How to Manage a startup

Discussion in 'Making Money' started by vinayamb25, Jan 19, 2012.

  1. vinayamb25

    vinayamb25 Registered Member

    Nov 14, 2010
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    Hello everyone,

    Note to Moderators: I didn't find any other section apart from this, more appropriate to discuss startups and the business models we should adopt. If you guys feel this thread should be somewhere else, please relocate it. - Thanks

    As the title suggest, this thread is solely dedicated to discuss the business models which we startups should consider and to share the knowledge and resources which would give every startup or an established one present in BHW, a food for thought.
    Here is the my share:

    When has a consumer startup hit product/market fit ?

    This post is part of my recent 2011 blogging roadmap post, where I created an outline of going from zero to product/market fit. Getting to this endpoint is obviously a good goal in theory, but question is, what does it even mean to hit this goal?

    The original definition
    In Marc Andreessen?s original post on the topic, he writes:

    Product/market fit means being in a good market with a product that can satisfy that market.

    You can always feel when product/market fit isn?t happening. The customers aren?t quite getting value out of the product, word of mouth isn?t spreading, usage isn?t growing that fast, press reviews are kind of ?blah?, the sales cycle takes too long, and lots of deals never close.

    And you can always feel product/market fit when it?s happening. The customers are buying the product just as fast as you can make it ? or usage is growing just as fast as you can add more servers. Money from customers is piling up in your company checking account. You?re hiring sales and customer support staff as fast as you can. Reporters are calling because they?ve heard about your hot new thing and they want to talk to you about it. You start getting entrepreneur of the year awards from Harvard Business School. Investment bankers are staking out your house. You could eat free for a year at Buck?s.

    His partner, Ben Horowitz, follows it up with a bunch of other observations about the fact the event isn?t a ?big bang? kind of event ? instead, there?s lots of gray area as your product starts working for the market: I?d encourage everyone to read his subsequent post here.

    So the short answer is, there?s no easy test.

    Now given that caveat, I?m going look at this through the lens of consumer internet to add some additional thoughts.

    What is a market anyway? And how do you validate it?s real?
    How do you even define a market for consumer internet? Ultimately, I concluded that the most useful definition of ?market? is 100% consumer-centric. Here?s an attempt at a simple definition, focused on consumer internet:

    A market consists of all the consumers who can search for and compare products for a use case they already have in mind.

    This definition is very focused on the notion of pre-existing demand for products in your market, and is scoped narrowly to avoid confusion.

    The most concrete test of pre-existing demand is using the Google Keyword Tool, which tells you how many people are searching on Google for a particular keyword. To try this out, you?d execute the following steps:

    What keyword do people search to get to your site?
    Put those keywords into Google Keyword Tool
    How many people are searching for this keyword?
    If the answer to #3 is large (millions or more), then you have a large market. This test is very concrete, and also very finicky. By design, terms like ?vacation package? score high on this test, whereas ?travel experiences? do not, even though an educated entrepreneur or investor might abstractly group them together. Similarly, by design, a person who?s building a ?social network for musicians? might be inclined to list the # of musicians in the US as part of their market sizing, but under this test, you?d quickly see that there?s not too many people are specifically looking for that. Also interestingly enough, you?d never say there was a ?Photoshop market? but a quick search will show that in fact almost 40 million searches per month on ?photoshop,? and it might be a great strategy to position yourself relative to that keyword.

    Validating that you are part of a pre-existing market comes with all sorts of benefits, which I?ll address in later posts. But for now, the most important benefit is that you know the # of potential customers is large.

    (In general, I?ve been constantly confused about how to even define a market in consumer internet, given that there?s so much similar featureset between otherwise very different products. For example, early on, people talked about ?social? as if it were a type of site, whereas now it?s seen as an aspect for all new products coming to the web. Similarly, people sometimes talk about ?Facebook apps? as if it?s a market when, again, it?ll probably just end up an aspect of every new online service.)

    What?s a great market?
    What are other attributes that make a market attractive? For consumer internet, a great market is commonly defined by:

    a large number of potential users
    high growth in # of potential users
    ease of user acquisition
    Not competition, in my opinion, because for consumer internet there is often literally billions of potential users, and you?re mostly competing against obscurity. So even if there?s a ton of competition, if it?s easy to acquire consumers to your product, that?s great! Then get a good enough product, and you?re ready to go.

    Not monetization, in my opinion, because making money is pretty straightforward. You can throw on some ads and get $0.1-$1 CPMs, or you can charge subscription rates and get 1% to convert, or you can do the virtual goods thing. The biggest risk in all of these monetization models is really about whether or not you can get millions of users or not.

    Picking a great market leads to better products
    Leading with a great market helps you execute your product design in a simpler and cleaner way. The reason is that once you?ve picked a big market, you can take the time to figure out some user-centric attributes upon which to compete. This leads to a strong intention for your product design, which drives a clean and cohesive UX. In a market of all black Model Ts, you can sell otherwise identical cars of different color and that?ll work. Picking the right attribute is it?s own topic though!

    The important part here is that you can usually pick some key things in which your product is different, but then default the rest of the product decisions. This means that your product?s design can be more cohesive because you?re trying to do less, but better.

    Once you?ve executed your product, then there are various ways to validate that it?s ?good enough? and your product fits the market:

    When user testing, do people group your product in with the ?right? competitive products?
    Do they understand the differentiation of your product versus your competitors?
    Will some segment of users in the overall market switch to your product?
    Are some users who?ve ?rejected? the products in the market willing to try your product?
    How do your underlying metrics (DAU/MAU, +1 week retention, etc.) compare to your competitors?
    All of the above are signals towards product/market fit. Thee above tests are interesting in that they fundamentally anchored on pre-existing competitive products in the category. In a new market, you don?t have the luxury of comparing yourself to other things.

    In future posts, I?ll try to give some more concrete metrics based on my research for what are good numbers in each of these cases, but for now, the important idea is just that in a large existing market you have more datapoints to at least say, ?my product is at least as good as the other guy?s.?

    New markets are a danger to good product design
    In fact, one of the scariest things to me about new markets is that doing great product design for them is extremely hard. It?s so unconstrained that it?s hard to do anything other than add features, see what sticks, and iterate. This is fun except that keeping a cohesive product experience is quite hard, and removing features is usually harder than adding them. So at the end, you incur tons of product design debt that never gets paid off. (It?s not a surprise to me that Apple has a history of simplifying already successful product categories, rather than inventing brand new ones from scratch)

    To summarize my main points in this essay, I?ve come to some simplifying definitions on how to validate product/market fit in consumer internet. For market, if you constrain the definition to people who know how to search for products in your category, you can develop a pretty concrete test evaluating pre-existing demand. And by leading with a market, you can develop a central design intention that leads to better product design. This in turn can then be validated by comparing your product metrics to competitor numbers, as well as user tests that focus on grouping and differentiation.

    Source: Andrew Chen Blog
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  2. vinayamb25

    vinayamb25 Registered Member

    Nov 14, 2010
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    1. How much do switching costs prevent your customers from churning?

    The time, effort, or budget a customer has to spend to switch from one product or service provider to another is called ?switching costs?. The higher the switching costs, the likelier a customer is to stick to one provider rather than to leave for the products or services of a competitor.

