Podcasts on Startups and Entrepreneurship

Two years ago, after all the buzz around podcasts, I jumped on the bandwagon and have really enjoyed the content and experience. Like any medium with no marginal cost and a potentially infinite audience (hello blogs!), there’s been an explosion of podcasts of varying quality. After snacking on a number of different ones, here are my favorites:

  • Naval – Thoughtful. Intellectual. I really enjoy Naval’s thinking. It’s more general philosophy around life and business, and less startup specific, although readily applicable.
  • Twenty Minute VC – Crisp. Fast paced. Harry has interviewed thousands of people in the VC and tech entrepreneurship world. Highly recommended.
    Bonus: Harry also runs the excellent SaaStr podcast.
  • Y Combinator – Extensive. Deep. YC’s content is excellent, covering a number of different topics.
  • EntreLeadership – Broad. High quality. EntreLeadership has a number of well-known guests sharing their entrepreneurial journeys.

For me, podcasts have slotted in nicely when I want something interesting in the background to ponder while driving, walking, etc. If you haven’t tried a podcast or two, I’d highly recommend it.

What else? What are some other favorites around startups and entrepreneurship?

The Entrepreneurial Thrill of Fresh Ideas

As an entrepreneur, one of the things I get most excited about is fresh ideas. Ideas could come in the form of entirely new businesses, ways to do something better, or just a different take on a scenario I’ve seen before. Because of this, I enjoy reading blogs and books looking for other peoples’ ideas to find ones that I can commandeer for my own use. Within the YPO and EO circles, a favorite question is “what’s a great book or article you’ve read lately?” Ideas act as a currency of coolness, ready to be exchanged at a moment’s notice.

Just this week I was meeting with a startup and a simple, yet valuable idea, came up. This startup has been in business for 7-8 years and has been venture-backed half that time. For most of it’s existence, banks paid almost no interest on the savings (cash on the balance sheet). And, as part of the “package” from the bank, the current interest rate was 1% on the savings. Well, the startup raised a large round of funding in the last year and casually asked for better terms. The bank now pays 2.25% interest on the savings, but wouldn’t have changed if someone didn’t ask. Because of the large sum of the financing, this has resulted in hundreds of thousands of dollars of interest income — found money. Have cash or working capital for the startup? Ask the bank for a better rate!

After last week’s post on Continuous Employee Feedback, an entrepreneur shared with me how much they love Emplify to continuously measure employee engagement. A fresh idea! Historically, employee engagement has been an afterthought for most organizations. Now, with modern technologies, it’s easy and seamless. Of course, the tools are only going to point out the challenges and it’s up to the leaders to figure out how to improve them, but knowing where to focus is immensely valuable. Writing, and simply sharing ideas with the world, is another great avenue for learning about fresh ideas.

Entrepreneurs would do well to develop a system that generates fresh ideas as they go on their startup journey. Whether by reading, writing, peer groups, or other method, the steady flow of ideas is key.

What else? What are some more ways to generate fresh ideas?

Continuous Employee Feedback

Back in the original days of Pardot, we worked hard to manually solicit feedback from employees. After years of experimenting, we settled into a routine that had a daily, monthly, and quarterly rhythm.

On a daily basis, during our morning standup, we’d ask if there were any heroes or hassles. Heroes were employees that went out out their way to help someone and made an important contribution. Hassles were challenges or impediments for employees to produce their best work.

With this daily feedback, we’d talk about it in-person, address it immediately if there was a certain severity of hassle, and have the person who brought it up add it to the respective idea exchange. An idea exchange is much like a message board where people can submit ideas, comment on them, and vote ideas up or down. Finally, we’d we acknowledge the hero of the month and hassle of the month, defined by votes in the idea exchange, at the first weekly all-hands meeting of the first of the month. The winner for each received a $100 bill and a nice lawn ornament from Delta SkyMall to display at their desk.

In addition to the daily heroes and hassles for employee feedback, we also ran a quarterly anonymous employee survey. The survey was short — 10 questions — that always started with the net promoter question: how likely are you to recommend Pardot as a place of employment to a friend? From there, we’d rotate a mix of questions related to core values, general satisfaction along the lines of compensation, career paths, etc. Results from the survey were taken seriously and we worked hard to make our organization a top place to work (we were rated the #1 best place to work in the city multiple times).

Today, there are a number of excellent tools that take care of employee feedback and engagement in an automated fashion. Programs like TINYpulse, Officevibe, and Culture Amp are lightweight and incredibly effective at gathering relevant information and presenting it in an actionable manner.

Entrepreneurs need to incorporate continuous employee feedback into their companies and cultivate an environment for team members to thrive. The stronger the culture, the stronger the company.

Crisp, Memorable Startup Origin Stories

Last week I was talking to an entrepreneur and I went for one of my favorite questions, “How did you come up with the idea for your company?” Now, this question isn’t concerned with the quality of the idea. Rather, the goal is to hear the origin story of the business, the raison d’être. After some meandering, it was clear I wasn’t getting a crisp, memorable origin story. I wanted something compelling, something that would help me remember the entrepreneur and the business.

At the Tech Village, the origin story is one of the most frequent questions I receive. Here’s my answer:

When I moved to town following college, I had a hard time finding a community of like-minded tech entrepreneurs. We had so many great startups, but no center of gravity for the region. From that experience, I knew that once I had the time and resources, I wanted to create a place to help entrepreneurs thrive and improve their odds of success — a Tech Village.

