Speed and Growth

Icarus
Icarus by exper

I had coffee yesterday with Mark Organ. Mark is a serial entrepreneur and the founder of Eloqua. We were talking about the 2 advantages that startups bring which are:

  • Speed
  • Growth

Speed and growth are what the startup is all about. You have the opportunity to be faster, more nimble and achieve greater growth rates than larger companies. The discussion around speed focused on the ability of startups to adapt to their environment more quickly than their larger more established competitors. Mark talked about the OODA loop and the ability for startups to make the loop tighter and make better decisions and more effective actions. 

“The key is to obscure your intentions and make them unpredictable to your opponent while you simultaneously clarify his intentions. That is, operate at a faster tempo to generate rapidly changing conditions that inhibit your opponent from adapting or reacting to those changes and that suppress or destroy his awareness. Thus, a hodgepodge of confusion and disorder occur to cause him to over- or under-react to conditions or activities that appear to be uncertain, ambiguous, or incomprehensible.”  Harry Hillaker

OODA by John Boyd
From Curtis Gale Weeks

Being able to compress the OODA loop is one of the advantages of a startup is to “operate at a faster tempo or rythym than our adversaries”. This is all very similar to the concepts introduced in the lean startup (see Eric Ries’ The Startups Rules of Speed).

” Applying lean thinking to entrepreneurship requires a new definition of progress, one that is focused on measuring learning rather than measuring objects. The day-to-day process that startups build should also attempt to maximize speed of learning.” Eric Ries

Building in tools and methods into the process that let founders and team members observe, orient, decide and act faster is key. The more I think about the need to build metrics into applications and marketing solutions. I want to be able to understand the performance of my design decisions relative to previous experience/performance, new information, competitive analysis and traditions. This is the Orient part of the OODA loop but it requires the codification of new performance data and the existing business metrics and the cluster immune system. Check out Bradford Cross’  experiences using lean, he cuts through a lot of the hype, mysticism and talks about it in practice.

This is very different than the using the OODA loop to keep ahead of your enemy’s decision making cycle. Your enemy early on is time and a lack of customer data. But I’m becoming a big believer in customer development. It’s becoming clearer for me that if you are able to automate your observations and data collection that you’ll have better data about the performance of your application to make informed decisions. The same is true of the inbound marketing campaigns and tools. Time to look at what can be captured and how to automate the “orient, decide and act” phase for application development.

Marketing metrics 101

Reposted from my original on StartupNorth.ca

Photo by Darren Hester
Photo by Darren_Hester

Mike McDerment from FreshBooks gave  a great presentation on the basics of web application marketing metrics. He focuses on the metrics, systems and reporting that all companies should be building into web and mobile applications. It is a must read for any entrepreneur building a web application.

Metrics

Cost Per Acquisition (CPA)
How much does it cost you to get a customer? It’s a simple enough calculation, how much do you spend on sales and marketing to acquire each customer. Roll up your staffing costs, your ad buys, your outbound marketing, etc.
Average Revenue Per User (ARPU)
How much revenue do users generate? How do you track it? Does it change based on segment? How do you increase it?
Churn
What percentage of your existing customer base leave every month? This is different than CPA because this is about customer satisfaction and retention. Don’t think this is important? According to April Dunford churn is a killer. “The probability of selling to an existing customer is 60-70%. The probability of selling to a new prospect is 5-20%”
Lifetime Value (LTV)
How long does a customer continue as a subscriber? Does their ARPU change over time? Do you have ways to increase their spend or reduce their churn?

These basic metrics are expanded by Dave McClure in AARRR! Startup Metrics for Pirates. Where the metrics are divided into 3 main categories:

  1. Get Users (Acquisition, Referral)
  2. Drive Usage (Activation, Retention)
  3. Make Money (Revenue)
View more presentations from Dave McClure.

It seems so simple on surface, but as CEOs and startups we need to be committed to building the systems and metrics into our products. I was just floored at MeshU when I heard Dan Martell talk about the Flowtown.com Startup Immune System where they are beginning to use the lower level business performance metrics to automatically rollback design changes based on performance against the baseline. You can only start doing if you’re building on top of metrics. The idea of having automated your software deployment and sufficiently built business metric baselines that you could autoroll back poor performing changes. At Nakama, I wanted this so much. Not because I had bad developers but because we often made design decisions based on limited customer feedback and I wanted the system to protect me from my own hubris.

