The most important principle of start up fund raising is: Raise enough money to achieve a set of milestones that will attract a subsequent round of investment from new investors. Last week, a founder of a seed stage company came to pitch. When I told him the opportunity wasn’t a fit for us, he asked me what milestones he would need to achieve to raise a Series A - as he was raising a seed round!
Brokers serve two key roles within ecosystems. First, they introduce buyers and sellers. Second, they lend their expertise to help buyers and sellers make the right decisions in the market. The internet neutralizes the first value proposition of brokers by leveling the information asymmetry between buyers and sellers at a far greater scale with much better data than any broker ever could. And for products and services with relatively small price points, commodity goods or where the cost of failure is low, market places often nullify the value (and cost) of an advisor.
Once each month I met Peter at Café Habana in Nolita for huevos rancheros drenched in tomato sauce and a glass of fresh orange juice. Mopping up yolks with tortillas, Peter and I chatted about his business: the techniques of scalable customer acquisition, the priorities of the product and engineering team, the structure of sales quotas and the ebbing and flowing dynamics of the market place he and his team were building.
Each time I open Salesforce in my browser, I think of Stephen Hawking. It’s because of an aphorism an entrepreneur shared with me a few weeks ago. He said: The cost to fix a data error at the time of entry is $1. The cost to fix it an hour after it’s been entered is $10. And the cost to fix it several months later is $100+. Take for example a venture capitalist’s CRM tool.
The valley and startup-land does not fetishize failure despite the increasing reports to the contrary. FailCon is not the Darwin Awards for startups. Founders do not start businesses with the express interest to fail. Instead, the valley is infatuated with the post-mortem of failures and successes alike because within every venture are pearls of wisdom - a subtle but important difference. Extracting and applying these insights can be the difference between success and failure.
“It’s something I thought I’d never do,” one founder told me yesterday. He had hired a recruiter to help him grow his team. But at some point in time, most quickly growing startups will need help forming their teams. We kicked off searches at two Redpoint companies in earlier this year in addition to several last year and I’ve been taking notes on each of the processes. One of my partners, Tim Haley, was a top recruiter in the valley for many years and having his experience and expertise has been invaluable.
I see a recurring three step pattern with data waves: First data collected. Then it’s presented. Last it is made actionable. In every data wave, the companies that transform data into actionable insights are the most valuable because their products not only identify but solve problems. Knowing about an issue without understanding the mechanics required to fix it causes paralysis. Quantified self tools like FitBit and JawboneUp and Nike Fuel capture and display sleep data and while these devices confirm that I wake at 130am every night, they can’t help me sleep through the night.
To be truly successful, I believe startups should determine which of the four core disciplines is their strength: product, engineering, marketing and sales - and focus, focus, focus on leveraging that advantage in the market. Product driven startups - At their outset Twitter, Pinterest and Instagram were exploratory products driven by their respective creators, Jack Dorsey Ben Silbermann, and Kevin Systrom, who were each product managers building a product of their own vision.
Four and a half years ago, I left my role at Google as a product manager to join the team at Redpoint. The transition became the biggest professional challenge of my career up to that point. Suddenly, I was working with a smaller team, managing massive ambiguity in job definition, time allocation and decision-making, and giving up the adrenaline of launch day. But far and away my biggest challenge was effective communication.
Products aren’t sold in isolation - they exist within ecosystems. Great product market fit and sales pitches hinge on understanding and serving all the members of an ecosystem. Should a product fail to meet the needs of any one member, company success and sales velocity will falter. One tool I use with portfolio companies is the Value Proposition Diagram (VPD) which shows why a product is compelling to every customer - and most products are sold to more than one customer at the same time.