5 things I believe about the future of E-Commerce
1. e-commerce for future markets
I hold a strong belief that the biggest opportunity in new firm and new value creation globally, exists in e-commerce, with the rise of what I call “full stack e-commerce” companies. Internet first companies that also utilize physical infrastructure but do so much more inexpensively than traditional brick and mortar due to the in house automation of space, materials, and labor via protected software. These more mature versions of their predecessors will pop up and scale specifically with new technology enabled retail brands and on demand services. They will be more difficult to build than last generation e-commerce companies and they will also be harder to replace or implode. I believe Andy Dunn is building one such a company at Bonobos for example.
Why is today the day for full stack e-commerce? Friction between silo’d horizontal business lines in retail is causing many of them to identify but not be able to react to the emergence of “super niches” driven by the first generation of consumers that have been raised entirely on the internet. The newer brands that are early winners for the attention of this generation are 360 degree brands (brands that offer not only products, but context for them via blogs, videos, and multi-media interaction). As an additional agitation, add the emergence of crypto-currencies which can extend participation to consumers in third world countries in ways not previously possible, and you have the beginnings of a very large opportunity globally in e-commerce. I believe in the next five years that major upheaval is coming to every category of physical retail and that internet first brands are going to be the winners by being built with a focus on openness, sharing, and for global participation.
I do not believe that the current generation of internet retail where the simple repackaging of CPG items and usage of the internet merely for marketing and sales takes full advantage of the opportunity that is emerging. The emerging opportunity is to innovate throughout the entire supply chain stack, with sales and marketing as just one layer in the stack.
For example: We see AgLocal as the first “internet label for meat” and we plan to do a few things not yet done. We plan to define and build extremely high brand value via openness and accessibility for farms. We plan to expand consumers choice through multiple online channel partnerships. We plan to replace the labeling system of the USDA with an experience that is rich, immersive, human and educational. We will do this by merging online sales with offline fulfillment innovation (key), and this will dramatically expand market accessibility and product availability.
The long term benefit of our existence is that we will vertically integrate the production and supply chain for meat producing farms with an open access to the middle of market.
AgLocal from the outside probably seems like a very difficult and an unsexy problem to work on, and this is exactly why we are working on it. It seems highly unlikely a startup can re-create the cold supply chain for meat. Without understanding the underlying problem it is pretty difficult to get the output value until you understand this.
If you’re going to follow us and try your hands at an e-commerce startup or tech enabled retailer, consider the following points below before proceeding further. Plan the business this way and raise capital from investors that understand the following points, and not from those that don’t (again, if you have such a luxury)
2. E-Commerce and private capital
I believe that due to the cost of inventory, operations and other factors that it is very difficult to bootstrap e-commerce and especially so with physical products versus services. Any founder wishing to startup a physical product or technology enabled retailer should know that early on they will need to consider outside capital more so than someone building a messaging or consumer SaaS product.
As such I also believe that the approach taken by outside capital towards e-commerce is a little back to front (a neophytes opinion). A lot of e-commerce businesses are raising gigantic later stage growth capital rounds from venture capital before profitability has been reached. My opinion is that treating profitability as an afterthought this late in a companies life will kill a lot of these companies that would have otherwise ascended to Amazonian heights.
Ironically, I believe that e-commerce companies in particular versus all other mobile or internet based startups uniquely face intensely high startup costs to get their engine cold started. A great many excellent market opportunities are suffocated in the crib due to the true capital requirements not being understood entirely by the founders and investors. As such not enough capital is raised early. For founders that are blessed to have traction in an early round, I would advise that you raise as much as possible and do not worry about dilution. I repeat do not concern yourself with dilution early. Get that value back later when you have built something great. I would advise you to try and make a case to your investors not to compare your capital requirements to other types of startups not in e-commerce that are raising stage similar rounds.
The problem is that no one knows which squeaky wheel actually needs all of the oil and which one doesn’t in e-commerce, so they spread the oil amongst all of them to see which one works out. This strategy has led to many opportunities left improperly explored and poorly assumed as dead markets. If I were assessing, or if I were building (We are) I would not look at early sales and marketing ability as a leading indicator of ultimate success, as a competitor can hire the commoditized knowledge of marketing and sales, I also would not focus so much on the consumer facing part of the technology and who is building that.
I would look behind the scenes at the operational roadmap and the operations talent creating that roadmap, I would also look heavily at the software roadmap and the focus on innovating deep into the retail stack in the fulfillment and supply chain, as this will be the real long term value and competitive advantage of the company. This is the advantage that a new competitor will not be able to overcome, not an initial sales bump. Sales spikes do not last. Product availability, platform lock-in of industry participants, and cash are what will outlast the ups and downs of sales. Remaking retail categories is a marathon and likely can’t be pegged as success or failure in the same ways that explosive consumer tech hits can early on.
3. How do we price? (Actual Dollars > High Margins)
Investors and founders love to understand the macro and micro profit margins of the business. I, like many of them, thought the magic 30% margin rule you always hear about was the holy grail of e-commerce! Margin measurement is of course helpful to know but in and of itself is very incomplete, and adhering to that rule early created arbitrary limitations and headaches of stress when pricing our high sticker products.
What would be more enlightening to understanding the business? The actual dollars that each sold unit contributes to the business. The contribution profile. The better of these being the dollar contributions per unit that we collect after accounting for COGS (cost of goods sold). In physical product e-commerce business the COGS are the product inventory, assembly and fulfillment costs, in a SaaS business this is the cost of software engineering.
If I am selling a low sticker item, then yes, I need those juicy higher margins to provide a contribution that feeds a timely pace towards profitability (profitability defined as: the ability to cover the monthly bills and then some with net profits) but conversely, if I am selling high sticker items, then the margin pressure is much lower and can be lower because the overall dollars contributed to the bottom line are still healthy. 2% margin on a high ticket items could be damn great if the item in question is a high priced item that contributes the dollars we need combined with acquisition growth rate that paces us to self sustainability. It comes down to the dollars contributed to cover the cost of COGS required per unit and then some, along with new buyer growth. If an average sale of an item produces enough net profit per unit to beat the clock (the time line to self sustainability vs cash out) then does it matter what margin got us to that point?
As with everything that the Wu-Tang Clan was right about, cash does indeed rule everything around me. Not metrics.
So, where does CAC/CPA come in to this equation? You can count or discount CAC/CPA in COGS if you’d like but as I will explain below I don’t actually think counting them against the cash early on tells you anything meaningful about whether you have a product that can scale profitably. A lot of founders assume they have a loser on their hands far too early making this mistake
(Caution, this does not mean that you are off the hook to find profitability, quite the opposite)
So what do I mean:
4. Pre Product Market Fit (Growth - Churn > LTV - CPA/CAC)
This is purely my opinion, but in the first six months of a products availability, and maybe for the first year, it is entirely unhelpful to treat LTV, CPA, Margins and Churn as equals. Metrics that don’t consider stage ultimately lie to the person using them. The standard e-commerce metrics are most assuredly not equally important from stage to stage and attempts to twist and contort these stats into place leads to dreadful assessments of an e-commerce businesses future viability. I actually believe CAC/CPA and LTV should be entirely discounted as a sign of whether or not the product or service being offered shows the vital signs of health and scalability during the first year. Notice I didn’t say that CPA/CAC and LTV shouldn’t be measured and understood from day one. They absolutely should. Re-emphasizing: these metrics should not drive the business strategy in the early stages or inform those running the business of the likely future trajectory. My opinion again, is that what is better to understand early on is churn, and when paired with a growth rate double its size and a healthy contribution of dollars per unit can tell a much clearer story if I’m an early team member or early investor. Why:
A. Early CPA/CAC and LTV is a phantom metric that will likely be all over the place as channels and tactics are experimented with, and thats IF we are being honest with how we are tracking these. The methods used to determine how long an unchurned user will ultimately stay around, amount to crystal ball wizardry in my opinion. Early experiments can lie to you very easily and need to be controlled over time to truly understand how each is performing. Time? Something we do not have.
B. Early CAC/CPA numbers too often end up being the big lie that founders tell investors and then once investors get excited about it, start to believe the lie themselves. This causes a deleterious effect on e-commerce companies especially as they assume what they are doing is working and fail to experiment as broadly as they would have without this assumption. There seems to be too much of a rush to say “Eureka, we have found gold in these hills”. It’s human nature. Why does this happen? Because there is undue pressure to know this number early and for some very weird reason, this number is paired with LTV as a snapshot that tells founders and investors about how profitable the business is and will be.
This snapshot is a bad one to hold up as equal to growth and dollars for two reasons. Firstly, the real cost can be, and typically is, easily gamed and obscured from investors due diligence by hiding non traditional costs that cannot be detected during due diligence, and secondly because it does not take into account fluctuations from competitors, seasonality, and rising platform costs. I think that any investor that holds up a companies CAC and LTV as the reason they invested or passed, is looking at fools gold and falling into a trap of conventional wisdom.`It’s a ballsy thing for a founder to say, but its my opinion.