Metrics are good place to start. One of the best ways to understand how your company is performing is to begin measurement. Mike has done a great job

MeshU – It’s worth the price of admission

MeshU, May 17, 2010It’s time again for MeshU. I wrote about why startups should consider attending MeshU over on StartupNorth. This is a great opportunity to learn and connect.

Learning

There are a lot of smart, talented, successful and engaging people at MeshU. You want my list of who I can’t wait to see:

  1. Bill Buxton
    Bill is a colleague of mine at Microsoft. He also had a profound influence on my career. I was training to be an academic. I wanted to do research like my idols (including Bill Buxton), but Bill’s session at CHI’97 in Atlanta is where he espoused that we’re all designers. We’re all designing and building and shipping software that people use. Imagine that. He is an exciting, engaging speaker that any startup, executive, designer, developer should listen to.
  2. Sean Ellis
    The #leanstartup thing has become a movement. Whether you’re lean or you’re fat, you there’s something to learn about product development and marketing from the guy that brought Xobni, EventBrite and Dropbox to market. I think every startup and every marketer needs to at least listen to what Sean Ellis is saying.
  3. Aza Raskin
    I’ve never met Aza, but he works with 4 people that I think are top notch at Mozilla (I’m looking at you Beltzner, Shaver, Lilly and Surman). I’ve written about his work at Humanized, I used his product Enso as my launcher in Vista. And one of my close friends actually worked on the Canon Cat with Aza’s father, Jef. Aza is the creative lead for Firefox. If you were looking to learn from someone that is helping to build the fabric of every web experience (well technically 24.69% of all web experiences ;-), there’s a good chance that Aza will teach you something.
  4. Diana Clarke
    Diana is a developer rockstar. She’s moving the entire backend at Freshbooks from PHP to Python. This is a crazy project. Switching languages in real-time with the application still running. This is like performing a heart transplant with the patient still conscious. You can learn something about engineering complex systems from Diana.
  5. Dan Martell
    Profitable in 2 months at Flowtown, that’s crazy. Hopefully that includes founder salaries. But you get to hear from the trenches about building a startup using customer development. You’ll learn about “customer development, feature prioritization, split testing, product metrics and agile development as approaches to increase your probabilities of succeeding”.
  6. Joe Stump
    Geolocation infrastructure startup with “the” set of investors (Ron Conway, First Round Capital, Chris Sacca, Kevin Rose, Tim Ferriss, Shawn Fanning people). He was the lead architect at Digg. So if you don’t think you can learn something from the guy who built the infrastructure that created the tsunami that spawns “The Digg Effect“. Then forget about scalable architectures and ask him about raising money.

And this is only 6 of the 13 speakers. There are world class people coming to Toronto. Hopefully everyone from Montreal to Waterloo realizes that this a big deal. The speakers are of the calibre that you’ll find at a conference in Silicon Valley, San Francisco, New York , Austin, Vegas, where ever.

Connecting

MaRS only hold 400 attendees. This is an incredibly small conference venue. If you’re smart, lucky, outgoing without being douchey, you have a pretty good chance of meeting the speakers and other attendees that are pretty awesome.

The thing to remember is that a chance meeting at a conference with any of these individuals isn’t going to change the course of our startups. You’re looking to make some initial connections. I feel like I tell a lot of entrepreneurs that you don’t have to get everything about your startup on the table in 30 seconds. None of these people have the power to change your life in 30 seconds. It’s like dating, as much as you want to “hop on the good foot and do the bad thing”, it does require a little bit of conversation. (If you really need instant gratification, there are a lot of consultants/charlatans/snakeoil salesmen that will take your money and tell you that if you do these 3 things you’ll be more awesome). 

Events like MeshU aren’t tradeshows. You’re not likely to find customers. You’re not going to find booth candy. You’re probably not going to find an investor (though if I was a Canadian angel or early-stage investor I’d be there just to meet the entrepreneurs and maybe learn something to help my portfolio). You’re there to meet potential hires, other entrepreneurs that you can share war stories and lessons. The whole point of an ecosystem is to enable the exchange of value. The value can only be exchanged between connected nodes in the network. The ecosystem gets strong and more valuable the more connections we build.  

My advice is to start thinking about the connections and the learnings that will justify the price. Then go register for MeshU.

I’ll see you there.

One small step for startup kind

Posted with open comments on StartupNorth.

