you're down and out." But when you earn my trust you get the unconditional love and support my dad showed me. 4. GENEROSITY To this day my dad never cared about worldly possessions. He never bought anything fancy for himself. Honestly, I can tell you that the look on my dad's face when he got to do something nice for you - buy you the outfit you really wanted for high school, slip you a bit of extra cash for college or whatever - it really made him happy. He grew up in a family of people who would always slip a 5-dollar bill into your hand at special occasions. I know this because my uncles - his brothers - always did this to me. They all loved being able to be a bit generous with loved ones. I did a newspaper interview last week where the journalist asked me what big splurge I did when I sold my first company. "What was the first big thing you bought for yourself?" I can honestly say I didn't buy any physical possession for myself. Not a car or a watch or a boat or anything. I took my in-laws to stay at the penthouse suite at the Mandarin Oriental in San Francisco. They didn't grow up going to fancy hotels and it was pure joy to see them staying at a posh hotels with one of the best views you'll find in San Francisco. I took my sister-in-law and her husband to the French Laundry. I rented a limousine, bought a few Jeroboam's (8 bottles in one) of champaign and took my team for a killer night on the town. I rented out the chef's table at a local restaurant in Menlo Park for my friends. A few more Jeroboams. I won't say this wasn't extravagant. Simply that I experience more pleasure by watching others have pleasure. And especially pleasure they wouldn't bestow upon themselves. My dad taught me generosity. Money is transient. When I get an unexpected windfall I often turn to others in need and find a way to help. I'm not saying this to toot my own horn. Just that when I think about the things that drive me mad about my personality (and there are many) and the things in which I'm most proud - the things my dad taught me by doing rather than saying form the basis of who I am today and that which makes me proud. He taught me: Encouragement, support, unconditional love and generosity. And I know this comes from Dad. Happy Father's Day. I love you. ****** Update: in a "circle of life" moment I got this wonderful picture my wife sent me. It seems my 10-year-old Jacob hadn't yet made me a Father's Day Card so he set his alarm for 5.29am on a Sunday to wake up early and do it. You can see the text below. Sweet.
originally appeared on Inc.com Like most startup entrepreneurs, when I began my first company in 1999 I had no formal sales experience. I did have the wherewithal to visit potential customers and try to understand the pain points that I thought could be solved with our solution. This is a very important to do when you first start a company. It’s what I call “the evangelical phase” of a company in which you’re out trying to persuade customers that a product you’ve designed is going to meet their needs better than other solutions on the market. Invariably your first efforts at product won’t quite hit the mark – and this is OK. It’s OK because in an era where you can much more rapidly prototype and build products it is far more beneficial to launch your first version, get initial customer traction and then talk to your customer base to understand how well it meets their needs. Steve Blank calls this “customer development” in which you built an initial product that is in search of “product / market fit.” In non-tech speak, this is where your product solves the need of a customer segment well enough that many customers in that segment are willing to pay you money for your product. And when you achieve product / market fit your company often ramps revenue very fast and you need to build an organization to address it from demand generation (aka marketing) to sales discovery to implementation and after-sales support. But before you achieve product / market fit you’re often in “consultative sales” mode where your objective is to tease out customer needs. And often your solution won’t solve them entirely so you’ll often have to allow open-access to your product or integrate it with other solutions. In my journey to better understand the sales process, my management team and I developed a sales methodology. It was really a common language we could all use with each other that became really important as we added new sales people and new geographic territories. It helped make sure that we all thought about our sales campaigns in a uniform way and that we had a common language that would help us decide where to spend our limited resources. After all, the golden rule in sales is "qualify, qualify, qualify" specifically because you always have limited resources and you must put them against the highest potential opportunities weighted for probability and deal size. I’m going to set up the framework today and in future posts I’ll drill down into each area. We called our methodology PUCCKA = Pain. Unique Selling Proposition. Compelling Event. Champion. Key Players. Aligned Purchasing Process. We were based in England and it was a play on the British Slang "Pukka," which means high quality and genuine and was popularized by one of our favorite chef's - Jamie Oliver. In short: PAIN is where you identify a business problem your prospect has and begin to get acceptance that there is a real need for a solution. This answers the question of “why buy anything?” question in sales. UNIQUE SELLING PROPOSITION or USP is the things that your product is uniquely positioned to solve. If a customer has pain they and you get them to articulate this the next step is to show you can solve that problem. If you make headway don’t be so naïve as to think your prospect – however friendly they are to you – won’t go out and search for alternate solutions. They now know they have a problem! And it’s their job to make sure they talk with multiple vendors to find out where the best fit for their pain really is. USP answers the “why buy me?” question in sales. COMPELLING EVENT is the thing that forces your prospect to realize they need to kick off a project immediately. The most compelling events are often driven by market conditions (regulation that forces your prospect to implement a system or a workplace incidence that causes them to implement systems to follow procedures more carefully). When external factors drive adoption of your solution you have instant product / market fit. But you can’t count on this so you must create your own compelling events and the only way I know how is a business case / return-on-investment (ROI) study. If you can show a customer is losing business or money the pain is a lot more compelling. Compelling event answers the final question in sales, “Why buy now?” which is the hardest question to answer. Often customers will think your product is useful but just don’t have the time, budget or inclination to adopt your solution without a compelling event. CHAMPION is the person who drives through the approval to give the go ahead (and secures budget) to your product or company. Orders don’t fill out themselves – you need somebody who will take a risk on you and guide you through he process. A champion is somebody with both "influence" and "authority." This is in contrast to NINAs. KEY PLAYERS are the other people involved in the sales process including enemies, technical experts, sponsors, etc. The most telling sign of an inexperienced sales person is that they meet one person in an organization that is nice to them and they spend all their time with this one individual. The problem with this is that if a customer has a real problem then often your competitors are in there talking with them as well and if you’re not meeting and neutralizing the people who support your competitors you’re in for some nasty surprises. ALIGNED PURCHASING PROCESS is the act of your customer being ready to buy when you’re ready to sell. It’s your job to figure this out. You might have a customer with a pain that they’ve agreed with you and they like how your solution uniquely solves their problem. But they simply might have more urgent pains their solving at the moment. Or perhaps your customer is in a budget freeze or the key resource who was allocated to lead your project has just resigned. The sales team’s job is to figure out whether the customer not only has a need but also has budget, resources and an approval process to work with you. If they don’t then it’s a case of putting your prospect into a “marketing funnel” so that non-sales resources can focus on staying in touch with the customer through white papers, seminars, etc. while your sales people focus on the near-term deals and hitting your quarterly targets. So there you have it. PUCCKA. In the next post I’ll go more in depth into “pain.” Photo Credit - Photo of Jamie Oliver from filming of "Food Revolution" in Santa Monica as posted on Flickr.