C. Churn and growth rate, along with actual dollars collected are very hard metrics to game and tell you something concrete, mainly, what the true profitability window likely is. Low churn and high growth (when paired with a great contribution of dollars per unit) tells me a few things: First that we priced this either just right, or maybe even too low (great news!) Second that the pain people are switching from and to our product is real because they are continuing to pay this price to have our product/service and lastly that our users are telling other people about what they have found and those people agree.
D. Cash and user growth can also lie. Beware of stopping at the demand validation. There is another side to the coin. There are numbers and earmarks of future success that I believe are not even tracked by most. For starters, how do I know that we are building a future market that is enabled by backend tech that provides a competitive advantage that cannot be over come by mere sales one upsmanship, PR cleverness, or growth hacks. Am I building the new way and creating lock in? Look at Uber, for example. Their competitive advantage is their driver dispatch technology. Taxi drivers cannot overcome this advantage unless they switch to Uber and participate. And they are. They have created a monopoly on supply, and have replaced the entire taxi dispatching system in America. That is the real value of the company. Going back to Amazon for a minute, they are also obvious in how they have innovated in the supply chain stack. But where is it popular to see supplier activation, lock in, and chain innovation tracked in most things written about e-commerce? Not many places in my experience. I think that will change as time goes on and we learn more about what is cause such success for the next generation of full stack e-commerce platforms.
5. Product Market Fit
My theory on product market fit is that it will look slightly different in this era it will look a little different than it did in previous generations of e-commerce. I believe Amazon will remain the unchallenged king of e-commerce even in the post-Amazon era, and that it will be very difficult to topple them, much like a new search attempting to topple Google. I don’t see their overall e-commerce dominance changing any time soon, but I also believe due to the aforementioned conditions mentioned in the opening of this post that there is an opportunity to dominate huge multi-billion dollar “super niche” categories and create $1bn + companies due to the requirement of a singular laser focus to pull off these super niche category remakes. The ability to predict a winner by yesterdays Amazon standard, will not pass muster in tomorrows post-Amazon world.
I believe the first signs of product market fit will not in fact be identified as before, by strictly looking at the growth curve of profitable sales to consumers, but moreso in suppliers switching and loyalty to the new system. This in my opinion will be a significant marker that a new and better world is being created for suppliers. This will enabled a rich getting richer super network effect of monopolized supply.
In closing, I believe that e-commerce and technology enabled retail is a gigantic opportunity globally. This is especially true because it is possible for founders without engineering backgrounds to start one and succeed, due to the conditions around the commoditization of retail infrastructure, and due to the emergence of global cypto-currencies which open up market opportunities in third world countries.
Any company that endeavors to own entire retail categories from procurement to assembly to sales to fulfillment are the real opportunities for the next wave of $1bn plus valued companies. A very good early sign that your e-commerce company has potential to reach those lofty heights is that you are making real cash, that you are spinning that cash up in such a way that are tracking to cover your monthly burn with net profits within 18 months of the availability of your products.
You will have to stay tuned to see if AgLocal can cross the chasm. I think we will.
"Be naive and crazy courageous" (lesson of a great man)
"Now let’s go, take ‘em back to the plan
Me and my momma hopped in that U-Haul van
Any pessimists I ain’t talk to them
Plus I ain’t have no phone in my apart-a-ment”
"Touch the Sky" - Kanye West
This post is for early stage entrepreneurs who haven’t yet slayed the dragon and also to their teams, because without you we couldn’t do a thing. You are entrepreneurs yourselves. You are in the muddy foxhole with us.
Part of being an entrepreneur, likely the biggest part, is believing something about the world that most others do not believe, or believing that something can be produced that others think is either highly unlikely or down right impossible. In Silicon Valley they call this the “reality distortion field” as my friend Niko Cunningham taught me. This field is two faced. It is a suit of armor that allows founders to see their teams and themselves through difficult uncertain times where others would have quit, but it also has a downside of blinding founders from seeing a mistake in strategy and doubling down on it or hanging on to a bad employee too long, or even worse not knowing when to admit defeat, because after all, as much as we celebrate failure, it’s always someone else’s failure we are celebrating, never considering our own.
Most of the entrepreneurs I know are in this game because they thirst for the ups and even though they don’t admit it even for the downs that almost wreck us but end up building us in immeasurable ways. We are typically too curious by nature to avoid going into the roller coaster again and again despite the risks and the scars already acquired. Is it knowledge and smarts that bring about eventual success after failures? Those things sure as hell don’t hurt, but it’s mainly something else. The naivety and maybe even ignorance of the true underlying hurdles that we will end up facing as we attempt to prove what can be done, and then once known to us, the crazy courage to continue on anyway.
For the founder entrepreneurs
The healthiest thing to have as an entrepreneur is a friend outside of the business that is able to be both empathetic and honest. One that can also have staying power and patience to not get fatigued with the demands of being a friend to a crazy entrepreneur, because lets face it this is a marathon. These friends are often called “mentors” but what they are, are friends that are experienced and secure enough to give you advice. The good ones typically do not have a standard or bar for you to consistently meet to retain their friendship. You are never in competition for their admiration. They respect you enough to tell you painful truths, and empathize enough to know when to encourage you onward.
This past week, I lost a close friend, John Courtin, who was this sort of friend. A remarkable man. Everyone that knew him loved him and remarked on what an incredible person he was as a father, husband, son, business executive, mentor, and friend. Throughout his life John was a rowing coach at Georgetown, the Dean of the Law school at Georgetown and was also President of the Alumni Association for sometime. He ran the national entrepreneurial campus programs for the Kauffman Foundation, and sat as a board member for the most prestigious Frank Lloyd Wright restoration and preservation society. He was old school, regal, both tough and gentle simultaneously. Importantly, he understood his time here and never took himself too seriously.
I met John at the Kauffman Foundation. I came to the Kauffman Foundation in late 2009 to fill a senior role in a new organization within the foundation to expand entrepreneurship and startup programs nationally. I had and still have no college degree. Hell I haven’t even attended one. I was working in technology at a web application security firm at the time and was referred in to the interview process by a trusted friend of the CEO. After seven interviews I finally convinced my eventual boss to forward me to the CEO for the final interview. This was big because I am not aware of any employee there that was hired with no college at all and most had Ivy degrees and post graduate degrees. I got the job, and met John my first week on the job. He was part of the senior leadership team there but he took a special consideration for me.
We would go to lunch every other day. In these lunches we would talk life, business, politics, philosophy, you name it. He taught me a few things about leading a team from his crew/rowing days, and the importance of the Coxwain (the captain) and how the best Coxwains he ever knew were the best motivators, worried about safety of the crew first beyond their own safety and that they took responsibility for collisions with other boats or poor tactical decisions that led to a loss. He also taught me about Frank Lloyd Wright and how important he was to design and craftsmanship. We would talk about how crazy Frank Lloyd Wright was to believe the things that he did. That personal and business failures never deterred him.
It was the summer of 2011 and at a lunch, where I told him about a little idea I was passionate about, an idea where family farms and consumers would do business more directly via the internet. I would made excuse after excuse about wanting to startup this idea but how I couldn’t quit my nice paying job at Kauffman due to not having any savings, having a family and having two small children. John said to me in so many words, that I was one of the smartest and toughest natural leaders he’d ever met and that he knew I would do great things as soon as I got the courage to go and be a crazy Coxwain. In October of 2011 my wife and I sold all of our belongings, she moved in with in-laws while I rolled out to California with a dollar a dream. AgLocal.com was born.
Months later we raised venture capital from Andreessen Horowitz, something a family person in his mid thirties from Kansas with no college degree and who can’t write code had no business doing. I was too naive to know better and too courageous not to try anyway.
John told me later on that he was very proud of me but that he was not very surprised. I want the things that say about John to be said about me also when all is said and done. What people remember about John, and his lasting legacy wasn’t in the wealth he acquired or in his success in business, though he’d done pretty nicely for himself in those ares, it wasn’t even in the money he gave to charity (I admired him for that and I still do) but his success was mostly who he was with his time and in his treatment of those that came into his life. In a transactional world where relationships last as long as there is something to exchange, he just enjoyed who people were and who they were not and he just gave. Ironically, who he was, is the reason why he was able to become so successful in business and to maintain it. This lesson was jogged back into my memory this week on the news of John’s passing. That if every startup idea I have fails, to keep perspective. As we all chase the dream of success in business and to change the world with our ideas, I am reminded that consistently changing myself for the better is much harder then changing the world. If I can do the former the latter will happen.
For the teams that follow us crazy entrepreneurs
The one thing that helps pre market proof entrepreneurs and their entrepreneurial teams the most is to have a trust with each other to be able to confide in each other while trying to conquer the challenges. The challenge seems insurmountable and the work hours and performance requirements seem out of touch with reality. I think the word I would use is “unreasonable”. The team has to pull off things that no team has any business pulling off.
This section is a mini tribute to the team at AgLocal, because of you all I know what is possible when people band together under tough times without a whit about who gets credit and with your colleagues success as a priority. I truly have a deep appreciation for a motivated group of people can do.
We have managed to explore the intense and difficult problem of the supply chain for meat and proteins for almost three years with a little over $2m in funding. Scrappy, lean and tough is what they are.
