Month: June 2021

Last week I was talking to an entrepreneur and he said something that’s stuck in my mind ever since: feedback is a gift. As entrepreneurs, we have happy ears where we’re continually seeking validation and clues as to the best direction to head. Almost always, the best ideas come straight from customers in the form of feedback. Only, it’s up to the entrepreneur to define the culture and ensure that feedback is sought out and treated as a gift.

Cultures that treat feedback as a gift are self-reinforcing in that they regularly ask customers for input and adapt the business based on that feedback. The more feedback, the more tweaks and optimizations to the company. Sometimes the feedback might get overwhelming, but it’s always better to have too much rather than not enough.

Cultures that don’t treat feedback as a gift are often a monopoly or on the decline. Customers that don’t feel their feedback is heard and appreciated will seek out new providers and vendors. Startups that don’t embrace and encourage feedback aren’t able to adapt and innovate as fast as ones that do.

The next time you’re on the receiving side of feedback, ask the question: does this feel like it’s a gift? Do I want this? What happens to this? Feedback is incredibly powerful and should be encouraged.

Every entrepreneur should work to make feedback a gift in their startup.

Over the last couple years a business concept has dramatically increased in popularity: the North Star Metric. As expected, the North Star Metric represents the most important indicator of the health of the business. Put another way, if you were to only track one single metric for the entire company, this would be it. And in the spirit of the Simple Strategic Plan, the North Star Metric brings clarity to an area that’s often over complicated: measuring what matters.

Lenny Rachitsky has an excellent post up titled Choosing Your North Star Metric where he goes through a number of ideas on the topics. First, there are six general categories:

• Revenue
• Customer growth
• Consumption growth
• Engagement growth
• Growth efficiency
• User experience

Then, he goes through a framework for choosing a North Star Metric based on the type of company.

Every entrepreneur should head on over and read Choosing Your North Star Metric.

At a board meeting last week we were talking about startup products that were working well in different portfolio companies and I was reminded of our early fundraising efforts at Pardot. Three years into Pardot we decided to raise money in an effort to accelerate growth. Personally, I started asking people in my network for intros to VCs and we were connected to one in Boston. I jumped on a call with this particular VC and he said something that has always stuck with me, “I just saw Pardot metrics in one of our most recent board decks. When I saw the intro request, I immediately accepted.” Hmm, I thought, instantly knowing what Pardot customer was also a portfolio company of this particular investor.

As expected, there’s tremendous value in having a customer that’s a portfolio company of a potential investor. Potential investors want to talk to unbiased customers. Potential investors want to understand the good and bad about a startup. What better source than an existing portfolio company where there’s a strong relationship and economic interest?

In this example, Pardot was even more compelling to the VC because it was the source of truth for marketing. By incorporating Pardot’s metrics in the board deck, it was telling this potential investor that it was a mission critical product with strategic value to the business.

Ultimately, after meeting 29 VCs, we decided not to raise money due to soft valuations (this was during the Great Recession) and our continued growth without capital. Today, the calculation is completely different. Capital and valuations are much more entrepreneur friendly.

When raising money, entrepreneurs would do well to find potential investors that already work with one or more of their customers. With this comes instant credibility and interest that’s invaluable when trying to find the right financial partner.

Learning where great startup ideas come from is a passion area of mine. Naturally, ideation and “light bulb” moments aren’t actually glamorous, but the ability to profoundly change the lives of so many people creates a sense of awe.

Last week I was reminded of this when hearing an entrepreneur pitch her business over Zoom. Her idea instantly met a number of key characteristics:

• Obvious idea that needs to exist in the world
• Clear offline analogy that hadn’t been brought online yet
• Limited competition currently (some competition is ideal)
• Small, high growth market with potential to be massive
• Genuine authentic demand whereby people clamor for a solution
• Key innovation available due to an advancement in technology

Most ideas don’t emerge fully formed. In fact, the best ideas often come from first exploring a related idea and stumbling upon a better idea. Putting together a simple list of characteristics provides a heuristic to evaluate against. Entrepreneurs would do well to put more time upfront in the selection of their idea, knowing it takes 10+ years to build a meaningful business.

When evaluating business ideas, start with these characteristics and adapt them to your own preferences.