Category: Strategy

In the second half of 2009 we pitched Pardot to 29 different VCs. Over the course of four months we met with a number of VCs in Atlanta and flew to Silicon Valley twice, Boston once, and Washington D.C. once. Pitching VCs is great in that you get a chance to engage with really smart people, share the vision, and hear feedback.

Only, the feedback is driven by their view of the world and personal experiences. After the 15th conversation whiplash starts to set in from all the different recommended actions — target this market, make this pricing change, think bigger, etc. Ideas get tossed around at a rapid clip, and as an eager entrepreneur seeking capital, the instinct is to look on fondly and nod ‘yes’ to each suggestion.

When going into conversations with VCs, have a clear opinion and vision (no different than talking with customers and prospects), so that any suggestions can be put against the plan with a clear head. More ideas and recommendations will stress test the vision, which is fine, but try not to get caught up in the whiplash of different recommendations. Make improvements as necessary and carry on.

What else? What are some other thoughts on the whiplash from pitching VCs?

Andrew Mason, founder of Groupon and a new startup called Detour, sent out a tweet earlier today saying that while he’s gotten slightly better at making good decisions generally, he’s gotten significantly better at correcting bad decisions:

https://twitter.com/andrewmason/status/507568813773033472?refsrc=email

Personally, I’ve encountered this same phenomenon. I like to think that I’m continually working hard and improving my craft, yet I still make plenty of mistakes. Only, now I draw more from previous experience, and when I see a decision heading down the wrong path, I’m quicker to pick up on it and fix things.

Much of this faster course correction comes from pattern recognition. So many issues that come up fit the mold of similar issues that occurred before. Like Jason Lemkin’s most recent post What the Second Time SaaS CEOs are All Doing, this pattern recognition plays a huge role in decision making, and fixing poor decisions. Entrepreneurs should work at getting better at correcting bad decisions.

What else? What are some more thoughts on getting better at correcting bad decisions?

One question I get when talking about weekly tactical meetings is how we deal with the fact we don’t discuss items that will take longer than 15 minutes. The weekly tactical is designed to review our weekly KPIs and talk through any items that come from the ad hoc agenda. When a more strategic topic comes up, and requires additional time for discussion, it gets put on the parking lot (a Google Sheet) for the monthly strategy session.

Monthly strategy sessions can be anywhere from one to four hours. Once Pardot hit super high growth mode, we’d have a nice dinner once a month that was our monthly strategic meeting. Format wise, we’d keep it simple and semi-structured:

• Exercise for team members to get to know each other better (e.g. where were you born, how many siblings do you have, what’s one memory from your childhood, etc.)
• For each department, what’s working well and what’s not working well
• Parking lot items
• What are the three most important things we need to do as a company in the next 30-90 days

Monthly strategy sessions are a key part of high growth organizations for aligning the executive team and debating critical topics. Entrepreneurs would do well to incorporate monthly strategy sessions into their rhythm.

What else? What are some other thoughts on monthly strategy sessions?

Many tech entrepreneurs, no matter how hard they try, won’t be able to make their current idea a high growth business. And, while sometimes it’s due to the entrepreneur, often it’s because of the idea. Not all tech startup ideas are bound for high growth — let’s look at a few reasons why:

• Timing – Ideas that are good, but too early, are still a failure. The importance of timing should not be underrated.
• Market – Some markets are small, very small. A successful business is not the same as a high growth business and often companies can be the former without the later.
• Customer Value – Many businesses suffer from the cost of customer acquisition being prohibitively high relative to the amount of money the customer is willing to pay for the product or service. These businesses can be successful but often aren’t high growth (many small consulting firms suffer from this).
• Capitalization – In limited circumstances the amount of capital required for success exceeds the entrepreneur’s ability to secure funds.

Notice that it isn’t due to luck, innovation, or the competition. Unfortunately, not all tech startups have high growth potential. It’s up the entrepreneur to decide if high growth is important to them and to make the appropriate call if the business idea needs to be changed.

What else? What are some reasons not all tech startup ideas are bound for high growth?

One of the more common requests I receive from entrepreneurs is for feedback on an idea. Idea-stage entrepreneurs are always looking for external validation of their idea, and it’s often easier to talk to other entrepreneurs as opposed to finding potential prospects. My response right now is that I’m happy to help answer questions once they have 10 paying customers as my focus is on helping entrepreneurs get from 10 to 100 paying customers and not from 0 to 10. Yes, getting from 0 to 10 is where most entrepreneurs fail, but it’s also a good way to filter down to those that are making early progress.

