Your Most Valuable Resource

When I ask entrepreneurs what their most valuable resource is, I ALWAYS get one of two responses: money (aka – funding, cash) or people.  And it’s hard to argue about the relative importance of these two things.  But those resources are replaceable.  There’s another resource that isn’t, and it’s Time.  Time is an entrepreneur’s most valuable resource and is the subject of this article.  Given the various other tools and resources you have, how can you maximize time?  Let’s explore further.

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Importance of the Time-to-Value Metric

time to valueWhat do buying a new smartphone and being given a gift card have in common?  In both cases you want to extract value as soon as possible.  With the gift card you immediately want to go shopping and with the new smartphone you immediately want to port over your contacts and download your favorite apps so you can start using it.

The same thing happens when subscription-based companies sell their offering to a new customer.  This article describes the all-important time-to-value (TTV) metric and the various ways it can be measured.

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Expanding Beyond Your Home Market (Marketplaces)

Flight MapSome online marketplaces that have a local services component on one side of the marketplace carry an extra burden that “pure” online marketplaces don’t have.  Such marketplaces can’t immediately gain broad geographic coverage for their offering.  Examples, include transportation network companies (ie – Uber, Lyft), food delivery services (ie – GrubHub, Postmates), in-home cooking services, on demand photography services and many other types of services that aren’t easily on-boarded into the marketplace and activated without some local presence by the marketplace company itself.

This phenomenon creates an extra burden when trying to scale after initial business model validation and that, in turn, creates an extra burden when trying to convince investors to put their money into the company.  If you have such a company, read on because in this article I describe some key things to consider and possible approaches to take when devising your market expansion plan.

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Your First Board Meeting

first board meetingWhen you first incorporated as a C-corporation, probably only you and your co-founder were named as board members. You never really had official meetings or voted on anything, that you were aware of. Your attorney would have you sign some documents from time to time but you didn’t pay much attention to them. After some time and some success, you raised an equity round of funding from a VC and one thing they required was a board seat and quarterly board meetings. Now it’s time for the first board meeting and you’re having a mild panic attack because you don’t know what to expect or how to prepare. And you certainly don’t want to embarrass yourself in front of your new VC investor.

This blog article is just for you. I’ll describe typical participants, presentation topics, formalities, common courtesies and other administrative activities associated with board meetings. Let’s get started.

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10 Tips for Controlling Legal Costs

controlling legal costsIt’s amazing how quickly legal costs can add up. If you’re running a startup, it’s possible that your legal costs are second or third highest amongst all of your expenses. And just like medical bills, they always seem to be higher than you imagined possible. Even if you don’t like the lawyer you are using, you know you can’t do without one. So what can you do to control your legal costs? Here are 10 ideas to try.

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Visualizing the Interactions Between CAC, Churn and LTV

CAC Churn and LTVAnyone that has taken an accounting class or learned basic business financials knows the interaction between key elements of a P&L (revenue, cost, expense) and a balance sheet (assets, liabilities, equity).  But it’s surprising to me how many companies with recurring/subscription revenue don’t understand the interactions between the elements that make up customer acquisition cost (CAC), churn and lifetime value (LTV).  There are other important operational metrics to help steer your company (see related article titled “You Never Know What Operational Metrics You’ll Need – So Instrument Everything“) but these are some of the first to start with.

While serving as COO of a SaaS company, I came up with a simple graphic that I used to educate the company’s employees about these all-important levers of success.  In this blog article I use the graphic to explain the basics and then explore various “what if” scenarios.  Hopefully you will immediately identify some actions and opportunities that, if properly exploited, will improve your own success.  There are numerous online resources to help with the exact mathematical formulas for CAC, CAC payback, churn rate and LTV.  So instead of concentrating on the calculations, I’ll instead focus on the interactions and influences these key metrics and their underpinnings have on each other.

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MBOs Demystified

MBO bonusCertain roles in the company call for a bonus as part of the total compensation plan.  But what criteria should be used for determining the bonus payout?  Common choices include company-level, department-level, individual or some combination of these.  These are different from sales commission plans (see related article titled “5 Golden Rules for Setting Sales Compensation Plans“) and are commonly called Management By Objectives (MBOs).  The original concept of the MBO was introduced by Peter Drucker decades ago.  And although the way MBO bonus plans are administered has evolved over time, it is still is an important part of many management systems today.  This blog article will explain the basic components of an MBO bonus plan and some tips for administering them.  I’ve also included an MBO template for you to use.