    A great example of designing switching costs into a business model is Apple?s introduction of the iPod in 2001. Do you remember how Steve Jobs heralded his new product with the catchphrase ?thousand songs in a pocket?? Well, that was more than a product innovation focusing on storage. It was a business model strategy to get customers to copy all their music into iTunes and their iPod, which would make it more difficult for them to switch to competing digital music players. In a time when little more than brand preferences were preventing people from switching from one player to another this was a smart move and laid the foundation for Apple?s subsequent stronghold on music and later innovations.

    2. How scalable is your business model?

    Scalability describes how easy it is to expand a business model without equally increasing its cost base. Of course software- and Web-based business models are naturally more scalable than those based on bricks and mortar, but even among digital business models there are large differences.

    An impressive example of scalability is Facebook. With only a couple of thousand of engineers they create value for hundreds of millions of users. Only few other companies in the world have such a ratio of users per employee. A company that has pushed the limits even further is the social gaming company Zynga. By building games like Farmville or Cityville on the back Facebook, the world?s largest social network, they could benefit from Facebook?s reach (and scale) without having to build it themselves.

    A company that quickly learned its lessons regarding scalability was peer-to-peer communication company Skype in its early days. Their customer relationship collapsed under the weight of large numbers, when they were signing up ten thousands of users per day. They quickly had to adapt their business model to become more scalable.
    3. Does your business model produce recurring revenues?

    Recurring revenues are best explained through a simple example. When a newspaper earns revenues from the sales at a newsstand they are transactional, while revenues from a subscription are recurring. Recurring revenues have two major advantages. Firstly, the costs of sales incur only once for repetitive revenues. Secondly, with recurring revenues you have a better idea of how much you will earn in the future.

    A nice example of recurring revenues is Redhat, which provides open source software and support to enterprises based on a continuous subscription basis. In this model clients don?t pay for new software versions because it is continuously updated. In the world of Software as a Service (Saas) these types of subscriptions are now the norm. This contrasts with Microsoft, which sells most of its software in the form of licenses for every major release.

    However, there is another aspect to recurring revenues, which are additional revenues generated from an initial sales. For example, when you buy a printer, you continue to spend on cartridges, or when you buy a game console, you?ll continue to spend on games. Or have a look at Apple. While they still earn most of their revenues from hardware sales, the recurring revenues from content and apps is steadily growing.

    4. Do you earn before you spend?

    This one goes without saying. The more you can earn before spending, the better.

    Dell pioneered this model in the computer hardware manufacturing industry. By assembling on order after selling directly they managed to escape the terrible inventory depreciation costs of the hardware industry. Results showed how powerful it is to earn before spending.

    5. How much do you get others to do the work?

    This is probably one of the least publicized weapons of mass destruction in business model design. What could be more powerful than getting others to do the work while you earn the money?

    In the bricks and mortar world IKEA gets us to assemble the furniture we buy from them. We do the work. They save money. On the web Facebook gets us to post photos, create and participate in conversations, and ?like? stuff. That?s the real value of Facebook, entirely created by users, while they simply provide the platform. We do the work. They earn the sky-high valuations of their shares.

    Previously mentioned Redhat crafted another smart business model based on other people?s work. Their entire business model is built on top of software developed by the open source software development community. This allowed them to substantially reduce their development costs and compete head-on with larger companies like Microsoft.

    A more malicious business model in which others do the work is the one practiced by so-called patent trolls. In this model patents are purchased with the sole intention of suing successful companies to extract payments from them.

    6. Does your business model provide built-in protection from competition?

    A great business model can provide you with a longer-term protection from competition than just a great product.

    Apple?s main competitive advantage arises more from its powerful business model than purely from its innovative products. It?s easier for Samsung, for instance, to copy the iPhone than to build an ecosystem like Apple?s appstore, which caters to developers and users alike and hosts hundred thousands of applications.

    7. Is your business model based on a game changing cost structure?

    Cutting costs is a long practiced sport in business. Some business models, however, go beyond cost cutting by creating value based on a totally different cost structure.

    Skype, for example, provides calls and communication almost like a conventional telecom company, but for free or for a very low cost. They can do this because their business model has a very different cost structure. In fact, Skype?s model is based on the economics of a software company, while a telecom provider?s model is based on the economics of a network company. The former?s costs are mainly people; while the latter?s cost include huge capital expenditures in infrastructure.

    Similarly, Bharti Airtel, one of the world?s largest mobile network providers, has substantially modified its cost structure by getting rid of their entire network and IT. By buying in network capacity on a variable cost basis from a consortium around network equipment manufacturer Ericsson and IBM, they can now offer among the lowest prices for mobile telephony globally.

    Redhat, which was mentioned previously, also built its business model on a game changing cost structure: by smartly building its own model on top of other people?s work.

    8. How does your business model design perform?

    Of course no business model design scores a perfect 10 as to every single one of the above questions. Some might even succeed in the market without scoring well at all. However, by asking yourself these questions and by scoring well on at least some of them you are very likely to substantially increase the long-term competitive advantage of your business.

    Source: The BLN
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  3. Mr. $EO


    Jan 9, 2012
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    Mind sharing the exact url on where you found this? Thanks.
  4. cyanide77

    cyanide77 Newbie

    May 25, 2009
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    Home Page:
    We are currently launching a startup right now and this information was very informative.

    BTW, do you recommend any websites that cater to the entrepreneur in all of us? I read VentureBeat / TechCrunch / Mashable but I would love a place that is meant for tips and advice for launching startups, getting new customers, and overall startup building.

  5. Winchester

    Winchester BANNED BANNED

    May 5, 2010
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  6. vinayamb25

    vinayamb25 Registered Member

    Nov 14, 2010
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    Thanks for appreciation.
    Instead of following any particular website, I would recommend reading two books: "Eric Ries's book: The Lean Startup", you can easily find it in pdf format, let me know if you need it.

    Second one is "Made to Stick" by Heath brothers. This is one of the most interesting and simplest read I have ever had.

    If you need these in pdf or mobi format, let me know.

  7. vinayamb25

    vinayamb25 Registered Member

    Nov 14, 2010
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    One of the most frequent questions entrepreneurs ask about when they raise a little bit of money or are getting close to launching their first product is whether they should hire a PR firm.

    There is obviously no black-or-white answer, but I?ve tried everything from working a large international agency, to hiring in-house people to doing it myself. This post is a short guide to what I?ve learned:

    1. PR is a process, not an event - For starters let me say that you shouldn?t do PR around milestones. It?s a continual process. You need to take months & years to build relationships with journalists. You help them on stories, act as a source, develop real relationships, read their stories and eventually when you have news they?re more willing to have a conversation. They get pitched by so many blowhards that more genuine people who aren?t in it for just a story stand out from the crowd. I wrote about how to build relationships with journalists in this post.

    2. PR isn?t something that can be delegated ? The other thing that tech execs often want to do is to delegate the PR to their marketing person. Obviously you should have somebody that helps you research journalists, gets you meetings, pitches stories, helps prep you for interviews & helps make sure your writing is cogent. But some CEOs then try to have more junior people in the company take the interview. In a startup this is a mistake. Heck, even in a big, successful company like the CEO, Marc Benioff, still takes many of the interviews himself.

