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Last week, I was listening to an entrepreneur who shared that he likes processes much more than goals. This concept rings true with me as well. Goals are important because they help us focus on where we’re going and how we’re measured (especially SMART goals). However, it is much more important to spend time on the process, especially the processes within your control, that will ultimately help you achieve those goals.

Let’s take a simple example: sales. Suppose you have a startup, and your goal is to generate $1 million in new revenue this year. Typically, you would divide this into quarters, potentially incorporating seasonality, and set a goal to sell $250,000 each quarter. At the end of the year, you would add up the quarterly sales and compare them to the annual goal of $1 million to assess performance. This approach has value and is necessary, but it is much more important to focus on the process and ensure it results in the desired goal. 

For this sales example, the process would involve the number of cold calls made per day, the number of emails sent, the number of meetings scheduled, the number of meetings attended, the number of proposals sent, the number of proposals moved to the next stage, and the number of proposals closed as deals, and so on. It starts with the things that are within your control. If I need to make 50 cold calls a day to achieve a certain number of demos, proposals, and deals, it is 100% within my control to make those calls. If I need to attend two tradeshows a month and talk to 100 people at each tradeshow, that’s within my control. The process needs to be the focus, knowing that you have designed and organized a process that allows you to achieve your goals.

Over the years, I’ve seen many entrepreneurs set goals without having the underlying process. Even if they did, the process might not have been feasible to achieve those goals. Common examples include wanting to sign up 10,000 users for a product or wanting to raise $5 million in venture capital. These could be reasonable goals, but without a clear process leading to the outcome, it’s hard to know if these are worthwhile and achievable goals.

Two ways to approach this are top-down and bottom-up. The top-down approach involves setting a goal, such as signing up 10,000 users, and then working backward to develop a process to achieve it. You then assess whether that process is reasonable, feasible, and financially viable. The bottom-up approach starts with identifying a reasonable process at the current time and for a given duration. You then estimate how many users you can sign up per day, week, or month with this process. At the end of the year, you can achieve a certain number of users. This method involves starting with a process that works today, understanding the current outcome, extrapolating that over time, and then setting a goal based on that outcome. In the first example, we pick a goal and try to work backward with a process to achieve it. In the second example, we start with the process, evaluate the likely outcome, and then set a goal based on that outcome over a period of time. 

Entrepreneurs would do well think process first, goals second. Goals are important and part of achieving great things, but a process that is within your control is more important. Continually refine the processes and ensure the outcomes are aligned with the goals.

Recently, I was asked about my favorite general pieces of advice for founders. After thinking about it for a bit, I decided on five tips that have resonated with me over the years.

#1. Go big from day one. It takes a tremendous amount of work to build a business—from the sleepless nights to the regular rejection to the roller coaster ups and downs. Whether the goal is to build a small or large business, it requires the same amount of effort to get it going. So, entrepreneurs should work to create a large business when at the idea stage.

#2. 10x products win. All too often, I see entrepreneurs that invent a new product that’s only 10% better than what’s on the market rather than 10 times better. It’s really hard to get people to change and to get businesses to buy new, unproven products. The best chance of success is when the product is truly revolutionary and not merely incrementally better.

#3. Markets are more important than ideas. Picking the market is even more important than picking a great idea. More often than not, I see entrepreneurs fixate on the original idea and are not open-minded to finding an even better idea that’s adjacent or related to that first idea. I found that, in almost all cases, the idea that was successful wasn’t the idea that the entrepreneur started with. But starting somewhere is critical, as it leads to the idea that ultimately works.

#4. Small, fast-growing markets are best. Entrepreneurs often come up with ideas that fit into an existing large market because it’s human nature to want to create something that already has a big audience. The reality is that markets like that are much more competitive, with many more incumbents, making it much more difficult to break through. The best markets for entrepreneurs are ones that are very small and fast-growing. Small is important so that it’s not heavily competitive with a bunch of incumbents, and fast-growing is important because a market that’s small today is going to be large in the near future. The goal is to establish a position of strong market share today, and then as the market grows fast, to maintain or even grow faster than the market such that 5 to 10 years from now, you’ve built a big business.

#5. Culture wins. The only thing that the entrepreneur has control over is the values of the team. You can’t control the market, the government, the timing, or the competitors, but you can control the values, beliefs, and what you stand for as a business. The culture of the company is the defining trait for success. Startups that continually win have the strongest cultures.

Entrepreneurs learn a number of lessons and tips along their journey. Go big from day one, 10x products win, markets are more important than ideas, small, fast-growing markets are best, and culture wins are my favorite general tips for founders. There’s no one way to do it, but these have been instrumental to me.

