pattern

I was trying to see if you can find a pattern for building a successful company? I don’t think it’s possible. If you could find a pattern that will guarantee success, you can write an algorithm to generate that pattern to ensure success.

Since, creating a successful company makes the founders wealthy, everyone will choose to take this path, build successful companies, become wealthy but… no one to consume all the wealth – that’s an invalid state. Hence, proved.

Every company is unique and has it’s own DNA. As much as you can get feedback from others or listen to founder’s talks, it’s your company and you’ve to create your pattern to make it successful.

stress

stress in a startup is generally caused because of a “failure” – something you expected to happen but didn’t, a deal not going through, not able to hire your smart friend, etc.

as the company grows, the number of parameters that could cause failure also increases. there’ll almost always something wrong at any given point in time.

one way to reduce stress in a startup is to think of a failure as a temporary loss, not a permanent one. this will not alleviate the pain but can certainly prevent after effects, a.k.a brooding over the failure instead of spending that time to fix another issue.

however, there’s a catch. to make sure that the failure is only temporary, the basic framework of running the company should be built around long term thinking. it can’t be building something now and flipping it a few years from now or thinking of ways of how you can get rich personally.

imagine the company you are building to be like GE, Goldman Sachs, etc. it has to be long term, really long term.

defensible

there’s a common notion/fear that if a product doesn’t have network effects, it’s hard to defend. the reason being anyone can copy the product and sell. i don’t agree.

when i was in high school, yahoo messenger had serious network effects and every one of my friends was on it, only to completely migrate to gmail a year later. an exact scenario repeated when i finished college – orkut to facebook.

even if your product has network effects, it can still become irrelevant. thinking deeply, the only way to make a company defensible is by building a strong team.

– a strong engg. team means a solid & a stable product where new features can be pushed fast w/o breaking
– a strong product team means a great first time user experience and beautifully designed for repeated use
– a strong sales team means the ability to understand customer’s needs and sell to the entire organization (world wide) instead of just one team

all of the above means, you attract smarter people in each of the functions in the company.

this results in unimaginable growth of the company and eventually becoming a leader like how salesforce is in the CRM space. do you think marc even cares about a new CRM that launches in the market?

it doesn’t matter whether you’re b2b or b2c. everything boils down to the team you build.

 

market size

i hate this question. how can you possibly determine the market size of a startup when the biggest companies (paypal, apple, google, amazon, etc.) have always created a market?

the market size of a startup is the entrepreneur’s ambition. kindle wasn’t on amazon’s original pitch, iPhone wasn’t on apple’s either, maps wasn’t on Google’s plan and so on..

the only way then to make a successful investment is to gauge whether the entrepreneur is determined to run her growing company for the long term – that startup is golden to invest in.

the traditional rule of figuring if the “market size” is large and taking x% share gives a $B return doesn’t necessarily create big wins.

angel vs VC

a VC cares about the percentage ownership more than the money invested;
an angel investor cares about money invested in a startup – there’s an upper cap always.
now you know what parameter you should negotiate for, in each case.

How?

  • Be ambitious and think long term
  • Be willing to be misunderstood for long periods of time
  • Be relentless
  • Work like a mad man in pursuit of changing the world – it’s hard, very hard.
  • Do good things
  • Never give up

learn

Some of the things I learnt.

  • Have a single brand for your company
  • Press releases always have bloated numbers except in a few cases
  • Be vocal about good feedback
  • Any bad feedback to your team member should be told immediately in private in as much honesty as possible
  • An absolutely great product is a must. Let’s not debate about it
  • Choose an office space that’s good and easy to reach. You’ll never find a space that everyone is happy about
  • Hire people because they believe in your mission not because you are backed by YC or a leading investor or that you’re just two blocks away from their house. It’s hard to screen this during the interview but try
  • Frugal is good and necessary but being stingy leads to bad output. Allocate $x per team member (I hate the word employee) in your budget and buy them the stuff they want
  • Keep investors updated.. always. If you aren’t disciplined to send a summary e-mail every month, keep sending ad hoc e-mails if you signup a customer or anything that’s worthwhile to share
  • Don’t worry about competitors. They can’t affect the pace at which you grow. Just keep growing
  • Referrals for hires are good but don’t attach a weight to the referrer while interviewing the person. It’ll skew the results. Interview him/her like how you’d for anyone else
  • Customer relationships are important. Signing them up is just a small step. Maintaining the relationship and making them successful is a big thing. Get someone dedicated to do that

3 metrics

A company = f(customers,product,team)

Customers love great products that solves a pain
Great products are built by great teams
Great teams in turn attract great people

There are only 3 metrics that are essential to make it happen and it’s the same for both customers and the team.

For customers/product
a. On-boarding: Is the first experience of the app impressive and successful? (define success based on a parameter that makes sense for the product)

b. Engagement & retention (they go hand-in-hand): Is the product becoming a habit for the customer? Again, you can define “habit”. Once customers are engaged with the product, the retention metric automatically grows. Your product becomes sticky.

c. Virality: Are customers able to refer other people to the product? This is by far the best marketing strategy ever.

For the team
a. On-boarding: Is the experience on the first day/week so stunning that it looks like the person is high on caffeine and excited to work?

b. Engagement & retention (they go hand-in-hand): Is everyone in the team excited to come to work and not have monday/tue/wed blues? Are they really participating in discussion about product and strategy as opposed to just finishing off todo list? A highly engaging environment where everyone’s ideas matter is such a good atmosphere to be in.

c. Virality: Is everyone in your team able to convince or refer their friends to the company?

Customers love great products that solves a pain
Great products are built by great teams
Great teams in turn attract great people

SaaS pricing

Here are some of the parameters I found to be essential when pricing a SaaS product.

Scale
When one of your customers’ doubles in size, does revenue from that customer also double? or at least 1.5x? If revenue is not proportional to the growth curve of your customers, the pricing is incorrect.

Habit
Is your product becoming a part of daily routine for your customers, at least to a certain section of people? This is important because once it becomes a habit, you don’t have to worry about churn much (the only exception being your product deteriorates in quality) because the thought of unsubscribing from your service will never occur.

This is a great stage to be in because growth is now purely driven by science & logic (put a dedicate account manager to get feedback from customers, iterate, up-sell, etc) than art.

Spreading across teams
If team X is using the product, can team Y which is performing a similar function in the company also benefit from your product? And how broad can you define the team? The broader you definition is, the better. For eg: it’s better to say your product will be useful to any developer in the company than being useful just to backend programmers.

How can you expand to be useful to all of them who perform that function? Once this is achieved, the word generally spreads quickly within teams and the land & expand strategy works beautifully within the company. Soon, your product will be adopted by the entire company and it’s a strong foothold to expand to other continents or locations as well.

Right proxy value
Some SaaS companies like Box have an advantage – the product will be used by everyone in the company. I’m guessing the time to get a commitment from a potential customer will be high but once landed, it’s smooth sailing from then. This is a perfect example of a company that follows rule #1. If you hire a new employee, you’ll need to get her a box account or else she can’t see or collaborate with anyone in the team.

But not all companies enjoy this luxury. In fact, most don’t. In that case, we should identify a reasonably proxy value to the section of people we are selling to (zendesk => customer support; salesforce => sales; interviewstreet => hiring managers) and map to the size of the company. Eg: If your product is going to benefit recruiters, then figure out the ratio of no. of recruiters : size of company and accordingly price the product/recruiter.

This is a hard one and although I’m working on some models for my startup as well, I haven’t found anything conclusive to determine an accurate proxy value.