About five months ago, we noticed terrible things about our business. It was growing, and revenue was doubling month over month. That should be a cause for celebration, but in our case it revealed some terrible truths. The fundamental economics of the business model where not sustainable in any way. I had to make a difficult call as CEO. A call that would mean letting people go, throwing away months of work by Mike and his engineers, and having to tell our investors that I was wrong, that I had indeed had a collision that had caused our boat to be off course. To reach the goal of creating a middle of the market for farmers to access and for consumers to access better products there had to be another way. I spent a stressful two weeks putting together an idea for a new approach to solving this problem. Even with an impassioned pitch, the risk was a mass mutiny of employees, loss of investor confidence, and the end of AgLocal at that exact moment. It took a sales pitch to be sure, but I pitched over the course of a week and not a single person involved flinched, not an investor or an employee. They infact did the opposite, they moved towards the new goal of helping this new approach to solving the problem with urgency.
In the course of 30 days, we wound down our New York operations, negotiated our way out of real estate there, liquidated inventory, transitioned accounts to other suppliers. Mike and his team threw away two years of code and product and started from scratch on a new product and rebuilt AgLocal to be a consumer e-commerce product, we found suppliers for the west coast, found a cold storage facility in San Francisco to ship out of, set up logistics and ops, hired two new employees, and two contractors, designed consumer packaging, rolled out our marketing and the relaunch of AgLocal happened in 30 days with essentially six people.
We had no business doing that. We did it because we were too naive not to know any better and had too much courage not to try. A tribute to what can be done with courage and naivety.
This post was dedicated to John C. Courtin, I will miss you my friend!
Tributes found here: http://jcourtin.tumblr.com/
Ben Horowitz explained
This post can be annotated on Rap Genius HERE
“They tryna blackball me, don’t wanna see me win
Hit after f*%kin’ hit, like there we go again
They say I’m underrated, I’m just misunderstood
They can’t compare to me, I wish, I wish you would”
- “Blackball” by DJ Khaled (feat. Ace Hood, Future, Plies)
There are times when you must publicly speak up about what’s on your heart, and this is one of those times for me.
To understand Ben's importance, you must first understand how Silicon Valley is run, and that is by a very specific protocol. There are kings (notable investors), king makers/fool makers (influential media), connectors (hyper networked individuals), and actors (founders) that revolve around the deals. Silicon Valley runs on the perception of those inside those deals and those on the outside looking in. If you are not properly situated somewhere in the ecosystem, then your company will not get funded or you will not get access to a hot deal that is being funded that you would like access to as an investor.
In this instance the valley is not unlike DC. The aforementioned above run their ecosystem in almost exactly the same way, and that is by using a sort of currency to get around. This currency is measured in factual insider information, publicly misleading untruthful information, favors, and the power of name brand people. It is populated by climbers and star fuckers (sorry if that language offends), and it is all about who is hot or now. It is also populated by some of the most optimistic, interesting, and bright minds in the world. Good people. Ben Horowitz, is one of these good people, and perhaps one of the most.
You must also consider culture and its importance in shaping markets and in its ability to create social stigmas and/or social acceptance. Alpha culture dictates what success “looks like”. For so long hip hop culture has been the culture of poor people. The art of beta culture. An oddity that voices the raw emotion of the poor, and that glorifies the suboptimal traits that keeps poor people from mobilizing up the ladder in society. To outsiders, that’s all it is. But by using his voice and stage to elevate rap as a useful medium for informing business, it is creating a legitimacy in the business world for this culture and those that come from it.
I have grown to form a tight bond of friendship with Ben. In the course of two years have grown to trust him immensely as one of my closest friends. I value his input immensely. I also respect what he is, and what he is not.
Ben invested in my company AgLocal in 2011, I did not know him previously to pitching him, I barely knew my head from my ass as an entrepreneur, I had no track record as an entrepreneur, I was not from the valley and did not attend any Ivy or MIT so I had no network, and there was nothing inherent or obviously valuable that I could offer to Ben. However, and this is important to note, Ben looked past all of that and decided to take me on as a mentee and subsequently helped me raise a seed for my company also.
He saw a guy from the midwest with an idea and immediately understood what I was trying to accomplish, and understood that my background was just as important to my startup as are the background of some folks who have backgrounds at an Ivy, Stanford, MIT. He went on to not only invest money but invest time in my learning and in helping me to build my network. This is absolutely antithesis to the way the valley works as described above.
The typical way that diversity is handled in the valley is that the most visible voices are publicly outspoken about how inclusive they are, and in my private experience around many of them, they are typically full of shit. They do not know anything about me and those like me or know anything about the culture where we come from, so how can they introduce this culture? If they were being honest, many of these folks would probably admit that they don’t really have a clue and don’t give a shit about it all in reality. In the opposite, Ben has spent the time and does the work, actually gives a shit and ironically doesn’t crow about all of this publicly. You never hear him talking publicly about his friends and his work in the ecosystem for applause. He just is who he is, and I learned that very early on.
At the height of the Series A crunch, my team and I went into Andreessen Horowitz to pitch an ‘A’ to both Ben and Jeff Jordan. We were a couple of months from being out of cash. After a tough but fair meeting, we thought we had landed a16z as a lead. I was way off. Ben had the unenviable task of calling me up and telling his friend, “no, we are not going to participate or lead an A round at this time”. You would think this was a hard thing, well it was, but it was also a time of great trust building between us. I felt more included as a real founder in that no, than I felt at the time he said yes to our seed round. I became a better CEO because of it.
One Sunday, Ben invited me to breakfast with him at his favorite place. Was it Los Altos or Palo Alto or Pac Heights? No, it was in the old neighborhood that he grew up in. In the east bay on the border of Berkeley and Oakland. A working class neighborhood, primarily black and Latino, you could even call it “the hood” if you wanted to. I did, and I did so lovingly. The place we went to was a hole in the wall breakfast place, everyone working or eating there was from the neighborhood and all of them knew Ben right away. He is still a regular. You see he never forgot where he came from. That morning we were joined by one of the most recognizable founders of one of the most high profile companies in the valley. He drove from the south bay to see Ben here, just to talk to Ben and get advice. Did Ben tell me and the other nobodies to leave while he listened to the hard management decisions this rising CEO had to make? No, he let us sit there and listen, and for me as a new CEO I learned a lot that day. I of course learned from the advice I heard given out, but I also learned that truly reaching the stars means never letting your earth go. Be who you are and project where you came from no matter what as it is the only thing that can help you and inform you on making the right decisions for you. These experiences are what inclusion looks like.
This is not charity, this is true inclusion.
The crux of this post is this: Science and technology related fields are becoming the primary industries for global commerce and market participation (read: dominant basis of wealth generation) and secondly that as of the writing of this post today, in the present time we happen to live, I personally believe that Ben Horowitz is the single most important person acting in the interest for the entry and participation of people of color into science and technology related professions. This isn’t to say that there aren’t others doing great things that are helping, but that Ben is the most impactful person of the lot currently.
Secondly, and much more importantly, diversity isn’t just being on the payroll and isn’t just a head count, diversity means a whole host of things more than that, notwithstanding, acceptance and adoption of culture first and foremost (culture: the music, art, and philosophy of a people)
Let’s deconstruct the common misuse of the word “diversity” as thrown around. In Silicon Valley the word means “non whites”. This is an obscuring of both data and definition. Oh great lets just count the numbers of non whites in technology companies or being funded to run them, and pat ourselves on the back, yay for people! This is an old, quick and short way of quieting any voices that clamor for honesty regarding inclusion and that rail against the charge of ”pattern matching” (it happens). The fact is that we don’t have enough black and latino founders, investors, scientists, and executives participating in the commercialization and management of technology.
The isn’t only about different faces, it is about cultural adoption, because let’s face it, birds of a feather flock together. It is far more likely that if I am into the same things you are into and wear the same clothes that you wear, and come from the same college dorm that you were in, then we likely share the same humor and taste movies and hobbies. I’m far more likely to be able to connect with you quickly, and build rapport. In the valley this translates into getting funded more easily, getting my company written about more easily, and most importantly to be able to attract the best talent as employee/co-founders. This has little to do with skin color and everything to do with skin color at the same time. Why is that? Because people consume culture in groups, that is why. From that foundation is where pattern matching (we all do it) is built. If you look around silicon valley, there are not as many black or latino’s participating in tech in the valley. This is not controversial, but what is controversial is what is really helping and what isn’t. This can’t be remedied until there is cultural exchange of some sort.
Finally and in summary, I want to explain the two things Ben is doing that are much more impactful than all of the fancy HR diversity policies, the proclamations being progressive, or participation in hipster infested SF style protests on your weekend. We don’t need more “please help a brother who is down and out” style charity. What we need is what Ben is doing. Those things are:
1. A new network.
Ben is using his power and time (and trust me he is the *only* one doing this) to build and advocating and acting on the design and construction of an authentic network that facilitates participation and adoption of the culture. I cannot stress anymore the importance of inclusion in the networks that run silicon valley. Networks equal access to jobs, funds, and deal flow, and the networks that run silicon valley are Stanford, Harvard, MIT, Google, HP, Ebay, Facebook, Apple, and PayPal. To purposefully create an intersection with these networks and a network of people of color is actual helping the situation, It is not the misguided charity so many love. It is real cultural translation and adoption. IE - opening the doors to silicon valley in earnest.
