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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.

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:

Stage	What’s required to complete?	Min Time
Idea	Napkin drawing of billion dollar concept	1 minute
Mockup	Wireframe will all user screens	1 day+
Prototype	Ugly hack that works for single major use case	1 weekend+
Program	Clean code that works for all use cases, with tests	2-4 weeks+
Product	Design, copywriting, pricing, physical components	3-6 months+
Business	Incorporation, regulatory filings, payroll, …	6-12 months+
Profits	Sell product for more than it costs you to make it	1 year+++

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.

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.

Last week I had the opportunity to meet with the team behind a new venture studio. A venture studio, like our Atlanta Ventures, is a meta startup that creates more startups. Similar to an incubator, a venture studio brings all the ingredients together for new company creation.

Like any business strategy, there are unlimited number of permutations with no right or wrong answers. In the venture studio world, there are a series of questions that come up repeatedly. Here are the core venture studio questions:

• What do you look for in entrepreneurs?
• How do you find entrepreneurs?
• How do you come up with startup ideas?
• How do you decide which ideas to pursue?
• How much money do you invest in each startup?
• Do you take outside money for subsequent rounds?
• How is the equity split with the entrepreneurs?
• How many new ones do you start per year?
• What does the recurring interaction with each startup look like?
• How many will you have going at any given time?
• What types of startups and business models will you do?
• How do you define success?

Answering these questions covers the majority of the questions for the general direction of a venture studio. Naturally, the model evolves over time and answers will change, but the basic approach is fairly consistent.

Creating a venture studio is incredibly fun, and terribly difficult at the same time. Free markets and an abundance of capital make for heavy competition, but there’s always more whitespace to invent the future. Thankfully, innovation isn’t a zero-sum game — it’s additive to the world.

Want to join a venture studio as an entrepreneur? Want to start your own venture studio? Reach out to us and let’s talk.

Last week I was at a dinner sitting next to a successful entrepreneur that had built his business to hundreds of employees over the course of 10+ years. Once we finished with the standard chit chat, I asked my favorite question for late stage entrepreneurs:

When did you know you were going to be successful?

Often, it takes two, three, or even four plus years before it feels like you’ve made it. Of course, it isn’t a switch that turns on overnight. Rather, it’s the confluence of hiring momentum, sales progress, market adoption, and scalable infrastructure.

After asking this question, it got me thinking about other fun questions for entrepreneurs. Here are my favorites:

1. What was the inspiration for your startup?
2. What was the biggest inflection point in your startup?
3. How long have you known you wanted to be an entrepreneur?
4. How did you meet your co-founder?
5. When did you know the time was right to go full-time?
6. What was your original idea and how did it change with market feedback?
7. How did you find your first customers?
8. How did you find your first investors?
9. What are your biggest learnings so far?
10. What were your biggest challenges?
11. What would you have done differently?
12. Who was your most important mentor?
13. What keeps you busy now?

Try these questions out the next time you talk to an entrepreneur and see where the conversation goes. Learning from entrepreneurs is one of my favorite things, and these questions set the stage.

Try these questions and let me know some of your favorite questions to add to the list.

Last week I got together for a multi-hour strategic session with a great entrepreneur and his team. We’d been talking about a specific, important item for a couple months and the general direction was clear but a critical piece of it didn’t feel right.

As a team, we worked hard to define what we stand for, what we will, and won’t do, and some of our goals for the next 5-7 years. We asked important questions like the following:

Why do we exist?

What is our #1 goal?

What have we learned so far?

What do we need to learn next?

After we went up a couple levels and worked on the most strategic questions, when we finally came back down to the 2022 plan, we were able to ask better questions. From here, we were able to articulate what was needed. And, thankfully, we were able to ask the hard questions about why a current piece didn’t feel right, and find a better solution.

When the current direction doesn’t feel right, get the team together. Go as strategic as possible, frame the discussion, ask the hard questions, and find a better solution.

Recently, I was asked how often new startups are formed from employees that worked together at previous startups. Good question. Most startups emerge from an entrepreneur encountering an unmet need or opportunity in the market, often informed by their previous job. While I don’t have hard stats, I do have anecdotes from local startups.

Two high-growth startups in town are Terminus and Salesloft. Terminus does multi-channel account-based marketing, has 363 employees listed on LinkedIn, and has raised $120M according to Crunchbase. Salesloft does sales engagement software, has 726 employees listed on LinkedIn, and has raised $246M according to Crunchbase.

From these two pre-IPO stage startups, I know of at least four startups that were started by alumni:

• Tourial – Self-guided product experiences
• Sonar – Tech stack monitoring
• Spaceship – Continuous delivery platform
• OrderNerd – Restaurant online order management

These startups emerged over the last few years, and the number of startup spinoffs is obviously not static as there are likely more. Let’s call it four startup spinoffs from a combined 1,000 employees, making it one spinoff for every 250 employees.

Startup success begets more startup success, and for every 250 startup employees, look for a new startup spinoff to emerge.