It's a philosophy, really. And it applies to business relationships & networking as much as it does to remuneration in the workplace. It seems we live in an era of "ask." I see it on Twitter. Lots of asking. I see it on email even more. And in person in spades. Everybody is in such a rush that they go for the "ask" too early. Sometimes there is no other option - I get that. And sometimes I feel happy to help somebody even when we're just getting to know each other. That happened yesterday with a nice lady who moved to LA last year. But less as a complaint and more as advice to younger networkers, the more you invest in relationships the more you will get when you need. The more you accomplish through hard work the more you will feel comfortable asking for more compensation at your job. Give. Then Get. I know Brad Feld wrote a similar post. When he wrote it I smiled because I have always used the same saying. Brad is the ultimate giver. It's why whenever he _does_ ask my answer is "yes" before even knowing what he's asking. I was thinking about this yesterday because my assistant Tasha posted a link on Facebook to Paul C. Brunson's short and to-the-point blog post, "It's Called Networking, Not Using." In it he talked about how he gets daily emails asking for intros to Oprah (he does a lot of work with her) and his advice
_"The most successful relationships I have built are with people I do more for then they do for me. I give, give, give, give, give, then ask."_So true. It's not only more effective but more rewarding. It feels much better to be a giver than a receiver. It feels much better to be helpful than to be indebted. One of the most common questions I hear from first-time entrepreneurs is, "How do I meet angels?" There is such an obvious solution. Think about it - who knows angels the best? People who have raised money from them. Duh. So why not get out and meet them? It's why I wrote the blog post on 50 Coffee Meetings. You need to be out there building relationships long before you have an "ask." Be authentic. Be helpful. Earn the right to ask if they wouldn't mind an intro to an angel. And don't ask for 10. It's why I talk about building VC relationships early - Lines, Not Dots. Fill your VC good will, build relationships, be helpful to them not just asking for things. It becomes easier to ask when you need help or money. It's why long before you ever want press coverage you need to spend time actually helping journalists, respecting their profession, taking their calls (not having your PR department screen them) and knowing what interests them. I wrote about there here. When you want press, it will come. Give. Then get. Some practical examples. Jason Nazar is a master networker. As good as they come. Early in his days when he was raising capital for DocStoc he came to see me a lot. Of course he wanted to talk a lot about his product and company - he was looking for money after all. But every time he came he was looking for ways to help me. He would send deals. He was eager to introduce me to his angels - a great group that I didn't know at the time. Later on he would offer to share his advice on SEO with other portfolio companies. He would offer his time to Launchpad LA companies. Jason could ask me just about anything now. He's been such a consistent giver over the years. Todd Gitlin is one of the best executive recruiters the technology & startup market in Los Angeles. On many occasions over the years I've called him with a request, "I'm not looking for an X right now but if I were, who is good in the market." Within an hour I always have 4 CVs with notes on their accomplishments. He motto is, "If you want to talk with any of them I'll introduce you. No fee required." Todd does this naturally but in his physche is wired the concept of reciprocity. He knows that good people return favors which means that when we do have a commercial need at a company we call him. I have other business relationships where it feels like the clock is always running. "What's in it for me?" OK, I could be an advisor to your company but if I intro them to X I'd like to get an additional % option grant at your company. And then I think about me. When I joined GRP Partners in 2007 I was offered a role as a General Partner. The compensation at the time was much less than what others told me a general partner at a VC firm would get. My philosophy was simple
_"I've never been a VC before. So they're taking a bit of a risk on me. _ _Who cares what my equity is. If I do well, I'll ask for more later. If I don't do well, at least I got a shot at being a VC. If I don't do well I didn't deserve the comp."_I did well. I asked for the comp later. I got it with no argument. And I always remember who put me in business. Life is about karma. I always try to give before I get. Photo Credit: Ben Grey on Flickr
LeWeb conference in London, which was a superbly well run event with a very quality production team. Kudos. The 20-minute video of my presentation is here if you're interested. And it was convenient for me because we also held our annual London board meeting of DataSift, who helps companies processes and analyze large volumes of social plus enterprise data in realtime. FINAL LE WEB LONDON (JUNE 2013) from MARK SUSTER The topic of the conference was "The Sharing Economy" and as I read many of the session title descriptions I realized that people would be talking more about "collaborative consumption" (think airbnb, taskrabbit, uber) than about why people are sharing more on Instragram & Snapchat. You can of course view the presentation in SlideShare above or download it directly for free here. WHY IS COLLABORATIVE CONSUMPTION BECOMING A HOT TREND FOR STARTUP COMPANIES? As I outlined in my talk, I believe the greatest Internet companies created over the past 15 years have been "deflationary" meaning they are driving down the prices or goods & services. They are also driving down the margins they make and are offering products that are initially lower functionality than their competitors. I described that phenomenon in this post. Declining prices & margins in a small market is much less interesting. But as we now know 33% of the world's population is now connected to the Internet, the majority of traffic to the major Internet properties is now global and at Benedict Evans pointed out in his recent report, more than 70% of the world's literate population will have a smartphone within 4 years. Prices down. Network Up. But what else? The world still has economic challenges that often aren't perceived by many of us the tech world in our little cocoons of Silicon Valley, NYC or Los Angeles. Example: More than 50% of all youth in Greece & Spain (34% in Italy) are unemployed and if you take "under-employment" it is even worse. I we know the if people miss getting on the career ladder for just 3 years it can affect the entire trajectory of their lifetime earning potential. In the US that number is 17%, which is still too high. Add unemployment to debt. Student debt alone in the US is now $1 trillion, which $100 billion being added / year. These types of trends are unsustainable. I believe that market conditions drive innovation as much as great entrepreneurs do. As they say, "necessity is the mother of all invention." So those underemployed people who have part time jobs but need more wages will gladly take on 5 dogs / week in their house on DogVacy. The person who is between gigs will gladly drive people on Lyft or offer out their spare bedroom on airbnb. Consider the case of Tradesy founder Tracy DiNunzio who could only launch her startup by giving up her bedroom for a year and earning $28,000 that allowed her to not have a full time job that year. If your closet is full of clothes and your credit card is full of debt - of course you're going to trade clothes with other people rather than only buying new stuff. You can watch the 20-minute video of my talk if you want here. WHAT ARE THE TYPES OF COLLABORATIVE CONSUMPTION COMPANIES? I broke down the types of CC companies into 5 main buckets today to give a framework to think about your startup if you're entering this space: 1. TAPPING INTO GLOBAL MARKETS - There are talented people in the world who can't earn a "global market rate" for their services but when you open them up to global demand - boom! An obvious example of this is oDesk. Another is DeviantART who are able to tap into hundreds of millions of people around the world who produce art and help them making a living. That's why dA has nearly 70 million monthly actives producing 2.5 billion page views making it the largest communities of artists in the world. 