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Startup Marketing ABCs

Posted by Mike Volpe on Wed, Jun 09, 2010



The following is a guest post from Mike Volpe, the VP of Marketing at HubSpot, who has helped grow our marketing software company from a handful of customers to nearly 3,000 customers over the past 3 years.  You can find more of his thoughts through the HubSpot Blog, on Twitter, and his personal blog.

I was recently asked to speak about "startup marketing" at Atlassian Starter Day in San Francisco.  I have spoken about marketing at over 50 conferences, but never specifically about marketing at startups.  I decided to try to have a little fun and talk about some of the learnings from our experiences at HubSpot according to the alphabet.


 

Avoid Addiction

Google AdWords and most forms of advertising are addictive drugs to marketers.  They make you feel good (leads!) but they are expensive, and when the good feeling is gone, you need to buy some more to feel good again.  This leads to marketers being lazy, and not building assets that improve the value and business model of the company.
A much more sustainable strategy is to build assets - just like equipment in a factory.  Marketing assets are blog articles, subscribers, inbound links, SEO rankings, social media followers, opt-in email lists, and other tools that help you generate more and more leads over time without ongoing expenses. 

Blog Beforehand

Many startups today have a blog, but most of them do not start blogging until after they have launched a product.  One of the smartest things the HubSpot co-founders did was start blogging before HubSpot had a product to sell, helping to build an asset 
The second mistake most startups make is that they blog about their own product and on topics that they want people to read about.  That works ok, but not nearly as well as thinking about your content from the point of view of the customers that you want to attract through inbound marketing.  Media companies think about what content people most want to consume - you should think of your blog as a media company for your market.  Don't talk about your product much at all, talk about what people are most interested in reading and sharing.

Create Convenience

More and more people have the expectation and the capability to sever themselves.  Making each and every thing that you do to acquire new customers as simple and convenient as possible helps to increase the conversion rates for each step in the process, and improves your yield.
One of the things that has worked well for HubSpot is creating free tools that are really convenient.  For instance with Website Graderyou just type in your URL and you get a pretty useful report back quickly.  Making our tools and content as easy to use and as easy to share as possible has helped them spread far and wide at a low cost.  To date Website Grader has been used to evaluate over 2.4 million websites, and we have spent almost nothing marketing it. 

Data Drives Decisions

Most entrepreneurs know that marketing at a startup requires you to do some experimentation and use that marketing data to drive your decisions.  We have found that taking this to the extreme works well.  Each month the marketing team produces a report about marketing that is over 100 pages long, plus many other special reports.  We produce over 2,000 pages of reports each year, just for marketing.  We have targets for our key metrics and track those daily.  We know within a couple days if we are behind on a certain metric and can adjust our activities to compensate.
Tracking our business each month (or day) helps us optimize and evolve faster.  If you track your business monthly, you optimize and improve your marketing 3 times faster than a company that measures quarterly.  Measuring in smaller increments is key to evolving your startup marketing faster, by experimenting more and learning more quickly. 

Employ the Exceptional 

In the Inbound Marketing Book Dharmesh and Brian talk about the DARC criteria for hiring.  We use those criteria for hiring at HubSpot, also adding criteria for hiring marketing pros that "get stuff done" and are smarter than we are.  Experience is not as important as many people think because marketing is changing and evolving fast, such that too much experience can actually be a liability because you might prefer older and less effective marketing techniques. More than 2 years of experience might not add any additional value in terms of marketing expertise. (It does add value in terms of leadership and management and communication experience.)
What do you think?  What are the most important startup marketing lessons you have learned?  Leave a comment below and share with the community.



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Get Help Starting Up: Win A Free Scholarship To StartupToDo

Posted by Jason Cohen on Wed, May 19, 2010



I've run three startups, and every time it felt more like stumbling around in the dark than confidently striding along a path.  Most everyone I meet feels the same way.

It's worse the first time around of course.  You read blogs and books, you take other business founders out to lunch, and you join entrepreneur support groups (I mean, meet-ups).