2. Cultural implanting.
The ability to implant beta culture in alpha culture and exalt beta culture as not only important but necessary. By purposefully using his influence to explain how culture described and translated in the things like music (hip hop primarily), sports and sports history, digital media, and then repurposing this culture to be seen as valuable to alpha culture in how they can and do inform good business decisions and how they create and move markets in general has taken things that were considered silly and suboptimal and even degenerative and redefined them as important culturally to the alpha culture that is running the business world, especially technology business, that as I said earlier, is where tomorrow’s dominant wealth creation is happening.
Ben's work and the work of those with him is creating authentic diversity and participation in science and technology related fields. I am not talking about filling quotas I am talking about “change”.
For that we should be all jumping into the work.
Disclaimer, I am the co-founder of a company that a16z has invested in.
20 Rules for rookies raising a round
1. Gear your mind
Understand that it will be a pretty intense process that will require more meetings than you’d like and more emails than you’d like. This is not going to be different for anyone. Raising a round is a full time job in and of itself. Get yourself prepared for exactly that and treat it like a side job that is correlated with your company.
2. Understand the game
Getting to your first term sheet is your one goal (leverage). That first term sheet is your building block for what comes after it. Ignore the ten or twenty no’s and get as fast as you can to your first yes.
3. Know why you are raising
Know and communicate clearly how much you are raising, at what valuation or valuation cap, and what that money will go towards (completing x part of the product that will help the product scale to Y, hiring X awesome sales person in your network that has Y relationships). Make sure that your goal of raising is not simply to spend money operationally, but for using money to create more. This seems like an obvious point, but I have had quite a few entrepreneurs come to me to discuss their round and explain that their round was about real estate, team morale spending, and marketing events. I can only imagine the investors they told this to cringing in their seats. Raise early to spend cash on making cash. The cash is always for something that will scale your reach and user acquisition and as such is a better path to a yes.
4. Approach cleanly
Never approach investors directly, unless you already know them very very well. Use your network and the network of your friends and advisors in order to be mentioned to investors as deal flow, then have your startup mentioned to them casually by people they trust, as a good deal with lots of interest from investors. When you do approach don’t ask initially for money. Ask for advice. The old adage is, ask for money you’ll get advice, ask for advice and you’ll get money.
5. Understand their process
You must know how slow or fast an investors diligence process is from day one so that your expectations are not out of line and so that you don’t expect to close while they are not ready to, as one investor can pause or worse jeopardize the commitments of the rest of the syndicate of investors
6. Avoid being VC research
Not all the investors are created equal. The guy you meet at the tech conference that works for the local big time VC according to their fancy card may not actually be an investor. Ask if they are a partner or at least a senior associate able to intro deals to the partnership at the firm with their own vote. Speak to, spend time with, but don’t waste an inordinate amount of time in lengthy meetings with junior associates hoping they will invest, as they usually have no such power and have little to no voice in deal review. If a senior associate tells you they are able to make investments (as can be true at times but rarely) test this by asking what investments they led and which boards they sit on. If possible ask other entrepreneurs they have invested in to confirm they have this input into deal flow and can indeed lead deals. I have met many associates that are extremely helpful and continue to be. If not for two in particular my latest round would not have happened. This advice isn’t to say that you should be dismissive to them, but to temper your expectations of their ability.
7. Investing is social science
Investors invest in people just as much as ideas. Avoid at all costs, your first meeting with an investor being a phone meeting, even if that means the meeting won’t happen for a few weeks later. Avoid this at all costs for your first meeting, because although I have had these meetings go well, they are by order of magnitude harder in every way when they are the first one and they are by phone. If at all possible have them at your office, if you have one, or on neutral ground, but if you have to do it at their office.
8. When convertible debt?
If you are raising without a market engaged product, and with light or no user or customer traction, raise with convertible notes. This will delay the valuation conversation, which invariably will not be good at such at an early stage
9. Your deck will speak in your absence
If someone doesn’t understand your business. That is your fault and not theirs. Make your deck simple, because it will likely be in front of more people than you will. You should model your deck after the simplicity of a children’s story book. Very little words, very obvious plan to win, very beautiful and enjoyable to read. It should be able to talk for you in the case that you aren’t there to explain your business. Trust me me, it will be sent around and in the race against time, can save your energy by rounding up investors for you that have seen it.
10. Make it easy to invest
Send interested investors due diligence before they even ask and have a full packet ready to send, typically you should send this immediately following the first meeting (deal term structure, advisor references, customer references, industry references, financial projections spreadsheet, investor deck, cap table, press clippings, access to a product demo, access to the code base, username and password to your google analytics/kiss metrics/etc.)
11. Create the investment window
Set an opening date and closing date for your round and state it openly with all of the investors you contact. I recommend eight weeks for rookie entrepreneurs (six if you are aggressive, three if you are a former entrepreneur that has already succeeded)
12. Get off the blocks well
Have as many meetings as you can within close proximity of each other during your opening week, with the goal of coming out of them with #2 above (one or more term sheets)
13. Avoid the “homework hole”
If an investor hasn’t committed firmly to investing if a stated criteria is met then do not go on wild goose chases and hours of homework, only to be told they need you to do more once that assignment is done. If you are going to do work, find out what for and what the rules of the game are. A failure to do this will more often than not end up in frustration. If the rules of the game are set, then it is great news and you should with all the energy you can muster go through the process they set for you. If those rules aren’t set up front, look out, you could be in for fruitless homework.
14. Get an answer!
If you can’t get a fast yes, get the next best thing, a fast no (this is a game of time, and attrition)
15. Who do you talk to?
Know who you are raising from before you even start. Every partner at a VC firm is different from each other, so it isn’t as simple as raising from XYZ Ventures just because they do deals in your space. It is knowing the exact partner, how active they are, how many boards they are on (bandwidth to do new deals) and as such is the same dynamic as meeting angel investors. You must also understand the stage that each investor is set up to invest in from seed to early to growth. The worst thing you can do is spin your wheels talking to investors that don’t invest in your space, stage, or are overdrawn and can no longer do your deal.
16. Good pass vs Bad Pass
Do not take a no personally. Some may find your idea to not be a fit with their ability or desire to fund but may have valuable advice and connections to share nonetheless. Some may not be valuable at all and may in fact be rude and down right dismissive. It is best to identify the difference between a good pass and a bad pass and to ignore the rude ones and engage the good ones
17. Coffee meeting? The death of time
Is the investor you are talking to actively investing? This seems like a ridiculous thing to have to ask. They want to meet with you and they are an investor right? You would assume they intend to invest if they like what they hear, but, you should ask if that’s really true. There are some that like to meet just to meet with no intention of investing and/or no cash free to invest. You do not need that waste of time.
18. The numbers game
Understand the ratios before getting discouraged. The rough math I use says that you will have to meet with at least five different investors for every $100k that you raise, and this is the best case scenario. In each of my rounds that I have raised more than $1m, I ended up meeting with at least and more than 50 different investors by count, and in over 100 total meetings. (AngelList and FundersClub are tools that can alleviate some of this sort of inefficiency)
19. Avoid being competitive scoop
Look at the portfolio of the firm, the twitter and linkedin of the angel to find out if they have invested in a competitor. It may very well be that they want to meet you in order to get educated for their next board meeting and to advise their company on how to outflank you or steal pieces of your model. Or it could mean that they love the space intensely and have no intent on harming you, but you must at least be aware of that there is conflict if this is the case.
20. Watch your health
Starting a company is already hard enough. Add to it raising a round and you essentially have almost physically impossible demands. Lessen your alcohol intake, tighten your schedule to ensure proper sleep and exercise, and find healthy hobbies to take your mind off of your startup. There are few things that I have done as an adult that have been more physically and mentally stressful than trying to run the company and raise a round. Both times I gained a few more grey hairs and ten pounds of excess weight that I have to end up working off afterwards.
The Lost Science: Sales Pipeline
"You got leads. Mitch & Murray paid good money. Get their names to sell them. You can’t close the leads you’re given, you can’t close shit, you are shit, hit the bricks pal, and beat it, ‘cause you are going out" - Blake, Glengarry Glen Ross
In this post I will explain why I believe old school sales is still important in this era of startup company building and I won’t stop there, I will also give a detailed response to the issue with next steps that include building a sales pipeline process that works.
So let’s start with the reason behind me writing this post. This is a response to the rise in popularity of marketing and sales automation tools. The tools are great, don’t get me wrong, but as maturity of these tools speeds up so has adoption and as such so has over-reliance. There is no doubt that the ability of these tools is immense, but has the resulting over reliance come with hubris? I think so. Has the combination of tools and sophisticated growth hacking methods created a sense in the startup community that sales as we once knew it, is dead? Again, I think this is happening. You will hear from some that lean is such a good methodology that we can even scale sales as a lean engineering process, right? … . Wrong!
The poor assumptions that undermine attention to proper relationship process:
1. There is an underlying and fundamental belief that the input engine of sales is too squishy and cannot be reliably measured or built in a scientific way. An area of obvious discomfort and subsequent devalue by an engineering dominated culture obviously.
