Why now?

One of the most important questions for an entrepreneur is “Why is now the right time for this idea? Didn’t others try previously and fail?”

There are rarely new ideas in startups. If you have an idea, someone probably already tried it and failed — maybe they mis-executed, there was something counter-intuitive about the customer or business model, or they were too early (correlated with the market not being big enough yet). If you assume other people are smart, which is generally a good practice, then they executed well and there wasn’t anything counter-intuitive going on.

Earlier startups were likely just too early. So if you can’t point to an obvious misstep in prior attempts, “why now?” is often the critical question to answer.

There are at least 5 classes of good answers to why now:

  1. new technology allows products that simply weren’t possible before, e.g. battery tech and electric cars
  2. new regulation, e.g. Obamacare
  3. new business model has emerged, e.g. advertising could support free content online
  4. new user acquisition channels, e.g. search/SEO, FB Platform v1
  5. customer behavior has shifted, e.g. a desire for ephemerality once people understood the consequences of searchable, permanent identity

1 to 4 are strong answers and generally clear cut.

5 is the trickiest. Behavior change is the most common answer I hear startup founders assert around “why now” for their company. If 5 is true, then you win BIG — these are the “It wasn’t true until it was true” sorts of startups. Facebook, Uber/Lyft, and Snap fall in to bucket 5.

The challenge is 5 is the hardest to know looking forward. You can assert it’s true, but it’s easiest to know behaviors/preferences/attitudes changed looking backward.

whynow

What this means

If you can find novel solutions to problems because of new technology, regulation changes, new business models, or a new customer acquisition channel, then you can often win big and win quickly.

However, the vast majority of startups assert they can succeed because behaviors have shifted somehow. But the vast majority of these assertions are incorrect. However, the ones who are correct will win big. You can only know if the behavior shifts are real in hindsight, but you have to make educated guesses about these shifts looking forward. And that in a nutshell is one of the hardest challenges of being an entrepreneur or angel investor.

Metrics

There are only four types of metrics – quality, scale, engagement, and revenue. Effective metrics track real value, are sensitive, and easy to understand. When communicating metrics, you should call out how the operational metrics that measure progress against your current tactics will drive the topline metrics everyone at your company understands.

Categories of Metrics

Product metrics fall in to four categories:

  1. Quality – How good is your product at doing what it says it does?
  2. Scale – How many people use your product?
  3. Engagement – How deeply do people engage with your product?
  4. Revenue – How much money do you make?

These categories are deeply interconnected — scaling your userbase may drive down your overall engagement rates as new, less engaged users come in. Putting ads in to a product may drive down retention and engagement. Driving up engagement is often one of the best ways to drive growth in the long term, etc.

In general, you strive to make your product great for a small number of people, get more people to use this valuable product, deepen engagement with those people, then figure out how to make money from them, and loop back around to figure out how to build a high quality experience for an expanded set of people.

Characteristics of a Good Metric

  1. Represent real value – The more closely a metric represents the actual value to users and customers the more likely it is to guide a company in the right direction.
  2. Sensitive – a good metric will move up/down based on work you do more than exogenous factors.
  3. Simple – simple counts and time series are surprisingly effective.

For example, “number of people using our product on a given day” aka DAU is real value (more people using your product is good), sensitive (if you send a lot of notifications or if you are in the press, this will go up), and simple because you can look at the graph and quickly know if things are going well.

“The ratio of photos to videos uploaded per person” is not clearly valuable (why does this ratio matter?), sensitive (the ratio may not change a lot unless you fundamentally change your product in a big way), and is not simple (is the above shape good? is it going up because people are uploading more photos or the video upload flow is broken? what would you expect to be a “good shape” to that curve?)

Communicating with Metrics

It’s easy to lose context on why certain metrics are a priority and how all of a company’s metrics fit together. As an employee, this loss of context can feel like there is no strategy. It can lead to teams that struggle to communicate because they do not have context on why other teams’ metrics matter.

The reason this happens is that most people conflate topline and operational metrics.

Topline metrics measure progress towards your mission. They are high level and stay consistently tracked for years. These are the metrics your board of directors want to know about, such as daily active users (DAU) or revenue. You will have only one or two topline metrics for each of the four types of metrics (quality, scale, engagement, revenue).

