When we pay for things, we expect to receive a specific value from the purchase. Sometimes that value is obvious, like a bar of soap or light bulb and other times it’s not. When it’s not and if there is too much perceived risk of not achieving the intended value, sometimes the seller has to offer an “insurance policy” in the form of a money-back guarantee or even not get paid until the value is confirmed (ie – contingency or success fee).
Many of us that sell products have learned about value-based pricing and the benefits from pricing our product based on the value the customer actually receives. But I’m still amazed at how infrequent I see this done by startups and early stage tech companies. Whenever I meet with them in an advisory capacity and pricing strategy becomes a topic of conversation, I always launch into an exercise I refer to as “extreme value-based pricing”. In this article I’ll explain the fundamental concept so that you can decide on your ideal pricing strategy and related pricing metric.
Continue reading “Extreme Value-Based Pricing”
With as little as it costs to get a software startup off the ground these days, many entrepreneurs start off as what we call “bootstrappers” rather than fundraisers. There’s nothing wrong with that approach but staying in the bootstrapped mode for too long can carry some consequences. This article explores that further.
Continue reading “How Long Should You Bootstrap?”
It’s amazing how success can cause numerous blind spots for managers and executives. The greater the success, the more severe the blind spots. As an advisor I sometimes poke on these blind spots only to get a reaction like “Hey, we’re doing really well, what’s the problem?” Well, it can be a big problem for multiple reasons that can backfire on you later if you’re not careful. Let’s explore further.
Continue reading “Use Mock Layoffs for a Well-Oiled Machine”
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.
Continue reading “Your Most Valuable Resource”
Many (probably most) startups go through periods of extremely little cash in the bank and with visions of crashing and burning before being able to recover. Unfortunately, crashing and burning is what actually happens a high percentage of the time after getting extremely low on cash. But it’s not what always happens and even if closing the company is the only option, there is a certain way to go about it. This article highlights some golden rules to keep in mind upon hitting really tough times, having doubts about survival and deciding how to proceed.
I know what you’re thinking. “We don’t even have 20 employees, so why do we need a management system?” You might be thinking this because you previously worked for a larger company and one of the things you hated was death-by-meetings, decision-making red tape and excessive processes/procedures. Or you might not yet know what a management system is but it sounds burdensome. But every company needs a method to their madness – a way of getting things done, deciding what to focus on and communicating to the team so everyone is pointed in the right direction. That’s a Management System. Now you just need some tips for how to right-size a management system for your stage of company evolution so that it is most effective. This article focuses on the very early stages.
Continue reading “Establishing a Management System”
Market sizing is a very important element of your business plan and pitch deck. The size of your market a question you’ll get asked all the time by investor prospects. And it’s something you’ll find yourself defending, even if much of the underlying data and assumptions didn’t come from you. As the title of this article suggests, I’m talking about your market size. But how do you go about estimating the size of your market and what should you do if the resulting estimate is way too big or way too small? Read further for a few hints and tricks for conducting this important exercise.
How cool is it to use a code name for an important project rather than “version 2.5” or “next gen”? Same for a game-changing initiative that will fundamentally change the landscape and trajectory for the company. This article includes a list of more than 300 code names to consider for your project. In fact, one column includes code names grouped by a particular theme (can you figure out the theme for the last group in the list?) and another column just lists a bunch of cool words and phrases to consider for code names. I’ve used many of these code words over the years and hope you enjoy using them too.
Continue reading “Cool Code Names”
If you already have an experienced product manager on your team, they are probably/hopefully following some well-established product management process. But what about the early days of company formation before you have such expertise on staff? There are always more ideas (features/capabilities, new products, etc) than can be implemented in the desired timeframe. How do you prioritize the ideas to figure out which to focus on first? There’s a simple method I’ve used in the past that at least maps the ideas to various aspects of your business strategy. Let’s explore further.
Continue reading “Prioritizing Your Product Roadmap”
Anyone 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.
Continue reading “Visualizing the Interactions Between CAC, Churn and LTV”
Regardless of a company’s size and stage, maintaining focus is often a critical success factor. This doesn’t suggest nimbleness and flexibility are bad. Quite the opposite, as focus and flexibility can live in harmony with the right management system – one that spends enough time planning and visualizing the future while also looking for signals that indicate a shift or adjustment is needed. I’ve previously written about how nimbleness and flexibility are a key unfair advantage all startups have against large companies. But if flexibility isn’t balanced with focus, then chaos often follows.
At Apple’s Worldwide Developers Conference in 1997, co-founder Steve Jobs reportedly said “People think focus means saying yes to the thing you’ve got to focus on. But that’s not what it means at all. It means saying no to the hundred other good ideas that there are. You have to pick carefully. I’m actually as proud of the things we haven’t done as the things we have done. Innovation is saying no to 1,000 things.”
In this article I’ll describe a few tools I’ve used to help maintain focus.
Continue reading “Tools for Maintaining Focus”
It’s not innovation or company culture or a desire to win. Those are important but successful big companies have at least some of those things too. It’s nimbleness (aka – agility). Startups have a “turning radius” measured in inches whereas really big companies can barely turn around in a football stadium. Tucked away in this glaring contrast is a unfair advantage for the startups. Let’s explore further.
Continue reading “An Unfair Advantage All Startups Have Against Big Companies”
Here’s the scenario. You’ve got people asking you to express your strategy as a set of milestones extending through a certain amount of time. This puts you in the mindset of building out a timeline and dropping in various important strategic events you see happening in the future. But even if you try to limit yourself to the next 6 months you struggle with the perceived precision of showing things happening on certain dates or even in certain months.
Instead of a timeline, show your strategic milestones in what are referred to as “strategy horizons”. It’s as simple as breaking the timeline into three horizons. Two is minimal but I tend to prefer three. A one year projection might be broken into next 3 months, 3-6 months and 6-12 months. Now all you need to do is decide which horizon to drop your various strategic milestone events into. MUCH easier and yet something that conveys your strategy in a way that investors (or investor prospects), board members, strategic partners or candidates for executive employment positions can digest with solid understanding.
Here’s an example of a way you might graphically depict the exercise:
Continue reading “Try Strategy Horizons Versus a Timeline”
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:
Continue reading “The Difference Between Growth and Scalability”
I guess the corollary 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 an 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.
Continue reading “Why Use a GPS When a Compass Will Do?”
I 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:
Continue reading “A Simple Back-of-Napkin Assessment of Company Progress”
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.
Continue reading “You Never Know What Operational Metrics You’ll Need – So Instrument Everything”