2. The initial sales professional in a startup has a good chance of being weak, this is because they have likely been screened and hired by an engineer, who them self does not have a great grasp of what a sales professional should look like. As many believe regarding how to build teams of engineers, the first engineer in will very likely set the technical tone and the subsequent bar for technical talent for that company. It is the same with sales professionals, Ben Horowitz writes about this in his post here: http://bit.ly/104YZtV
Ben does a masterful job, as always, in explaining his points, and that post is no exception, so I won’t make this post a weak rehash. This post is more to get a little more tactical and to explain the very light science of the sales pipeline, my take on the process and methodology of managing the relationships and opportunities that makeup a companies revenue predictions, and then optimizing it. How do we measure, react, manage, and measure again what is happening to our business funnel.
If had my choice I would have titled this post, “Building the Startup Sales Machine for SMB and Enterprise focused startups: Part 1, Pipeline Programming”. But that title just simply will not work for obvious reasons.
So I write this post to help startups who are selling to SMB’s and enterprises and that are lead by very green sales people, and very few of them to boot (of which there are legion).
Beyond documentation and into action analysis
All startups that plan to go after SMB or enterprise accounts need good sales management, process, and talent. The false assumption mentioned in the opening produces a symptom. An organization driving sales via data, instead of using data as an output, a raw material to be fed back into a process. In this case, this underuse of data, of data, the kind of data that Google analytics, KISS metrics and other similar tools provide, may be one of the single biggest waste materials that a startup produces. Those are snap shots, and unless those snapshots are combined with sales science and re-fed into the system they are limited in their ability to help revenue engine develop, and as a matter of fact are harmful when used this way. Process is the Ferrari, and data is the high octane fuel.
The rule is, you can survive with great process and also-ran sales people, but you canot survive with great sales people and also-ran data or processes in place. With both in place? Well, let’s just say your odds for growth are going to be good. Nevertheless, the one thing that you can control is process, because every sales organization is going to have great sales people and stinkers. So let’s focus on pipeline first (or as some call it, the funnel)>
The first sign that you have a well conceived pipeline management program is that it forces critical inspection at every turn and begs questions like “what is missing here” and “what in the sales process could we have done differently that would have changed the negative outcomes?”
Have a core pipeline philosophy:
Mine has always been based on understanding who
is are the decision maker?No one really wins because of price. OK, I take that back, no one really wins because of value, or vision match to the objective. OK let me restate this again, it’s all of the above plus some. It’s consensus. It’s not the “silver bullet” that most sales people think wins deals. Sales processes don’t have a silver bullet even though managers tell you to look for one. The decision maker is rarely one person, it’s at least two, and some of the time three people. Yes I agree one person will ultimately sign your contract but not without the buy off of others they trust as they evaluate. Who ARE the decision maker? Stop trying to be the (cheapest/most technically sound/ easiest to use) because someone you trust in the sales process has told you that’s their goal. The truth is it’s a little of this this and little of that. If you don’t have two or three people or at least a strong case as to why there is only one person that you’ve pleased enough, then you’re likely to risk the sales process.
Despite common belief that there is a single decision maker that one must convince this is technically true but not practically true. Orient yourself via this process: *Understand that you are likely selling into a political and hierarchal environment, where business unit purchasing decisions are shared, due to the desire to deflect blame if that decision turns out to be a poor one. The process is here to account for some of the illogical and unpredictable nature of this environment’s decision process and to limit it’s negative impact on opportunities in play.
Your goal is not to be the cheapest vendor, but inexpensive enough. Enough so that person in the room that manages budgets and projects is willing to work with the other person in the room trying to deliver some sort of technical result. Enough so that this person also feels your product/service is technical enough or delivers the desired result. This is an overgeneralized example. So who
is are the decision maker then? Well, do the leg work and find out by building a process.
My methodology, explained below, is what I have used for over a decade to understand the health and subsequent prescription (vitamin vs asprin) for sales pipelines that I have managed. You do not need expensive SaleForce integrations to run this. As a matter of fact you could run a fairly large pipeline (by startup standards) by building a spreadsheets (I have a template if you would like, comment me and I will send it to you).
This system was devised to either avert a lost sale by being able to see missing pieces of the picture before they harm the sales cycle entirely or to provide intelligence on non sales related issues that have caused a lost sales cycle.
*Triangulate (CRM requirement) Open Cycle (OC)
Despite the popular thought that there is a single decision maker, the decision to buy technology from a new vendor in a large org making process in larger companies is usually to ensure that you have found the top three values and value holders in order to talk to the decision maker community. I use a formula that says OG*P + UC + I / IG =DM - the opportunity is not recognized as a legitimate pre pipeline opportunity until this triangulation formula is complete. You must understand the individual goals of all of the players in this political buying process.
Organizational Goal times Power Player plus User Champion plus Influencer divided by Individual Goals = Decision Maker.
Create fields in your CRM or spreadsheet that force you to answer all of these questions
Open Cycle (OC)
Propose and pose. The sales professional must be able to Individually summarize and confirm the desires of the triangle group verbally and give them a loose verbal proposal based on initial stated needs. Record this in your CRM or spreadsheet or where ever you’re documenting this and then go to work. Ask the tough questions as you put together your initial concept pitch. Once all are in agreement, this is an Open Cycle.
*Mature (CRM requirement) Benchmarks 1-6
Once the opportunity is active in the pipeline we must now drive it through the pipeline and understand it’s value and it’s needs while it matures. In order to rank how mature the sales cycle is you take the intelligence and knowledge about recent wins and losses and boil them down to the key questions. Wins = why and why you. Losses = the most key tough questions you asked yourself after these losses that you should ask yourself during a sales process. Write every single thing you know down and find the common themes for all of them and then find five to ten questions that are essential and make these your benchmarks. Put them in your CRM and then based on how much of the picture (or how many of the questions you have answered) rank the cycle higher and the probability of closing it stronger for each piece of the information you have. (for forecasting reasons)
Example of maturity benchmarks:
BM1 = Alignment (three fields) (Asked and answered: anxiety question / vision match / differentiators)
BM2 = Competitive intelligence information. The incumbent and the contenders. Strengths and weaknesses as specific to the changing needs of the organization you are selling. Documented in the stated and individual words of the decision group (never in context of your product)
BM3 = Buying process. You have attained complete understanding of the client purchasing process, that you are in it, are meeting it’s requirements, and understand the rules of engagement and finality.
BM4 = Client homework. Each in the client decision group has delivered at least one action item that was agreed upon at the conclusion of last meeting with that person. This item is a mutually agreed upon item that confirms product, goal fit.
BM5 = Proposal is delivered to decision group by sales. One for each person in the decision group and customized to their specific goal. Presentation date is set for same day or close to proposal delivery date.
BM6 = Presentation meetings with triangle group are successfully completed
BM7 = An answer is received and a mutually agreed upon contract is signed by client
Benchmark ranking of opportunity maturity to predictability of total revenue in forecast:
% Probability of closing sale
% Estimated predictable revenue in funnel
BenchMark completed = maturity = close
BM 1 completed = 15% (6 months)
BM 2 completed = 25% (3 months) revenue committed to quarter report
BM 3 completed = 50% (2 months)
BM 4 completed = 65% (6 weeks)
BM 5 completed = 75% (2 weeks)
BM 6 completed = 85% (1 week) revenue committed to monthly report
BM 7 completed = 100% of total estimated sale is closed
Formula: AP - C x BP + CP = WS
Aligned Prospect minus Competitor times Buying Process plus Closing Plan = Won Sale
Two final boxes to check off for later analysis of the historical funnel are:
This will be used later to diagnose why you are losing sales.
Next is a stupidly simple example of how this methodology works when trying to measure the pipelines revenue value by aggregate opportunity maturity:
Opportunity A: Acme Company: $100k - BM 3 completed
Opportunity B: ABC Corp: $100K - BM 5 completed
Opportunity C: Big Computers: $100K - BM 6 Completed
Total funnel is $300K,
Total pipeline value (by maturity) $190K
Aggregate forecastable revenue for this month: $85K
Aggregate forecastable revenue for this quarter: $135K
This is obviously a very high level over view of my methodology and not the fully fleshed out system, but if you take the principles and apply them to your culture and CRM then I’m confident there will be at very minimal some immediate marginal improvements to your sales closing ratios and general pipeline value.
If you have thoughts on this please let me know what you think in the AMA section below.
The Rookie Year
“It’s ok to think about what you want to do…until it’s time to start doing what you were meant to do.”
Dennis Quaid - “The Rookie”
I am currently the founder of a tech enabled business. I tend to periodically, if inconsistently, document my thoughts on the lessons I’m learning along the way. I also hope to potentially help those that may find my perspective worth reading.
I started AgLocal eighteen months ago. It has also now been a year since we closed our first round of financing, a seed round, and then opened our office and started hiring our first employees. Being that this is my first time running a company I’d like to share my impressions of what I consider my rookie year.
- An opportunity only
The first thing that I can say about my experience with technology is that I believe that it allows for a new accessibility in the economy that did not previously exist to such an extent. For reference, I cannot write a single line of code, I do not posses a single mark of academic achievement beyond high school, and I had not done this before, and prior to 2011 had never met a single person from Silicon Valley. Yet with an idea, and demonstrated courage to prove I believed in it, others in fact followed me. I was given a chance to become a we, and a company was born.