But still.  There's like 1,000 things to do, none of which you've ever done before or even seen before, and certainly nothing any school has prepared you for.  What about all that stuff?

Bob Walsh, author of several startup how-to books and the Micro-ISV blog and podcast, has all the answers at StartupToDo -- a combination web application, guidebook, and community for startup founders.

And better still, here at OnStartups we're giving away 10 scholarships, so you get all this love without paying a cent!  Even if you don't get the scholarship, however, check it out.

Here's how StartupToDo works.

First, there's already 50 guides walking through every aspect of a business from deciding on a name to selecting a web host to Google AdWords to creating your elevator pitch, .... you name it.

Second, as you progress through those guides -- in any order you please -- you can watch your progress exactly like a burn-up chart for software development:

Startup burn-up chart

This makes it easy to ensure you're making steady progress on important areas of business while you tend to the obvious fires and daily chaos.

Third, the guides aren't static -- it's more like a Wiki + comment system so you can also learn from everyone else on StartupToDo who has gone through that guide.  So it's a living, breathing lesson and checklist, not just some stale prose from 1994.

Fourth, there's amply opportunity to not just go through guides but to interact with other founders through things you've heard of (e.g. forums) and brand new things (e.g. "What do you think of my website" system).  Now you're not just guessing by yourself -- you're part of a thriving, intelligent community of people just like you, helping each other get through the pain and thrill of running your own company.

Ever need help answering questions like these?

1. Which online service should I use for what? Creating your online infrastructure - from Google Apps to finding the right service to monitor server uptime - there's a variety of online business services you need to put in place in order for your startup to succeed. StartupToDo.com Guides turns finding the right services into tasks that take minutes, not hours and days.

2. Does my web site work? With their Site Reviews, you tap the power of the community to get quantitate and qualitative confidential feedback on how well your site explains your product, connects to the visitor and influences their decision making.

OK ok, so now you're convinced it's really useful -- and worth paying for -- but it's even sweeter if OnStartups treats you to an account, right?

We're going to give away free 6-month subscriptions to StartupDo.com (valued at $105).  To be eligible, you need to do just three simple things:

1) Visit OnStartups on Facebook

2) Hit the "Like" button (needed, so you can post a comment)

3) Leave a practical tip or ask a question about starting up.

Or, if you'd rather use Twitter than Facebook:

1) Provide a practical tip or ask a question about starting up and append @onstartups to the end so we can see it.

We'll be giving out a free, 6-month subscription a day for the next 20 days.

So, lets see those comments and questions.  Good luck!



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Startup Financing: Questions and Answers From A Recent MIT Panel

Posted by Dharmesh Shah on Fri, Apr 13, 2007

 


This past week, I was on a panel discussion at MIT on the topic of raising funding for an early stage startup.
 
Also on the panel was Michael Greeley from IDG Ventures.  Michael was representing the VC perspective whereas I was there speaking primarily from an angel perspective (and alternative sources of capital like friends, family and fools).
 
Here are some of the questions that came up in the panel.  Since I didn't take notes during the panel myself, this is my best recollection from the two hour session.  Please note that this is not legal advice and if you are raising funding, you should consult counsel on all legal matters.
 
1.  If I raise capital from friends and family, do they have to be accredited investors?
 
Generally, yes.  Though there are ways for pool together interests from non-accredited investors, it's usually not advisable as it can get tricky and complicated.
 
2.  To raise VC funding, do I need to have a complete management team assembled?
 
Not necessarily.  Many VCs do not mind considering startups that have an incomplete management team.  Some will actually see gaps in the management team as a positive as that is an area that they can help with and bring value to the startup.
 
3.  How do I negotiate the highest pre-money value for my startup?
 
Entrepreneurs are often overly obsesssed with the pre-money valuation of their startups.  Though this is an important factor in the negotiations, it is by no means the only one.  Often, non-valuation factors like corporate governance, control and preference issues end up being much more important than the valuation.  Entrepreneurs should look at the deal as a whole and understand the details.
 
