Friedberg’s Rubric for Business Value Creation

In the last All-In Podcast, David Friedberg laid out a great rubric for business value creation. While visionaries get excited by a future state and entrepreneurs get excited by an idea, it takes all that, and more, to create real value.

David Friedberg’s rubric for value creation in a business All-In podcast episode 62 (at the 50 minute mark):

1. Can you make a product?

2. Do people want to buy your product?

3. Can you make a positive gross margin selling the product?

4. Can you make a return on the marketing dollars you have to spend to
generate the gross profit?

5. Can you scale the amount of money to grow your business such that
as you grow the return goes up, not down?

6. Can you transition to being a platform (multi-product company)?

This articulation of the business value creation journey is the best I’ve ever seen. Share this with every entrepreneur you know and ensure they think through it on their journey.

The Simplicity Tradeoff

Last week I was looking at the pricing plans for a startup and it screamed complexity. Tons of plans, tons of upsells, tons of dimensions — it felt like optimizing for the business as opposed to the consumer. Of course, we see complexity on a regular basis (healthcare invoices, etc.), unfortunately making them feel more acceptable.

Instead of having 50 questions on the quarterly survey, have the 10 most important.

Instead of having six pricing plans, have three and a “call for custom” option.

Instead of providing a four page menu, have a two page menu with the best items.

The simplicity tradeoff is worth it.

Yes, some money might be left on the table. Yes, some options will have room for more variability.

Fight the urge to optimize. Fight the desire to add more complexity.

Instead, focus on reduced friction. Focus on higher effort to value for everyone involved.

Erring on the side of simplicity is worth it. Similar to the famous quote, “If I had more time, I would have written a shorter letter”, take the time to cut out the complexity and make it simpler.

Pick an Execution Methodology for the New Year

After an entrepreneur has achieved product/market fit, I like to ask about their execution methodology. What do they use? Why? How did they select it? What parts do they like? What parts don’t they like? Quite often, I get a response that they don’t have an execution methodology and they are interested in learning more.

An execution methodology is simply a framework for getting things done personally and in your organization.

Early in the entrepreneurial journey it’s easy to keep everyone on the same page due to the continuous interaction and iteration. Only, as the organization grows, complexity grows exponentially. Systems and methodologies provide a way to scale in a maintainable, elegant manner.

Here are a few execution methodologies entrepreneurs use and their main categories of focus:

Scaling Up / Mastering the Rockefeller Habits

  • People
  • Strategy
  • Execution
  • Cash

Traction / Entrepreneur Operating System

  • Vision
  • People
  • Data
  • Issues
  • Process
  • Traction

The 4 Disciplines

  • Focus on the Wildly Important
  • Act on the Lead Measures
  • Keep a Compelling Scorecard
  • Create a Cadence of Accountability

And, of course, one my personal favorites for ease of use is the Simple Strategic Plan.

Whatever the case, pick an execution methodology. Embrace the core concepts and help your organization scale.

Happy New Year!

Salesloft Partnered With Vista Equity

Christmas came a few days early this year when we announced Vista Equity acquired a majority stake in Salesloft. Salesloft powers the modern revenue workspace for digital selling, insights, and coaching. Think of software that helps sales team significantly increase their effectiveness at selling and is directly in the path of revenue.

Salesloft is partly a story of major pivots. 10 years ago the initial product was a job change alerts app that notified sales reps when a contact joined a new company. That idea failed and the company morphed into a contact scraping and leads database. While the prospector product took off and generated millions of revenue, it was eventually shutdown. From there, the final pivot was to a sales engagement platform that achieved the proverbial hockey stick growth and recently hit $100M in annual recurring revenue. Prior to the Vista Equity acquisition, Salesloft had $246M of funding (Crunchbase) and 762 employees (LinkedIn).

Salesloft is mostly the story of the will, determination, and grit of the entrepreneur Kyle Porter. From a full reboot of the business in the early days, to multiple pivots, and recently navigating the pandemic, Kyle has endured the high highs and low lows of entrepreneurship many times over. And, one of his super powers is recruiting an amazing team starting with Rob Forman. Rob was introduced to Kyle through a chance encounter at a local event. From there, the two hit it off and developed one of the strongest yin/yang partnerships I’ve ever seen. The team grew to include incredible leaders across all the functions including Ellie, Sydney, Scott, Chad, Steve, and many others.

Of course, Kyle was the visionary all along. Through a strong focus on organization health, never ending love for the customer (#saleslove), bold acquisitions of several companies, and masterful fundraising, Kyle operated in one of the most aggressive, yet thoughtful, ways imaginable.