The moral authority to lead and provide the vision for what it is my company does is the most important thing that I do have to offer here. My knack for sales, and communication when translated into how the product works, is probably the most critical use of our time at the company. I would encourage all non technical founders to understand fully the value you provide in this area and to refine your ability to deliver a product roadmap that can win. The engineers that build our product rely on me for this.
Again, and back to the point of this post, what is in front of us at AgLocal is without a doubt an opportunity, but there is where the story begins. It is an opportunity only. The rest of the story, as they say, is up to me, and is up to us (the AgLocal team). A year ago, some of the brightest names in business saw something in this idea and believed in its ability to produce a win. We are today, still in active pursuit of such an outcome.
- The odds
Let’s take the bloom off of this rose that is the sexy fad of starting companies. For every Pinterest there are certainly a thousand Color’s. Well, maybe that’s a bit of a drastic example, but you will understand my point. I can take this point even further by taking a look at Bill Nguyen at Color himself. For instance, Bill has had a roller coaster ride of successes and failures. Many will remember him for the high profile nature of Color’s difficulties, but they may not remember him as much for the fact that he sold one of his first companies (OneBox) for $850m already, or that Bill has started eight companies in total, and that more than half of them were not considered homeruns. What isn’t discussed in this group of hits and misses is the roller coaster of a life that even Bill, by all accounts a successful entrepreneur has likely lived through. I think this illustrates that even the most experienced entrepreneurs matched with experienced and well connected investors still face odds considerably less favorable than an Alaskan salmon’s attempt to spawn.
The choice to start and grow a new business, or join the early team of one is a choice that comes with varying degrees of risk. Risk that is typically well above and beyond that which exists in the world of gainful employment at a well established business. To illustrate this point succinctly I had a conversation with one reasonably well known founder of a successful Silicon Valley tech company exactly one month before I decided to leave the comfort of my job at the Kauffman Foundation. He said to me "before I decided to start my company I had decided that I had to come to terms with the fact that I was making a profound decision about the future. I knew first of all above all else, Naithan, that my life would change dramatically, and that I could easily lose everything I have, including my current financial cushion, perhaps a friend or two, and even my family if things went poorly enough". His company went public in the early 2000’s, and he also separated from his family not long after that.
In what is perhaps the most valuable conversation I may ever have related to this subject, Ben Horowitz, who is known for his candid thoughts on startups and their genesis, explained to me that the job of the CEO is about as dangerous as it gets personally and professionally. He went on to explain that the good ones almost never allow the presence of this danger to get them psyched out personally, and that they are almost always on the offensive instead of on the defensive. Performance excellence in tough times defines the winners and that frankly, the performance demands placed on the founding executive leaves no time to contemplate failure very much at all. And there it is again. Time. The only way to win in the stopwatch timed jungle of a startup is to make good decisions, and to make these decisions very rapidly. Here are the facts. Things will get to be very difficult at times. Feeling sorry for yourself? Well you’ve lost already. This is the lesson of the rookie season. Ability alone isn’t going to cut it anymore. The ability to move mountains with the the sheer will of ones mind is what matters here. You have full responsibility of the outcome, without the full control of the variables or conditions around you. The variables that you can indeed control and will perhaps improve your odds the most are the ones around who you hire to work with you. A bad hire could cost company months of time in fixing things, and a good one add millions in value to the company.
Football is about as dangerous a game as there is. It gets no moreso dangerous than for the quarterback. This is where I like to draw a comparison. The CEO of a new company is very much in the same position as an NFL quarterback. You are pressured to perform from day one, and there is always the next upstart clamoring for your spot. When you choose to play you are, or at least should be, aware of the possible risks physically, mentally and emotionally, but as an entrepreneur you are drawn to the irresistible lure of building something that is yours and is important. The ability to build a legacy that lives beyond you, and in the case of businesses, the ability to make the world a place that is much easier to live in and generates a windfall of wealth for all involved. The bottom line.
- The speed of the game, rookie camp
If you are a first or even second time founder, the first rule of the game, is understanding that you are indeed playing in the game at all times. After the lights of draft day, signing your term sheet, or landing that first big customer you must now perform. Just like an NFL rookie, It starts with learning the plays, marketing strategy, dev roadmap, ops strategy, tweaking the sketch that is the businesses first modeling, etc. but it surely does not end there. If you have mentors or advisors they cannot run the plays for you, they can only give you the playbook and watch how you read the defense and throw, they cannot translate what you are seeing or how to react as a play unfolds. This is where companies win or sadly, and like most of them do, they also lose.
The important things on your to do list, are in fact, the enemy of focus your company needs from you. Almost every email, text, voice message, or knock on my door that I have received since day one of starting the company, and especially since, has come with some sense of importance. The most ridiculous thing I could have ever attempted was to treat all of them with the urgency that the senders all would have liked. There are truly only three things you should be working on. People, Product and Progress. The ability to set an agenda for the company’s people (hiring, motivating, directing), its model (product and business), and business development progress (sales, fund raising, critical partnerships) are the only things you should be focused on. If you are too much into the details in any given area you either need to hire in that area or to do a better job of hiring and training going forward.
- Choose your people carefully, a good huddle
The biggest impact is definitely in your choice of people. Employees, investors and partners. Your ability discern will be critical. Let’s talk about funding for example. Investors have the ability help you in a way that far exceeds their cash. Trust me here. One thing I did not consider is that I would spend a third of my time in the recruiting of good people and another third of my time in sourcing and building relationships with new investors in anticipation of the next round of financing. This leaves only a third of my time to actually run the company, guide the product’s direction, motivate and inspire the existing team. Add coast to coast travel for me, and lets just say that I really enjoy the luxury of a full night of sleep.
Investors are critical sources of help and should be chosen with caution. It may seem that you cannot afford the luxury of being choosy. In fact this is true if you are raising your first round, but you will have to set and hold the expectations for those investing if you would enjoy their ability to be helpful in your company building efforts. These are folks that should spend their time funneling their network to you, with deals and good people, not just cash. This is simply going to help as much even as the money they invest in many cases. I cannot stress this enough. There are two types of investors, ones that are concerned with creating work for you and ones that are concerned with taking the procedural part of the work away from you primarily. The problem is that except in rare cases, many seed investors (institutional or otherwise) simply cannot (due to their own time restraints) or just will not, do much work on behalf of their seed stage companies. This is simple human economics. They are spending time on the investments they have made that are starting to bloom versus the ones that are too early to determine. During the courting period, they all however claim to want to spend time helping. This, as you will soon realize, is rare in a seed stage investor and many times even a series A round investor. If you have a few of these investors around you, your odds will improve dramatically. It is also the one thing that entrepreneurs rarely do due diligence on, just happy to have closed their round and ended the pain of pitching (which actually never ends).
Test out the claim made by initial investors by talking to the CEO’s of other investments they have made. In our case we had twelve total investors in our initial financing, and though to some extent most of them were helpful, there were two or three that were not helpful at all for one reason or another. Only a core group of about four or five of those investors went to work for us. Sending candidates our way, vetting them for us, even interviewed them, sending deals our way, press our way, and potential partnerships our way. (the Andreessen Horowitz team and particularly Ben, Serious Change Ventures, Open Air Equity Partners, Marc Ecko, and Thad Langford deserve special recognition here). Finally, when the time comes to raise your next round of financing (and this will come sooner than you’d like) this group will play a critical role in sourcing any new investors you will need to complete your fund raising effort quickly and successfully. Their warm introductions to other investors who trust them and their follow on investment in the new round will speed up your time raising capital and get you back to work on the things you need to be doing, building product and partnerships. In all of these cases the value here is that your investors can give you back the one resource that is most important to your success. Time!
- Good management, and bad
The comparison of going from a good quarterback in college to a starting quarterback in the NFL is my mind the most apt comparison to the sales star, or product genius at a good company who then goes on to become the CEO of a venture backed high growth company. These are two different jobs. The focus needed during this very fast game, and the decisions required for success are completely different things. No past experience can indicate nor prepare for success. This is the moment where natural ability is vetted as to whether or not it can become good management or not.
The first thing that I have come to realize is that in early stage companies, companies very similar to ours, is that too often there is no way to know whether a good idea can materialize into a great company. There’s a bet being placed by investors, early employees and customers. This bet is placed on the raw intangibles, and this is done because frankly, and many times, that is all that we have to go on. The bet goes something like this, “The founders and management seem to posses the beginnings of a good idea and the natural ability to think very quickly and with courage”.
This is where the ability to see the future ends. Very similar to the NFL draft, and the ability to throw sixty yards from your knees like Jamarcus Russell did in his draft evaluation, it’s about as much information as the Wonderlic test and subsequent interviews will give you. The problem here is that even though you scored a passable score on the written test and physical test, no one could possibly tell whether or not you will have an issue with the In and Out Burger and the Purple Drank just yet, just as Jamarcus did. The moral here is that natural ability can get you only so far. It can in fact get you funded, get you press, and get you a few early wins, but at the highest levels natural ability can only get you so far, before it is time to compete with the other executives, that you are in fact competing against, for a future. As the saying goes, men lie, women lie, numbers do not. The demands are that measurable performance and numbers worth reporting have to be delivered very quickly. Do not let anyone tell you differently. Your cool idea and product will never overcome real traction, no matter how cool they are. Money and users are what is cool, not the technical or design prowess of your product.