4.  Do investors read business plans?
 
For the most part, no.  A great business plan will not guarantee funding (or for that matter, even a meeting).  If you find the crafting of the business plan helpful, then you should do it.  But, investors do not generally require a detailed, written business plan. 
 
5.  Do I need to have formed a legal entity before approaching investors?
 
It's not required for investors prior to approaching them for funding, but is often a good idea because it is relatively simple and inexpensive to do. 
 
6.  How do VCs value companies?
 
This is an imperfect science.  A common approach is that VCs will determine what the company could be worth at the time of an exit (IPO or acquisition).  They then work backwards from there, determining what percentage of equity they need to own to generate the desired returns for their limited partners.  Of course, they apply this approach across a portfolio of investments expecting that a small percentage will generate significant returns.
 
7.  How do I find angel investors for my startup?
 
There's no single answer to this.  In major markets like Boston and San Francisco, many angel investors are members of angel groups.  These groups pool together expertise and resources in order to make better investment decisions.  Of course, there are also private investors acting independently.  Generally, you'll want to find investors that have a background in the particular idea you are pursuing -- or, an affinity for it.  Angel investors often invest for reasons beyond just pure financial return.  One common reason is to stay involved in the entrepreneurial process and help entrepreneurs build great companies. 
 
8.  How do I pick the "right" VC?
 
There are a number of considerations.  First, you should verify that the VC makes investment in the stage and type of company you are building.  Also, it is important to remember that you are not just picking a firm, you are picking a partner within that firm.  Ideally, you'll find a partner that has made similar investments in the past and has knowledge of your market. 
 
If you have any other questions, leave a comment and I'll do my best to answer.  Please remember that I'm not a VC, and don't play one on TV.  For content that is much better than this, I strongly recommend Ask The VC by Brad Feld.  It's a great source for information on the VC industry and the process of raising money.
 
 



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Why Not All Great Hackepreneurs Get Picked By Y Combinator

Posted by Dharmesh Shah on Thu, Apr 05, 2007



This week (Monday, April 2nd) was the deadline for startup founders to apply to be selected for the upcoming batch of startup companies to join Paul Graham's Y Combinator group.  If this year is like past years, YC will likely have received lots of applications (which means Paul's going to be a busy guy for at least a week).  And, if this year is like years past, then not all great hacker-entrepreneurs will get selected.

If you applied, and didn't get selected, this could be because of one or more of the following reasons:

1.  You lack a co-founder:  YC leans heavily towards startups with at least two co-founders.  It's possible you tried to find a co-founder, but couldn't.  Or that you found one, but it didn't work out.  Or that you just don't believe in co-founders just yet.

2.  The idea doesn't fit the profile:  YC seems to lean towards consumer internet ideas, or ideas for which an early user community can be built quickly and monetization can be done later.  If your idea is to develop enterprise software for the steel industry, chances are, you're not going to get picked. 

3.  Your application didn't stand out:  Paul's an awfully smart guy, but he's still not clairvoyant.  If your brilliance and passion didn't come through in the application, it's possible he just fundamentally missed it.  It happens.

4.  You really don't have what it takes:  It's possible that you simply are not particularly suited for a startup at this time and the smart folks at YC were able to figure this out.

Lets assume for a minute that you didn't make the cut at YC for reasons #1, #2, or #3.  So, what now?

I'm going to make you an interesting offer:  A chance to show off your hackepreneur skills.

Basically, what I'd like to do is find exceptional individuals that are really committed to building cool technology and are determined not to go work for "the man" and want to do something entrepreneurial (if you applied for YC in the first place, chances are, you fit this profile).