2. EMPOWERING THE UNDER-EMPLOYED - I spoke about this briefly already. When you have millions of unemployed youth plus millions more not earning a high-enough wage they are going to find ways to make extra money on the side by running tasks, sitting dogs or reselling their closets. Market meet reality. One area I didn't talk about in the presentation that really interests me and seems underserved is helping to empower senior citizens. We know that this generation has retired without enough savings. We see our seniors increasingly at Walmart or Starbucks check-out lines. But who is going to put these people back to work part time in their homes and one their phones - tapping into beautiful brains that don't have the same physical abilities they once did? 3. MOVING FROM HIERARCHIC TO FLAT STRUCTURES - Some of the peer-to-peer markets are driven where a flat structure is better suited than a top-down model. Here I talked about Lending Club where I understand hedge fund managers are now deploying capital to lend directly against pools of borrowers. But an equally obvious case is BitCoin where people who live in Iran, Syria or Libya may rather put their money into non-governmental units (even knowing the risks) than to trust their local governmental leaders to protect their assets from inflation or seizure. 4. BREAKING DOWN MARKETS REQUIRING PHYSICAL BARRIERS - I am also very interested in cases where people break down physical barriers that limit wages of instructions while costing too much to students. The obvious cases I mentioned are ones like Udacity but I believe this trend will encapsulate personal trainers, financial planners, depression or substance counsellors, etc. Anywhere where the service provider can earn more at a lower margin by proving more service to the masses. 5. MAKING EXISTING MARKETS MORE EFFICIENT - There are of course markets that have always existed - like the taxi or limo service markets - that are simply being made much more efficient through companies like Uber. WILL THIS TREND LAST? In my mind there is no doubt this a lifetime trend. Venture capital will be easy and then hard. The press will romance the topic and then spurn it. That always happens. But the key drivers: un / under-employment, personal & governmental debt, globalization, resource scarcity, transparency & shifting demographics will mean collaborative networks will form throughout our life. It is the antidote to top-down control. I also spoke about the trend of open communications from radio to TV to telephony. I believe the natural success to that is Twitter more than any other technology of our generation. It is open and empowering. But with empowerment also comes awareness of what others have that you don't. Which leads to disenfranchisement. And rebellion. Think Tunia, Egypt, Syria and now Turkey. Transparency can breed discontent. And the solutions to many of the worlds problems will come from the people as much as from governments. Collaboration. We've only just begun. HOW WILL IT EVOLVE? I did spend some time in the presentation to how consumption networks will evolve. It was my sixth trend and one I really believe in. In a world where P2P networks threaten existing business value chains some companies and systems will disppear. But there are always ones who adapt and thrive. And if you can create a company that can help existing players jujitsu their nimble startups you'll do well. One such company is Deliv. They are taking the same approach as an Uber or Lyft (finding drivers who want to earn a bit more) and in stead of matching them up with consumers they match them up with local retailers to deliver goods to people's homes. Think about it - most retailers can't compete with the scale and costs of Amazon. But they do have a local physical location in your neighborhood. And what if you could meet the holy grail of same-day delivery for the same cost as overnight on UPS. That's what Deliv enables. Retailer wins. Driver earns extra income. Consumer gets same-day deliver. Win. I suspect you'll see many more companies helping business tap into consumption networks in the years ahead. Companies like this don't capture the sexy headlines in the same way as cars with pink mustaches on them. But they do tend to build large and profitable businesses.
recent blog post about the need for a well articulated business strategy before pushing a particular business model. Since Arrested Development is back I thought I'd resurrect Gob Bluth's answer when he was told he needed a "business model" - he quickly figured out that he was missing one so he asked Starla, the Bluth company secretary, if she would be his business model. He then brought her to board meetings so nobody could accuse him of not having a business model. I guess this is the ultimate definition of implementing a business model when you're not clear on strategy! I found myself in violent agreement with Fred's blog post(s). My take on his argument is this: 1. YOU NEED TO FIRST CREATE A COMPELLING PRODUCT. Compelling in the sense that you solve a real problem a target group of potential customers has with a product that is significantly better than the alternatives on that market. In my opinion no amount of clever marketing or chest beating at conferences can create a market if you don't have an amazing product to begin with. My most read post on marketing tips highlights this - please pay attention to tip #4 - you can't have great marketing for bad or mediocre products. 2. YOU NEED PRODUCT / MARKET FIT Put simply - you need enough users in a segment who care about what you're doing to dictate investing further in the product or in sales & marketing resources. If you solve a deep problem for a niche user group but not enough users have the problem you won't achieve product / market fit. Or if you solve a problem for a big segment but your solution isn't significantly better than alternatives - you won't have a fast-growing, successful business. I often call this "going a mile wide and an inch deep." The answer to either problem may mean simply refining your product to solve deeper problems or expanding the product scope to meet a larger group of customers' needs.
PRODUCT / MARKET FIT IS EVERYTHINGI see many companies these days just race to raise capital. They see capital raising at the success validator. Sometimes they rush to raise cash because they don't have a well articulated product / market fit and they think having more money will help them have more time to prove the business. I know what is going through their collective heads, "the more money I have the more time I have to figure things out." True. On the other hand, sometimes, "mo money, mo problems." Raise yours wisely. Spend it wisely. Figure out the appropriate time to step on the gas with more funds. There is no right answer. ******************************* I know that the acronyms or business sayings change over time. But the search for product / market fit has been around in various form for a long time. A. CROSSING THE CHASM In the 90′s we all talked about "Crossing the Chasm" in which Geoffrey Moore encouraged us to think about solving really deep problems in a particular customer set and then using that satisfied customer set to move on to tangental markets. The idea of "going deep" with customers has always shaped how I think. Shallow and superficial and racing from segment to segment in search of some take up has never been a strong strategic plan for me. B. INNOVATOR'S DILEMMA Second, I was then influenced greatly by Clayton Christensen's work, "The Innovator's Dilemma" in which he argued that "disruptive technology" came from companies who offered products that were significantly cheaper and less functional that the existing market and ended up capturing the needs of customers who previously couldn't buy products due to price / complexity. He calls this competing with "non consumption" It was the most profound business strategy book I had read and greatly influenced how I thought about company building and certainly how I think about investing. I have written this up before if you're interested - I call it Deflationary Economics. But when you create a product for a large segment of users who previously couldn't afford products due to price or complexity and if that product can work at "Internet scale" you have the chance to do something truly amazing. Like DeviantArt. With 30 million registered users on a global basis. 65 million monthly actives. 