Monthly Archives: February 2016

Yesterday is irrelevant

Michael Moritz is the chairman of venture firm Sequoia Capital.

At a recent dinner hosted by Y Combinator, Michael shared the core reason behind Sequoia’s continued success as believing that “yesterday is irrelevant”.

What this means is that you can’t let your past successes or failures define what you’re going to do and how much effort you’re going to put in to what you’re doing today. Each day is a new opportunity for everyone in the world to work smartly towards whatever goal they’ve set for themselves. At the end of the day, you will either have made more or less progress towards your goal than your competitors.

If you believe that yesterday matters, you won’t work hard enough (if you see yourself as already being successful) or you won’t work confidently enough (if you see yourself as not being successful) to succeed. Only if you believe that yesterday is irrelevant will you, no matter what your starting point is, eventually succeed.

Growth frameworks

Alex Schultz is VP of Growth at Facebook. In this talk, he shares some of the growth frameworks which his Facebook team uses.

My key takeaways from the talk are:

  1. Retention, not acquisition, is what matters most for growth. Only after you’re able to sufficiently retain your existing users to justify their customer acquisition costs should you look to scale by acquiring new users.
  2. Every company should have a north star. This is a single metric that serves as the most meaningful measure of the company’s performance. And it’s not just the company’s founder who should know this metric. Everyone in the company should know this metric because this will ensure that the company works together towards the same outcome even when the founder isn’t in the room, which is most of the time. For example, Facebook’s north star is the number of monthly active users. It’s not a vanity metric like the number of registrations because Facebook believes that if a user isn’t logging into Facebook at least once a month, they’re not getting meaningful value from the product. Depending on its value proposition, each company will have a different north star.
  3. Each company has a magic moment. This is the moment at which the user recognizes the value that the company’s product is delivering. For example, Facebook’s magic moment is when a user sees their friends. This is when the user understands that Facebook is about seeing what your friends are up to and connecting with them. Once again, each company will have a different magic moment. You need to identify your company’s magic moment and get as many users as possible to experience that magic moment as soon as possible after they start using your company’s product. Delivering your magic moment will help you progress towards your north star.
  4. A viral action attempt’s success is determined by its payload, frequency, and conversion rate. The higher the action’s performance in each dimension the better, but it needs to perform very strongly on at least one of these dimensions to achieve virality. The payload is how many people a company can reach with its viral action attempt. The frequency is how often the company can repeat that viral action attempt for each person. And the conversion rate is how often someone who is a recipient of the viral action will convert to become a user. For example, when Hotmail added a link to the bottom of each of the emails which its users sent which said “Sent from Hotmail. Get your free email here”, the payload was relatively low. This is because you email one person at a time so it takes time for the message to reach everyone in your address book. However the frequency was high because the people that you do email, you likely email multiple times a day. So they see the same message over and over again. The conversion rate was also high because, prior to Hotmail, people were tied to their paid internet service provider’s email service. They welcomed the freedom to choose a free independent service.

You can watch the full talk below.

Melih Odemis from Yemeksepeti

Food ordering platform Yemeksepeti achieved Turkey’s largest exit to date last May when Delivery Hero purchased it for $589M.

Yemeksepeti’s co-founder Melih Odemis recently shared his experiences building Yemeksepeti with Stanford students taking the course “European Entrepreneurship and Innovation”. I admire Melih’s continued humility despite his success, and this humility comes across in the talk.

You can watch the full talk below.

Stripe Atlas

Stripe is one of the world’s leading payment service providers. It lets individuals and businesses accept online payments in over 100 currencies. Stripe’s customers include Shopify, Lyft, and Instacart.

However, before a business can start accepting online payments, it needs to be incorporated. This is the first step to engaging in commerce, and a requirement for many of Stripe’s target businesses. It therefore makes sense for Stripe to assist its potential customers set up their businesses as this lets them acquire these customers at an earlier stage of their lifecycle.

I believe that it’s with this goal in mind that Stripe recently launched Atlas. Atlas lets startups from anywhere in the world set up a US company, get a US bank account (from Silicon Valley Bank), get tax and legal guidance (from Orrick and PWC), and start accepting payments with Stripe.

