Startup Lessons from The Perfect Store

In 1997/1998 I loved eBay and was on it daily. At the time, I’d buy sports cards from across the country to resell them in my local region. On eBay, I’d focus on Atlanta Braves players — my favorite team — and buy stars like Chipper Jones at half the Beckett pricing guide value from dealers in places like Seattle. Then, as a high school senior, I’d drive to baseball card shows and setup a dealer table selling to people in the local market. I did shows all across North Florida from Pensacola to Tallahassee to Jacksonville. The arbitrage opportunity was buying cards over the Internet outside the region at half price and selling them face-to-face at shows for full price — eBay made this possible.

I’ve been reliving these memories recently while reading the stories from twenty-year-old The Perfect Store: Inside eBay. The author, Adam Cohen, captures the founding and scaling of eBay through a number of stories in chronological order. The life of Pierre Omidyar and eBay is an incredible story for anyone who loves the entrepreneurial journey.

A few startups lessons from The Perfect Store:

  • Most great entrepreneur stories start with a tinkerer scratching an itch
  • Passionate communities — especially raving fans — are the secret ingredient to word of mouth growth, which is the best indicator of product/market fit
  • Leveling up management teams is always a challenge, no matter the startup
  • Startup cultures are defined by the first few people and often live on indefinitely
  • Key mentors and coaches early in the experience can add incredible value
  • Defining a memorable origin story, no matter how liberally created, makes continued lore that much more viral (no, eBay wasn’t start for Pez dispensers)
  • Today’s tech stacks and cloud infrastructure are easily taken for granted (eBay was regularly down for 10+ hours at a time during hyper growth)

Entrepreneurs interested in the early years of Internet startups and the power of marketplaces should read the The Perfect Store: Inside eBay and soak up the many lessons.

Critical Startup Metrics By Department

Dave Bailey has an excellent post up titled The Anatomy of a Startup Organisation where he covers a number of topics related to organizing the departments in a startup. My favorite part is how he shares the most important metrics.

Here’s a quick recap of the critical startup metrics by department:


  • Company’s North Star Metric
  • Overall dashboard of metrics to run the business
  • Runway – how many months of cash burn in the bank


  • Happiness – Net Promoter Score
  • Engagement – Active users per week
  • Adoption – Percentage of users that use a module or feature
  • Retention – Percent of users that sign in 30 days after signup
  • Task success – Time it takes to complete a task


  • Quality – Number of important open bugs
  • Velocity – Average points completed per sprint
  • Performance – Uptime or average page load time


  • Channel Leads – By channel and cost
  • Marketing Qualified Leads – Leads that meet quality characteristics


  • Revenue – New revenue per month
  • Sales Qualified Leads – Leads that meet quality characteristics
  • Win Rate – Sales qualified leads to customers
  • Deal Size – Average contract value for the month
  • Velocity – Average sales cycle

Customer Success

  • Customer Engagement – Survey results
  • Efficiency – Average response time
  • Churn – Percent of customers that leave
  • Expansion Revenue – Value of upsells


  • Working Capital – Capital available to use
  • Operating Cash Flow – How the cash position is changing over time
  • Financial Ratios – Ratios like cost of customer acquisition to lifetime value as well as the Rule of 40 score


  • Hiring – Time and cost of hiring
  • Engagement – Engagement score or employee Net Promoter Score
  • Process – Percentage of check-ins and performance reviews completed

For many more metrics to track, head on over to The Definitive List of Weekly Operational Metrics for SaaS Startups. The Anatomy of a Startup Organisation is excellent and all entrepreneurs should start with these critical metrics.

Startup Financing in the Age of Capital Abundance

Last week I was reminded of just how different the world is for startup financing when the business has proven metrics. Exactly 11 years ago, Adam and I went out to raise money for Pardot. At the time, we had a little over $1 million in recurring revenue, 300% year-over-year growth, and a repeatable customer acquisition process in a big market (team, stream, and not a meme).

We talked to 29 different venture firms from Atlanta to Durham to D.C. to Boston to Silicon Valley sharing the story as to why marketing automation was the next big thing. Only, to our disappointment, there was almost no interest. Marketing software was viewed as a poor category. Where were the big winners historically? Marketing spends money on advertisements and trade shows, not on technology.

From the VC conversations, two were interested in giving us a term sheet. The first one presented us a verbal offer and said they’d like to lead the round at a $2 million pre-money offer. $2 million! Less than 2x run rate! Now, mind you, this was late 2009 in the heart of the Great Recession. The second, and final, firm that was interested, said they could do a $7 million pre-money, but only if we sold 40% of the business to them. 40%! Thankfully, Bill Gurley shared with us that we shouldn’t raise money because we already had a business that was working, no investors, and maximum optionality should a good offer come along (it did!).

