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.

Story

When you narrate your story to your future generations, it’ll be a boring one if you keep winning all the time. That’s why you lose some battles. Believe in something that you’ll die for, get someone who will be with you till the end, fight like a maniac and you’ll win the war that matters the most. Godspeed

New world

There are lots of problems in the world. Lots of “real” problems which haven’t changed much for decades (or probably centuries). I looked around and identified five areas in which I’d put my clones to work in. [1]

a. Transport
We have got fancy cars, different models, purely electric cars, etc. but the mode of transportation is still an object having four wheels, a steering wheel & a gear. Nothing has really changed. It still takes 25 hours to fly to India from US, the commute time between SF & San Jose or Delhi to Bangalore hasn’t changed in decades. Unless it’s a road trip or a holiday or you genuinely want to enjoy the drive, transportation/commute is usually viewed as something that isn’t a good use of time. People hate sitting in the Caltrain for an hour, hate waiting at the airport and given a choice of transport that could reduce the time to travel by half, I bet a huge majority will just say ‘yes’. Nothing has really changed though but there is hope.

b. Health
Curing cancer is a separate problem but at least there should be a way to detect it beforehand. I’m not sure whether it’s going to be in the form of a Jawbone style band or something embedded in your body, but everyone should have the power to know if there are symptoms for something that’s going to go wrong so that it can be acted on quickly – not only for cancer but for every possible sickness that can affect the human body. It should be a default thing everyone in the world should have.

c. Food
It is related to the health category but solving a different problem. This is a hypothesis with a reasonable sample set (everyone I know) – The stuff we love is the most infrequently eaten because it’s usually unhealthy. If you love french fries or hot coffee or chocolates, etc. it’s usually shot down as having a high concentration of <insert-a-substance-name-here = oil/caffeine, etc.> preventing us from having a lot of it. You can afford it, you love it but still can’t eat a lot.

Why can’t we make food that tastes exactly like the original but doesn’t have any harmful effects on the body? french fries without increasing cholesterol, chocolates and coffee without affecting the heart and so on. Let people relish the taste of good food without thinking about any harmful effects and if at all something is going to go wrong, you always have the device we invented above.

People are starting to work on this, there is hope.

d. Terrorism
I cried when I saw this. [2] The motive & the plan behind it was terribly shocking to hear. It was ruthless! And know why he did it? – for fame & money.  He didn’t have a job and was convinced that his family will receive a lot money and he’ll attain fame by just killing innocent people. Economic disparities, lack of jobs, wrong information & knowledge about religion/communities, political influences has led us to this state – a horrible state where countries & people’s lives are constantly threatened. How can we stop this? to build a world where there is no fear after all everyone is a human.

When I interviewed a wildlife photographer long ago, I asked him whether he wasn’t scared of the lions & tigers in the jungle, to which he replied, “I’m more scared of humans (naxalites) than animals in the forests“. Sad.

e. Communication
There has been HUGE improvements in this area. Internet, broadband, phones & apps built on top of it (Facebook, GMail, Skype, etc.) have reduced the barrier to communication to almost zero. There is always a way to quickly communicate with your friends & family irrespective of which part of the globe they are in. However, the feeling of “touch” is still missing. What can we build to make terms such as “remote teams” or “distributed teams” or “long distance relationships” invalid? What can we do to bring the feeling of closeness, the sensation of touch?

It’s good to have a mission in life. Something you really believe in and pursue to make it work. The company I’m part of is really (indirectly) helping accelerate the rate of innovation in each of these five industries.

I am going to help construct a world where the farthest points in earth takes only two hours to travel, coupled with a great form of communication giving you the ability to “feel” the person on the other end (minimizing the distance effect to zero), eating what you want without worrying too much about your health because you know you’ll be alerted if something is wrong and all this bundled together with the confidence that you can jump onto any plane, walk on any road, go to any place in the planet without any fear.

 Notes
[1] There are people who are already working around these areas in different ways
[2] He was the only terrorist caught alive in the dreadful Mumbai terror attacks
[*] There are exceptions to every rule and possibly much bigger problems to solve but this is my view of the world.

Great ideas come from inexperience

History says it. The disruption in automobile industry wasn’t from Ford, the disruption in travel & renting industry wasn’t from the CEO of Hilton, the disruption in phone industry wasn’t from Nokia or Motorola and so on..

Being inexperienced in something gives you the liberty to question anything. There are no rules. One of India’s famous directors, Mani Ratnam once told about a shot in his film. He never went to a film school and didn’t receive any formal training from any director. In one of his movies, he had asked the cameraman to tilt the camera and put it in a weird position. The cameraman (an experienced one) said that’s not possible and it doesn’t work like that. He insisted on doing it and the shot came out beautifully. The cameraman later asked Mani on how he learnt this technique, to which he replied “Is this a technique? I don’t know about any techniques. I just thought it might be an interesting shot

The same holds true while building a company. It’s essential that the teams working on different operations should interact with each other. The best sales idea might come from a developer and the best way to plan out task deadlines and schedule might come from a marketing person.. who knows. They have no rules.

Unlearning
This leads to an interesting aspect of “unlearning”. It essentially means if you have to grow fast in your role and invent something new, you will have to be willing to unlearn what you already know. And it’s going to be damn hard to do that because the question that’ll popup immediately is, this has been working for decades, how can we change it? At that instant, I point them to this video.

Lame or disruption
So, why don’t we hire a team full of inexperienced people? we can disrupt the disruption. The risk in all these new ideas is it can either be a completely innovative one or can be totally lame.

Powerful team
In essence, a powerful team would consist of a right mix of experience and young blood, with every department interacting with another on a regular basis, and everyone willing to unlearn what they already know.