    The reality is that a journalist who?s writing a story about you ? a relatively unknown entity ? wants to hear directly from the founders and/or the CEO. You have to learn how to interact with journalists, understand how to do interviews, understand how to frame a story and get comfortable with the fact that if you want PR coverage you?re going to have to dedicate a non-trivial amount of time to it.

    I was talking a month ago with a founding team who was lamenting the fact that their competitors got way better coverage than they did when they felt that their traffic numbers were > 2x the competition. I pointed out the fact that they only ever talked to the press when the had an announcement and that it was a continual process. They seemed to understand what I was saying but not be interested in putting in the effort. Their competitors took it seriously. And as a result their competitors were able to raise a considerable VC round from well-known firms.

    3. PR on a limited budget ? So, should you use an external firm? Let?s say you?ve raised only a modest sum of money (sub $2 million) yet you still want to get coverage. In this instance I typically recommend that startups NOT hire a big, well-known PR firm. My rationale is that you won?t have enough budget to be able to get enough of the senior team?s focus.

    All too often I?ve seen senior PR people from big firms come in and pitch for new business to startups while having 22 year-olds who do all the work once it?s won. And even then this newly minted college graduate will be working on multiple clients at the same time. They don?t have enough billable hours to be able to really understand what you do or effectively pitch it. Plus, with so many other clients they will likely be pitching a journalist several stories.

    If you feel you need outside help I recommend either going with a small firm local to you or an individual who is working as their own agency. You need somebody for whom your business is important enough for them to care about the results (and they?re obviously hoping you?ll grow and become more successful). Actually, this is usually the same advice I give people about recruiters, accountants, lawyers and similar trade professionals.

    There is one carve out. There are some excellent PR firms that will occasionally take a ?strategic view? on you as a startup. Maybe they think you have a terrific background & solid investors so they?re betting you?ll become a big deal and they want to get in early. I?ve seen this model work really successfully for others. But generally I think it?s best to go small until you become larger and have larger budgets for PR.

    One successful model has been to find the uber-connected people who led the shift in PR from traditional to social media ? people like Brian Solis or Shel Israel - and work with them to drive extraordinary results relative to costs. There are a few people out there with these skills but they?re in great demand. And I know that Brian has a much broader practice now covering research, business strategy & change management.

    4. PR in house ? Equally I often recommend that teams hire somebody in-house. You can do this by hiring somebody who has multiple functions of which one is PR, hiring an intern who has PR experience, hiring a consultant 2 days / week or hiring somebody full time. Obviously this is dependent upon available budgets.

    But as I often tell teams, working with an agency (in whatever capacity) is mostly a waste if you don?t have somebody on the inside of your company who is working closely with the outside firm. You need somebody who is helping push out information on what is up-and-coming in the company. You need somebody who can react quickly to inbound journalist questions. You need somebody who is thinking laterally about how to creatively get extra attention at conferences or trade-shows. You need somebody who REALLY understands your company, its customers and its competitors. And you need somebody who is committed to keeping up your presence in blogs, social media and other online forums.

    At almost every portfolio company I work with I encourage them to think hard about hiring internal PR staff. In my opinion it?s worth its weight in gold. Whether we like to admit it or not, PR drives behavior with customers, investors, employees and competition. What is said about you publicly matters. And one of my favorite sayings about PR is, ?if you don?t define the story about you, somebody else will.? I believe in a good offense.

    5. PR with a major firm ? Once your business is scaling and you have the money to pay for a major agency I personally can?t think of any marketing budget that is more effective. A great PR firm coupled with a business that is doing meaningful things is golden. It?s the best marketing ROI in my opinion. The ability to get inches in major journals (NY Times, WSJ, The Economist) as well as your industry trade journals and tech blogs in invaluable. I can?t overstate how important it is in shaping influencers. The number of stories that I have in my career about a senior executive who read about a company in a magazine on a flight, clipped the article and then followed up directly are numerous.

    And when you work with an external PR firm you can?t keep them on a short leash, trying to measure their immediate impact one whether they got you X number of articles or Y numbers of inches. It will take them time to know your company, socialize your story with the right journalists, wait until those journalists are gearing up to write relevant stories, etc. You need to have a longer-term view on PR results.

    Some final thoughts on PR

    1. Be authentic ? Nobody likes being spun. Nobody likes talking to a robotron who spews out corporate BS again & again like a politician on a Sunday morning talk show avoiding the questions. Talk like a human. Give real answers. Show a sense of humor and humility. I notice, for example, that some CEO?s on Twitter never do anything but parrot their companies news. I find this so inauthentic. And then others will send out company info but occasionally show a human side. Always more appealing. That?s why keeping a personal blog is so great.

    2. Have a point-of-view ? Too many senior executives are risk averse when it comes to talking with the press so they tend to either be milquetoast in their responses or sit on the fence. That?s fine if you?re a senior exec at Apple ? you?ll get inches anyways. But for you as a startup you need to have a point-of-view on topics. You need to be wiling to take risks and be out-on-a-limb with your views. I?m not talking about being aggressive against companies, disparaging people or saying inappropriate things to get covered. I see too many people who do that. But be willing to have an informed view about ? GroupOn, Google doing social networking, whether apps is a better metaphor than browsers, whether Quora is really a transformational product ? whatever! In doesn?t have to be these cliched topics ? you just have to have & express opinions.

    3. Don?t cry wolf - There are companies who send press releases every time they launch anything ? practically putting out press releases announcing they fixed a bunch of bugs. And then when they have substantive news they?re surprised that nobody takes it seriously. Make sure you?re not spewing out meaningless reams of press releases. It?s OK to push out extra ones on your website or blog. It?s OK to produce a lot and then selectively push them out via different news sources. Just don?t spam people. Or when you send the good stuff it will get lost in the sauce.

    4. Get media training - One of the most useful exercises I did with a major agency was ?media training? where they taught me how to do interviews & how to handle TV. It was invaluable and has shaped my press interviews ever since.

    I?m the kind of person who likes to answer every question in detail. I feel it?s my duty to respond to every question and make sure the person asking understands my answer. The problem with this in interviews is that you can take an interview totally off course of the journalists asks questions that aren?t relevant to your story. Media training helped me figure out how to keep interviews on track and focused on the story I?m trying to communicate. They taught me to keep things simple and repeat the key points to make sure that they come across.

    Author: MARK SUSTER
    Source: Both sides of the table
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  8. vinayamb25

    vinayamb25 Registered Member

    Nov 14, 2010
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    Middle Men. Middle People?

    They exist in all forms of work and life. They're essential in helping us get our jobs done because they specialize in something we do not. They do a routine task over-and-over again all year long that we do only periodically.

    Lawyers. Recruiters. Bankers. Real Estate professionals. PR firms. You name it. And yes, VC's, too.

    We need them all. Yet a critical mistake I see many entrepreneurs make is that they hand over too much control to their third-parties. They outsource the critical negotiations and "trust their advisors to handle the details." Middle Men need to be led by you, not the other way around. And a key point is that when it comes down to "negotiations" you need to turn up your personal heat and dial back the middle man.

    Let me start with an example. I was recently dealing with a real estate agent on a transaction. We had the final terms of our agreement fairly well boxed in within a range of about 5-7% on price and within 30 days on move-in date. I obviously preferred the lowest price and I wanted the latest move-in date. I told my agent. She told me, "start with the price you want but the move in date he wants."

    "That's nuts!" I said. "Why would I do that?"