Operational metrics measure the progress of strategies and tactics. They are in service of a topline metric. For example, using search ads to acquire customers is a tactic, measured by cost of customer acquisition using search ads. The overall strategy you are using may be to pay for new users, measured by an overall blended CAC. This strategy is in pursuit of monthly active users (a topline growth metric).

Operational metrics will change as tactics or strategies evolve. However if you articulate how operational metrics roll in to topline metrics, this will not feel jarring because people will understand how the old and new operational metrics were in pursuit of the topline metric. You can/should also reinforce that topline metrics are proxies for the value you want to create in the world, not the end unto themselves, to keep everyone grounded and focused.

Example 1: Google Search

Here is a simplified example using Google Search. There are many possible operational metrics for each topline metric, and the operational metrics you focus on will change over time.

google-metrics

Example 2: eBay

This is a more complicated example because you have a two-sided marketplace with buyers and sellers, and it’s important to measure the health of both sides of the marketplace.

ebay-metrics

Risks

The biggest risk in creating a metrics informed culture is that over time, people conflate metrics and goals. Metrics are a proxy for value and an abstraction to help you measure progress. Don’t lose sight of the real goals: to create real value for customers. If you lose sight of the value you are ultimately creating, you can move metrics for the sake of moving metrics, picking incorrect metrics targets, and ultimately will be disrupted by another company that actually creates real value for customers.

 

The right way to network

“Networking” and “connecting” as most people attempt it is a waste of time. [1] As most people with large networks know, focusing on helping others is the best strategy. The more people who ask you for help, the more connected you actually are, and the more able you will be to use your network to accomplish your goals in the long term.

pagerank

Why is it important to have a network?

Networks create tremendous value through access. All of the best things that have happened in my life have happened because of access to the right people. Whether it is finding a job, starting a company, selling a company, angel investing, or finding my future wife — all of the best things in my life have been a result of having invested in a robust group of friends and colleagues over the years.

None of these outcomes were my goal. They happened as a side-effect of helping others in a large and valuable network.

What is the right networking strategy?

Too often people focus on trying to “connect” with others in the hopes of being able to accomplish their ends through a connection. This is a flawed strategy.

The right way to “network” is to focus on helping others in your network. Generating value for others makes you worth being connected to, which creates greater and stronger inbound connections, and a greater willingness for others to help create value for you.

One simple way to think about influence in a network is PageRank. A webpage is more important if more webpages link to it. And a page is more important if other important webpages link to it. Thus the measure of authority and influence is a function of both quality and quantity of inbound links to a webpage.

The same applies to human networks. If people route requests to you, you are more influential in the network because you are more capable of helping others get things done. And the more influential the people routing requests to you, the more influential you must be because of your ability to help these more influence people. Then, when you make an outbound request you will have more influence (PageRank) that flows out over your outbound request, which increases the likelihood your network will help you.

Where do you start?

1. Figure out how you are uniquely able to help someone. Call this your “unique asset.” Everyone is an expert at something, has proprietary access to some group of people, or has time they can turn in to value for others. For example, if you are a student, companies want to recruit on campus so you can be a conduit to the campus.

2. Find people you can help and actually help them. Don’t just ask how you can help — figure out how to help. Don’t just offer to help — actually help. This is effectively finding product-market fit for your unique asset.

3. If/when people you’ve helped ask how they can repay your kindness, tell them to pay it forward. You now have someone in your network with a different unique asset than your own. This broadens the set of people you can help to those whom you could help directly + those you could refer to someone in your network.

Rinse and repeat until you have a massive, useful network that will help you and everyone else you know.

[1] – The way most people “network” and “connect” feels extractive to me. This is different than asking for help with a clear ask. Asking for help is great and more entrepreneurs should do it.

Onboarding a New Product Manager

Once a startup has 8-10 engineers a company often needs to bring on its first product manager. Below are some of the best practices I’ve learned over the years for ramping up a new PM.

Why is it hard to onboard a new PM?

Ramping up a new PM is challenging for two reasons:

  1. Product Context – to help a team make the right decisions, a PM has to help a team synthesize qualitative information, data, technical architecture, design decisions, go-to-market strategy, etc. This synthesis will take a long time.
  2. People Context – to ship products and features, a PM has to work with a wide variety of people inside a company, likely none of whom report to her.