2.5 billion monthly page views. All totally free. It has become the largest art community on the web with huge pockets of global users who never had a website in which to express themselves amongst peers and also find ways to monetize their talents on a global basis. C. LEAN STARTUP MOVEMENT And finally there is the most modern spin on these concepts by two individuals who have built tech startups and have done an excellent job at describing the process. In Steve's case it is "going in search of a business model." He wrote two legendary books, "Four Step to Epiphany" and more recently "The Startup Owner's Manual" And Steve's desciple (or as Steve will tell you, "he's way past me now!" is Eric Ries who wrote the must own, "The Lean Startup" **************************** I think all of these great works (all must reads) scratch at the same thing - the search to solve a real problem a market has by creating features that add compelling value to your customer such that they will do what customers hate to do - change behaviors (ie use your product). And in the word's of my friend Bill Gross, "Your product has to be 10x better than what exists in order to be a success" If you don't want to click through to the link I'll tell you the answer - if you're in a competitive market and you aim to solve problems assume you'll have strong competitors so if you need to aim for 10x innovations to end up being 3x as good as the market and you need 3x as good as the market for rapid adoption. But if you have time later - please watch video with Bill. He's awesome to learn from. 3. BUSINESS MODEL Fred's third argument is that you need to be careful not to try and scale up your operations (sales staff, marketing, etc) until you feel clear you've achieved product / market fit. He published another MUST READ post about being careful not to confuse early revenue traction with product / market fit. The money quote
_One of the things I have observed over the years is that a hard charging sales oriented founder/CEO can often hide the defects in a product. _ _Because the founder is so capable of convincing the market to adopt/purchase the product, the company can get revenue traction with a product that is not really right. _ _And that can hide all sorts of problems._That's Sofa King true. THE NEED FOR STRATEGY It's something I worry about with companies. Are we winning because we create compelling marketing materials and have hard-driving sales people that get customers buying product or are we solving a deep-seated customer need? If it's the former your company will definitely start to top out at some point. It's why I never get too excited about sales unless I can scratch the surface of the elusive "why." * Why are they buying from us? * What are their alternatives? * What problem are we solving? * How will it benefit them financially (more sales, fewer errors, reduced customer churn, etc.)? * How will it save them time /drive productivity? If you're not solving a deep seated problem you'll become "shelfware" and won't have a repeatable, scalable business. So that's why I believe companies need a well articulated strategy. Not a mission statement, mumbo gumbo bullshity, groupthink happy clappy statement to be published on your website. But a clear, crisp articulation of: * WHAT PROBLEM YOU ARE SOLVING FOR TODAY'S USERS OF YOUR PRODUCT (really. why did they buy? no spin) * WHAT IN YOUR PRODUCT IS TRULY DIFFERENTIATED IN THE MARKET TO SOLVE THIS PROBLEM (where do you believe you're strong against the competition in functionality or delivery). [note: this is not a statement about strengths / weaknesses in marketing. It is about product. * WHERE DO YOU THINK YOUR CUSTOMERS' NEEDS WILL EVOLVE TO BASED ON YOUR WORLD VIEW OF CHANGES IN THE MARKETPLACE IN THE NEXT 2-3 YEARS (ie changes in computing devices, regulations, end user adoption of technologies such as wearable computers, watching online video, whatever) Based on the problems you're solving in today's customer base, your unique skills in solving these problems and where you see the market going, the big question becomes …
In which direction should your company evolve?Admitting that you will have limited resources and strong competition both in today's market and in the markets you want to enter is the right start of the conversation. You need to pick wisely because whatever you do, you must do better than other people staring at the same information as you. (also known as your competitors or future competitors) I work with many companies. In some - like Maker Studios - we have a very clear & shared purpose for what makes us unique, why we are growing so rapidly and where we think the market is heading (and thus how we must evolve). The team has stated it and has built metrics around key goals for future success. At other companies we have very strong revenue growth and an intuition on why we're doing well but a less well articulated case for why people love us today, where we stand relative to alternative options and where we want to evolve as we perceive our customers requirements will evolve. What I can tell you is this: I don't work with a single team that isn't trying to pull together a stronger case for our strategy. In the early days of the company it's ok to launch a product that you believe will solve a customer problem with a strong intuition about where the value will lie. That can be your "going in strategy" but you know it will need to evolve. And as you know the initial product strategies are like war plans, "they never survive first impact with real customers." Customer use. That's when you learn. That's when you must reflect on how your customers are using your product. That's where you must cull or refine features people aren't working. That's where you need to separate out your market spin from your internal reality of how customers are (or are not) using your product.
It's why in early-stage teams I personally invest in strong teams not in strong product strategy.I sometimes see VCs debate ad finitum about a company's strategy. They think they know "here's how your product will be adopted, blah, blah, blah." I don't mind having the debate but a VC who thinks early on that he/she REALLY knows what is going to happen in the market his fooling him/herself. Markets decide. We simply have a ring-side seat and hopefully make our next moves based on market signals. From customer feedback you need to define your company's strategy. When you know the value of what you provide to a constituency (either your end users or somebody who will pay to interact with your end users) then you can begin to define a strong business model. Hopefully one more scalable than Gob Bluth's.
LA is hosting an important tech event - please consider registering and coming by. A special thanks to Jason Lehmbeck, founder & ceo of DataPop, a great LA startup of which I have been a long-standing fan, for championing this event and bringing it to my attention. A couple weeks back I laid out the tech case for Eric Garcetti for LA mayor. Fortunately the LA tech community and Angelenos agreed! As an investor and a civic duty geek, I'm excited about the promise Garcetti holds for the city. But, as in every civic endeavor, real change starts with the people. Which brings me to my second big LA civic push this month. For those of you who haven't heard, President Obama and US CTO Todd Park have established a National Day of Civic Hacking this weekend, in cities across the nation. The core idea behind the event is to tap into the hacker spirit in each community in a way that leverages the latest tech and open data to strengthen our democracy and communities across the country. And, like everything LA, we are putting our own unique spin on the event this Saturday and Sunday with both a hackathon and MakerFaire. With over 350 participants expected, teams will compete in a 2-day coding competition to make local government more accessible and citizen-friendly while also getting a shot at fame, civic glory and cash / tech prizes totaling more than $20,000. Developer mentors and judges from AT&T, i.am.angel, Google, Scopely, CGI, Factual, and ESRI and the City and County of LA will support coders during the weekend. Teams can choose to respond to local or national data challenges, or work on their own projects that incorporate civic data and community impact objectives. Tech leaders from NASA JPL, to the Census Bureau will share inspiration and ideas. Not a coder? Come on Saturday June 1st to check out the MakerFaire tech exhibits for kids of all ages from Two Bit Circus., LA Makerspace and many others bringing robots and 3D printers. I strongly encourage the whole tech community to come out and support LA’s first-ever citywide, civic hackathon. Now that we have the first tech mayor of LA, it's time for the developers and entrepreneurs to step up and show off our tech chops through an important cause. Register at http://boyleheightshack.