Last week, I was reminded of an important lesson I learned many years ago when I heard an entrepreneur share his journey. In the story, he regularly referred to the accomplishments of his startup using the term “I,” as in “I did this,” “I achieved that,” and “I sold the business for X dollars.” As a founder, especially one who has made significant progress or built a thriving business, there is no example anywhere where it is truly just an “I.” It’s always a “we.” We accomplished goals. We built the business. We changed the industry.

When speaking both one-on-one and in groups, people pay attention to how the entrepreneur describes his or her ownership of the startup. People notice whether the entrepreneur gives or takes credit. Of course, the entrepreneur was instrumental; otherwise, the business wouldn’t exist. At the same time, the collective “we” actually made it happen.

I made this mistake for many years during my journey as a founder. When referencing the startup, I would say “I” in too many scenarios where it was actually a “we.” Thankfully, I was given some feedback that shared how I sounded selfish and it was actually a team effort—that everyone worked to achieve the things we achieve. Now, anytime I hear an entrepreneur say, “I did something,” that should be stated using “we”, I reflect on my own experiences and the appropriate feedback that led me to use the word “we.”

For entrepreneurs, my recommendation is to say “we” when referring to the work being done by your startup and avoid using “I.” “We” recognizes that it’s a team effort and shares credit where credit is due. Entrepreneurs would do well to remember this in their communication.

Continuing from last week’s post on the Rule of 50, I received several comments and questions. The biggest and most important question concerns whether a Rule of 50 score equates to viability for funding. From a funding perspective for seed-stage and early-stage companies, founders looking to raise venture capital need to understand that a score of 50 in the Rule of 50 is typically not enough to raise money.

Let’s look at three examples:

Example 1: The startup is growing super fast with a 100% year-over-year growth rate and has -50% free cash flow margins. If you take the 100% growth rate and multiply it by 2, you get 200. Add the -50% margin for a score of 150. A score of 150 will often be sufficient to raise venture capital, assuming other expected elements like margins, market size, team, etc.

Example 2: The startup has a 30% year-over-year growth rate and is breakeven. At a 30% year-over-year growth rate times two, you get 60. Subtract 0 because there is no burn, resulting in a score of 60. A 30% growth rate with no burn is enough to raise funding but likely not enough for a typical venture round. In this case, funding could come from growth equity, a family office, or venture debt.

Example 3: The startup has a 10% growth rate and a 10% free cash flow margin. In this example, the 10% growth rate times two equals 20, plus your 10% free cash margin gets you to 30. So, in the Rule of 50, your score is 30. In this case, the business likely isn’t fundable and won’t be able to raise another round.

In the context of raising money, it’s important to know that a score of 50 on the Rule of 50 is good, but you often need to be exceptional to raise venture capital. The big idea of the Rule of 50 score is that there are many startups still finding their way and need a target to achieve a healthy baseline of general viability for the business—not necessarily to raise a nice up round.

The Rule of 50 score of 50 is a solid target representing a variety of businesses like high growth with lots of losses, medium growth with modest profitability, or something with low growth and tremendous profitability. Most of the 2020 and 2021 heavily funded startups should aim for medium growth plus limited burn in the near term to achieve a level of viability. From there, the belief is that as spending on software and investment in tools increases, they will be in a good position to accelerate their growth rate.

The Rule of 50 and a score at or better than that number is a good target for entrepreneurs who want a sustainable, healthy business. However, a score of 50 is not high enough to raise venture capital. Entrepreneurs should think through their goals and aspirations and target their Rule of 50 score accordingly.

With the shift from growth at all costs to a heavier emphasis on profitability, the traditional Rule of 40 has become more popular over the last two and a half years. Put simply, the Rule of 40 is a combination of growth rate and profitability (free cash flow margin) with a target score of 40 or higher. Some hypergrowth startups achieve a score of 100 or more for an extended period, while many venture-backed startups struggle to reach 40 due to a high burn rate. For example, if a startup is growing 60% per year and has negative 20% free cash flow margins, adding 60 and -20 results in a score of 40, indicating a good position. Even during pre-boom times, the Rule of 40 was used to justify aggressive spending to achieve growth (e.g., growing 200% with negative 100% free cash flow margins).

Reflexively, this is a simple metric, but there’s one element that isn’t quite right: growth and profitability can’t be equal. While the focus on growth fluctuates based on market conditions and investors, adding an extra dollar of growth for high-margin recurring revenue SaaS startups is clearly better than adding a dollar of one-time profit. Thankfully, Bessemer conducted an analysis of publicly traded SaaS companies over an extended period and showed that a multiplier on the growth rate, combined with a free cash flow profitability measure, more accurately predicted valuations compared to the traditional Rule of 40 score. Their finding: 1% more growth is roughly twice as valuable as 1% more profitability (see The Rule of X). The growth multiplier fluctuates over time and reached as high as 9x during the early COVID years.