The US is the logical place to launch Atlas because it’s the most attractive country for entrepreneurs to launch an online startup in. However, if the US launch is successful, I believe that Stripe will begin to offer similar services in other countries. After all, the benefit of an online business is that it can be incorporated anywhere in the world and yet sell everywhere in the world. Atlas will let you set up your company in the country of your choice, get a local bank account at Stripe’s local bank partner, get local tax and legal guidance from Stripe’s local partners in these areas, and start accepting payments with Stripe.

As part of the Atlas launch, Stripe shared a video highlighting some of its launch partners and the value that the Atlas program delivers to them. Our portfolio company Hotelrunner is one of these partners and Hotelrunner’s co-founder Tolga Yalcinkaya is featured in the video.

Jokes

I was recently in a meeting that was headed in the wrong direction. The participants didn’t agree with each other and the issue was important enough that neither side was ceding ground. The discussion was quickly getting emotional and participants started describing the actions of their counterparts in previous contexts that had nothing to do with the current issue simply as a way to critique the other side. The discussion was fast shifting from being about the issue to being about the characters of the people behind the issue.

At that moment, one of the meeting participants cracked a joke. Although he used the joke to make fun of himself, the joke was one that the other meeting participants could also easily identify with. It brought about a lot of laughs that diffused the tension in the room. This happened for two reasons.

First, jokes make us laugh and, as humans, the physical act of laughing releases hormones that make us feel good.

Second, when jokes take place in the presence of a group, they let you establish common ground with the other members of the group. Even if only for the duration of the joke, this common ground brings people together. This makes them more likely to be able to express empathy for each other moving forward.

Jokes don’t always work. Sometimes the issue which sets two sides apart is so divisive that the act of laughing only creates a moment of unity which disappears soon thereafter. But sometimes they work. This is what happened in this case, as the two sides felt enough empathy for each other after the joke to reach a compromise solution.

As long as there’s a chance that a joke will work, it’s worth trying.

Too much funding can kill you

Most startups feel as though they don’t have enough money. Founders think “if only we had $X, this would let us do Y and Z, and be game changing for us”. Sometimes this is true, and sometimes it’s not.

On the other hand, I’ve never heard a founder say “if only we hadn’t had $X, we would not have unnecessarily done Y and Z, and we would have been a better company for it”. But although I’ve never heard a founder say it, sometimes this is also true.

I don’t blame founders for not being able to say this. From their perspective, more money gives them an ability to pursue more projects, hire more and better talent, and acquire more customers. They also believe that they will be able to stay grounded and spend the money responsibly.

However, pursuing more projects can lead to a lack of focus which lowers your performance in each project, growing your team prematurely can lead to bloated fixed costs, and acquiring more customers can mean spending on unprofitable marketing channels. In addition, it’s the rare mission-driven individual who can stay hungry and disciplined after being given a big check. Most people default to thinking that they’ve made it.

If it’s naturally difficult for founders to see the costs of raising too much money, it’s their investors’ responsibility to communicate this. Having seen tens of companies, investors are well positioned to know how much is too much. They also have skin in the game, and are therefore properly incentivized to do what’s right for the company. There can be exceptions to this, like large funds who need to deploy a lot of capital encouraging their founders to take more money than they need, but the interests of most investors are largely aligned with those of the company.

So when an investor says that a company is raising too much, founders should listen. The ultimate decision is up to the founder. However, your investor just might be saving your company a few bucks, or in some cases, your company’s life.

Escalating the issue

Organizations have hierarchies. Work gets delegated from the top downwards and each layer reports to the one above it as it makes progress in its area of responsibility. If progress isn’t made and there’s no valid reason for the lack of progress, there are negative consequences.

So when you’re interacting with a member of another organization and you believe that the person you’re interacting with isn’t doing their job properly, it’s tempting to try to resolve the issue by escalating it to their supervisor. I’ve tried to do this, and have also been on the receiving end of such attempts.