Since company-level targets are (hopefully) highly scrutinized and well thought out by the management team, they’ve already been well vetted before you find yourself needing to incorporate them into bonus plans.  But the closer you get to setting targets on individual performance, the harder it gets and the wider the possible under/over-achievement.  So you’ve really got to be careful.  Below are some key rules of thumb to keep in mind:

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The Difference Between Growth and Scalability

Experiencing rapid growth is different from having scalability.  Growth is an aspiration or end result while scalability is a capability that may or may not get exercised.  Growth can come in spurts and is most commonly thought of in terms of sales and marketing attributes.  Scalability is architected in and is commonly reflected in the “back office” or the technical architecture of the product solution.  In other words, not the sexy stuff but rather the “plumbing”.

It’s true that having genuine scalability can dramatically affect how your company is able to handle sustained periods of growth.  In fact, this is probably the right way to think about scalability – what is needed so that we can fully exploit sustained periods of growth with minimal risk and disruption to our company?  Going into an “all hands on deck” mode is one way of getting through periods of excessive growth but it comes at a cost of disrupting all sorts of things that are surely strategic and you can’t live in this mode for very long.

Here are some examples to help convert the concept into specific actions:

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Thought About Raising Your Prices Lately?

raising pricesPricing is part art and part science.  But it’s not a “set it and forget it” aspect of your business plan.  Once you start getting some traction for your paid offering, it’s time to experiment with pricing.  The obvious forms of experimentation included premium offerings or value offerings at different price points or maybe volume-based pricing.  But what about simply increasing your price(s)?

Regardless of whether you have competition in your space, it’s something you should serious consider – especially if you have a transactional product (rather than one that requires a consultative sale).  Raise your price 10% and compare the results.  The length of time needed for your test varies based on your volume.  In some cases you might be able to run the test for a day or two and in other cases maybe a month.  If the volume/profit trade-off worked out well with the increase, try it again.

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Why Use a GPS When a Compass Will Do?

Blue metal compass isolated on white backgroundI guess the correlary to this could be “don’t use a compass when the precision of a GPS is needed”.  In fact, the main point is to use the best tool for the job at the time.  If you need to move fast and just want to make sure you’re directionally correct, then a compass is perfect.  With plus/minus a few degrees of precision, you can quickly set off in the right general direction.  In fact, I wrote a blog article on this exact topic titled “An Unfair Advantage All Startups Have Against Big Companies“.  Same for things like estimating your TAM/SAM market size (does it matter if it’s $3.2B versus $3.3B?), estimating salaries for new hires over the coming year and the like.

The analogy of using a compass is ideal for times when speed and flexibility are more important than precision.  In other words, make sure to use a GPS instead for things like revenue recognition and your investor capitalization table – where precision is mandatory.

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A Simple Back-of-Napkin Assessment of Company Progress

Napkin GraphicI don’t have anything against a traditional SWOT analysis but recently found myself helping a couple of startups figure out how they are progressing against their business plan and vision.  They were less concerned with external market forces like competition or market growth and more trying to figure out if they were on track versus off course.  I asked them to create 4 lists:

  • Book cover - Lean StartupThings Validated – Thinking in line with the Lean Startup (order book here) validated learning concept, what has already been validated regarding your product, pricing, sales model, support model, etc?  Do you have evidence to support this validation?  Gut feelings aren’t good enough to place an item on this list.
  • Initial Indications – These are items that aren’t yet validated but you have indications that they are moving in the right direction and are likely to be fully validated in the next couple/few months.
  • Identified Issues – Pretty self-explanatory.  These things aren’t working and you know it.  But perhaps you don’t yet know what you’re going to do about it.
  • Still Unknown – Elements of your business plan and vision that can’t be included in one of the above three categories.

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You Never Know What Operational Metrics You’ll Need – So Instrument Everything

It happens over and over and over again.  A company has a successful growth spurt and is ready to ratchet up to the next level.  They are sitting around a table trying to decide whether to add more offerings, enter adjacent markets, raise their prices, etc, etc, etc.  Very quickly they realize it would be ideal if they had analytics and metrics on A, B and C to help make the best informed decision.  But they don’t have A, B and C because they didn’t capture the data during the earlier days and now it’s too late.

This dilemma happens at all stages of company evolution.  So why not instrument everything for data collection from the start?  Seriously, data storage is unbelievably cheap so that’s not the inhibitor.  The hardest part is deciding what information/metrics to keep.  My answer is EVERYTHING.  Now you just have to figure out what “everything” means.  Let’s explore further.

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