The good and great of the tech industry were there: Tim Cook, Sheryl Sandberg, Dick Costolo, Max Levchin, etc. But Elon Musk stole the show. I thought Michael Lazerow's Tweet best captured the mood of the crowd I'm sure you know, but Elon was the co-founder (and largest shareholder) of PayPal, the most important payment transfer technology of its era and still the most instrumental to date. He said he wanted to found this company (he had founded a previous company that sold for about $300 million) because he thought the Internet was a big idea. He was interested in a few other big ideas. Energy independence (so he founded Tesla and Solar City). And space travel (SpaceX). His goal in the second project is to help humans avoid extinction. I have never sat in a room with an individual where I felt more inspired and humbled. I think the zeitgeist in the room was that we were seeing the successor to Steve Jobs in terms of inspiring us to think big. And when asked who has inspired him he of course gave a nod to Nikola Tesla. This made my friend Dorrian Porter's KickStarter initiative to create a statue of Tesla in Silicon Valley even more poignant. I hope you'll consider clicking that link and making even a small KickStarter contribution to support arts & innovation. For my part I will participate in the unveiling of the statue in November and make myself available to meet with any contributors to the project as outlined by Dorrian. Dorrian is someone I've known for years. He is the close friend of my dear friend and college roommate, Stefan Kennedy, who is also a luddite and therefore will never read this Yes. He is that .0001% who still doesn't use Facebook, Twitter, Instagram or any other social technology. Dorrian is an entrepreneur. He has been through the journey you are going through and we have spent much time sharing stories from when I was in the trenches, too. He knew me then. His imagination of what is wrong with VC has captured perfectly in satirical format what ails our industry. If you haven't watched the video, please do. It is Nikolas Tesla pitching a VC firm. And if you haven't it, I must tell you it is an absolutely perfect caricature of the worst sides of our business. He has now created Part II. It is also very funny but please watch Part I first. They are also sad. Because the videos show exactly what life would be like if a young Elon Musk came to pitch VCs today and said I want to transform P2P finance, get people driving electric cars and send a man to mars in our lifetime. At D Elon said he worried that our most talented entrepreneurs these days were too small minded in their objectives. Obviously that claim can be placed with VCs, too. Dorrian created the videos solely to create awareness for the Nikola Tesla statue project as a public good. Given how awesome the videos are and how worthy and selfless his goals are I'm going to break my usual rule. I've never had a guest post before (other than from my fabulous wife here & here - some of my best read posts ) But this one is for Dorrian. And his Tesla Statue project. The reference to Andy Dunn and me is responding to this post I wrote (in response to Andy's earlier post). The back-and-forth between Andy & me if anything I hope just raised the issue a bit more about entrepreneur & VC relationships. I don't have any issues with Andy - he's always come across as a very nice and sincere guy. Debate helps everybody learn as I wrote about here. Let's never stop debating important topics. ************* THE MORAL COMPASS IN ALL OF US by Dorrian Porter The first time I met Andy Dunn he was working for the venture capital firm Maveron. The first time I met Mark Suster he was the founder and CEO of a company called BuildOnline. We've come a long way. In fairness to Andy he was complaining at the time about his beige pants - especially the fit - and his button down blue collar shirt. In fairness to Mark he was getting tired of sleeping under his desk and doing _whatever_ it took to make sure payroll would be met every two weeks. One thing I know about that role reversal - and everything I've learned since coming to the Silicon Valley - is that it is impossible to label an individual and much easier to label the group. Yet no matter what side of the table you sit on within the technology community you are going to be faced with very similar situations that test your moral compass. It really doesn't matter if you are playing the role of a VC, entrepreneur, inventor, CEO, executive, developer or any other position at any company at which you work. I published a video 10 days ago called "Nikola Tesla Pitches VC" and I'm itching to do a full episode as evidenced by the trailer we released today: After watching both videos many people have said "Boy you must have had a bad experience with VCs", and the answer is a flat no. As a founder or CEO over 13 years I raised $35 million, sat on boards with 7 different venture capitalists and I'm in touch with every one of them today. The sad reality of the videos is that there isn't one bad quality displayed where I don't see at least a glimpse of my own bad behavior at one time or another over the last 13 years. Is it true that VCs sometimes are thinking about short term wealth potential instead of long-term innovation even with the benefit of long term profits? Is it true that CEOs or founders often do the same? Is it true that VCs sometimes hire the wrong CEOs for all the wrong reasons or make false assumptions about a founder's ability? Is it true that CEOs or manager often do the same with an employee? Have you ever checked your cell phone when you've got a human being in front of you, telling you something they think is really important and you don't? Did you ever suddenly get more interested in a conversation when someone you didn't initially think was relevant to your immediate business goals turned out to be? Our collective future will always depend on the decency of individual action and intention. Since other people's intentions are impossible to know, your fiercest subject of criticism should be you since we all know that we lie to ourselves a lot more than we do to anyone else. You'd better at least be honest about that. As I once said to my friend at the blackjack table when asked how much I was down: "Do you want the lie I tell you, the lie I tell my wife or the lie I tell myself". I launched the project to build a statue of Nikola Tesla - and to present Nikola Tesla as the quintessential inventor in the cartoons -- to inspire the entrepreneur in everyone to think big about the things that really matter. We need more inventions that will solve global problems. That's why Elon Musk was such a big hit at D11 yesterday - speaking in terms of humanity's biggest issues and encouraging entrepreneurs to do something different than the Internet. We need more people to value long term innovation over short term profit. That's why Om elegantly pointed out that the first Tesla cartoon might be saying something bigger about the state of the Silicon Valley today. You can back the Tesla Statue project to join me and Mark at the statue unveiling in November. VC or entrepreneur, we need to all stand up for creativity, innovation and the moral compass within all of us.
CEO of DataSift. He wrote a post this long weekend on how he manages the board of DataSift. You should read it. More importantly if you don't know DataSift but have the need to process real-time social data or historic data it's worth checking them out. It's valuable to any business for marketing, customer research, product development, market analysis, etc. In Rob's post he asserts, "You get the VCs you deserve" and the corollary "You get the performance out of your board that you deserve." His argument is as follows * Spend time building investor relationship long before you raise money. * By spending more time educating your board on your business you get more valuable advice from them * Your goal should be to turn your VCs into extended members of your team to get real value from them * Understanding where your VC partner sits in their respective fund and where their fund is in the cycle of its investment lifecycle will help you understand your VCs behavior. What Rob wrote in his post is right. Rob is one of the most driven and successful CEOs I work with. In his tenure as CEO of DataSift we have never missed a monthly revenue figure. He has grown our US operations from 1 employee (him) to a global organization of 75 employees that will finish the year with 8-digit revenues (90+% recurring) and more than 350% year-over-year growth. Growth like this, this early in a company's lifecycle rarely happens. In this period (less than 2 years) he has brought on incredibly talented