I’m going to miss being on the board of Salesloft for the next stage of the journey but Kyle and the amazing team at Vista Equity will take it to new heights. Being on the Salesloft journey for the last 10 years with Kyle and his team was one of the highlights of my career and I’m incredibly humbled and appreciative to be a small part of it. Onward and upward!

Personal Growth > Startup Growth

Last week I had the opportunity to join a panel with Lisa Calhoun and Kyle Porter moderated by Godard Abel of G2. Near the end of the audience Q&A session, someone asked for advice we’d share with entrepreneurs and Kyle offered up the best answer: personally grow faster than the startup. While it sounds easy at first, it’s incredibly hard.

Everyone focuses on startup growth. What about this sales and marketing strategy? What about a freemium model? Should we invest more in this? While that deservedly gets attention, when startup growth is working, even more attention needs to be paid to personal growth.

So, how do you grow faster than the startup?

Invest in yourself.

Invest in a peer group. Join the Entrepreneurs’ Organization or the Young Presidents’ Organization. Search Meetup for local startup and tech groups. Ask your local Tech Village equivalent for organizations in the area. Seek out groups of other people that want to grow and get involved.

Invest in learning. Find entrepreneurs you admire and read their books. Find authors that write about topics you care about and read their blogs. Find conferences and programs where you can immerse yourself.

Invest in a coach. Find a business coach that you meet with regularly. Commit to a program and process. Let someone else help you maximize your potential.

Invest in yourself in a systematic way. Carve out the time. Put in on your schedule. Make the commitment.

Growing personally is one of life’s great joys. Doing so in a way that keeps you ahead of your startup’s growth is one of the secrets to success. Put a plan in place and ensure that personal growth is faster than startup growth.

Raising Capital and Exit Expectations 10x

In today’s world of abundant capital and frothy valuations, it’s easy to think this is the new normal. While that could be the case, it’s likely that we’ll see some reseting of valuations to a lower normal in the next five years, but who knows if that’s three months from now or three years from now. This especially comes into play with exit expectations and capital raised.

Remember this: startups generally need to exit for 10x the capital raised for everyone to be happy.

Raise $2M more, raise the exit bar another $20M.

Raise $10M more, raise the exit bar another $100M.

Raise $100M more, raise the exit bar another $1B.

Last week I was talking to an entrepreneur about this very topic. Do they raise a huge amount at a big valuation and set an incredibly high bar, or do something more modest and maintain more optionality? There’s no right or wrong answer, but the financial return goals are an important consideration.

Entrepreneurs should understand the trade-off between more capital and higher exit expectations. When raising capital, consider an exit of 10x the funding as a standard.

Srinivasan on Market Research, Wireframing, and Design

Balaji Srinivasan has an excellent Startup Engineering paper titled Market Research, Wireframing, and Design that serves as a Startup 101 guide for entrepreneurs. The big idea is that starting a startup without deep thought, research, and exploration in advance is a poor way to do it. So much depends on the market, execution, and timing that more intentionality is needed upfront. From startups vs. small business to economies of scale to market sizing, there’s much more to selecting a great idea.

An excellent breakdown of the stages of the entrepreneurial journey:

StageWhat’s required to complete?Min Time
IdeaNapkin drawing of billion dollar concept1 minute
MockupWireframe will all user screens1 day+
PrototypeUgly hack that works for single major use case1 weekend+
ProgramClean code that works for all use cases, with tests2-4 weeks+
ProductDesign, copywriting, pricing, physical components3-6 months+
BusinessIncorporation, regulatory filings, payroll, …6-12 months+
ProfitsSell product for more than it costs you to make it1 year+++
Table 1 from the article

Srinivasan then takes the reader through ways to do market research using Google’s Keyword Planner and Facebook’s Advertiser Tools combined with landing pages, ads, and SEO. So much of what previously was guessing and gut checks can now be assessed and analyzed fairly quickly. Again, entrepreneurs should do the work before choosing an idea haphazardly.

Finally, the author goes through how to think about pricing and packaging, wireframing, copywriting, and design — all critical elements that traditionally don’t get enough attention.

Part high level strategy and part tactical ideas, every entrepreneur that isn’t already scaling their business should go read Market Research, Wireframing, and Design.

Entrepreneur Weekly Update Email Formats

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.

Customer Obsessed and Competitor Aware

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.

Optimize for Growth while Adding Gates

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.