Here's a high-level look at what I have in mind:

1.  You don't necessarily have to have a co-founder.

2.  You'd still have to be move to Cambridge (or already be in the vicinity).

3.  I'll give you $15k to work for the summer and impress me with your talent.

4.  You have to be willing to work on an idea that is not your own (we have a few laying around).

It's basically an opportunity to join a small, highly entrepreneurial group working right on the MIT campus and work on an interesting project -- and get paid a bit of money for it.  After the summer is done, either we talk each other into doing something more permanent, you talk me into funding your original idea or we part ways as friends and hopefully had a shared positive experience. 

This is the first time I've done anything like this (but everything worthwhile I've ever done, started as an experiment).  To get  a sense for the kinds of things we're working on, you can visit some of our alpha (in development) projects at http://www.websitegrader.com, http://www.dailyhub.com, or learn more about my current startup at http://www.hubspot.com

If you're intrigued and think you might fit the profile, send a detailed email to hackepreneur (at) onstartups.com.  Ideally, you'd send me the same kind of information you sent in for your YC application (you can get an old YC form here, if you need it).  If you're worried about revealing your idea, leave that part out.  I've got the capacity to accept three or four of you (assuming there is enough interest and we can work out a deal), but chances are, I'll only pick one or two.  I've got really high standards too. 

Hope to hear from some of you.  But in the meantime, I wish you the best of luck with your Y Combinator application. It would be great if you are one of the select few that make it in to Paul Graham's Gang For The Gifted.  But if not, perhaps I can provide an interesting "Plan B".

Void where prohibited, no purchase necessary, your mileage will vary and all the other usual disclaimers.



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4 Quick Tips on Raising Startup Funding Without A Plan Or A PowerPoint

Posted by Dharmesh Shah on Wed, Mar 14, 2007

 


Before we get too deep into this, let me clarify two things.  When I say without a “plan”, I mean without a formally written business plan – not that you should be clueless about what you want to do.  And, when I say startup funding, I’m talking more about early stage seed funding via angels (though most of these tips should apply to VCs as well).

As a member of the local Boston entrepreneurial community and a part-time angel investor, I come into contact with lots of new startups at various stages of the process.  It continually amazes me how much time some entrepreneurs spend time writing (and rewriting) a business plan.  Though the planning process can often be very useful, the degree of efficiency is often very low because taking your set of thoughts, ideas, brainstorming and research and trying to “capture” it in an externally consumable document is really hard and takes time.  For every 10 minutes you spend “thinking” about things (and actually planning the business), you might spend an hour trying to get it into a form that might make sense to the reader of the document.  And, the real irony is that very few people will ever read the full document.

One of the main reasons I’m not a big fan of business plans is that things change.  Instead of spending time writing a business plan and continually refining it, I’d much rather see an entrepreneur testing the market and refining the approach.  Josh Kopelman posted a great article on his recently titled “Failing Cheaper”.  It’s worth a read.

 

In any case, here are some thoughts I have on how you can increase your chances of getting funding without going through the misery of writing a formal business plan.  I’m assuming here that you have the ability to at least get an audience with a potential investor or investor group.  If not, then you have a different problem (and a business plan is probably not going to help with that).

 

Quick Tips On Raising Startup Funding Without A Plan Or A PowerPoint

 

  1. Have A Story:  People like stories.  Stories are exciting.  They have characters, they have a plot (even a small one).  Your story can be about a use-case (i.e. how will your product be used to solve a problem).  The story can be a description of how you uncovered the opportunity:  “There I was sitting in my office at a big company and we needed a way to do [X].  We were losing customers, hiring consultants and otherwise frustrated because we just couldn’t find a way to get [X] done.  Then I thought, here’s a simple way to solve part of the problem…”.  The story can be about some anticipated “future state”.  Example:  “In 2 years, we believe that those that grew up with the Internet will no longer accept the inefficiency that exists in most doctor’s offices today.”