senior execs is sales, marketing, product management, client services, finance, vp engineering and more. In his spare time he raised nearly $30 million. But the thing I am most proud of about Rob is that he has taken a company with a uniquely talented founder & CTO - Nick Halstead - and managed to build a very tight working relationship with Nick where we drive world-class product development without having the usual founder / CEO conflicts. Oh, and did I mention - Rob is in SF and Nick is in the UK. Rob has taken > 15 trips to England and Nick even more to the US. It is really working. I point this out partly out of pride. Partly out of the fact that in 1 week I depart for England to speak at LeWeb, attend our DataSift board meeting and generally make myself available to the DataSift team to meet their customers, partners and employees. But mostly as I read Rob's post I didn't think it did justice to the superlative job he has done at managing his rather boisterous board. It consists of a highly intelligent and opinionated founder - Nick Halstead. Wallflower - yours truly. Quiet-as-a-mouse Roger Ehrenberg of IA Ventures. True-to-his-heritage Rory O'Driscoll from Scale Ventures. And then there is the one true gentleman of the bunch - Chris Smart, who is non-exec chairman. In addition to helping manage the board Chris also helps represent the interests of the angel investors / common stock holders. Oh, and did I mention: Roger - NYC, Rob/Rory - NorCal, Nick/Chris - London & me - Los Angeles. That in itself is quite a challenge. So what are Rob's secret hacks that he didn't spill in his blog post? Here is what I imagine Rob would say were his most effective tools. Sincerely - he is better at managing his board than any exec I have worked with. 1. EMAIL UPDATES FREQUENTLY Rob is an over communicator. When it comes to your board this is something to emulate. If you have investors or board members that have wide relationships you can get significantly more value out of them by keeping them informed. Why? Investors and board members who know your strategic objectives can advocate on your behalf when they have chance encounters with your partners, customers or potential future investors. The more they know your strategic objectives the more laterally they can act on your behalf in key situations. Investors and board members who know your key talking points (simplified marketing messages) will help you penetrate the consciousness of even the most hard to reach individuals. I am on a board that does business with Yahoo! One key board member knows Marissa. So naturally we're pushing for him to drop critical information when their paths cross organically. Trust me - that kind of encounter can mean the difference between securing a contract, protecting yourself from getting turfed or getting acquired one day. Equally each of your board members are probably on 5-10 boards. Each of your angels or seed investors may have 20-30 investments. When they meet Marissa - you want them talking about you more than the others. And as Rob points out - if you email members with short updates more frequently they are more up to speed when you do need them to weigh in. How much is too much? I guess you'll have to ask them but I'd err on the side of more and let them tell you to dial it back. I'd err on the side of shorter updates versus longer ones. Key point - if your emails are as long as my blog posts you're forked. Board members will file them rather than read them. Remember - they have 10 other boards. Make your emails actionable. If you want somebody to take action make it clear what you want them to do. 2. SEND TEXT MESSAGING FOR RAPID RESPONSES Any CEO worth his or her salt knows that her investors get an insane amount of emails and often spend 8+ hours / day in meetings (board meetings, pitches, partner meetings, LP meetings, corporate relationship meetings) so often email is done on the run on one's iPhone or in the early morning / late evening. It is common for an investor to read the email but not immediately reply. After all - she is just trying to get through 99 unread emails. I always encourage people to send the email anyways with the full description of what you want but if the email requires an action then send a follow-on text 24 hours later. It should simply say, "I wanted to call your attention to the email I sent yesterday - it has 1 action for you." Or, "I sent u an email. Can you please call Stacy to ask about our BD deal? Hoping to hear back tmrw." I know it sounds obvious. Trust me - most people don't do it. Rob does it. On steroids. Sometimes 3x / week. He did it yesterday, "Mark, I'm going to write a blog post following on from your VC's aren't dumb. k?" and this morning, "Mark, I sent intro to [redacted], she is in LA. Please meet her while she's there." Here's the thing people don't quite get. VCs crave the ability to help portfolio companies. We're all secretly paranoid we're not helping enough and want to know how to be more helpful. When a company gives you a discrete action to carry out - it's gold dust - I promise you. If board members start joking amongst themselves (as we at DataSift do) that you "got another Rob assignment" you know you're on the right track. Rob jokes about it. He makes fun of himself for always asking. He is very pleasant when he calls and writes. And by now we all consider him a friend. If anything we feel indebted to him for his hard work. So if all I need to do is make some customer calls, interview potential employees or help with his fund-raising decks - hallelujah. 3. ASK FOR SHORT CONFERENCE CALLS I would say the norm for many early-stage companies is somewhere between 6-10 in-person meetings per year. The earlier stage the more likely it is 10 meetings and the later stage the more likely it is 6. In either case it is very helpful to have a series of 30-45 minute calls in between. Don't have calls for calls sake. Have topics. "We're trying to figure out how to best get a deal with Google. Here are our key contacts. I'd like to schedule a 45-minute call to agree our strategy and understand who your key contacts are." Sure - you could do this via email. But by doing quick calls you feel more connected. More information comes out. You start to act cohesively as a group. And you can often throw in a separate action like approving stock-option grants, getting approval for CAPEX spend, discussing fund raising timing - whatever. 4. ALWAYS SEEK INPUT You may have an opinion on your market-entry strategy for Europe. You may know how much to pay in cash or equity for your new VP Engineering. You may have the best planning for your on-stage appearance at All Things D. But asking your board will keep them engaged. It will also often yield unexpected results. For starters your board may have a different perspective than you. That role as sparring partner can be useful if for nothing else than to test your resolve. I have seen these kinds of discussions change the strategic moves of a company or yield relationships that we didn't know a board member had to help drive forward an initiative. If nothing else you will create board cohesion and board education by engaging your board. 5. ASSIGNS TASKS Already covered. But seriously. Assign away. Ask for help reviewing your press release. Ask your VC to send a critical email to a contact. Ask them for a meeting to review your pricing strategy with you. Ask for intros. Ask them to mention you to the press, speak about you on stage when they do public events, whatever. Ask. After all, you don't ask, you don't get. 6. FIGHT HARD, YIELD WHEN APPROPRIATE AND ALWAYS BE WILLING TO TAKE FEEDBACK In Rob's spare time he always seems to be going to a boxing class or some other competitive, physical activity. It's a good metaphor for his board style. He fights hard for what he believes in. In some cases we disagree with him but decide to trust him if his resolve is firm and his logic is sound. When it's me who disagrees I usually formalize it by saying, "OK, Rob. I see it slightly differently but you live in this business every day so I'll yield to your judgment. Let's just revisit in 6 months and see if you still feel the same way." It's particularly easy to give in to Rob because he is willing to back down when he either perceives that the board is unified on a different perspective than his own or when he realizes that his logic on an issue wasn't as sound as his sparring partner. Sometimes we fight. It sort of feels like fighting with my brothers. One of us usually calls back a couple of hours later to say they were sorry. Or they now see the other persons's perspective. I respect Rob a lot and the fact that he is willing to take feedback when warranted gives his great credibility. When we recommended that Rob get a CEO coach he not only embraced it but craved it and thanked us for suggesting it. Rob is driven to learn. And improve. 