At the end of the day the drank and weight gain was just a symptom of Jamarcus’s general inability to make good decisions under pressure, these were not the genesis of his downfall, but the omega. His failures ultimate signature. His overall inability to think clearly more than anything, doomed him as an NFL caliber quarterback. This is why quarterbacks are such a tricky draft pick for NFL owners, it’s because it’s hard to tell the mental make up of a player without seeing them in game action and under pressure. This is very similar to a startup CEO. There is no real test that can simulate game situations.
For instance, during our early days we had a management shift that resulted in a founder ultimately leaving the company a few months later because of it. Being my first company, this was a difficult time for me. I questioned whether I was selling out and doing the wrong thing by practically demoting a loyal guy and good friend who by all intents and purposes had done nothing inherently wrong. He wasn’t particularly suited for what I was asking him to do, which wasn’t fair to him or us. In retrospect this move allowed some other employees to exercise their talent in the vacated areas where they previously felt a little frustrated and limited, and in ways that the company benefitted from. We likely would have been three months behind in our development roadmap had we not made this shift. It ultimately exposed a vision split and subsequently a split of founders, but it was best for the company. This decision was made practically after our first one on ones, and with little deliberation or advisor input. I understood what was happening, and made the move that day. I was shocked by my ability to make this decision this way in the first place, but once I had, I became progressively better at it.
- In summary
What has been my experience as a rookie CEO? It has been very similar to that of the star QB from the division two school in a non major conference that is drafted in the early second round and rushed into a starting role in the NFL before he may be polished and ready. Early flashes of promise with that great throw that reminds some of why he was drafted so high but mixed with many moments of WTF, punctuated by getting the play in late, or choosing the wrong receiver. As the season goes on for me the game has started to slow down and decisions have become easier, but by this time the book is being written, just like in the NFL, it is a production business. The fans, coaches, ownership, and especially my team mates are not interested in a project, they are interested in making the playoffs. The key now is to finish the season strong and to make the playoffs, and then for most, you can rewrite history once that happens. Good management is what happens when, whether through a successful venture or a failed one, the entrepreneur learns how to lead her people and gain the trust of both her customers and stake holders. Eventually the entrepreneur will win.
1. Identify the best people, who can work on your behalf, and bring them in
2. Don’t wait on all of the data to make decisions, but enough data for your gut
3. Nurture a user and sales based culture
Caution: this post contains cussing and some consider that distasteful. You were warned.
This post isn’t about starting a software company, or selling products, this one has more to do with my personal operating system, and the way I live my life, and who I will live it with. I did not write this post to tell you, the reader, how you should live your life, but am choosing to share a simple articulation of how I’ve chosen to live mine.
These are the Ten Rules that have allowed me to outlive setbacks, find the right opportunities, and stay true to who I am in the process.
1. Break the rules
The rules are made to keep people and ideas organized and thus controlled. If you want to live an exceptional life, you will have to be willing to be unpopular to those that enjoy the safety of an ordered and predictable outcome. In the process of doing anything important, you will be told that the things you do break some rules or culturally acceptable norms. You will have to examine your life to find those rules you’re following simply because everyone else does. These are not those rules that bring order to potentially harmful chaos, but are the ones that have for one reason or another outlived their time or relevance, yet still are being adhered to out of tradition. Break them immediately and purposefully. (Caveat: always obey the law of the land, or those designed to keep you and others safe from harm)
2. Don’t be a pussy
Exactly what it says. If you’re scared, that’s OK, it isn’t the fear, it’s how you respond to that fear. Do you run from anxiety filled decisions and situations and get lost in the lights and wilt or worse, run and hide, or do you step up in the moment? Continuously and perpetually stepping up and beyond natural fears is maybe the biggest factor in living the life that you chose!
3. Be yourself (no matter what)
This dovetails from point two. The only way to reach your potential, is to reach YOUR potential. People who you are scared to be yourself around, are people you will eventually disappoint. Life is time. Don’t waste any of yours creating personas that you think people will like. Be who you are and this will allow you to build a network of friends, colleagues, and mentors that will stick for life and that you will be comfortable growing with. The opposite is also true, it will ward off assholes from becoming a part of your life.
4. No excuses
Excuses are the gateway to weakness and softness entering your life. The only way to reach your goals in your academics, business, family, morals, spiritually, and health is to eliminate weakness and softness. Excuses are like carbon monoxide poisoning. They sneak in with no odor and kill you by slowly putting you to sleep unawares. Work diligently to identify when you are making excuses for yourself and counter act it with honesty and counteractive measures. When you screw up and wrong someone (and you will) you must own it. Don’t lie to yourself, but keep it real. Your apology isn’t in words but the actions that follow.
5. Think big
If you don’t think big, and I mean really fucking big with everything you do, imagine or envision, then it’s hard to work towards creating the necessary conditions where exceptional opportunities and experiences can happen in your life. Mindset is always, most of the battle. The belief in very big things will change your odds. This is not motivational speaker bullshit.
6. Discipline yourself
As my mom said to me, there are no free lunches. Be hard enough and tough enough - Be willing to work harder, and endure tougher shit than anyone else. Do the extra rep in the gym, work the extra hour, take the meeting. Discipline your diet, your intellectual habits, your intentional relationship management, your exercise habits, your spiritual management etc. this discipline will produce a code, and this code will set you apart from your peers and create a moat around you and those you are building a future with.
7. Get yours
Understand what’s supposed to be yours and take it. if you have discipline, think big enough and are not scared, then this should produce healthy and balanced ambition in you. There is such a thing as unhealthy and misguided ambition, and you do not want that. Many times, when people are handed too much too early, they exhibit signs of being misguided and spoiled. In this case pigs get to eat, but hogs get slaughtered. It’s OK to be a pig, but don’t even hang out with hogs, once you recognize them. Hogs are dirty people with no code, and their ambition will turn on you. If you love right, and for the right reasons then it’s ok to go and get yours!
8. Give back
Again, there are no free lunches. If you’re doing the above, you will likely be successful. I do not measure success in dollars, but yes money is one of many well known byproducts of success. The fruits of success are however not success unto them-self, or we’d be living life as a means to an end, and of course, we aren’t. Your responsibility to success, whether your fruits are money, love, or power, is to give back and to give back in a way that seems to exceed where you are in each of the three aforementioned areas. giving back, also includes forgiveness. Be big enough to let it go. Some grudges actually need to be held onto, in cases of unmet justice, that’s for you to decide. In most cases this isn’t true, and giving back will include letting your beef go.
This is where your soul is! You are the how’s, who’s and where’s of where you come from. Even if you had to burn the boats that got you to shore for good reason, create balance and intentional tribute to those places and people. Keep where you come from at the forefront of your remembrance every day.
Never forget that no one will get out of this life alive, so don’t take it all too seriously and have fun. Make humor, practical jokes, and fun a focus of every day. You will live longer. If you’re loving right, you should be laughing a lot.
Where The Hell Are We Going?
“ride to it, ride to it
cause you never know
when the bullet might hit
and you die to it die to it
die to it, die to it
Live your life, live it right
be different, do different things
Don’t do it like, he did
cause he aint what you is
but we can win, wait
lets get straight to the point”
-Kush & Corinthians - by Kendrick Lamar
The opening quote is a shout out to my friend and mentor Ben Horowitz. I’m bitin’ his style here, quoting good music. It’s the most effective emotional device there is, and this post is laced with emotion.
To the question, where in the hell are we going? Starting a company is hard. It’s damn hard to avoid the high fail rate but not impossible with the right recipe. Uncertainty creates a zigged and zagged path. The fight is for clarity and it’s a ferocious fight. This aint for the weak hearted. Alot of advice for startups typically focuses on the technical and procedural rigur of building a small thing into something valuable and important, but a startup isn’t an assembly line, it’s an apple orchard. It’s not mechanical, it’s organic. Which is why I love the way Ben Horowitz explains startup skills and needs (reference his blog post on psychology here: http://bit.ly/f9ll2w)
It’s numbers and psychology, churning like a cyclone in a race against time. I always explain to the employees at AgLocal that a startup isn’t a business it’s a conversation about a business. A high stakes healthy argument for clarity. Everyone with sleeves rolled, brawling, fighting for what they believe in. Customers, employees, advisors, investors. Everyone has to be in the conversation, so we work together at AgLocal to intentionally build the most productive conversation we can have. To do this, the psychology inside of the conversation has to be managed and focused.
As of late we’ve had some leaps forward internally in gaining clarity about what AgLocal is going to be. In the fight to determine where we’re going, I first as the CEO have to know who I am and why I’m going where I’m going in the first place. There are three principles that drive this:
Bravery, Committment and Soul
Soul (Who The Hell Are We?)
Dr. Seuss , as everyone knows, wrote great books for children. His stories are now considered some of the most culturally important ever published. Overlooked as childrens stories only, and sometimes as statements on society in general, his books have helped me take emotionally complex management and leadership concepts and break them down into simple and concise terms. Clarity.