How to Help: Product Context

  1. Set aside time at the end of every day for some fixed period of time (say two weeks) to answer any questions she has from that day.
  2. Give her access to all of the research, data, past product specs, presentations, sales material, blogs that she should read regularly, etc. and ask her to read as much of it as possible as quickly as possible. Let her know that she may have to read it two or three times in the first month to really understand it.
  3. Have her get as much context as quickly as possible on the other parts of the business — have her sit in on a budget meeting, go out to meet customers, sit in on sales calls. Whatever it takes to get a holistic understanding of how the business works outside of the product.
  4. Help her behind the scenes by helping her do the work without anybody knowing. For example, if the next deliverable is a spec, help her co-author it, edit it, and make it high-quality. Then when it goes to the engineering team she will establish credibility very quickly because it will come in a form that they expect and that a quality bar that they’ve come to expect from you. This will make her successful more quickly and in the long term create the least amount of pain for you because you’ll have landed her well with the team.
  5. Let her know what the ramp up will be very explicitly along with what the major milestones are for your involvement. For example a hypothetical timeline might be: for the first month you will help her edit the specs, can help her draft any emails or answer product questions for her 24/7, and will be in product team meetings. At the second month you will stop doing editing specs, she is expected to run meetings, and you will back out of those meetings. In the third month, she needs to be able to have enough context to make product decisions on her own and you will only get involved if the team is not hitting its ship dates or missing metrics targets. That way there’s no ambiguity about whether you are involved because she is not doing well, if you’re micromanaging, or if she is still in the ramp-up phase.

How to Help: People Context

  1. Let her shadow you for a few days to understand how you run meetings and what the various teams expect from a product manager. Ask other teams (engineering, design, sales, marketing, etc.) on her behalf if she can shadow them or sit in on their meetings to get up to speed.
  2. Give her a list of everyone she needs to have a great relationship with, explain what they do, what motivates them, and what they expect from her. Help her build good working relationships with everyone she needs to have good relationships with. In part this is innate, and in part it’s helping her understand who these people are, what motivates them, what they expect from their PM, what they don’t like, how best to build those relationships, etc.
  3. Help the team understand what she’s responsible for and what she’s not. They have come to expect certain things from you and she may not be able to give them all of that immediately, so they need to have expectations set appropriately up front too.
  4. Often as the former PM, new PM manager, or PM turned CEO of a startup, people will let you know in subtle ways if she is not delivering something the team expected. Help her interpret these signals and understand there is no ambiguity between what she expects and what the team expects. Reinforce this is not about micromanaging or a lack of trust between teammates. You simply have more context on the people to read subtle signals and are passing her this context based on your experience working with this team.

Be patient — often the new PM is stepping in for someone who lived and breathed the product for many years and who helped build out the team around them. These are big shoes to fill and becoming an effective PM takes an uncomfortably long time.

autonomy vs impact

This is a simple, imperfect framework that has been helpful to some friends as they think about career decisions. Often when people are unhappy they have made a tradeoff between impact and autonomy that does not match their preferences.

impact-autonomy

When you are considering a job (or career) you are in the bottom left corner. The goal for many people is maximum impact, maximum autonomy in the top right.

Path 1 is the red line: join a bigger, more established company and have tremendous impact very quickly. As a junior engineer working on Google Search, for example, you can make billions of people’s lives better. You will be tremendously constrained in some ways, however. There are experimentation processes, layers of management to convince, brand risk, and much more. The freedom many people seek comes from many years of delivering results, establishing credibility, and growing inside the organization. This is the executive’s path — you have to work for years inside the organization to earn autonomy and move right on the chart.

Path 2 is the blue line: start a company and have tremendous autonomy. You can hire who you want, work on what you want, and have the final say on many critical decisions. But no one cares. In the grand scheme of things, your work will likely have little impact. To have 1% of the impact of Facebook would make you one of the most successful companies in the world. Having impact requires years of hard work, finding product-market fit, betting on the right market, building an organization that can scale, etc. This is the entrepreneur’s path — you move to the right on the chart immediately and have to work for years to move up.

Succeeding on either path requires very different skills and caters to different personalities. Earning autonomy in a high-impact organization selects for different people than fighting for impact in a sea of startups.