Today, the world is very different for a startup with proven metrics and traction. Now, there’s an abundance of capital and 0% interest rates pushing up asset prices. Looking at the BVP Nasdaq Emerging Cloud Index, the enterprise value to revenue multiple is 17.8x. Put another way, the valuation of a fast-growing public SaaS company is 18x revenue. 18x revenue! Of course, these are market-leading public companies with tremendous scale, so the private markets would take some haircut on valuation depending on a number of factors (see valuations as a Rule of 40).

For entrepreneurs with proven metrics, the calculus on raising money is different now. Before, frankly, the spreadsheet math didn’t make sense to raise money. We were growing fast enough to be relevant and were on a path to build a business large enough to matter. Now, with valuations so much higher, markets so much bigger, and investors happy to provide secondary to founders, entrepreneurs can get cash for their business, grow at even faster rates, and put money aside personally to diversify.

In light of how friendly the times are for entrepreneurs, it’s still important to think through, in advance, what the end game might be for the business and to not sign up for something that is overly burdensome. For example, in order to raise money at loftier valuations, some investors require blocking rights on a potential exit if they don’t get 3-5x their money. This is likely fair to the investors for the premium they’re paying now. Only, by setting the minimum outcome to a much higher bar, other, potentially more attainable outcomes, are eliminated.

Entrepreneurs would do well to get the best valuations, with the fewest strings attached, and the most optionality for the future. While that trifecta seems lofty, with today’s capital abundance, it’s more possible than ever.

Rigor Acquisition by Splunk

Nearly 11 years ago I was sitting in the Pardot office and one of our top sales reps, Jordan Rackie, stopped by asking if he could introduce his friend Craig Hyde to me. We sat down and started talking about Craig’s idea for a new business. The original idea didn’t go anywhere but Craig and I hit it off and eventually decided to start a company together called Rigor.

Craig’s background was helping large companies make their mission critical software run faster. Taking that general idea of helping software run better, the original goal was for Rigor to be software that helped make websites better. The product would run checks on web pages to make sure they worked, record if there were any broken links or problems, and log how fast it took for the page to load — web performance monitoring. Pingdom was a popular service at the time and the idea was to be a more advanced, comprehensive version of that product.

Craig’s first hire was Hubert Liu, an excellent Pardot intern, and they were off to the races. After talking to a variety of potential customers, and working on different modules over several years, including a temporary focus on load testing and scalability performance, the team arrived at digital experience monitoring and optimization. Web sites, web apps, and APIs were growing dramatically, and the more mission critical a service, the more it needs other systems continuously checking that everything works.

From an early listing on, the old homepage of Rigor described the business as follows:

Rigor enables organizations to improve service quality and customer retention by monitoring the user experience of business applications and proactively diagnosing problems as soon as they start occurring.

Today, the homepage of Rigor describes the solution as follows:

Our Digital Experience Monitoring platform combines the power of synthetic monitoring with an intelligent optimization engine to help you find, fix and prevent the web performance issues impacting your user experience.

Over the years, Rigor signed up hundreds of customers from NBC News to Michael Kors to Dollar Tree. Ecommerce sites, web apps, and mobile apps (via API requests) are mission critical and need monitoring and optimization. Then, COVID hit and ecommerce exploded:

Demand accelerated. Digital transformation accelerated. Now, application observability from the inside out, and outside in, is even more important.

Enter Splunk.

Splunk is one of the world’s most successful software companies with tens of thousands of customers around the world using their software to make software better.

Over half of Rigor’s customers are already Splunk customers, so when they came calling as a potential acquirer, it was a perfect fit. Rigor’s monitoring and optimization solutions complement the other Splunk offerings.

Last week, Rigor’s acquisition by Splunk was announced and it’s a testament to Craig and his team for building an incredible business.

Congratulations to Craig and his team for an amazing outcome and I’m excited to see Rigor continue to grow and flourish.

Why is a strong startup community important for the local region?

Last week Dan Berger interviewed me for Boise Startup Week and asked a great question: why is a strong startup community important for the local region? I’ve been thinking about this question ever since. Startups, and startup community building, has been a passion of mine for decades. Of course startup communities are important, but I take it for granted.