Unfortunately, this approach rarely works. There are two reasons for this. The first is that the supervisor to whom you’re escalating the issue almost always trusts the subordinate in their organization more than they trust you, an outsider to the organization. The second is that the subordinate spends more time with their supervisor than you do so they have more time to convince their supervisor that they’re right. So even if your argument has merit, the subordinate is unlikely to see it. And even if they do, they may not be willing to take the right action as this would require that they compromise their long-term relationship with their subordinate for their short-term relationship with you.

The issue therefore remains unresolved and you end up harming your relationship with the subordinate. This makes it even less likely for you to be able to resolve the issue in the future. So you’re left in a worse position than when you started.

A better approach is to continue to work with the subordinate while nudging them to get their supervisor to weigh in on the issue. In other words, the subordinate needs to be the one who gets their supervisor involved, not you. This requires a lot more patience than escalating the issue, but it’s what you need to do so that the subordinate is to the extent possible your ally, and not your enemy, when you talk to the supervisor.

This isn’t always possible. Sometimes the issue is urgent. At other times the subordinate just won’t get their supervisor involved. So you have to escalate the issue. But more often than not our impatience makes us escalate too early. Escalating the issue should be your last resort.

Making your buyers look like heroes

I was recently meeting with one of our enterprise SaaS companies. We were reviewing the company’s performance in 2015, a year in which the company has been very successful in acquiring new customers. I asked our entrepreneur what was behind the sales team’s success. My expectation was that his answer would highlight the company’s successful sales team recruitment and variable compensation strategies, as well as the strength of the company’s product.

While these factors were part of the answer, they were not the most important factor. The entrepreneur shared that the most important reason behind the company’s sales success was that each sales team member focused on making the person responsible for their customer’s buying decision look like a hero inside their company. This requires more than just a great product. Specifically, it requires that people inside the customer company know how great the product which the buyer purchased is.

To achieve this, our startup prepares case studies contrasting the customer company’s performance on relevant metrics before and after our startup’s SaaS tool is implemented. This is something that the buyer could prepare themselves, and the best buyers do prepare this output. However, many don’t. And even those who do may not present the performance difference as clearly as our startup. Our startup knows how to best convey the uplift from having prepared the same presentation for tens of other companies.

The result of this effort is that the buyer looks like a hero inside the company. And when the buyer looks good, they’re more likely to refer our startup’s product to buyers in the same role at other companies. They become advocates for our startup and this makes it easier for our startup to acquire new customers. They’re also more likely to renew their contract when the time comes, a consequence we’ll likely observe in 2016.

If you’re an enterprise SaaS company, making your buyers look like heroes is a cost effective way for you to acquire new customers and retain existing ones.

How to make critical decisions

I wrote about Ben Horowitz’s belief that great leaders are found in an earlier post of the same name. Ben is a co-founder of VC firm Andreessen Horowitz and a very strong management thinker.

In the talk below, Ben shares his single most important piece of advice for managers. His advice is this:

“When making a critical decision, you must understand how it will be interpreted from each person’s point of view and its impact on the union of the individual views”

Ben then demonstrates how thinking this way can produce counterintuitive decisions using the examples of demotions, raises, option grants, and the Haitian Revolution.

You can watch the full talk below.

Advice for later stage startups

Sam Altman, President of Y Combinator, shared his advice for later stage startups as part of CS183B, the Stanford course he ran in 2014.

I think it’s worth listening to the full talk, but in case you’re pressed for time, here are some of my key takeaways:

  1. Late stage companies should have someone dedicated full-time to fundraising. This is less expensive than working with a financial advisor and, since the person works full-time at your company, they know and are able to present your company’s story better than a financial advisor.
  2. You should ignore almost all inbound interest from large companies. I covered a similar topic in an earlier post entitled What inbound interest from a large company really means. It may be flattering but most of the time it ends up with a low ball offer at best. If a large company is really interested they’ll make an offer even if you don’t engage them.
  3. Business development deals require building a personal relationship with the person representing the company you want to work with. Even if a transaction makes perfect sense, a purely transactional approach doesn’t make people feel good and people need to feel good to do something.

You can watch the full talk below.