7. MANAGES BOARD MEETING EXPECTATIONS (BEFORE & AFTER) We've had some good board meetings and some bad ones. One thing Rob is consistent about is feedback. He calls us all before the board meeting to tell us what he plans to cover and see if we have other agenda items. Equally important he calls us all after the board meeting. "How did it go? Where could we improve? What worked for you? Where did we fall short?" He also gives us feedback on our performance. Usually it is reminding us to be a bit nicer 8. RESULTS & MEASUREMENT ORIENTED Rob is goal driven and therefore measurement driven. He sets clear goals for what he wants to achieve. He doesn't just set revenue goals but he sets "quality of revenue" goals. He sets goals for MRR (monthly recurring revenue) to differentiate from one-time revenue, license revenue, services revenue and other. He sets goals for revenue diversification (can't get all revenue from few customers or few partners). By being so metrics driven we can have a lot more quantifiable and objective discussions at board meetings and at mid-point reviews. FURTHER READING I cranked this out pretty quickly. Sorry for typos, grammar and length. If you want further reading on boards I have written several other posts on the topic. Some shorter than this one * BOARD MEETINGS 1. Running More Effective Board Meetings 2. Why You Should Ban Laptops & iPads * BETWEEN BOARD MEETINGS 1. Communicating Between Board Meetings 2. The Agile Board * BOARD OBSERVERS & ADVISORY BOARDS - 1. The Problem with Board Observers 2. Rethinking the Role of Board Observers 3. Why Advisory Boards Give Less Value Than Most Hope * MEETING DYNAMICS 1. Presenting at Meetings without Going Down a Rathole (this was written for VC pitches but many lessons apply) 2. Meeting Dynamics (also for VC pitches but also some practical tips for board meetings)
scathing post about Venture Capitalists in which he decries the industry's masses. I read Andy's post with a knowing smile on my face. After all, I am no stranger to publicly expressing the frustrations of dealing with the downside of this industry as I wrote about in 2006 when I was an entrepreneur. But VC is like congress. It's easy to hate it en masse yet many people love their local congressman. Why? Because they know him or her. They see how hard she does her job. They know her personally and know she cares about her constituencies even if she has to make tough trade-offs from time-to-time. In the original version of his post, Andy writes
_"This essay is dedicated to the great VC’s on my board who I am lucky to work with: Sameer Gandhi from Accel, Jeremy Liew from Lightspeed, and Kirsten Green from Forerunner._I rest my case. "Hate the industry, Love my local guy." But many of the assertions in his post - while populist - aren't exactly how things are in reality. So I thought I'd have my hand at a friendly counter point. After all, I understand's Andy's frustrations with the industry. And yours as well. I have felt them myself. I wrote Andy first to be sure he wouldn't be offended if I did. Luckily Andy is good natured So let's look at the main assertions 1. THE INDUSTRY IS DYING, EXCEPT FOR THE TOP 2%
_"I don’t know the exact math, but I hear it again and again: the top 2% of firms generate 98% of the returns in venture capital."_Unfortunately the first part of that statement is true. The second is not. The top 2% do not drive 98% of the returns. I have seen many slices of the data. The quickest I could find was from PitchBook. As you can see from the chart their data suggests there are about $25 billion of VC distributions per year in the US. According to FLAG Capital there are 100 active VCs (as defined by making at least $1 million in VC per quarter for 4 consecutive quarters). Their data looks at tech VCs. So for argument's sake let's triple the number of active VCs and call it 300. That would mean 6 firms drive $24.5 billion in returns. Not even close to the case. Most top tier VCs return about 3x invested capital and outlier funds (the best of a vintage) might return 6-8x. It's true this was much bigger in the dot com era but I've studied the data and know that over the past decade these numbers are right. So if you take 6 very strong performing firms of $250 million and assume they do 5x each that is $1.25 billion each, $7.5 billion in total or 30% of the industry returns. But Mark, many of the great firms are $500 million and up! If you double your number that would mean 60% of industry returns. Not too shabby! Yeah, true. But the larger funds usually have lower returns because they are often investing bigger dollars at later stages with less risk and therefore lower returns. As you can see in this Cambridge Associates data, early-stage investing beat later stage investing in returns in 70% of the past 30 years. It is true that every few years a fund exits that delivers smashing results because it has Facebook, Google or Twitter in it. But as an LP you can't count on that any more than VCs can. You invest across many funds just as VCs invest across many companies. The better way to think about VC returns is, do the firms consistently beat alternative asset clases on an IRR basis to adjust for the increased risk and lack of liquidity? Here the data is not always kind to VCs. But the top 25% do consistently beat the alternatives. The problem is the illiquidity because investors are often locked in for 7-10 years. The goal of an LP is to get into the top decile. But picking today's top 10 does not pick the next year's 10. Take for example Accel. When it went to raise its fund 10 years ago the rumor was that many LPs were disappointed with recent returns and did not re-up. Yet their next fund had Facebook in it. Doh. And I believe that Accel has consistently shown its ability to be in the top decile in the last decade. But the funds that every LP wishes they were in - USV & First Round Capital - not to mention Foundry Group, Spark Capital, Floodgate, IA Ventures, Founder Collective, K9, Felicis Ventures, True Ventures, PivotNorth, SoftTech and many others either that didn't exist 10 years ago or were just sprouting. Neither did Andreessen Horowitz. So the reality is that yesterday's winners are no guarantee of tomorrow's success and today's emerging managers might just be tomorrow's best investors. The industry isn't dying. It is changing. And reinventing itself. And some firms will go under. And others will emerge. That's normal. It's a market, after all. In 2000 our industry had more than $100 billion in LP money. By 2009 had reduced to around $15 billion in capital from LPs. In 2013 it is expected to be around $35 billion. Not. Dying. Why? Compare the state of play in 2013 versus 15 years ago. 33% of the world is on the Internet on average of 3.1 hours / day. There are 138 million smart phones in the US alone and … wait … 99 million tablets. Insane. 2008 App ecosystem on iOS = $0. 2013 = $25 billion of which Apples share is more than $8 billion at > 90% gross margin. Credit cards = less friction = more purchases = cha ching. 2. THE BEST VCS DON'T TRY TO HELP ENTREPRENEURS I'll admit that I do know one VC firm who's strategy is not to call their entrepreneurs and not to be involved in operations. But I seriously only know one. They believe that stock picking is the most important function they can play. They are also less than 10 years old. But the people whom I consider best in this industry are quite helpful indeed. Let's look at some great companies. _Facebook_. Is it right that VCs had no involvement in persuading Sheryl Sandberg to join the fledgling company? Not according to my sources. _Google_. If you read Ken Auletta's piece it makes it clear there was active VCs involvement in the early days. It led to hiring Eric Schmidt. And Coach Campbell. And to finally admitting that ads weren't evil so that Google could copy the model of the fast growing Overture. _Twitter_. There have been a lot of management shuffles at Twitter. But in my mind there is no doubt that placing Dick Costolo at Twitter was the most positive thing Twitter has done to become a long-term success. Hard to imagine that Dick joined "organically" or that his becoming CEO also was organic. My guess is both had heavy VC involvement. _Amazon_. I've heard directly from top executives that Jeff Bezos (in my opinion the most talented person in the tech industry) has received his fair share of VC coaching in the early years _Tumblr_. Nothing was more heart warming than the photo of David Karp hugging Bijan Sabet after the sale to Yahoo! And hard for me to imagine that Bijan and Fred Wilson and Albert Wenger weren't instrumental mentors to David. After all, many people love their VCs but hate the industry. According to Andy