Here are a few ideas as to why it’s important to have a strong startup community:

  • Job creation. The majority of new jobs are created by companies less than five years old. Large companies are in the business of outsourcing and off-shoring jobs. Local regions need good jobs to be healthy, and most new jobs come from startups.
  • Wage growth through exports. The only way to increase wages in a region is to increase the exports out of the region. Having more flower shops on the corner, and restaurants down the road, is great for quality of life, but doesn’t help grow the wages in an area. Startups, by their very nature as inventors of new technologies, serve national and global markets, thus exporting their solution outside the region.
  • Wealth creation. Similar to wage growth through exports, another benefit is wealth creation, which benefits non-profits, the arts, and many other quality of life functions in a community.
  • Desirability for young people. Startup founders are 42 years old, on average, but the average age of startup employees is much younger. Startups are cool and desirable for young people, and without them it makes it much harder to attract talent to the region. Vibrant cities need startups.
  • Second order benefits. Startups support the local economy by renting office space, engaging service providers like lawyers and accountants, and spending money. More startups results in more business for the rest of the community.
  • Civic pride from local startup successes. Just like we cheer on our local sports teams competing on the national stage (go Braves!), and have resulting civic pride from success, we also have civic pride from local startup success. I enjoy telling people that startups like Calendly and Mailchimp are local.

Strong startup communities are important for the local region and entrepreneurs should lead them.

Running the Product/Market Fit Engine the Superhuman Way

Every so often I come across a podcast interview that is so profound and thoughtful that I stop everything and concentrate on the content. Last week I listened to an interview with Rahul Vohra, the founder of Superhuman, and it was one such show. There were a number of takeaways over the course of an hour, but the most interesting part for me was about thinking through product/market fit.

Here are a few notes on Rahul’s ideas starting around the 13 minute mark:

  • Raise as much capital as you can upfront
  • Make decisions as long term as you can
  • Don’t put out a minimum viable product, put out a maximally delightful product
  • Listen very closely to your users
  • Don’t fail fast, succeed inevitably

Here are a few notes on the Superhuman product/market fit engine:

  • Ask your users “How would you feel if you could no longer use the product?” with possible answers Very Disappointed, Somewhat Disappointed, Not Disappointed
  • Companies that struggle to grow always have less than 40% Very Disappointed
  • Companies that grow easily have more than 40% Very Disappointed
  • Predicts success better than Net Promoter Score
  • Expand on the first question with three more:
    • What type of person do you think would most benefit from the product?
    • What is the main benefit you received from the product?
    • How can we improve the product for you?
  • Analyze the results to the first question “How would you feel if you could no longer use the product?”
    • If startup is in the 5-15% Very Disappointed region, consider pivoting the product or market to find a higher scoring segment
  • Find the High eXpectation Customer (HXC), the most discerning person in your target market, by going back to the survey results and taking all the users that said they would be Very Disappointed, then analyze their answers to the next question “What type of person do you think would most benefit from the product?” as happy users will use the words that most accurately reflect themselves, then use these words to create your own definition of HXC
  • Go back to all your surveys, assign a persona to each response, then take the users that most love your product, and use them to narrow the market
  • Superhuman was scoring less well with sales, engineering, and data science people but scoring well with managers and entrepreneurs
  • Deliberately ignore the personas that aren’t HXCs (resegment where you don’t change the product, but do change the market)
  • Repeat this process on a loop to further increase the focus on the HXCs ultimately driving an eventual Very Disappointed segment being greater than 40% of your users, and thus achieving product/market fit (Superhuman was able to increase their score from 22% to 58% over several quarters)

Every entrepreneur searching for product/market fit should go over and listen to the interview with Rahul Vohra. There’s no way to guarantee success, but this product/market fit engine from Superhuman is the best I’ve heard.

Everyone Feels Above Average At Angel Investing

Over the years I’ve talked with a number of friends that have expressed interest in angel investing. Typically, they say something like, “I’m looking to make 10 investments so that I’m sufficiently diversified and financially successful.” Then, they offer up an oft repeated refrain of how the investments will play out:

  • 3 failures ($0)
  • 3 get the investment back (1x)
  • 3 make a good return (2-3x)
  • 1 excellent return (10-20x)

After 10+ years of angel investing, and many lessons learned along the way, I’m confident that this 10 investment scenario represents the best (luckiest?) of the best angel investors.

Everyone feels above average at angel investing. Not just merely above average, way above average.

The reality is that angel investing is hard. In fact, angel investing should really be viewed as charity work in most cases.

I’m reminded of this phenomenon after reading the recent article The Pervasive, Head-Scratching, Risk- Exploding Problem With Venture Capital Now, venture investing should be easier than angel investing as the startups are more mature with metrics, customers, and operating history. Only, after analyzing a number of returns, the authors showed that to consistently generate good returns, VCs need to invest in 500 startups. 500!

