Why Fast Learning Curves are So Important to Startups

Startups are business machines engineered to grow quickly. The forces of hypergrowth exert enormous strain on every aspect of the company. Internal break all the time as the company moults into a new skin. This is one of the most important things to keep in mind when hiring. Every lead hired today, whether marketing , sales, engineering or product, will have a very different job nine months from now, much less two years from now. Imagine you work at a startup that is growing headcount 125% year over year. It’s 25 people going to 56 going to 126. You hire a head of engineering. The engineering team is 17 people. The org chart will look like this: one engineering lead with 17 engineers reporting to them. 17 direct reports is unsustainable. It’s at least one full working day of 1/1s. Plus, the engineering lead must double the size of the
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How Long Should Your SaaS Software Trial Period Be?

How long should you let a customer use your software before they sign a contract? You could offer them a 7 day free trial. Or 14 or 21 or 30 or 90. Longer trials might be better. The customer could delve deeper into the product, become more committed and sign a larger contract. Shorter trials drive urgency, weed out the uncommitted, and result in shorter sales cycles. Both sides have compelling arguments. Unfortunately, most SaaS startups don’t have enough samples to reach a statistically significant answer. Anecdotally, I’ve heard from many marketers shorter trials are better. The team at MadKudu analyzed 9 companies with different customer acquisition and sales strategies. Their data showed conversion rates for most of these businesses follow an S curve. I’ve copied their chart above. Two have freemium plans (A & G); three have 14 day trials (D, E & F); four have 30 day plans Continue reading "How Long Should Your SaaS Software Trial Period Be?"

Are We Investing Enough in Our Managers?

I met a seasoned executive recently. He made a bold claim. “Management is an art, and one that is overwhelmingly undervalued in Silicon Valley.” I wondered, are we investing enough in our managers? Talent is the largest investment of an early stage company. 80%+ of startup operating expense flows to compensation. Retaining these employees is good business. Especially in such an expensive and competitive talent market. Research shows employees leave their jobs because of poor leadership and poor management. All managers in a company influence employee retention - from the C-level to the line manager. This is why investing in each creates a competitive advantage. Suppose the average manager has a span of control of seven. Seven people’s compensation might total an annual budget of $1.5M to $3M. That’s a quite an investment for an early stage company. A manager influences a significant fraction of an early stage Continue reading "Are We Investing Enough in Our Managers?"

Jacob’s Ladder in the Startup Fundraising Market – How Startups Today Skip a Round of Fundraising

Jacob’s Ladder is a toy of thin wooden blocks attached by ribbon. If you hold it in your hand and rotate it to touch the second block, it seems to set off a cascade of blocks falling from the top. The blocks haven’t changed positions, though they do rotate. It’s a moving optical illusion. When I watch this toy, I’m reminded of the current state of the fundraising market. Long-term trends in the start of fundraising market have been consistent over the last 10 years. Median round sizes have increased from 2009 dramatically across seed and Series A-C. As these round sizes have grown, there is a Jacob’s Ladder effect. In the chart above, I’ve drawn dashed lines from the values in 2009 across the graph. The dashed blue line is the median series A from 2009. Seed rounds have not surpassed 2009 Series A levels. That part of the Continue reading "Jacob’s Ladder in the Startup Fundraising Market – How Startups Today Skip a Round of Fundraising"

Why Your Startup Doesn’t Invest Sufficiently in its Differentiators

There are three types of product features, a seasoned head of product told me recently. MMRs, neutralizers, and differentiators. MMRs are minimum market requirements; basic features that every customer expects and demands. Neutralizers mitigate competitive threat. Differentiators are your startup’s competitive advantage. As a product manager, I’d never thought about this type of roadmap segmentation before. But it made a lot of sense to me. When a startup has established product market fit, the differentiator is clear. This feature set distinguishes the company. It is the reason customers prefer the product to alternatives. The very first buyers buy irrespective of deficiencies. The differentiator is enough to overlook those faults. As the product team talks to customers, they are likely to hear feedback encouraging more investment in MMRs and neutralizers. “Your product is missing this feature. We need this capability that exists in another piece of software in yours.” This Continue reading "Why Your Startup Doesn’t Invest Sufficiently in its Differentiators"

The Startup Founder’s Almanac

I first met Elad Gil when I became an associate product manager at Google. Back then, he had an unusual habit I noticed right away. Most people carry their laptop in the same way. The laptop is closed, in hand, between the hand and the hip. Elad carries his laptop open, powered on and by the top or bottom corner. He’s so smart and has so much cognitive bandwidth, he simply doesn’t have time to wait for the computer to wake from sleep. I’ve admired the way Elad decomposes problems and proposes solutions from those early days in Building 42. High Growth Handbook shines as a straightforward manual for startup founders. It explains the theory and the practice of building a company from his point of view and that of many luminaries. There are a few passages from the book that struck me. Marc Andreessen: “In fact, the general model Continue reading "The Startup Founder’s Almanac"

Lessons Learned from 20 Years at the Leading Edge of SaaS

Over the weekend, I read Tien Tzuo’s book, Subscribed. Tien is the founder and CEO of Zuora, and former CSO/CMO at Salesforce, where he started in 1999. He has been working in SaaS for nearly 20 years. He’s a thought leader in the world of subscriptions, and I learned a tremendous amount from his book. There were three key themes that resonated with me. First, the shift to a subscription business model reinforces customer centricity. Second, pricing is one of the most powerful growth levers subscription companies have. Third, balancing customer mix across three-tier plans is critical to long-term success, and there is a right way to think about it. In the book, Tien talks about Fender, the guitar company. Though tens of thousands of people have salivated over Fender’s guitars - notably Wayne Campbell and his love affair with the Stratocaster - 90% of people who pick up a Continue reading "Lessons Learned from 20 Years at the Leading Edge of SaaS"

Does Winner Take Most in SaaS?

There’s a theory to the idea that winner takes most in Startupland. The startup that grows a bit faster at the beginning demonstrates more momentum. The startup raises capital sooner, hires people, builds the product, markets and sells the product, grows more, and raises capital. Repeat the process for each round of capital. Is it borne out in reality? This theory suggests that irrespective of the category, the winner should capture most of the market value. Reality is far more complicated than this simple idea. After all, most startups face turbulence in their journey. Venture capitalists finance competitors to pursue a market opportunity. M&A environments ebb and flow. Undisclosed private sales or private valuations aren’t considered. Plus, survivorship bias plagues this analysis. Setting all of that aside, I put together a basic data set across different software sectors. I examined 11 sectors which benefited from meaningful exit activity over the Continue reading "Does Winner Take Most in SaaS?"

A Deeper Dive into the Dynamics of the Seed Market

Earlier this week, I wrote about the collapse in the number of seed investments. I received many questions about the data, all the same. Why is this happening? This is a deeper dive into the data. First, there are fewer seed investors participating in the market than in 2015, about 40% fewer. Second, many of the most active seed investors and institutional seed funds are investing in fewer companies. The largest accelerators in the US buck the trend, however. The lines in gray trace the investment counts by firm. The red sketches a smoothed aggregation. Third, all but one of the most active venture capital funds have reduced their seed investment activity. In aggregate volumes have declined by half. Fourth, syndicates size haven’t changed. The average number of major investors buying at the seed has remained about 2.7 investors per round throughout the gyrations of the market. And the
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