At different times in a career, preferences can shift or it may be worthwhile to pursue time sensitive opportunities. In talking with friends, I’ve noticed that many times if someone is successful but unhappy, they have found themselves on the wrong path. They have traded off autonomy and impact in a way that ultimately was misaligned with their current preferences.

The Middle Class Is Waking Up

Summary

I spent a few hours digging in to the data from my home state of Ohio, which is a bellwether for US presidential elections. Combined with data that the middle class is being gutted, I think we have the beginnings of a middle class revolt. The middle class is finally waking up to the reality that post-world war II America is gone, is not coming back and they need some significant political change to help.

The writing was on the wall
The working, middle class has voted for change since 2008 and against Clinton (aka the establishment) consistently. They voted in 2008 for Obama against Clinton, in the 2016 primary for Sanders, and in 2016 they voted against the Republican establishment for Trump. They were very consistent that Clinton represents the system that screwed them in the first place and they do not believe she will radically change the system. Without a radical change these people are going to stay screwed. And even if Trump messes it up for everyone else, they aren’t much more screwed than they are today. Thus many voted for Trump and many stayed home, as evidenced by lower voter turnout where Clinton needed it.
The Trump Coalition
There are four groups in the Trump coalition:
  1. Hardcore Republicans like Newt Gingrich or Paul Ryan
  2. Single issue voters (e.g. Evangelicals against abortion)
  3. Bigots  (racists/xenophobes/homophobes/misogynists)
  4. White, middle class workers
The reality is that groups 1-3 would never vote Democratic. Group #4, however, has historically voted for Democrats in states like Pennsylvania and Ohio. In this election many stayed home and many voted Republican.
The system is failing the middle class

Because the election was so close, any thing that tipped the election is technically “the reason Trump won.” Voter ID laws, FBI investigation, media coverage, inaccurate polling, etc. are all part of it.  However, there is an underlying trend that is going to cause even more chaos in the future if we don’t address it. Trump won Group 4 in key states like Ohio, Pennsylvania, and Michigan because they need to change the system that is not working for them. Some in group 4 stayed home but many switched away from the Democratic party.

Look at the differences between how votes were cast in 2012 vs. 2016 in Ohio.

  • Union households: 60% supporting Obama to 42% supporting Clinton.
  • People old enough to have gotten screwed in the workforce, aka 25-29 year olds 63% to 47% voting Democratic and 30-39 year olds from 55% to 43%.
  • People who make less than $50k went from 59% to 52% support.

There are similar trends hold across Ohio, Pennsylvania, and Michigan. And the trend is the key thing here. Maps that show how millenials would have overwhelmingly voted for Clinton do not capture the trend. If these trends continue, millennials will not be voting overwhelmingly Democratic in the Midwest.

2012 is on the left, 2016 on the right

The State of the Middle Class

This election is a symptom of the underlying disease. The wealthy have gotten much wealthier but the middle class is getting destroyed.
People who were part of a middle class in the US had a great run after World War II. But since the 70s, the middle class has been eroded away for a variety of reasons while the rich have gotten much richer. For a while it looked like maybe everyone was benefiting with the rich just benefitting more. But increasingly it looks like the rich are benefitting at the expense of the middle class.
share-of-adults-living-in-middle-income-households-is-falling
the-middle-class-is-losing-ground
u-s-_income_-_changes_by_income_group_1979-2011
u-s-_income_shares_of_top_125_and_0-125_1913-2013

us_real_household_median_income_thru_2014

151208173919-chart-middle-class-share-of-income-780x439

u-s-_household_debt_relative_to_disposable_income_and_gdp

I believe the middle class is finally waking up to the fact that they’ve been left behind.

Their local economies are not growing, they don’t have the skills to be globally competitive, and the institutions that were supposed to help them have failed. The military sends their children off to fight but doesn’t train them to do something useful so they end up unemployed. Local governments can’t keep their drinking water safe. State governments couldn’t keep predatory lenders and for profit colleges from exploiting their hope for a better life, so they are now buried in debt. The federal government can’t seem to punish wall street elites for destroying the economy and can’t seem to tax the wealthy to actually invest back in the economy.