From the article:

Funds with 500 portfolio firms have a 13.5 percent median return, compared to 10 percent for the 15-investment funds. In fact, the returns of the worst (fifth percentile) ultra-large VC funds are the same as the median returns from undiversified VC funds. 

The Pervasive, Head-Scratching, Risk- Exploding Problem With Venture Capital

Now, I do recommend angel investing but with the caveat that it should be done for the enjoyment of helping entrepreneurs, not for strong financial returns. If financial returns are the motivator, plan to do it extensively across hundreds of startups.

Find Your Digital Mentors

Last month I was on a panel discussing the importance of mentors and how they really helped me in my career. The panel moderator asked for recommendations on how to find mentors and I gave my favorite answer: start with digital mentors.

Digital mentors are people that you don’t know but they help you through their books, blogs, articles, videos, and podcasts. Digital mentors don’t have to be traditional writers, rather its people you respect and value their thoughts.

Have a favorite entrepreneur? Go on YouTube and find their talks or conference discussions, then skim the videos.

Have a favorite thought leader? Go on Stitcher and find podcasts they’ve been on in the past, then listen to the first few minutes of each.

Have a favorite author? Go on and find all the books they’ve written, then try the Kindle free sample.

Of course, Twitter, LinkedIn, WordPress, and others are great resources as well.

Entrepreneurs should find their digital mentors and make it a habit learning from them.

5 Remote-First Principles from Brex

One area I’m really interested in right now is the trend away from traditional office structures for companies. All employees sitting in the same building for 40+ hours per week has felt antiquated for years. Now, with the pandemic, many of us have been forced to work from anywhere for 6+ months, and most people never want to go back to the previous office usage patterns. Of course, purely remote work isn’t the answer for everyone, and there are a number of good reasons to work in an office. Remote-first/work from anywhere has been getting the most attention lately, so let’s dive in there.

The best post I’ve found is Remote-first at Brex. Here are a few notes from the piece:

  • Principle #1: Clone the internet, not the office
    • Use internet best practices, not traditional office best practices, for distributed work
  • Principle #2: Async decisions by default
    • Written word becomes the most powerful tool, not meetings and people’s in-person personalities
  • Principle #3: Intentional relationships
    • Cultivate relationships more thoughtfully
    • Frequent company and team in-person meetings, at least once every two months
  • Principle #4: Physical-mental balance
    • Every person needs four things: an uninterrupted work space, connection to tribe, connection to nature, and physical activity
    • Office hubs in major cities for people that want to go into an office
  • Principle #5: Iteration
    • Everyone is learning and experimenting, expect remote-first work styles to evolve

Remote-first is a fascinating trend that is only growing in importance. Look for the trend to influence all types of companies, and many new best practices to emerge. I’m excited to see what the future holds.

The Four Ways to Calculate SaaS Churn

Dave Kellogg just published an excellent new post titled Churn is Dead, Long Live Net Dollar Retention! Slides from my SaaStr 2020 Presentation. In the post, Dave argues that churn is too easily manipulated and that Net Dollar Retention is the better metric, to which I agree and have argued in the past (see Churn, Churn, Churn and Compounding Revenue’s Value in the Future).

One of the most important items of the presentation, which isn’t as well understood in the market, is that churn calculations can be done a variety of ways, and therefore manipulated.

From the presentation, here are four ways to calculate churn rates:

Let’s break out those four ways to calculate churn:

  • Gross ARR – Take the annual recurring revenue (ARR) lost at the end of a period (e.g. the end of last year) and divide that by the ARR at the start of the period (e.g. the beginning of last year). So, assuming $1 million of ARR lost last year, and $10 million of ARR at the beginning of last year, the churn would be 1/10 = 10%.
  • Gross ATR – Available to renew (ATR) is similar to the ARR calculation with one major difference: you don’t get credit for any multi-year contracts that transcend a calculation period. If a customer signs a three year contract, under the Gross ARR model, you assume they renew in year one and two for calculation purposes. Under Gross ATR, multi-year contract customers are removed and only customers that are available to renew are counted.
  • Net ARR – Similar to Gross ARR, but you add any expansion or up-sell revenue and deduct any contractions or downgrades within the cohort.
  • Net ATR – Just like Net ARR, but within the available to renew cohort.
  • Bonus – Churn can be calculated against logos (customers) instead of revenue, making for even more ways to calculate churn. And, there’s additional funny business that can be done in calculating upgrades and downgrades to determine Net ARR and Net ATR.

Churn is one of the most important things for SaaS entrepreneurs to know cold. Go watch Dave’s presentation and get a deep dive on churn and net dollar retention.