 

  1. Demonstrate Leverage:  Different people call this different things (a common phrase is the “unfair advantage”).  Basically, what you need to do is communicate what kind of leverage you have (or are likely to get).  Some of my favorite points of leverage that few early entrepreneurs talk about is their capital efficiency.  Example:  “We’re two college students that have come across this really exciting market opportunity.  We think we can get build this with less than $25,000 while living on red beans and rice and working out of a shared apartment…”  This leverage point basically says you’re going to learn your lessons cheaper than others that may be doing the same or similar things.  [Note:  Everyone is going to have to learn some lessons, the question is how much money are you going to spend learning them?].  Other favorite leverage points of mine are:  access to a group of customers (from a prior job/life), access to a potential partner or distribution channel, access to unique “talent” that can build the product, pre-written IP (you’ve already got a lot of the code you need from a side project you’ve been working on), etc.  Basically, the idea here is to try and explain why you will have a disproportionate chance of not screwing this up completely.  

 

  1. Accept That Your Baby Is Ugly:  Just like most parents think they have beautiful babies, most entrepreneurs think they have beautiful startups.  In reality, just about all startups are ugly in the early days.  Don’t spend time trying to explain to others why your startup baby is beautiful.  It’s not.  Instead, spend energy explaining why your baby is going to grow up  into something that’s beautiful.  Describe how you’re going to tackle the problem of building the product, finding customers, dealing with support, etc.  

 

  1. Dream Big, But Plan Small:  In the early stage process, entrepreneurs that can get things done cheaply and efficiently are more likely to get funded.  The reason for this is simple.   Too much cash allows you to delude yourself into a false sense of what the market really wants and how you might deliver it.  The less cash you have, the more quickly you have to deal with the really hard things (like figuring out a way to get people to part with their money and buy your offering).  Most early-stage investors know this.  Even though I know an idea is likely going to take more cash than the entrepreneur things, I prefer backing people that believe they can do it with little cash and try to do so.  As Josh said, learn to fail cheaper.

 

If you’re new to the early-stage fund-raising game, it is easy to fall into the trap of thinking that the only thing standing between you and some angel funding is a pristine business plan with sparkling financial projections and prose that is so compelling that the checkbook practically leaps out of the investor’s pocket.  I’m here to tell you that this is simply not the case.  Most startups today simply don’t know enough about what they’re actually going to eventually become in order to get it down in the form of a business plan. 



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5 Quick Pointers On Startup Hiring

Posted by Dharmesh Shah on Fri, Mar 09, 2007

 


I’ve been in the startup business for a pretty long time now.  One of the things that I’ve found hardest to do is find and recruit exceptionally talented individuals.  This is not particularly surprising, I think all businesses (big and small, young and old) have this challenge.  However, I think this challenge is particularly acute for startups.

5 Quick Pointers On Startup Hiring

Here are some of my thoughts and ideas on the whole startup recruiting process.  [Side note: I prefer the word “recruiting” instead of “hiring”, but hiring is more widely used and I’m ranked #1 on Google for the term startup hiring and want to maintain that].