Entrepreneurs should proactively write out their origin stories. Practice them. Refine them.

Origin stories should be crisp and memorable.

What’s your origin story?

Revenue Financing + Traditional Equity Continued

Last week’s post Revenue Financing + Traditional Equity as the Future of Startup Funding struck a nerve and resulted in a number of comments and questions. Generally, the big idea is that most regions have sub-standard angel communities because the angels don’t make money on their investments. Without regular, positive returns, angels drop out and the community is constantly treading water. The idea for a revenue financing component is to recycle money back into the community sooner — ideally in less than five years as opposed to today’s 7-10+ years — so that angels have a good experience and stay active.

Revenue financing plus traditional equity prompted a number of questions. The big question: how might it work? Here’s a hypothetical example:

  • Angels invest $500,000 into a seed round at a $3.5M pre-money valuation ($4M post-money valuation after the new investment is included)
  • When the startup hits $4M in trailing twelve months revenue (the initial seed valuation becomes the revenue target), ideally within five years (that’s what the entrepreneur’s projections said!), the startup pays the original seed investors back, plus 20%, over the next 18 months (paid monthly as a percentage of revenue)
  • The 1.2x returned to the seed investors becomes similar to negative participating preferred equity whereby that amount is deducted from the investor proceeds at time of exit

Now, 99% of all tech startups never achieve $1M in sales in a calendar year, so most startups, even with six figures of angel investment, will never hit the revenue threshold to trigger payments back to the seed angels. Yet, if some small percentage of angel-backed startups do hit it — say 3% — then more money will flow back to the community faster.

Changing an entrenched format, like typical startup funding terms, is a tall order. When startup communities with limited angel investors come together to improve the recycling of capital, revenue financing should be a consideration.

Revenue Financing + Traditional Equity as the Future of Startup Funding

Today’s standard startup funding model whereby entrepreneurs pitch angels, VCs, and family offices for money in exchange for preferred equity is mostly a challenged, broken process. Outside of the money regions that focus on grand slams, and startups generally with revenue traction and significant growth rates, investing in startups is a great way to lose money.

The majority of angel investors I know have lost money investing in startups.

Perhaps they aren’t good investors. Perhaps it’s the entrepreneurs’ problems. Regardless, this isn’t specific to our region. It’s the same in all regions outside the money centers.

Stories of investors writing a check for $25k into Uber and turning it into $100M permeate the media, yet are so rare it’s laughable. Only, it fuels the stories and desire for more people to become investors.

One potential angel investor described it to me as wanting to spend 1% of his net worth on angel investing so that he could generate a new income stream and be less reliant on his day job. Unfortunately, the chance of that happening is slim to none.

There’s a perpetual cycle of regions trying to improve their local startup investing community. New angels come online and write some checks. They lose their money, and because of the poor outcome, will never do it again. Rinse and repeat each economic cycle.

Well, what’s the solution?

The funding model needs to change.

Over the last few years a new form of startup funding has emerged, but still represents a tiny part of the market: revenue financing. Revenue financing is code for a loan that’s paid back via a percentage of revenue. If the startup does better than expected, it’s a super high interest loan. If the startup does as expected it’s a high interest loan. If the startup does worse than expected, it’s a high interest loan paid back over a longer period of time.

Of course, a high interest loan requires the startup to pay back the debt, which takes cash away from growing the business. And, in the angel world, making 15% per year on the investment takes away the excitement and dream of making a 100x return.

The future of startup funding outside the money regions should be a mixture of light revenue financing and traditional equity.

Light revenue financing, such that the investor gets 1.2x their money back in five years, keeps startup money flowing in the community.

Traditional equity, such that there’s the potential for huge upside, keeps the imagination dreaming.

We’re near the peak of this cycle, and too much money is chasing too few high quality deals, making it a great time to be an entrepreneur. Only, this too will change — it always does.

When we come out of the next trough, and it’s time to re-evaluate the startup funding model, a combination of returning capital to the community on a consistent basis and equity upside will result in a more sustainable and successful eco-system.

A structural change in startup funding is needed. Light revenue financing plus traditional equity will improve the startup world.

When the Increased Startup Burn is Cooling Growth

Recently I was talking to an entrepreneur that went through a challenging period of trying to force growth that never materialized. The playbook is fairly common: raise outside financing, hire a bunch of people, and expect growth to increase. Only, not only did growth not increase, it actually went down. What gives?

Burn was increased with the expectation that more of the same would increase the growth rate. Only, it merely magnified an existing issue: customer acquisition wasn’t repeatable.

Spending money to grow faster when a repeatable customer acquisition process doesn’t exist actually makes things worse. Much worse.

New sales reps are ramped up but the playbook doesn’t work, and now making quota is more diminished with fewer leads and less help.

New marketing programs are ramped up but the previous ones weren’t scalable, and now attention and expertise is spread over more initiatives.

New roles and responsibilities are created throughout the organization in expectation of increased growth, only these require more management time and attention taking away energy from the critical functions.

More isn’t always more. In cases where the fundamentals of the business aren’t working, more actually is a detriment and reduces the ability of the organization to execute.

Before raising money and increasing burn, insure the repeatability of the model. Trying to accelerate something that isn’t working makes things worse.