When I think about having a soul, it’s about my core. What will I stand for and what will I stand against. There’s a Seuss story about the Bippolo seed. A duck named McCluck finds the silver box of Bippolo seeds. The seeds can grant any wish when planted. McCluck decides on his wish but gets interrupted by business minded cat who has entrepreneurial ideas for the seed. McCluck even admits to the smart cat “I aint thought much about money until now”. The cat goes off on a tangient with suggestions until eventually McCluck joins in the madness and loses the seed due to his diverted attention. The duck meant well. McCluck just didn’t know what he stood for and who he wants to be. Thus he didn’t have any conviction or focus. All things were interesting but nothing was important to him most.
If you have a core mission that infects every part of your company, internally and externally, “ride to it, ride to it, die to it die to it”. You may change the plan and pivot, but your soul is more than just the plan, it’s the whole damn war. If this were a game of Risk, the plan is a single dice role, your soul is how you see yourself once the game is over. If you don’t know your final destination, you don’t have jack shit, and you and the smart cat should go hang out the startup networking event to get your next idea and leave the serious to their work.
Committment and Bravery (Why The Hell Are We Doing This?)
Horton Hatches The Egg, is a Seuss story about an elephant (Horton) that gets pitched by a bird to sit on his egg while the bird goes on vacation. Horton agrees and climbs up into the tree. The bird leaves on vacation to go have a good time. Horton stays, and does his part. He sits in the tree through danger, bad weather, etc. After months away the bird comes home to check on Horton coincidentally at the same time as the egg finally hatches. To everyones suprise a baby elephant with bird wings hatches. Horton feels a sense of purpose and relief that his work was worth it but the bird is pissed off. This story is the perfect illustration of what I’m talking about here. A startup team is unequipped to be doing what they do, but strangely more uniquely qualified to start the companies they start. CEO’s have to find and build a team of Hortons. Authentic love and courage, to a point that they can stomach climbing up a tree with the real risk of the branch breaking underneath them, for the irrational belief that they can hatch baby elephants from a bird egg. It’s committment that powers both the courage and conviction through any weather. Anyone can do what the bird did. It’s easy to pitch and then start an idea. Not easy to be Horton.
I mean, what the hell are we doing? It starts with the meaning of life for us. We have to own this, by defining it, articulating it and then connecting it to the higher purpose of AgLocal or our work will be soulless. AgLocal is building what will become the most important company in food in the world. I believe this. So do the employees and the investors. So do our family members and some of our friends. In Shogun Assasin, one of my favorite movies, a Samurai stands in front of his infant son asking him to make a choice that he couldn’t possibly comprehend. He asks the boy to choose between a ball or a sword that he has placed in front of him. He tells the child that if he chooses the ball he’ll have to join his mother in death. This is innovation in a messy environment. Making choices that could have wonderous or catastrophic effects with near ignorance and not enough time to build the literacy needed to make that decision. It’s a gut feel and some contextual matching to other emotionally difficult decisions you’ve made in your life. I’ve lived through some objectively difficult times and have a good size library to call on here.
These are the unending hard choices we will be forced to make. The employees and I face these choices continually and they test our committment to building the most important food related company in the world. This will not be easy for us or on us. The ball and sword dillemas will be presented in perpetual cycles. As the company meets it’s customers and as those customers get more comfortable being less polite we learn the truth and then the needs of the company change and so does its plan with it. Without reiteration of the emotional committment to the importance of each other, and our work jointly, we will lose our way. If you run a startup or a part of one and Samarai stands in front of the company, be prepared that some may not always choose the sword. You will have to continue the imprtant work, because there simply isn’t enough time to wait when this happens. The company must move on or be mired in confusion and apathy.
When these principles get transferred to a team it can build a culture and an operating system to do important work in my opinion. We’ve got a long way to go, but we know who are and where we’re going.
Innovacation -noun [in-uh-vah-cay-shuhn] -
1. The act of using unorthodox and counter intuitive ways of acquiring sources of insight and inspiration.
2. Using rest and diversion from the studied problem in order to solve the problem creatively
Ever hear the dumb term “you’re too close to the situation to see it clearly”, well, it does ring true in some cases.
Entrepreneurs, we love to read the latest hot book on innovation or startups to get inspiration on our model. We delude ourselves into thinking that if we would just follow these steps, and follow that new and fresh methodology that the secret sauce will appear in front of us. The truth is very opposite to our long held beliefs. Innovation doesn’t come from someone else, in the books about that very subject. It comes in the form of abstract and non related exterior and peripheral influence.
Well if that’s the case, why do we get burned out while working our hardest. Why doesn’t that mentors advice always resonate and cause add on ideas? Why don’t we always get this inspiration when we are “cranking” our hardest ? It’s usually because as entrepreneurs we’re working hard, burning the midnight oil from both ends and we’re looking for it instead of receiving it. Irony is that the very work that we’re doing is causing us to miss this inspiration.
I titled this post with the word I made up because I think it sums up the inspiration to innovation cycle that gets ignored. I have surmised that nurturing of the things you love outside of your work will ultimately feed purpose to the work and generate inspiration. When you get time to love what you love most something happens, you find yourself clear, able to see it. I’m currently in Florida vacationing with my family. I admit that I felt guilty about this at first, very guilty. I mean with the demand of funders, sales, product development, SXSW coming up, new employees, and the rest of the jazz that comes with starting up.
Right around the third day here, getting hugs from my little girls, laughs with the family, the beach, good meals that 18 hour startup days don’t afford, something strange happened… … . . I started getting more done. How is that possible? While separated from the family I had 16-18 straight hours a day to work, but yet being unplugged except for hour bursts here and there was suddenly providing much more meaning production.
I started to realize how important this awareness of what was happening was. Next time when it gets tough and I feel at an impasse, maybe the answer isn’t the stare at the screen like I’m waiting on the last train home. Maybe the best thing is to do is jump in the car and drive into the mountains, or to the beach, catch a flight to spend a couple of days with family. Now don’t get me wrong, I’m not advocating laziness. I’m fairly sure I’m headed right back to those 16-18 hour days, and rightfully so. But I will do so now with the full understanding of the important role that rest, and love plays in innovation and problem solving.
Are you grinding hard without an end in sight? Not getting anywhere except to regenerate items on a list of entered entry’s on a self healing check list that seems to never die? Unplug and go do something that speaks to your life away from your startup. Surprisingly, it will tell you a ton about your startup as well, and when you do plug back in, your understanding of meaning and your refreshed state will create solutions and advance your ideas in ways you didn’t quite see clearly.
Go take a innovacation
The Founders Challenge
This post is a little bit of a shape up or ship out post. Sort of a shrinks couch for founders type post. It may not help every founder, but it may help some, as I suspect it will. Let’s face it, the hyper dramatic and chaotic life of a founder can get murky and needs serious reflection. As I sit here my family’s hideaway in beautiful Florida refreshing with the kids before I travel back to the hustle of silicon valley, I’ve gained a little perspective and I thought I’d share this little bit of wisdom with some other founders out there.
As a first time or even second time founder there’s really nothing that can prepare you for the inevitable ups and downs, spins and turns that come along with your first venture. The volumous amount of academic papers, startup books, YouTube videos, scans of Tech Crunch and rewatches of “The Social Network” just won’t do it. This is mainly because starting an idea, any idea, is full of chaos that is uniquely and expressly yours.
There’s a challenge faced by founders, and that’s to learn how to filter information. Everything you read, see, hear and feel is telling you something. Don’t panic, it’s there to steer you, guide you, stop you, and start you again. The key is to maintain the proper perspective and to make decisions. Don’t freeze up. Not making a decision is still making a decision.
Start-Ups are just like the womb a baby rests in. What goes in the body of the mother will affect the baby’s development, and the environment around the mother will impact the personality and health of the baby, even if it’s in small incremental ways. The start-up is the baby and the eco-system around it (Funders, co-founders, friends, family, mentors, partners, buyers) is the womb.
It will at times seem that you’re on top of the world, and other times feel like the world is on top of you. Here’s the point I’m trying to make … . . neither are true. Ever! Everything you communicate will set off a chain reaction in the ecosystem that can have a lasting impact on the company you build and launch or even on whether you launch it at all.
Before hitting “send” on that email or text message. Before spilling the beans about something negative at a dinner with that influential person and before bragging about how awesome things are with those friends of yours that are also founders, remember, you’re feeding the eco-system of your start up something. Is it something that you want to be feeding it? Remember, you are the voice of this “baby” and anything you say will set off a chain reaction of falling dominoes, one way or the other. You have to say something as the voice of the company, just make sure that’s it’s filtered for the time, place and audience.
The challenge is to stay measured, even keeled and right in the middle of it all, cool and composed (even when your guts are churning). You want to go crazy in celebration, salute your team and those that helped and then move on and know that there’s work to do. There’s always work to do. You want to quit and go back to working for someone else at a safe job with a set of easy daily tasks … . . well, ya, just think about that for a second? If you’re an entrepreneur, the very thought of that should be enough to stop you in your tracks.
Take the challenge. Inventory your startup and everything around it. What do you have, what do you need, and importantly, where are you going? That my founder friend … . is vision, and this vision of yours is the only thing that will allow you to sail through the challenge with relative ease.