    "Because he told me that he wants the move in date to be X." She then told me that she did this for a living and she knew how to negotiate. Um, excuse me. I negotiate for a living as well. And the thing is, to her this minor "give" is no big deal. To me it's a lot of money. I don't doubt her integrity, I just think we value the outcome differently.

    I said, "If I start with your position I have nowhere to go but down. What if he accepts the date and then asks me to compromise on price? I'd rather start where I want to end up and then judge if I want to compromise based on what he comes back with."

    She way annoyed.

    If you've never read Freakonomics you need to. One thing I learned from the book is that real estate agents always sell their personal property at higher relative prices than their clients' properties. They hold out. They wait for a better offer. They're not in a rush. When they rep you, the marginal cost of them trying to get you a slightly better deal is high for them relative to settling and moving on.

    I think for most of us this is intuitive.

    I started with a personal example because I'd like you to have that mindset as we discuss the business people in your lives. Remember: they're not bad people, they just don't have the same interests as you do in the outcomes. They're balancing many clients. Small compromises are nothing to them. It's progress.

    On the property in question, I had to wait an extra 4 weeks where I might have lost the place. I was willing to wait or move on. In the end I got my exact price and my exact move in date. It just took more time & more risk of losing the deal and waiting for the next one. I was willing. My agent - not so much.

    1. Recruiters:
    I have always had close relationships with executive recruitment firms. I value the service they provide. On balance I usually prefer to recruit people from my network both in terms of saving costs as well as hiring people I know & trust. That said, there are times where you need to cast a wider net. Here's what you need to know:

    Executive recruiters are great at sourcing candidates. They have a wide set of existing relationships, they have teams of junior staff that cull databases (or increasing pile through LinkedIn), they are skilled in approaching prospective talent and they can "pre sell" your company to get the recruit to the table in the first place. This is the skilled bit that you can't effectively manage.

    They're also good at screening candidates. At least the great recruitment firms are. They know what is "market" for your recruits in terms of base, bonus & stock options.

    So you finally get down to your short list of final 2 candidates. Or maybe even your final one. Often recruiters want to handle the final negotiations on package and/or do the reference calls. I say NFW.

    First, I want to be the person looking my final candidate in the eyes and telling them what the offer is. I want to judge their reaction in person and be able to react on the fly. I know where my pressure points are - where I'm willing to give in and where I prefer not to. I want to judge whether they're really committed to my company or not.

    You can't outsource this to a recruiter. They'll tell you that it's easier for them because the candidate will talk more openly with them. They've done this 1,000 times. Yeah, that's what my real estate agent told me, too. You're the guy. Have the discussion yourself. Trust your "Blink" instincts.

    I'm also reluctant to hand over reference calling. I know that no recruiter will agree with me on this point, but I'll tell you that I'm certain there's a positive bias in reference calls. They're on the final candidate. They want to close down the search. They want to place this person. They're not going to ignore negative feedback, I'm not questioning their ethics. But I doubt they'll dig in as deep as you will in the reference checks. I doubt they'd be willing to press harder in questioning and/or be more attuned to negative signals that the reference might be implying but not actually saying.

    One tip - depending on seniority - you can sometimes hire independent reference check firms. It can get expensive so you'd probably only do it for a very senior hire. But I've found it to be invaluable. They ask really tough questions that I have a harder time asking. The reason it's harder for me is that I know whatever I ask is going to get back to my candidate. Unfortunately that's how reference checking works.

    With an independent person they ask anything they want I can apologize on their behalf. Trust me, you learn a lot more that way. VCs often do this for reference checking.

    2. Lawyers:
    So you got your big term sheet signed and you're now in the drafting. You thought it was going to be as easy as just having the term sheet transferred to a longer form document. But as it goes to the legal docs naturally 20 issues arise the require negotiations. You want the deal to close in 4 weeks. But every freakin' week there are delays in getting the lawyers to "turn around" the documents.

    Their lawyers blame yours. Your lawyers blame theirs. This seems to happen on every deal I ever work on.

    Here's the reality. Sometimes the problem is that one of the sets of lawyers has too many deals on the table and just doesn't process your documents quickly enough. Trust me, that happens. Other times it's a matter of the other lawyers waiting for feedback from their client who hasn't had time to process the issues. So much freakin' time gets lost in the back-and-forth.

    And then there's the madness. Lawyers insist on arguing with each other like sports. They have their "lawyer points" that they really care about and believe you should be passionate about as well. It's their job. I call it "arguing over semi colons and periods (full stops to you Brits)."

    Do you want to get the deal done faster? There's one way - even though everybody is going to try and resist. Get everybody in the same room for a multi-hour "drafting session." By everybody I mean your lawyers, theirs and the VCs or whoever the client is (maybe a company acquiring you). That's the only way to work through all of the issues in a timely manner.

    Why do they not want to commit to being together? I'm guessing it's less efficient for them. They have to suck up all those hours for just one client and in a large block. If they do it asynchronously they can deal with it when they have time to get around to it - often late in the evening. If for some reason your deal fall through - remember that "Time is the Enemy of All Deals" - it's not the end of the world to them. It might be to you. Your incentives for speed aren't aligned.

    In the same room, when "lawyerly" issues crop up you and the counter-party can take commercial judgments on where you want to compromise. In the same room, clients can't "hide behind their lawyers" by saying "it wasn't me asking for that." You problem solve. Everybody is in the room to hear the issues.

    Shit gets done.

    Don't let lawyers toss the ball back-and-forth. Cut out the middle man. Negotiate directly with your VC or acquirer with lawyers present in the room.

    3. VCs:
    VCs are often on your side and usually act in an ethical manner. Same as other middle men. But when hard stuff comes up at your company you want to be the principal in the negotiations. If you're raising your B round, you'll likely get huge benefit from your A round investor helping with introductions. But when it comes time to negotiating the term sheets or determining which investor group to accept - you want to be the principal in that negotiation. No "back room deal."

    When you want to sell your company one day - the same rule applies. You can sometimes leverage your VC in a "bad cop" negotiation with a buyer. You can certainly get coaching from your VC on how to play the negotiations since they do it more often than you do. I'm not saying to not trust your VC (in the same way I'm not saying don't trust your recruiter or real estate broker). But you want to be the person negotiating your deal.

    What might the VC do against your interest? For one, due to the way liquidation preference work sometimes they have "flat spots" which means that they might earn the exact same amount from a $40 million sale as they would from a $50 million sale. They might make this clear to the buyer.

    The opposite might be true. You might be willing to sell for $40 million but your VC might be telling them $50 million or nothing. It happens.

    As a VC I don't necessarily want to cede 100% of the control to you, either. I have investment money at stake so I'm a principal in the negotiation, too.

    Why do I care? Because many buyers try to skew deals so that they pay more in future incentives to employees than in purchase price for the company in order to reduce the return to investors and maximize the management lock in. I understand that thinking. But my duty is to maximize returns for my shareholders.

    We're both principals in a sale. If you trust your VC then hopefully they'll help represent your interests and be transparent with you about what the key issues are and when your incentives aren't aligned. I'm pretty explicit with my portfolio companies because I've been burned on the other side of the table. But just remember, you're your own principal. Don't cede complete control to your VC because "they're the expert" or "they have a long-standing relationship with the buyer."