Intuitively, growth being twice as valuable as profitability makes sense. Investing in growth and reducing profitability can potentially make the company more valuable by buying a recurring revenue stream, with the expectation that the revenue will add to the current revenue, making the business larger indefinitely.

Now, with growth being twice as valuable as profitability, the Rule of 40 target of 40 needs to be adjusted upwards to reflect a new, higher target in line with historic public company data. Bessemer did this work as well, and the resulting target is 50. Let’s look at an example: a startup growing 10% due to the downturn combined with 20% free cash flow margins. Under the Rule of 50 scoring, that’s a score of 40 (10 * 2 plus 20), which is below the 50 target. Not good. Now, for a second example: a startup growing 100% with free cash flow margins of negative 100% gets a score of 100 (100 * 2 plus -100), which is excellent. Both examples pass the gut check, assuming they have millions in revenue (e.g., not seed stage).

My recommendation is to use the naming convention Rule of 40 when discussing the traditional growth plus profitability score, and use the naming convention Rule of 50 when discussing growth plus profitability where growth is doubled to represent its greater weighting. Startups should use the Rule of 50, representing growth rate multiplied by two plus free cash flow margins when assessing their performance. Growth is more valuable than profitability.

Last week, I was catching up with an entrepreneur, and his story was one I’ve heard many times before. He has always enjoyed technology. He started in the tech world, decided to go out on his own to do software consulting, and then one of his clients requested a solution that turned into a product.

I’ve heard this general consulting-to-specific-product story so many times that it strikes me as the ideal path for someone passionate about technology and software development but who doesn’t have a specific product idea yet. While software development might seem straightforward with the advent of low-code, no-code, AI copilot tools, and offshore development, it remains incredibly difficult for companies to build software products and get them to market.

My own journey took this path. I started consulting with small businesses as a web designer during the Dot Com days. That lead to more complex web apps followed by my first product company (web content management) and then my second (marketing automation). Consulting helped me develop my software engineering and sales skills.

For entrepreneurs, going the consulting route is one of the lowest-friction, least capital-intensive ways to start a new business and quickly get to market with customers directly telling you what they want. This approach doesn’t guarantee that a product idea will emerge, but I’ve seen many technologists become entrepreneurs and stumble into a product idea, eventually building an incredible product business.

For tech entrepreneurs who don’t have an idea but want to build software, my recommendation is to start a consulting company, build software for clients, and listen to feedback and market trends. Look for opportunities. One of the best ways to become a software entrepreneur is to start as a software consulting entrepreneur.

Last week, I caught up with an entrepreneur who has a great business. He’s built an incredibly compelling product, is targeting a huge market, and has raised a tremendous amount of money. Within our local startup community, his type of startup is in an underserved segment. We discussed how hard it was to find other like-minded entrepreneurs working in similar areas, how difficult it was to raise money (most of which had to come from outside the region), and how challenging it was to find team members with the specialized skills needed to build and innovate around the product.

Thinking back on the conversation with him, I was reminded of our B2B SaaS community 15+ years ago. At that time, we had a handful of entrepreneurs working on their ideas. It was clear that it was going to be a big opportunity, but it was still very small. Some of the things we tried to jumpstart the community included regular meetups facilitated by Twitter and casual email lists. We also tried a collaborative blog where people cross-posted ideas related to B2B SaaS. We organized different events in the community, including an annual get-together that doubled as a pitch competition. Additionally, we attended various regional and national events together to learn new ideas and bring them back to the community. We also informally got together once a quarter for dinner to share ideas, best practices, and updates on our respective businesses.

Looking back, we now have a strong B2B SaaS community in town after many years of working on it. My hope for this entrepreneur and his community is for a similar outcome: more startups, more success stories, and more people reinvesting in the community. Developing a nascent segment of the startup ecosystem takes many years and lots of trial and error, but the outcome, especially from our own experiences, can be incredible. Start now—it’s worth the effort.

As economic cycles go, I was hoping that by now, nearly 2 1/2 years into the software downturn, we’d be seeing more green shoots and signs of recovery. While there are some small pockets of growth, especially around AI investment, the software market is still in a recession. I’ve been reflecting on this over the past few months, talking to entrepreneurs, getting feedback, and trying to find reasons and insights. On valuations, they are still down dramatically from 2020 and 2021, and rightfully so. The valuations got so far ahead of themselves and were so distorted based on the accelerated demand for products from COVID and the zero interest rate environment. After valuations peaked towards the end of 2021, they started to fall dramatically and have since fluctuated in a more sustainable, long-term average range.