  1. The Idea Will Change:  You probably don’t want to recruit people based too strongly on the idea you are pursuing now.  As passionate as you may be about the idea, chances are, it’s going to change.  The right individual will continue to be the right individual even when this change happens.
  1. Help The Best Find YouI’m not a particularly big fan of the classic recruiting channels for one simple reason:  they are not that effective. It’s very inefficient to go out into the world “looking” for that perfect new person for your startup.  The odds of you finding them and convincing them to join you are slim to none.  Instead, I prefer the reverse.  Instead of spending a lot of time going out there looking for the perfect person, invest in activities to help that perfect person find you.  For example, for my current startup, HubSpot, I haven’t been particularly good at going out and finding people.  I have been good and having great people find me.  This is a result of a limited set of activities:  this blog, the HubSpot blog on Internet Marketing, and local startup activities I participate in.  In short, in order to get the best people, you have to help them find you.  This is particularly challenging, because many of the best people are not looking.
  1. What Can You Do For Them?  Too many companies hire based mostly on what they think the new recruit can bring to them.  This is the “what can they do for me” line of thinking.  This is not totally wrong because part of the goal of bringing new people on is clearly to “create value” for the company.  But, I think this is short-sighted.  In addition to asking yourself “what can they do for me?”, also ask:  “What can my startup bring to them?”   Now, many of you may jump to the conclusion that this is “big company thinking”.  Only big companies can afford things like career paths, training programs and other benefits to help develop their employees.  That’s not what I’m talking about here.  What I’m driving at is that you need to find ways that the new team member can benefit from your startup that they may not be able to get elsewhere.  Things like greater responsibility, broader use of their capabilities (perhaps they want to do technology and marketing), expanding their personal network should they want to start their own company some day, etc.  At some level, you are playing a passion arbitrage game.  You don’t have the resources to give new hires all the benefits of a larger company.  You shouldn’t try to.  Instead, find people that are passionately looking to get an experience that only you can deliver.  Then, deliver it.
  1. Specialists vs. Generalists:  My co-founder and I have this ongoing debate/discussion on whether it is better for startups to hire specialists (i.e. people that are exceptionally good at one thing) or generalists (i.e. people that are pretty good at lots of things).  I don’t have a good answer for this because a lot depends on the stage of the company and the specific circumstances.  All things being equal (which they never are), I tend to lean towards really smart generalists in the early days because they can wear multiple hats and “specialize” in whatever the company needs at that time.  As the team grows, specialists tend to be more necessary as roles start to crystallize.
  1. Skill vs. Talent:  I generally don’t advocate hiring for skills (which seems to be the way 95% of companies approach the problem).  Instead, I prefer leaning towards talent.  So, although the HubSpot platform is based on ASP.NET and C#, I don’t necessarily look for people that have those skills.  I’d prefer finding developers that have talent whereby the actual language/platform is incidental.  The best people are problem solvers and like to build elegant solutions and are not hung up on specific languages or technologies.  Of course, there’s a line in the sand somewhere.  I wouldn’t recommend anyone work for a company that is writing consumer Internet applications in COBOL.  But, as long as the underlying platform is reasonable for the problem at hand, you should be able to find great people.  In HubSpot’s case, I’m sure there will be people that will refuse to join us based solely on the fact that we are using ASP.NET (instead of Ruby On Rails, Java or whatever their learning is).  That’s ok.  My guess is that most (not all) of these people would not have been a particularly good fit for us anyways.  I’m looking for talent, not skills.

If you’re a startup that is recruiting, would love to hear your thoughts on what has worked for you (and what hasn’t).  On the other hand, if you’re an exceptionally talented and passionate individual that happens to be in the Boston area, I’m always looking.  What I desperately need right now is a devigner (part developer, part designer) that is passionate about building great web applications that delight users and makes them happy. Just send an email to passionatepeople [at] hubspot.com and let me know what I can do for you.



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Massachusetts Ranked #1: Perhaps Entrepreneurs Can Stay East After All

Posted by Dharmesh Shah on Thu, Mar 01, 2007




A little while I ago, I wrote an article on this blog titled “Go West, Young Entrepreneur!  Is The Valley Better For Software Startups?”. 

 

Now, I’ve come across some new information that causes me to reconsider this point of view.  Business Week posted an article recently titled “Ranking The States For The New Economy”, which cites a recent study by the Kauffman Foundation, a well-known private foundation that promotes entrepreneurship.  The study provides detailed rankings on how states in the U.S. are adapting to the challenges of a global, entrepreneurial, and knowledge-based economy.  The study was previously conducted in 1999 and 2002.

 

I’ll jump to my punch-line first:  In both 1999 and 2002, Massachusetts topped the list.  This year, not only did Massachusetts top the list, but increased its lead over the other states.  

 

A few things from the article and the study that I found interesting:

 

  1. MA ranked #1 overall, and also ranked #1 in “workforce education”, a weighted measure of educational attainment of the workforce. 

 

  1. MA also ranked #1 in the “Hi-Tech Jobs” indicator defined as the jobs in electronics manufacturing, software, computer-related services, telecommunications and biomedical industries as a share of total employment.  

