Month: November 2021

One of my favorite best practices for entrepreneurs is a weekly update email. Just like it sounds, a weekly update email is sent out every week — typically on Sunday night — to all the major constituents: employees, investors, advisors, and mentors. While a weekly cadence seems too frequent for many people, in the life of a startup, there should always be relevant updates.

When mentioning the weekly update to entrepreneurs, I inevitably get the following question: what’s the format of the email?

Here are a few different entrepreneur weekly update email formats I’ve seen:

Format #1

• What We Accomplished
• Product
• Marketing and Sales
• Points of Interest
• Asks

Format #2

• Updates
• Metrics
• Things We Did Right
• Things We Need to Work On
• Asks

Format #3

• General
• Product / Progress Updates
• Customers
• Metrics
• Team Recognition

Format #4

• General
• Wins
  • Customer
  • People
  • Marketing
  • Finance
  • Technology
  • Product Development
• What’s Next
  • Customer
  • People
  • Marketing
  • Finance
  • Technology
  • Product Development

Getting into a rhythm of sending out regular updates is the most important part, and the format is merely a style guide for delivery. Entrepreneurs would do well to commit to a weekly update email and work on over-communicating in their business.

Twice in the past week I heard the phrase “we’re customer obsessed and competitor aware.” That way of framing customers and competitors really resonates with me. As an entrepreneur, one of the most important traits is to truly love and care for the customer. An absolute obsession. Of course, the obsession must start with the team through culture and values, and then translate into the treatment of customers.

Now, as an entrepreneur, especially in the earlier years, but continual throughout the lifecycle, is the competitive paranoia. See, it’s much easier to spend time reading competitor websites, listening to competitors on podcasts, reading competitor tweets, etc. All the content is out there, just waiting to be consumed. With almost no effort you can spend hours doing what feels like real work: studying the competition. Only, it’s much more effort to do the more important work: talk to customers. Customers don’t usually write long blog posts about what they do and don’t like about your product. Customers don’t usually spend an hour on a podcast talking about what they’d changed with your service offering. Hard work is required to obsess over customers, but hard work isn’t required to obsess over competitors.

Stop obsessing over competitors and instead be competitor aware.

Be competitor aware of their latest positioning, messaging, strategy, etc. but don’t obsess over it. Find the balance where the minimal amount of attention is allocated to stay aware of what’s going on with them but no more. As a simple exercise, whenever you find yourself obsessing over a competitor’s press release, immediately email three of your customers to find a time to check-in and see how things are going. The more you obsess over competitors, remind yourself to transfer that energy to obsessing over customers.

Customer obsessed and competitor aware is the best approach, but not easy. Pay attention to your actions and ensure the obsession is on the customer, not the competitor.

Twice in the past week the topic of startups optimizing for growth at all costs came up. Pre-pandemic, there was more emphasis on the Rule of 40 save for certain white-hot sectors. With the Rule of 40, the general idea is to calibrate the trade-offs between the top-line growth rate of the business and the corresponding profitability (free cash flow margins, typically). Growth rate, as a percentage, was combined with profitability (or lack thereof) as a percentage, and the two were added together into a score with the goal of being 40, or higher. Well, that went out the window with the dramatic increase in valuations for high growth companies brought on by the reduction in interest rates, growth in demand for private investments, and the belief that tech markets are even larger than previously predicted.

So, if growth matters more than capital-efficient growth, should you care at all about other metrics? Yes, absolutely. The trick is to care more about the most important metrics (e.g. net dollar retention), and gate the slide of the standard metrics (e.g. cost of customer acquisition). Eventually, the market will revert back to an emphasis on more measured growth, but you never know when that is going to happen.

Let’s say before you were focused on the cost of customer acquisition relative to the lifetime value of the customer (CAC/LTV). Traditionally, a cost to acquire a customer that represented one to two years of revenue was fine (e.g. customer pays $10,000/year for five years, excellent if it was $10,000 to acquire that customer). Now, as sales and marketing ramps up to grow faster, the cost of customer acquisition is likely to go up dramatically, making the CAC/LTV ratio weaker. What to do?

Set a gate that you won’t go above or below. Find something that is more aggressive but don’t let it get so out of control that you can’t get back to more capital-efficient growth relatively quickly if the markets were to change.

Continuing with the CAC/LTV example, if before your cost of customer acquisition was $10,000, make the lifetime value more aggressive by factoring general growth of the account (ideally net dollar retention above 100%), ability to raise prices (inflation is here, with a vengeance), and the introduction of new products to upsell/cross sell down the road. Because of these three variables, you could argue for a substantially higher lifetime value of the customer. Now, increase the cost of customer acquisition a corresponding amount, say double, and you get a gate at $20,000 to acquire a customer. Now, you’ll spend $20,000 to acquire a customer, but nothing more. This makes the sales and marketing spend much more aggressive, but it’s also inline with with the focus on growth while assuming more good things will happen in the future.

Optimize for maximum growth while still setting gates that can’t be crossed on standard metrics. This growth with guard rails approach allows for more flexibility and agility as the world changes, and change is the only constant.

Last week I was talking to an entrepreneur and the topic of scale in the context of success came up. Some entrepreneurs do the impossible and build massive companies while others do an incredible job, but the company is still relatively small. Of course, the scale of success is not nearly as important as positively contributing to the world and making a strong impact on the community. With that said, scale and size is an important consideration when thinking about level of ambition and effort.

Yesterday, I was reminded of this scale conversation when reading Michael Dell’s new book Play Nice But Win: A CEO’s Journey from Founder to Leader. The Dell Computer Corporation story is well known, but even with that background, learning hundreds of new details and anecdotes made it even more amazing. One detail stood out the most, especially in the context of scale: six years after founding the company, the business made the Fortune 500 with ~$1 billion of revenue, all done organically with almost no capital. Simple stunning. The Fortune 500, by its very definition, is the 500 largest public companies in the United States as ranked by revenue. To build a Fortune 500 company in a lifetime is rarefied air, but to do it organically in six years is unfathomable.

What does this have to do with the scale of an entrepreneur’s success? Markets. Markets drive everything. No matter how talented the entrepreneur and team, without a great market, the level of success will be stunted. There’s an old saying in the startup world from Andy Rachleff, founder of Benchmark Capital, “When a great team meets a lousy market, markets win.” Ideally, an entrepreneur will pick a great market initially, or pivot into a great one fairly quickly, but without that, the chance of major success drops dramatically.

Entrepreneurs have a tendency to rush into the next shiny opportunity that presents itself. The lesson here is to step back and spend more time evaluating the market. What are the trends? How big is the opportunity? How much is it a must-have product? What’s holding back adoption today? Naturally, there’s no way to predict how a small market today will turn into a massive market tomorrow. With thoughtful research, it is possible to evaluate markets and make the best decision with the information available.

When it comes to the scale of success, markets drive everything. Choose wisely.