    4. Bankers & PR:
    I think you get the point so I'll make the last two brief. Bankers & PR firms have multiple clients. They also have to deal with the buyer or the journalists on a regular basis for a long time. So they're less likely to push things to the line as you would be. It's back to incentives like real estate agents in Freakonomics. They want you to succeed. But they play a multi company, multi-year strategy.

    So they'll think more about their long-term relationship with the corp dev team at the buyer than you might. They'll think about what other deals they're shopping them and balance all of their clients interests. So while you definitely want their help in discussing price and getting you more information (they're better at it than you), I want a seat at the table. As an entrepreneur I have one company to sell. And possibly just one time. For them, this is just a deal.

    PR firms are the same. Highly ethical. Very customer focused. But when they're trying to get David Pogue, Walt Mossberg or Kara Swisher to write a story for you, they're also thinking about their other clients - now and in the future. The good side is that because they have many clients over a long period of time they can get you far more access to the journalists than you could get. Same with bankers and corp dev groups.

    But when it comes time for my story, I want to pitch it. I want to decide what the right "angle" on the story it (with their input, of course). I want to decide if I give an exclusive or not. I want to control my outcomes.

    In dealing with middle men you get the huge expertise they bring to bear by doing their task on a repeated basis and dealing with the same sets of end customers. I not only encourage this, but I've spent my career fostering these important relationships.

    At critical moments in negotiations your interests diverge in ways that even your service provider doesn't realize and probably doesn't acknowledge to themselves. What real estate agent do you know who actually thinks he or she sells you short? The data says otherwise.

    You have an interest in pursuing the absolute best outcome you can get. Often others have an interest in pursuing the best possible outcome they can get, without sinking in extra time, without risking ruffling feathers and without breaking conventions & norms.

    Author: Mark Suster
    Source: Both side of the table
    Last edited: Jan 21, 2012
  9. vinayamb25

    vinayamb25 Registered Member

    Nov 14, 2010
    Likes Received:
    1. Is my idea good enough to quit my job?

    2. Should I try to raise outside funding?

    3. Did I make a mistake picking my co-founder?

    4. Is it wise to take angel investing from my Uncle Larry?

    5. Do I need office space to be seen as a ?real? business?

    6. I need help. Is it ok to bring my spouse/sibling into the business?

    7. How much should I really worry about my company name?

    8. One of my co-founders needs cash to pay the bills, do we give him a salary?

    9. I?m passionate about our vision, but it?s been really hard getting users. Should I pivot?

    10. What should I charge for my product? Will I be able to change my price later?

    11. I have investor "interest", but no checks. What should I do?

    12. Someone from the early team is not as valuable as we though. Should we let them go?

    13. A customer wants to pay us a bunch of money for some custom features, what do we do?

    14. One of our competitors is getting all the publicity (and capital) -- but our product is better. What do I do about it?

    15. I keep hearing about the importance of "work life balance", but don't know any successful entrepreneur that's pulled that off. Is it a myth or am I doing something wrong?

    16. One of our board members is a real pain in the ass, is there anything I can do?

    17. How do I recruit a great product manager? What does a product manager do anyways?

    18. I?ve already tried to hire every super-smart person I know. Where else do I look?

    19. Things are going reasonably well, but not great. Should I try to sell the company?

    20. I?m no longer passionate about the idea, do I stick with it?

    21. There?s no startup ecosystem where I live. Should I move somewhere there is?

    22. How long should I work on my startup while I?m still employed by someone else?

    23. I?ve been at it for a couple of years but nothing is happening. What?s wrong with me?

    Source: OnstartUps
  10. makii

    makii Junior Member

    Oct 4, 2009
    Likes Received:
    Wow! Now that's what I call a bookmark. We're starting one here and I have to say the info came in very handy. As for employees what say you about the adage that you have to be tough on them when starting out?
  11. vinayamb25

    vinayamb25 Registered Member

    Nov 14, 2010
    Likes Received:
    1. The Idea Will Change: You probably don?t want to recruit people based too strongly on the idea you are pursuing now. As passionate as you may be about the idea, chances are, it?s going to change. The right individual will continue to be the right individual even when this change happens.

    2. Help The Best Find You: I?m not a particularly big fan of the classic recruiting channels for one simple reason: they are not that effective. It?s very inefficient to go out into the world ?looking? for that perfect new person for your startup. The odds of you finding them and convincing them to join you are slim to none. Instead, I prefer the reverse. Instead of spending a lot of time going out there looking for the perfect person, invest in activities to help that perfect person find you. For example, for my current startup, HubSpot, I haven?t been particularly good at going out and finding people. I have been good and having great people find me. This is a result of a limited set of activities: this blog, the HubSpot blog on Internet Marketing, and local startup activities I participate in. In short, in order to get the best people, you have to help them find you. This is particularly challenging, because many of the best people are not looking.

    3. What Can You Do For Them? Too many companies hire based mostly on what they think the new recruit can bring to them. This is the ?what can they do for me? line of thinking. This is not totally wrong because part of the goal of bringing new people on is clearly to ?create value? for the company. But, I think this is short-sighted. In addition to asking yourself ?what can they do for me??, also ask: ?What can my startup bring to them?? Now, many of you may jump to the conclusion that this is ?big company thinking?. Only big companies can afford things like career paths, training programs and other benefits to help develop their employees. That?s not what I?m talking about here. What I?m driving at is that you need to find ways that the new team member can benefit from your startup that they may not be able to get elsewhere. Things like greater responsibility, broader use of their capabilities (perhaps they want to do technology and marketing), expanding their personal network should they want to start their own company some day, etc. At some level, you are playing a passion arbitrage game. You don?t have the resources to give new hires all the benefits of a larger company. You shouldn?t try to. Instead, find people that are passionately looking to get an experience that only you can deliver. Then, deliver it.

    4. Specialists vs. Generalists: My co-founder and I have this ongoing debate/discussion on whether it is better for startups to hire specialists (i.e. people that are exceptionally good at one thing) or generalists (i.e. people that are pretty good at lots of things). I don?t have a good answer for this because a lot depends on the stage of the company and the specific circumstances. All things being equal (which they never are), I tend to lean towards really smart generalists in the early days because they can wear multiple hats and ?specialize? in whatever the company needs at that time. As the team grows, specialists tend to be more necessary as roles start to crystallize.

    5. Skill vs. Talent: I generally don?t advocate hiring for skills (which seems to be the way 95% of companies approach the problem). Instead, I prefer leaning towards talent. So, although the HubSpot platform is based on ASP.NET and C#, I don?t necessarily look for people that have those skills. I?d prefer finding developers that have talent whereby the actual language/platform is incidental. The best people are problem solvers and like to build elegant solutions and are not hung up on specific languages or technologies. Of course, there?s a line in the sand somewhere. I wouldn?t recommend anyone work for a company that is writing consumer Internet applications in COBOL. But, as long as the underlying platform is reasonable for the problem at hand, you should be able to find great people. In HubSpot?s case, I?m sure there will be people that will refuse to join us based solely on the fact that we are using ASP.NET (instead of Ruby On Rails, Java or whatever their learning is). That?s ok. My guess is that most (not all) of these people would not have been a particularly good fit for us anyways. I?m looking for talent, not skills.