 

  1. MA had the fourth-highest increase in per-capita income.

 

  1. Another surprise:  #2 and #3 were New Jersey and Maryland.  In case you’re wondering, California came in at #5.

 

  1. California ranked #1 in “Inventor Patents”, defined as the number of independent inventory patents per 1,000 people.

 

  1. The bottom two states that “didn’t adapt well to the new economy” were West Virginia and Mississippi.

 

  1. Vermont (yes, Vermont!) ranked #1 in entrepreneurial activity.  I found this surprising.  The study states that this may be due to fewer traditional employment opportunities in rural areas.  MA came in at #43 and CA at #9.

 

  1. MA ranked #1 for the “Venture Capital” indicator (which I found surprising too).  

 

So, what do you think?  Do any of these results surprise you?  If you are an entrepreneur, does data like this influence your thinking at all as to where you might kick-off your startup?  Would love to hear your thoughts.

 



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VC Valuations Are On The Rise: Is Your Startup Worth More?

Posted by Dharmesh Shah on Wed, Feb 21, 2007




News was released today by VentureOne (owned by Dow Jones), which tracks venture investment data.  Venture-backed companies are now getting pre-money valuations (pre-money means the value of the company before the capital is invested) that are the highest they’ve been since the peak of the last bubble in 2000.

 

Median pre-money valuation of U.S. VC-backed companies reached $18.5 million in 2006 (vs. $15 million in 2005).  At it’s peak in 2000, the median valuation was $25.1 million.  Sounds like valuations are inching back again.  I’m not sure if this is good news or bad news.

 

Of course, for early-stage startups the information that is much more relevant is what the valuations were for first-round companies.  In this case, the pre-money valuation was $6.2 million vs. the $5.9 million in 2005.

 

“That’s all fine and dandy,” you’re thinking, “but what does that mean for me?”.  Well, that depends.

 

For most entrepreneurs, you’re probably not raising venture money – and for those that are, you’re probably not going to succeed in raising it.  Nothing against you or your company (I don’t know you, and don’t know your company), but the numbers are working against you.

 

So, the question is, if you are not raising money does it help you or hurt you that VC valuations are up?  I find this to be an interesting question.  First, I am going to guess (because it happens to be true in my case), that when VC valuations are up, the price other types of investors are willing to pay (such as angel investors) are up too.  For many of us, that’s good news.  Also, VC valuations can be seen as a proxy for the overall boisterousness (uncanny, I thought I had just made that word up, but it passed the spell-checker) of the market.  

 

Overall, for no particularly rational reason, I generally feel that the rise of VC valuations (even though I’m not raising VC money) is a good thing for startups.  There’s a small part of me that thinks that since general “market prices” are rising for startups, my startup is worth more too.  But, I could be totally delusional and uninformed.

 

What do you think?



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Startup Founders: The Involved vs. The Committed

Posted by Dharmesh Shah on Mon, Feb 19, 2007



I’m going to refrain from starting this off with the story about the chicken and the pig (there’s something about the former being involved and the latter being committed).  I’m vegetarian so this particular folksy tale doesn’t have a resonance with me.

In the startup world, the phrase that is often bounced around, is to have “skin in the game”.  This is a short-hand for saying that a given individual has some incentive to see the company succeed.  One of the most common examples is:  “Susan just wrote our startup a $100,000 check – she has skin in the game.”

I’m going to argue that there are multiple levels at which parties can be involved in a startup.  Certainly, writing a check is one way to align interests, but that is an over-simplification.

The reason people like to see “skin in the game” is that it motivates the right kind of behavior on the part of the individuals with the skin.  Interests are (supposedly) aligned and those with skin in the game are expected to do the right thing more often than not for the company.

But, there’s a big difference between the degree to which interests are aligned and more importantly the degree to which an individual really has skin in the game.  

On one end of the spectrum, you have those that are lightly (or heavily) “involved” in the startup.  These can be advisors, could be passive angel investors could be members of the management team working for reduced salary – and of course, could even be one of the founders.  Yes indeed, you can have involved (but not committed) founders.  And, on the other end, you have those that are committed.