Every institution that should help the middle class has failed to meaningfully help them. And unless we start to see some systemic changes to address these trends, I do think the middle class will be increasingly frustrated and will be willing to take increasingly drastic measures. Trump is just the beginning.

The Qualitative Perspective

Read “What So Many People Don’t Get About the U.S. Working Class

It is a far better summary than I could write. Some choice quotes:

One little-known element of that gap is that the white working class (WWC) resents professionals but admires the rich. Class migrants (white-collar professionals born to blue-collar families) report that “professional people were generally suspect” and that managers are college kids “who don’t know shit about how to do anything but are full of ideas about how I have to do my job,” said Alfred Lubrano in Limbo.

Manly dignity is a big deal for most men. So is breadwinner status: Many still measure masculinity by the size of a paycheck. White working-class men’s wages hit the skids in the 1970s and took another body blow during the Great Recession. Look, I wish manliness worked differently. But most men, like most women, seek to fulfill the ideals they’ve grown up with. For many blue-collar men, all they’re asking for is basic human dignity (male varietal). Trump promises to deliver it.

“The thing that really gets me is that Democrats try to offer policies (paid sick leave! minimum wage!) that would help the working class,” a friend just wrote me. A few days’ paid leave ain’t gonna support a family. Neither is minimum wage. WWC men aren’t interested in working at McDonald’s for $15 per hour instead of $9.50. What they want is what my father-in-law had: steady, stable, full-time jobs that deliver a solid middle-class life to the 75% of Americans who don’t have a college degree. Trump promises that. I doubt he’ll deliver, but at least he understands what they need.

“The white working class is just so stupid. Don’t they realize Republicans just use them every four years, and then screw them?” I have heard some version of this over and over again, and it’s actually a sentiment the WWC agrees with, which is why they rejected the Republican establishment this year. But to them, the Democrats are no better.

Important aside: Emboldened Bigots

There’s a lot of fear and anger from people who are worried about Trump’s bigotry. I think this is all very real and very understandable. But we should separate our own fears and values from the fears and values of those who voted for him. I don’t believe  Trump won the swing states JUST because he convinced the bigots to vote for him. Maybe they turned out in higher numbers this time, though I have yet to see that data.

Nor do I think all Trump supporters are bigots — they recognize what he says and made a hard tradeoff. I grew up with many of these people in West Carrollton, Ohio where the median household income is $40k/yr. In my opinion, Trump convinced a lot of these good people to vote for him DESPITE their needing to vote alongside racists, xenophobes, misogynists, and homophobes. Don’t forget that these same places voted for a Black president, Iowa was one of the first states to recognize gay marriage, and 2/3 of people in Ohio believe you shouldn’t defund Planned Parenthood.

We are going to have to deal with the consequences of racists, homophobes, anti-Semites, xenophobes, and misogynists feeling emboldened. The silver lining may be these people were already out there and it’s better that we deal with them, rather than letting them lurk in the shadows.

Resources/Data

Investor updates

Investor/advisor updates are an often under-utilized tool. Though there are many good reasons to do it, the real value is engaging your investors to help you solve problems.

High Level (TL;DR)

Do:

  • have a concrete ask in each update
  • keep it short, results focused, and on what matters to your audience, not to you
  • send the update regularly (at least quarterly, monthly is even better)
  • humanize the update with names and photos

Don’t:

  • deep dive in to metrics unless they teach something counter-intuitive (focus on synthesizing info, giving context)
  • hide bad news (own it, ask for help, or outline your plan to address the issue)
  • describe the activity/work (focus on results and impact)
  • spend more than 30 min a month (it should fast to synthesize this information if you are running your business efficiently)

Example

This is an amalgamation of the best updates I receive regularly. Shout out to the companies who most influenced this template: Color, Boom, and NoRedInk.

This update is for a hypothetical company, Banana Stand, that builds a mobile shopping app. If you delete all of my comments below, the update is short.

Your startup should track this information internally already so you should be able to update your template quickly. You can also share this internally as a simple way to keep everyone in the company up to speed as well.


Confidential – Banana Stand Investor Update – October 2016

Confidentiality – Please treat this and all company updates as strictly confidential. Do not share/forward any information. Do *not* forward to friends, colleagues or anyone else.