    Source: OnstartUps
    Author: Dharmesh Shah
  12. christianbed

    christianbed Jr. VIP Jr. VIP

    Aug 17, 2011
    Likes Received:
    alert("Make Money")
    Home Page:
    Yeah, let me throw out two podcasts that are simply awesome when it comes to startup info...seriously, download 'em, they are gold:

    This Week In Startups
    This Week In Venture Capital
  13. vinayamb25

    vinayamb25 Registered Member

    Nov 14, 2010
    Likes Received:
    Starting from 0 members is hard. We don?t discuss it enough. There are many ways to start an online community. It?s easier if you already have an audience. Darren Rowse, Ramit Sethi, Seth Godin etc can launch huge online communities in a matter of days (but they spent years building up that audience first). If you don't have engaged audience, this should help.

    First decide who your community is for. Be specific. Identify real people you want in it. Then try to figure out what they really care about. Your community doesn?t have to be about your brand. It?s usually easier if it isn?t. Look at what your potential members do in their spare time, what do they spend their money on? What image do they try to portray to others? What do they talk about online?

    You probably have a rival community too. Spend time there. What will make your community unique? What aren?t they doing well? Will your community be for more hardcore members or a broader audience? Will it be activist in making change or pacifist? Will it focus on single issues within the topic or geographical regions? What will be the focus of your community?

    Next, begin reaching out to people (do this before deciding the platform). Talk to about 10 ? 15 members about an idea for an awesome community for that subject. Ask them for their expertise to help develop a community. Ask them what their dream community would be like. Ask them if they want to help build it with you. Then put them on an e-mailing list with each other (or a forum).

    Now have some conversations. Ask them things. Ask them what an awesome community must have. Ask them what what the biggest issues in their sector is. Ask them who should be in their community (and who shouldn't be). Make sure you have a stable base of 10 - 15 engaged members. This might take a week, it might take a month. But you need these stable members right now to catch the traffic later. This is how you seed a community.

    Begin messaging these people individually. Invite them to ask other experts, celebrities or perfect contributors to join the community. You want the best people they know to join.. No promotion, direct referral only. Keep it tight. Make sure the conversations are being sustained. If someone goes missing, find out why then bring him back.

    As you begin to reach 30 to 40 members, you will find that your mailing list is getting too busy to handle so many messages. It?s time to move elsewhere. Use something simple. Forums generally work best. Ning communities are cheap(ish). But there are other great platforms around too. Research a few. Facebook is simple, but risky. Ultimately, use a platform that your audience knows how to use.

    Keep your focus on high engagement per member. Spend time talking to lots of members individually. Plan things together. Plan events. Write joint statements about relevant issues. Keep it invite only. Steady growth is good. Forget a launch day and celebrate milestones.

    Begin discussing people in the community. Make sure people are talking about each other?s achievements. Peer groups are important. Gradually people will begin to hear about the community and join. Relax the invite-only status and let others apply to join the community.

    Schedule your first meet-up. Make regular meetings a habit from the beginning of your community. Collaborate on a joint constitution for the community. Work together on a purpose (if you want your community to go that way). Ask others to help run the community. Appoint a new business volunteer to find ways to add value and make money from your community.

    Once you have that steady base of members, ideally around 100, begin to promote it. Don?t grow too big, too fast. Write to relevant media and trade press. There are plenty of awesome promotional ideas. Just remember ? after a point the level of participation decreases with every new member.

    Finally, to keep participation incredibly high, begin to break your community apart. Highlight the most common topics and spin them off to their own areas within the community. Put the most active people in the topics in charge of these areas. Watch it grow. Arrange your first meet-ups and events. Invite guest speakers to join your community to discuss topics, work on a cause or achievement the community can aim for.

    Source: FeverBee
  14. vinayamb25

    vinayamb25 Registered Member

    Nov 14, 2010
    Likes Received:
    You Manage What you Measure

    One of the things I discuss the most with the portfolio companies I?m involved with is that ?you manage what you measure.?

    It?s a very important concept for me because in a startup you are constantly under pressure and have way too many distractions. Having a set of metrics that you watch & that you feel are the key drivers of your success helps keep clarity.

    And the more public you can make your goals for these key metrics the better. Make them widely available inside the company and share your most important goals with your board. Transparency of goals drives performance because it creates both a commitment and a sense of urgency.

    Commitment & urgency are key drivers of success in startup businesses.

    You already know it from your personal lives. The surest way to run a marathon is to tell everybody you?re going to do it (transparency). Even better is to tell them which race you?re going to run in the near future (urgency). The best yet is to raise money from them for a good cause ? then you?re SURE to run it (commitment). Nobody likes to raise money then look like a loser.

    I ran my first marathon in London this way in 2003 raising $3,000 for Parkinson?s disease (and finishing in under 4 hours ? my publicly stated goal). FWIW my private goal was 3:45 but I missed that.

    I know with the recent emphasis on measurement form Dave McClure & Eric Reis you?d think everybody is measuring. My experience has proven that even some well known companies are under-whelming in this department. Or they go in the opposite direction and spend too much time capturing & measuring data that isn?t used to make management decisions. This leads companies to stare at data but not be able to see ?the forrest from the trees.?

    On measurement

    I was recently talking with a startup company who wanted me to try their product. They have a mobile app and I felt like it crashed too much for my liking. In our next meeting I asked them how often it crashed. Only one guy in the room knew ? their tech lead.

    He told me in some combinations of device / OS / network they are crashing 4 times per 100. I?m a big believer in product stability & performance before adding too many features. Once you churn a user due to stability or performance problems it can be hard to get them back.

    4 times / 100 means if a customer uses your app frequently (say 10-20 times / day) then they are crashing nearly every day. That?s not acceptable.

    But what is industry standard? Is it 4/1,000? 1/1,000? And given your stage of development you sure better at least know what your goal is. All applications crash and this is especially true in the nascent mobile world where dealing with device types, OS?s & networks adds one hell of a configuration management problem.

    What I know for sure is that if you don?t have a stability goal stated for the company and if you don?t regularly measure how you?re doing against this goal you won?t have your resources focused on the right priorities in the company.

    Most companies have some measurements, but I would argue that people often measure the wrong stuff, measure with the wrong precision (either too high-level or sometimes too detailed to draw conclusions). I see this more often than I see good practices.

    The best way is to start by asking yourself at management team level: what are our company objectives and how do we best measure them? Because it can be hard to define or agree company objectives at an early stage I believe most people avoid them.

    Don?t. If you change your company objectives or measurements later that?s fine. In fact, I would argue that if you?re producing charts that nobody is reading or acting on you?re probably measuring the wrong stuff.

    And if you?re not meeting as a team to discuss these metrics and have a regular debate about how you?re doing and what needs to change then I can assure you that you?ll never reach your destination. You?ll have no idea when you?re off course.

    You will likely have multiple sets of metrics you keep depending on the company?s stage, one?s function in the company and level. For example, I highly recommend a set of board metrics that the CEO communicates to board members at every meeting. With a set of metrics the board can keep know whether the company is tracking to its objectives.

    Here are some measurements I think about. How you implement them will obviously depend on the type of company you are ? there is no ?one size fits all? approach but there are pretty universal measures.

    1. Customer Acquisition
    At the highest level you?ll obviously want to track how many customers your adding every month (and for some businesses that have hit scale this is measured on a daily basis). If you can break this down by channel that you?ve acquired them from this is obviously better.