Here are a few recommendations for entrepreneurs wanting feedback on an idea:

• Follow the Customer Development methodology and get out of the building
• Create a Business Model Canvas
• Build a Simplified One Page Strategic Plan
• Talk to 100 potential prospects and ensure there’s an opportunity in the market
• Ask 10 friends for 10 introductions to people that could be customers of the idea

The takeaway is that entrepreneurs need to talk to potential customers of their product and not other entrepreneurs. Customer Development is hard work and the value has been well documented. Entrepreneurs that want feedback on an idea need to talk to prospects.

What else? What are some other ways to help entrepreneurs that want feedback on an idea?

Several weeks ago an entrepreneur asked me for introductions to a few investors in town. After qualifying his startup, I happily obliged and introduced him to the most appropriate people for his company. Later, a different entrepreneur asked for an introduction to a specific venture capitalist that I didn’t know. As neither one of us had a connection to this person I offered a solution: research the investor’s portfolio of companies, provide one or more qualified leads or candidates to them, and then ask for an intro. The best way to get access to a person is to give value first.

Here are a few reasons to engage a VC via helping his or her portfolio companies:

• VCs don’t read business plans — they look at deals that are personally referred from trusted third-parties
• VCs are in the business of knowing a large number of people, especially people that work at their portfolio companies, so portfolio companies typically have a number of first-party connections
• Helping grow a portfolio company’s sales pipeline and potentially growing revenue directly helps the VC’s goal of making the company successful
• Qualified leads and qualified job candidates are two of the most valuable introductions for a startup

So, the next time you hear an entrepreneur ask about an introduction to a VC, tell them to figure out how to provide value first to a direct connection and then make the ask for an intro.

What else? What are some other thoughts on getting access to a VC by first helping a portfolio company?

When you look around the Atlanta Tech Village, or any other group of startups, you’ll find that the startup ideas aren’t as revolutionary as you might expect. In fact, most of the ideas already have tons of competitors. So, why are the entrepreneurs playing the me-too game and battling it out in crowded markets?

Markets aren’t what they appear on the outside. On the outside, it looks like there are 10 different competitors all doing the same thing, speaking the same language, and targeting the same group of businesses. In reality, each competitor has their own strengths and weaknesses and targets a slightly different segment of the market.

During the marketing automation wars of 2011 and 2012, it looked like Pardot competed with Marketo, Eloqua, Act-On, and many more. A material percentage of Pardot’s deals weren’t competitive at all (meaning, a new customer would sign up without evaluating other products) and when there was competition, it was almost always with the same competitor. Inside the market was very different than what the outside saw.

While markets are considered crowded in that there are a number of competitors, most markets aren’t winner-take-all or winner-take-most, resulting in a number of “winners” that carve out their respective niches and build successful companies. Crowded markets aren’t actually crowded when you get on the inside.

What else? What are some other thoughts on the idea that markets that look crowded can actually have a number of successful businesses?

Recently I was talking to an entrepreneur that was lamenting how worried they are now that one of their main competitors was acquired. After asking a number of questions and drilling into their situation as best I could, I told him not to worry. Yes, things will change, but no, it won’t be as game-changing as he thinks.

Here are a few things that typically happen after a serious competitor is acquired:

• Tons of PR comes out talking about how this is a major acquisition and the industry is going to change/consolidate/go mainstream
• Quick changes to their branding and website saying they are part of a bigger company (product name changes usually don’t happen right away but the bigger company’s name is usually added to the logo of the acquired company)
• Employees in overlapping positions are let go (back-office jobs like accounting and HR are usually the first to go)
• Paralysis occurs on the engineering and innovation front as a tremendous amount of time is spent integrating things with the mothership and working on a long-term roadmap (this is a key opportunity for the other competitors to keep innovating and get out in front of the newly acquired competitor)
• Prices often rise and more emphasis is put on cross-selling to justify the purchase
• Life continues as normal (the noise will die down and things will continue on just like they always have)

Competition is healthy and when a competitor is acquired things do change, but more often than people realize, a big company acquiring a startup results in a less competitive startup. Less competitive doesn’t mean the acquisition won’t be considered successful, rather priorities will change and the number of directly competitive deals will usually decrease (often a big company takes the startup’s product up market).

What else? What are some other thoughts on what happens next after a competitor is acquired?