1. How you can help
//make your asks clear

  1. We need an intro to someone who works on Apple’s App Store by Nov 1.
  2. Please refer great sales people for:
    • role 1
    • role 2
  3. Email us if you can talk this week about best practices for eng hiring. We are going to revamp our eng interview process to hire more design/product oriented engineers.

2. Summary (TL;DR)
// 3 sentence summary with your ~3 topline metrics that matter

Monthly active users are slightly ahead of projections, revenue is behind projection because we pulled back ad spend, and we are on track with app launches. We are behind on hiring salespeople and could use your help. We expect revenue to return to projections once we resume ad spend to projections in Nov and Dec.

  • Shopper MAU: 5M (+25% m/m, +178% y/y)
  • Shopper Retention: 33% month over month
  • Seller MAU: 45k (+15% m/m, +300% y/y)
  • Revenue (monthly): $860k (+18% m/m, +150% y/y)

3. Goals
//high level goals, and how many you’re hitting
//this is a good way to track things internally too
// likely as the founder you want to have a list of key things to get done each month and hold yourself accountable
// just open up that list to your investors and ask for help hitting those goals

Goals for October: Hit 3/5
1. Grow to 4.9M MAU [hit]
2. Grow to $980k revenue [miss – details in financials]
3. Launch iOS v.2.3 [hit]
4. Hire three salespeople [miss – hired only 1]
5. Finish product roadmap and planning for Q1 2017 [hit]

Goals for November:
1. Grow to 6.3M MAU
2. Grow to $1.09M revenue
3. Launch Android v.2.3
4. Hire two salespeople – please help us with leads!
5. Identify and sign lease for office location for 2017-2019

4. Product
// Update on product roadmap, highlighting key launches and learnings backed by data.

  • Launched iOS v2.3 which is mostly bug fixes and performance updates
  • Planning to launch Android v2.3 this month
  • Q1 2017 Roadmap is locked. We will focus on driving more sellers in Q1 as we expect that side of our marketplace to have been underserved once we launch all of our buyer features through Q4.

5. People
//Quick summary on how big the company is, any surprises on hiring, and if there are new people, two
 sentences on who they are, where they are from, what they will do.
//Humans like looking at other humans’ faces. So put some faces in here. Humanizing your company is important! 

We are now 26 full-time people and 8 contractors/consultants. Recent hires:

  • Carla Stephenson: Carla was most recently Director of Sales managing eBay autos. She will be managing North American sales for us (3 salespeople). <LinkedIn profile> 

We are behind on hiring salespeople. We thought we would want less experienced people that we could train. However, after interviewing less experienced candidates, we realized we needed to get a manager in place first (Carla) and decided to focus entirely on hiring the manager before hiring two more junior salespeople. 

We also just sent off our class of awesome summer interns  (photo attached). They did all sorts of great work ranging from overhauling our logging infrastructure to revamping how we do customer support. Thanks interns!

team

We are still hiring for 3 roles (2 salespeople, 1 designer): <link to careers page>

6. Marketing & Press
// PR and Marketing wins here with links to press
// fine to have this just say “No Updates” because that’s still an update

No updates on press.

Our online marketing efforts have been 20% more expensive than projected, so we’ve had to spend more acquiring customers to maintain our revenue run rate. Details in the financials section.

7. Financials
// This section can get involved and complicated. Financials get more fleshed out as you get farther along. For a seed stage company, just calling out the cash balance, runway, and when you want to go raise again is great
// Even just showing a simple breakdown of the current revenue and expenses inspires a lot of confidence
// if something is not going well, own it and describe why. Call out if you don’t know why.

  • Cash Balance: $12.3M
  • Runway (forward looking, assuming no revenue growth): 12 months
  • Targeting next fundraise: Summer 2017

We missed on revenue projections for October because we pulled back on our ad spend to conserve marketing budget for Q4 holiday season. We under estimated cost-of-customer acquisition in Q3, and to hit our revenue numbers we had to spend more money than anticipated. To make up for this extra spend, we pulled back our ad spend in October. We will resume our ad spend in Nov and Dec for the holiday season as we saw a residual lift last year through January from our holiday ad spend. We expect our revenue in Nov and Dec to be on target.

bananastand

Table
//I literally copied and pasted this in 15 seconds from a fake Excel I threw together.

bananastandtable.png