“I believe this Nation should commitment itself to achieving the goal, before this decade is out, of landing a man on the moon and returning him safely to earth. No single space project in this period will be more impressive to mankind, or more important for the long-range exploration of space; and none will be so difficult or expensive to accomplish." – John F. Kennedy

Yesterday was the 40th Anniversary of the lunar landing. The Apollo program is an interesting concept for early-stage startups. It was a self-imposed race to beat the Soviets. A lot of startups need to feel the pressure to succeed, and having timelines, constraints and competition often helps amp up the sense of impending doom.

For the Apollo program there was competition. There were extreme timelines. There were budget constraints. All of these were much bigger and longer than the plans for startups. But there was a clear goal (“landing a man on the moon and returning him safely”), and constraints (“before this decade is out”). And most importantly the money wasn’t the end, it was a necessary means to accomplish the larger goal.

Clear Goals

Beating the Soviets. Recovering national pride after the failed Bay of Pigs invasion. It was an effect of the Cold War. But there was competition. The historical analysis of the program looked at a variety of success factors including Big Hairy Audacious Goals that included:

  • “a chance of beating the Soviets by putting a laboratory in space”
  • “a sporting chance of sending a 3-man crew around the moon ahead of the Soviets”
  • “an excellent chance of beating the Soviets to the first landing of a crew on the moon (including return capability, of course)”

The definition of goals included both the engineering constraints but also a prediction of the potential of the competition. Startups need to set big goals. The goal should specify the desired outcome, not the path/method for achievement. 

Competition

The goals need to be in context of their operating environment including that of their competitors. I really hate when an entrepreneur tells me they have no competitors. The number of times that this is true is rare. Most companies and products have competition. Stop being afraid to talk about your competition. Understanding where you fit in the competitive landscape can help you figure out your product offering, your time to market, potential marketing events. It makes it a lot easier to know who is the bad guy? Trust me, you should be diligent and honest about who you are competing against. Having a clear competition makes it easier to see where you should spend marketing dollars, what conferences to attend or avoid, and build strategies that either embrace or ignore the competition.

Constraints

Money is one of the easiest constraints to understand. Unfortunately, when you’re working part-time out of your basement/garage/spare room, you don’t have the impending sense of doom that money is a constraint. The runway for side projects is a long. I think this leads to thinking that raising money is the end goal.  “We’ve raised a million dollars”. This is meant to be the beginning of the journey. The money is for a purpose, it’s meant to help you grow, build, market, acquire, etc. Raising money enables you to do the real work. It allows you to either increase the rate of acceleration or lengthen the runway. But it’s just the beginning. Equally said, SR&ED is a great benefit to companies, however, when you decide to focus on SR&ED credits to keep the company afloat instead of finding new customers you’re doing the wrong thing.

Money in the bank/Monthly expenses = How long until we are dead – Phil Morle

The change over the past 20 years is that the monthly expenses have decreased. It no longer costs hundreds of thousands of dollars for hardware, development environments, net access, etc. The price of servers continues to fall, and with the advent of cloud computing and dynamic loads it is becoming variable with the load on your site or application. Development environments are free. Usually the single biggest cost for a startup is talent. Oh wait, you’re not paying yourself and you don’t have any employees. This has 2 side effects, it reduces the monthly expenses thus lengthening the runway, but it can also have adverse side effects like not forcing entrepreneurs to be self critical of their ideas and their progress

Figure 1: The Startup Runway 
Figure 1: The Startup Runway from Phil Morle on Pollenizer

I like Phil Morle’s method for using the runway:

Pick a date in the future (this is point D on Figure 1). Let’s say 18 months from now because that’s roughly what John Doerr of Kleiner says is good runway. And then begin working backwards, determine the point where you will need raise more money or find a paying customer (this is point C). This point needs to be a few months before the end of the runway to allow you a margin of error and the time necessary to close financing or the deal. Continuing backwards in time, you need to be at feature complete (point B on Figure 1). Yes, there is a long time between points B & C but this is to allow you to drive adoption, build press and momentum and refine your existing product and pricing. It brings us to right now, what is the minimum feature set that you can plan, design, build, test and deploy between now and 6-12 months from now.

Lessons for Startups

“Startups fail from a lack of customers, not product development failure” – Steve Blank

You’re goal is to prove your business before time runs out!

  1. Define the end of the runway
  2. Set clear goals and metrics that will prove your business
  3. Identify the constraints – financial, talent, technological, etc.
  4. Focus on customers and markets from day one

Additional Reading