    How many adds came through organic SEO? How many through affiliate deals? How many through SEM? Do you have a customer referral program? If so, make sure you can track which leads come from this. Measuring viral adoption is obviously important.

    Usually you have a catch-all bucket for ?direct? or similar that often came through PR or word-of-mouth.

    If you have multiple versions of your product, how many are web vs. mobile? How do the mobile customers break down by device type?

    The next step after measuring the customers you?re adding is to add the ?cost to acquire? by channel. This is important because it will later tell you whether you have a scalable business or not. In the early phases if you can?t acquire customers cost effectively enough you?ll need to diagnose why and how to fix it.

    Make sure that you count the ?true? cost to acquire customers. For example, if you have developers, content people or SEO folks working on SEO programs you?ll need to allocate their time / costs to this effort. SEO is seldom ?free.?

    It mind sound obvious but if you?re paying $1.50 per click on an SEM basis this is NOT your cost to acquire a customer ? you need to add conversion rate. I see this mistake all the time, actually. So if you convert 12.5% of the people who click on Google paid links then your true cost to acquire is actually = $12 ($1.50 / 0.125).

    Now you can two levels to get your cost-to-acquire down. You can find out how to more cost effectively buy search terms (i.e. lowering $1.50 to $1.10) and you can focus on improving conversion (i.e. increasing conversion from 12.5% to 18%). Those two things together would lower your acquisition costs nearly in half to $6.11.
    Stating the obvious, but if you don?t have very clear metrics on how much you can make from a person who converts into a customer you sure better not be spending $6.11 per customer! That?s for people with very clear monetization results from customers.

    Ironically, there are times where it may actually pay to INCREASE your customer acquisition costs. In a fast growing market where you have clear monetization that greatly exceeds your cost of acquisition then increasing your average acquisition costs can have two clear advantages: 1) you pick up a lot of additional customers that were falling off due to not buying enough ad inventory and 2) you make it harder for less optimized companies in the market to compete.

    I suspect some of this is going on at GroupOn & LivingSocial right now. Their monetization is so sick (LA speak for good ) right now that it?s hard to compete with them customers ? you have to have more clever sources of customer acquisition.

    I?m guessing this was also the case over the first few year?s of Zynga?s growth on Facebook. Once they knew how much money they could make with virtual goods / customer then they seemed to buy up much of the Facebook ad inventory.

    2. Retention / Churn
    Measuring customer acquisition is clearly not enough because not all customers stick around. This is especially true in the mobile space where apps are either free or cheap. At 99 cents they?re disposable.

    Most people under estimate the challenge of winning ?share of mind? the least understood concept with tech entrepreneurs. Everybody thinks if I build this cool app people will come and use it. Sure, but will they still be using it in a year? In 6 months? In 3 months?
    The biggest limitation we tech consumers have is our time. How many social networks, picture sharing sites, new aggregators or blogs can we really spend time on? It has to come from somewhere. You need to win share of mind.

    But there are other reasons people churn ? low product quality, inability to understand the value of the product, costs, competitive products, etc.

    You need to start by measuring your ?churn? or attrition. I like to break this down into to buckets ? immediate (think almost like a bounce rate on a website) and other churn. In the mobile world many apps are downloaded but never used or perhaps only used for one day.

    This type of churn is likely different from garden-variety churn and therefore ought to be measured separately because the remedies are likely to be different. Fixing a problem with somebody who downloads your app uses it once and churns versus somebody who quits after 30 days are clearly very different resolutions.

    Make sure to poll your users to find out why they?re churning. The majority of churn isn?t that your app gets deleted, just not used. If you could message to a subset of these users and ask them why they didn?t use your product you will probably learn a lot. One suggestion I give is to message them with a $5 Starbucks gift card. Many people will give you a small bit of time in exchange for a small gift

    3. LTV
    The other obvious measurement is the ?lifetime value of a customer? or LTV. Clearly in the early stages of your company you?ll have to estimate this because you don?t know how long each customer will stick around for or how your monetization will change over time.

    Many times of businesses can get away without measuring this in the earliest phases but nonetheless it?s good to have a goal. If you plan to spend any serious amount of money on customer acquisition you sure better have a handle on LTV (or estimated LTV).

    4. Revenue Metrics
    Revenue metrics are one of the first things I ask for from the startups in which I invest. I like to think of revenue drivers. If you?re an ad business, for example, you?ll want to measure things such as: impressions served, fill rate and eCPM (effective costs per 1,000 views).

    Once you have a baseline then we can have a discussion every month about those three drivers: how are you doing at getting your impressions up, how are we doing on fill rate, and what is our eCPM? They are each independent components with different actions to improve performance.

    And they are revenue drivers in that simplistically impressions x fill rate x eCPM equals revenue. At the highest level (and with a board) these are great metrics to keep focused on.
    As you get more granular you?ll start to break down premium inventory vs. remnant and you?ll measure ?custom buys? (sponsorships) versus standard. Once you ?bucket? your revenue into different types you can have more intelligent conversations.

    An example might be, for a mobile app company:

    35% of our revenue is coming from home page take-overs, we allow 2 / day
    40% of our revenue is coming from remnant banner ads served by ad networks
    10% of our revenue is coming from direct sales of our banner inventory
    15% is coming from in-app product sales (25% of these with cash, 75% with ?incentivized offers.?)
    Now we can have an intelligent discussion about the size & shape of your business.

    Should we increase home page take-overs to 4x / day? Or will that ruin the user experience? Or should we be lowering it to 1x?
    If we increase home page take-overs, can we reduce our total banner ad inventory to improve the user experience?
    If we?re getting $1 eCPMs on banners sold through ad networks, could we focus on getting our direct fill rate up in stead where we get $15 eCPMs?
    What would that take? How many people would we need to hire? How long would it take for us to recover their costs?
    Metrics drive more intelligent conversations about your business amongst your management team, with investors and with knowledgeable advisors. No metrics = high level, more generalized advice.

    5. Quality
    Already stated above but know what you?re shooting for in terms of load times, crashes, known bugs, etc.

    6. Salesman Metrics
    I don?t want to go in depth here because it could take a whole blog post, but if you?ve got direct sales teams make sure to have performance metrics in place.

    It?s obvious stuff you?ll want to measure: revenue / sales person, leads, win/loss ratios, etc.

    Just be careful because nowhere is it more true that ?you manage what you measure? than in sales. If you start measuring calls / day, call length, meetings / week, etc. and especially if you make the results public then you?ll notice a change in sales person behavior.

    If you measure the above metrics and believe they are the right ones for your business ? great. But in some businesses call volumes might incentivize your reps to get off the phone quickly, which in some businesses is the wrong strategy.
    So start having the discussion with your teams and your boards what the right objectives of the company are and what are the best data to measure them. Don?t wait for others to give you the recipe ? you?ll be waiting for a long time.

    Source: BothSidesOfTheTable
  15. vinayamb25

    vinayamb25 Registered Member

    Nov 14, 2010
    Likes Received:
    Here are 10 points:

    Introductions matter. Josh Kopelman of First Round Capital says that the person introducing the entrepreneur is a big deal -- if he doesn't trust the referral, he won't even take the meeting.