From a software perspective, for sales, churn, and renewal rates, this downturn has highlighted just how often software companies sell to other software companies. Much like in the dot-com heyday, high flyers with fast growth sold their products, ads, and solutions to other tech companies. As long as money was flowing on the investment side, those dollars helped the whole ecosystem, and everything looked good. Once the new investment stopped, most of the ecosystem fell apart. Today, we’re in a similar situation outside of the AI investments.

In other words, software companies are the early adopters for other software companies. When software companies stop receiving large amounts of venture capital at favorable valuations, they become much more cost-conscious. They let go of employees, cut back on their own spending, and stop buying software from other software companies. This presents challenges for the software industry.

Of course, plenty of software companies sell to non-software companies. By and large, the economy is doing fine but not growing fast adjusted for inflation, so the sales from software companies to non-software companies have been slow and steady. Sales from software companies to other software companies have been nonexistent, resulting in an overall malaise in the software business. When does it all end? I don’t know. We’re still bouncing along the bottom. At some point, things will pick up, and we’ll get back to a more aggressive growth orientation as a software industry. Hopefully, that’s in 2025, but you never know. The lack of investment by software companies and software companies selling to other software companies has been eye-opening to me and is one of the important reasons why the software industry has struggled for nearly 2 1/2 years.

Last week, I caught up with an entrepreneur who shared insights on the importance of connecting with the local startup community and fellow founders. Having experienced the ups and downs of business, they now find themselves in a position to network and build an entrepreneurial network as things are on the upswing. This conversation reminded me of my own experiences when I moved to Atlanta over 20 years ago and the effort it took to meet local entrepreneurs. At that time, the startup community was fragmented, spread out across the region, and primarily linked to a couple of local universities and a few networking groups.

Reflecting on the importance of the startup community and the outcomes from many years of participation, I can unequivocally say that the value derived has far exceeded the effort invested. One example that comes to mind is from 2006 when I attended a local networking event for interactive marketers. While standing in line to check in and pick up my name badge, I ran into my college classmate, Adam Blitzer. We hadn’t seen each other in a few years, and reconnecting at that random event led us to start Pardot together. A similar instance occurred in 2012 at a startup event, where I shared my experiences. After the meeting, Rob Forman approached me looking for his next opportunity. I connected him with Kyle Porter, and together they did amazing things as the co-founders of Salesloft. In both cases, it was regular community-building events that facilitated networking and led to great outcomes.

Today, there are many more programs, events, and organizations that bring the community together, uniting different verticals and stages of entrepreneurship into a robust environment for networking and support. Reflecting on my journey, my main recommendation for entrepreneurs is to find and build their own community. If there’s a gap in the market, address it by building your community. I believe that the human element of the entrepreneurial journey is often underestimated by first-time entrepreneurs. By neglecting this aspect, they miss out on valuable opportunities. Entrepreneurs would do well to engage with their local startup community and build relationships with fellow founders.

Last week, I caught up with an entrepreneur, and we discussed milestones for his startup. In this case, they had raised a seed round, and have been building the product for several months. The big question we discussed was: What does it take to raise the next round of financing, and what milestones should we be aiming for? We talked about the pros and cons of aiming for a recurring revenue target or a certain type of customer profile target. But ultimately, at this stage of the journey with no revenue and no paying customers, the most important thing is to sign 10 unaffiliated customers who pay something as the next milestone.

The reason this is so important is that right now, there’s a belief from market trends and some customer discovery that there’s a need for the product and solution. With no paying customers, it’s difficult to prove credibly that there is, in fact, this market opportunity. Instead of aiming for $1 million of revenue or some larger aspiration, it’s more important to get 10 unaffiliated customers that love the product. They will be a testimonial for the product and willingness to pay, even if it’s far below what the market will eventually command.

With these paying customers, it’s easy to extrapolate out how a small but fast-growing market achieves scale in the next 5 to 10 years. Ideally, there will be a huge number of potential customers. By having the customers pay at least something, even if it’s a beta, it demonstrates that there’s real skin in the game and a meaningful problem being solved.

Too often, entrepreneurs try to sign free “customers” in an effort to get the product used, and that usually doesn’t work. It’s much better to have the customers pay at least something so that they’re bought in and provide honest feedback. As an entrepreneur in the early days, it’s easy to get caught up in fundraising and selling a vision. But the first huge milestone is signing up 10 unaffiliated customers who love the product. It sounds simple, but it’s incredibly difficult.