_Dear Dumb VC, it’s so painful to sit in meetings with you and hear your vision for what the company should do and what’s going to happen in the industry. _ _Just so you know, Dumb VC, the top 2% never do this. _ _They’re too busy using their superb judgment getting into great deals and bowing out graciously from the ones they don’t want to back._Not in my experience, Andy. The best VCs I know take 11pm conference calls. Meet with their teams on weekends. Broker critical introductions since entrepreneurs are often younger & newer to industry whereas the best VCs often have great contacts across decades and many deals. In my mind, the best VCs actually deliver outsized returns by "leaning on the scale" not by "deal sourcing." I had dinner last week with somebody you would consider one of the best known names in our industry. I asked him what he's learned as a VC. He said,
_"I prefer to do Enterprise A rounds and Consumer B rounds._ _On the enterprise side, I know every buyer of technology in this industry. So I can make a huge difference in the company's trajectory. And I'll know in 18 months whether we have product / market fit. But we can have a huge impact on that._ _With consumer deals you can't manufacture consumption. So I prefer to watch what works first and pay a higher price to get in when it's proven."_This rang true with me. Great VCs create the fabric of their success by backing the best entrepreneurs they have access to and then helping them to lean on the scales. This happens at acquisition time, too. The best VCs know the buyers and can help guide and manage the process. 3. VCS SPEND TOO MUCH TIME DECIDING Yes. This one is probably true. And for a good reason. Even though I know this sucks when you're an entrepreneur and just want the money deposited tomorrow so you can get back to running your businesses. Many entrepreneurs come by with great pitches and say, "I'm hoping to have term sheets in the next 30 days." If this happens to you as a VC - you're too late to the deal. Shame on you. Get to the entrepreneurs earlier next time. If you don't really know the entrepreneur through many meetings, debates and encounters - it's really a crap shoot the fund them. That's why I wrote this. Per Andy,
"I should be building the company, you should be deciding quickly whether to invest or not."If anything a "Dumb VC" would decide quickly without knowing the entrepreneur. In my opinion Dumb VCs are too worried about being in "hot" deals so they chase the hottest new trend, the fanciest, best known entrepreneur or the party round that has so many other great names attached to it that they feel they can't miss this one. The unfortunate reality is the most partners at VCs firms see hundres of deals every year and invest in 1-2 of them. After 6-7 years they therefore have 7-10 board seats, which is about all most VCs can effectively manage. A priori many deals look attractive. Post hoc it's obvious who the winners were. Ask any VC who's been in the industry 10-20 years and they'll tell you that often those that looked the best when they wrote the check didn't turn out to be the best. And vice versa. So caveat emptor to those that feel rushed into deals. Some of the most bizarre sounding deals end up being huge winners. Some of the most obvious companies and talented entrepreneurs end up not working or burning through too much capital. VCs are wise to go slowly. Even though that may not be what entrepreneurs want. 4. VCS SHOULDN'T CALL THEIR ENTREPRENEURS ONCE THEY INVEST
"Dear Dumb VC, now that you’ve invested, leave me alone! Did you know that the 2% never call their entrepreneurs?"I'll just leave it to entrepreneurs to decide on their own on this one. I call often. So I must be dumb, I guess. My view … it is my job to be a sparring partner. I want to challenge the founders view. Why? Because being an entrepreneur is a lonely job. You have to make tough decisions with few inputs and little history from which to base your decisions. CEOs can rarely express their uncertainty and doubt to others. So the VC's job is to challenge. Cajole. Debate. Offer contrasting views. Play Devil's Advocate. And then step back. And let the entrepreneur decide the course of action. Even if it is different than what you would have decided. Fred Wilson talks about this in his post about Tumblr. I seriously know exactly one VC whose policy is not to call their entrepreneurs. One. 5. VCS OFTEN DON'T USE THE PRODUCTS OF THE COMPANIES IN WHICH THEY INVEST Agree whole heartedly. I never understood investing in companies in which you didn't really understand their products. I blog. I create videos. I use analytics. I use social media. I IM and DM and SMS. I Instagram, Cinemagram and Path. I Quora. I Trello and Salesforce and DropBox and 500px. I try to live a "day in the life of" the users. It's hard for me to imagine investing in companies in which you don't use and understand the products and markets. 6. VCS SHOULD NEVER BE LATE Hard to argue with this. Nobody should really ever be late to meetings because it's disrespectful of other people's times. But I'd be lying if I didn't say I wasn't habitually late. But I have been since I was a kid. No excuse, but it turns out to be one of the most common traits of people with ADD as I found out when I read Delivered from Distraction. I wish I were better. I struggle. I try to make it up with humor, kindness, apologies and by giving more time at the end of the meeting. Many VCs are in fact late. Many entrepreneurs are, too. So are corporate executives. I have found that being on time versus being late is a personality trait more than a power play. What I hate more than anything is when people are late and then cut meetings off early. If an entrepreneur was told they have 45 minutes they should get 45 minutes. In a perfect world everybody would be on time. In reality, that is seldom the case. The best entrepreneurs don't get too worked up about this. They understand that it just is. It's hard for me to imagine that an entrepreneur who was waiting to see the CEO of their largest potential customer would leave if that customer were 20 minutes late. You might be bummed, but you'd bite your lip. So what I'm really hearing is, "VCs piss me off. So when they're late the piss me off even more." Fair enough. I pitch a lot of LPs. I have to raise money, too. Many are late. Many don't return my emails on time. Many don't commit when I want them to. I have walked a mile in their shoes so I'm a lot more tolerant about it these days than I used to be. 7. YOU SUCK IF YOU DON'T HAVE 2+ $1 BILLION EXITS. Ergo I suck. I work with partners who have seen 15 such exits. My partner Yves will have 3 in our last fund alone and possibly 4. Me? Zero. But I became a VC in 2007 and wrote my first check in 2009 - 4.5 years ago. So $1 billion exit is unrealistic for me. And as John Doerr has noted, "your lemons ripen early" so I like to say that if I had a ton of exits it would be because I haven't done my job as well as I would have liked. Most great companies start to really shine in years 7-10. I believe I have some great investments. And some that are proving more challenging. And if you call any founder I've backed - good and bad - they'll tell you I don't quit easily. I'm on their side good times and bad. I am seeing some companies like Maker Studios and DataSift where the growth has been faster and more impressive than any companies I ran. And while all companies have challenges - I am inspired by their progress to date. IN SUMMARY I was an entrepreneur previously. I know the frustrations. I am now a VC. Not yet for as long as I was an entrepreneur. I spend significant amounts of time with VCs now that I have gone to the Dark Side. I have more empathy than I once did. I see the hours and hard work put in by my peers. I see how much time they spend on the road away from their families. I see them on conf calls at any hour - even from vacation. It's hard being an entrepreneur and making money. It's hard being a VC and making money. In reality neither side is evil. It always reminds me of my time as a CEO. Everybody always thinks they can do your job because they're doing the hard work while you get to fly off to conference, speak with the press, go to fancy board meetings & dinners. They think it's easy - until they have to do it. VC is a bit like that, too. From one of you. Now on the other side of the table. BTW, I think a more humorous attack our industry's behavior was done by this hilarious video done by my friend Dorrian on YouTube recently Dunce photo by PaperDoll Dreams on DeviantArt