    Keep it short. Rothrock has seen more than 10,000 pitches, and the best ones are short and to the point. Kopelman also told about his successful pitch for, which gave users an online marketplace to sell used books -- he simply asked how many people had read a book by a popular author. Nearly every hand went up. Then he asked how many wanted to read it again. Nobody raised their hand. Done. The rest was details.

    Answer questions quickly without getting defensive. Both Rothrock and Bill Maris of Google Ventures said that entrepreneurs need to answer questions quickly and simply. VCs are trying to assess risk, and if you don't help them, they can't help you. Maris is particularly turned off by people who get defensive during Q&As -- he ends up concentrating on their attitude instead of the company.

    Be a good storyteller. Kopelman says that most successful entrepreneurs are great storytellers -- they have to be able to get investors to believe in their crazy idea, then convince employees to sign on and press to write about it. Senkut agreed -- it's easy for entrepreneurs to inspire their first few employees with stock options or founding titles. But inspiring the 50th or 100th employee requires a great story.

    Avoid buzzwords. Lots of buzzwords are immediate death, says Kopelman. As he put it, he didn't pitch by saying it was an online peer-to-peer marketplace for monetization of underutilized printed matter assets (or words to that effect). If he had, it wouldn't have worked.

    Know the people you're pitching. Rothrock said that entrepreneurs should know everything about the VCs they're pitching to -- where they live ("as long as you don't drop by"), their dog's name, their hot button issues. Senkut agreed -- do your research and try to make personal connections.

    Don't forget the financial info. This may seem obvious, but Rothrock said that he sees a lot of pitches with no financial information about the company. Big mistake.

    Think big or don't bother. Howard Hartenbaum of August Capital points out that VCs need to be convinced that they're investing in a company that has the potential to be huge. A business might be perfectly successful if it gets to $80 million in revenue in five years, but it won't help the typical VC fund return its investors' money. If you can't convince yourself that your company has huge potential, seek money elsewhere.

    "Stay in touch" means "no." So says Maris.

    Forget saving the world. One audience member asked whether the VCs give a little slack to startups that are trying to do good. "I discount them," said Maris. It's not that VCs are all individually callous -- although some are -- but their job is making good investments for their limited partners. For this goal, there's only one fair way to measure the value of a company, and that's the discounted value of expected future cash flow. There are other sources of funding, like the Gates Foundation or, for companies that are more socially oriented.
    Apart from giving pitch advice, the VCs also debated whether Groupon is overvalued.

    Maris was skeptical because the company was built so quickly -- he also noted that VCs don't bet on any single stock, and neither should individual investors.

    But Hartenbaum was more bullish, noting that the press often becomes jealous of tremendously successful companies, and Senkut (who has a small stake in Groupon after it bought one of his companies) noted that the fast growth and fact that the business model has proven repeatable in every country where it's been tried are reasons for optimism.

    Source: Business Insider
  16. vinayamb25

    vinayamb25 Registered Member

    Nov 14, 2010
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    Google founder and CEO Larry Page has said this: "Even if you fail at your ambitious thing, it's very hard to fail completely. That's the thing that people don't get."

    I've found that all too often, founders overlook this. The start-up landscape is littered with examples of less ambitious things people don't want. That's why on the first day of entering Y Combinator's start-up incubator program, each entrepreneur accepted is given a simple gray t-shirt that says: "Make something people want."

    An even better mantra for start-up entrepreneurs, I propose, would be: "Make something a lot of people want a lot."

    If you're going to create a product or service, consider these two simple things:

    1. The severity of need addressed by your product or service.

    2. The number of people who have that need.

    The best?and often the most successful?ideas service a huge need for a huge number of people. These are highly profitable as Internet treasures. They practically sell themselves?and grow customers organically. They're viral because everyone who encounters them tells everyone else about this great new thing that makes your life better. The cost to acquire users can often be very low. Most of roaring wealth-engines we associate with consumer technology fit this scenario. VCs and angels jump out of bed in the morning with the thought that these ideas are out there to be funded.

    The next-best sort of start-up ideas service a huge need for a smaller number of people. These types of ideas can be highly profitable as enterprise businesses. Because there are far fewer people who need this thing, you'll need to spend more time tracking down the people who need it. This means having a sales force, with prices high enough to justify that sales force. Fog Creek Software founder Joel Spolsky explains why enterprise software is sold in this way in his essay Camels and Rubber Duckies. He explains: "There's no software priced between $1,000 and $75,000. I'll tell you why. The minute you charge more than $1,000, you need to get serious corporate sign-offs. You need a line item in their budget. You need purchasing managers and CEO approval and competitive bids and paperwork. So you need to send a salesperson out to the customer to do PowerPoint, with his airfare, golf course memberships, and $19.95 porn movies at the Ritz Carlton. And with all this, the cost of making one successful sale is going to average about $50,000. If you're sending salespeople out to customers and charging less than $75,000, you're losing money." That's a lot of zeroes to add to a price tag. Depending on just how many zeroes, some professional investors will hum to themselves over their morning coffee at such prospects.

    The next-best ideas service a smaller need, but serve a huge number of people. These are profitable, and will likely throw off enough cash to be an awesome lifestyle business. Since they're less essential to customers, though, it can be tougher to make money running one. For most founders, this is still pretty phenomenal outcome, and one that can spawn further innovation that kicks a company into the best scenario above. For investors, unless there's a clear way the small need now could become a much bigger need later, these types of ideas can be some of the toughest calls in the game.

    The yet next-best ideas service a small need for a small number of people. Not to bear the bad news, but there just isn't enough firewood around to light this kind of blaze. Often founders who tackle these types of ideas likely don't believe in their own skills enough to tackle something larger, so they try to go after something that is "manageable." Paradoxically, these ideas can sometimes be absolutely filled with competitors, since everyone else tries to do these too. These are so common that the majority of pitches investors hear fall in this category. Those meetings will conclude with two letters: no. (Actually, the good ones say no. Most will say "needs more traction" or something else that sounds reasonable in case the investor turns out to be wrong about the idea.)

    The worst ideas are the ones that don't solve a problem, or create more problems than they solve. People neither want it nor need it. Zero times zero equals zero. Many arrive on this path when they've focused too much on capabilities (i.e. "wouldn't it be cool if?") or what they want (i.e. to be rich, admired, successful), rather than what other people actually need or want. This is fixable, though. Just think about problems people have instead of cool tech or outcomes!

    No matter what your assessment of the situation might be prior to launching your product or service, the tale of the tape will be determined during the course of execution: building it and getting users. Remember that your grand idea is worthless without it being manifest in the world. As CDBaby founder Derek Sivers said, ideas are a multiplier on execution. Should you find yourself with a low, zero, or negative multiplier on the idea side, the fix is simple. Change the problem you're solving. Address a different, bigger need that more people have.

  17. britcpa

    britcpa Power Member

    Mar 25, 2010
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    defintely bookmarked as i dont have time to even think about following up on some of the links youve given us here - btw, have you posted the pdf's you mention?

    REP'd x 3
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  18. vinayamb25

    vinayamb25 Registered Member

    Nov 14, 2010
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    yeah I did.
    Made to Stick
    Lean Startup:
    Last edited: Feb 24, 2012
  19. vinayamb25

    vinayamb25 Registered Member

    Nov 14, 2010
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    Its been long since I have posted something here..
    So here is the list of best tools for any startup,some of them are really great.

    • Thanks Thanks x 1