Here’s the litmus test for how I try to distinguish between the two:  If your startup dies next week, what will be the actual impact on a given individual?  

The point here is that just because someone quits their day job, just because they write a relatively large check, just because they take the founder title – none of these necessarily means that they’re committed.  It’s possible that in all of these cases, the actual impact on the individual is relatively minor.  They find another day job or they mourn the loss of their investment for a week or a month.  What I consider “real” co-founders are those that are financially and emotionally committed to the startup.  For the founders to be committed, if the startup dies tomorrow, it will forever change their life.  They can’t just wake up the next day and have it be life as usual (yes, they’ll recover – but the failure will have a lasting impact).  

In the startups that I’ve kicked off, much to my dismay (and my wife’s dismay), I’m always committed.  And I’m particularly emotionally committed.  Sure, I make substantial investments in the startup, but I really get emotionally committed.  My identity becomes tied to the company.  I meet great people, I experiment with new ideas, I (hopefully) build great products.  But, what really reels me in is that everyone I know, knows that I’m working on a new startup.  Sure, I might fail, but it will not be a quiet, subdued failure.  It will be (in my own way) – spectacular.  Just as everyone I know will know I started, everyone I know will also know it didn’t work out.  

For my current startup, HubSpot, it took me some time to “draw in” my co-founder, Brian Halligan.  I didn’t have to find him (we already knew each other pretty well, and he was already involved in the company for over a year – but he wasn’t committed).  This past summer, he joined full-time as co-founder, but I still wasn’t absolutely sure he was committed until an important thing happened:  He started talking to his friends, family and colleagues about HubSpot.  He told them why he was doing it, and how great the company was.  Now, for good or for bad, he is in.  If by mistake or misfortune, HubSpot does not go in the direction we hope, I do not think he will be able to walk away untouched.  He is committed, as I am.  And that’s what you want in a co-founder.

How about you?  Have you had a hard-time getting people to shift from the “involved” stage to the “committed” stage?  Would love to hear about your experiences.  Please leave a comment.



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Why "Me Too" Startups Are Not Always A Mistake

Posted by Dharmesh Shah on Wed, Feb 07, 2007

 



The “me too” label has been applied to a past when a company enters a crowded market of highly visible competitors.  Examples abound, such as the remote storage category, RSS readers, online calendars, personal website creators, etc.  Each of these categories at one time or another was pursued by over a dozen different companies.

 

It’s easy for us to scoff at these startup teams, disparagingly stick the “me too” label on them and move on.  Because it is so easy, I’ve found myself doing it in the past myself.  I can’t talk to founders that describe a company which I think is one of those over-populated categories without sometimes jumping to the conclusion that they are simply entering a market too late, with too many competitors and too little differentiation.  Most of the time (as you’d expect), I’m right in my gut reaction.  However, some of the times, I’m wrong – and that’s a story I’d like to share with you in this article.

 

Some time ago, I had a speaking engagement at MIT’s campus in Cambridge, MA to a group of entrepreneurially-minded folks (I think I blogged about this at one point, but can’t recall for sure).  In any case, there were three interesting things that happened that day:

 

  1. I met Ray Deck for the first-time (who is a fellow software entrepreneur, and an awfully bright guy).
  2. I discovered that the founders of reddit were speaking right before me (had met them before, but this is when reddit had really started taking off)
  3. I met Matt Douglas, who I had never heard of, because he wanted to chat about startups after my presentation.  (as you might guess, I’m always ready to talk about startups)

 

Matt had an idea (not quite baked at the time, or he simply didn’t want to tell me details) of starting a “web-based event planning company”.  I could remember thinking briefly to myself, “that’s going to be really hard to make money”.  But, we didn’t talk about the business idea much, because the topic we did talk about was how hard it was to find great technical people to join an idea-stage company (Matt is primarily a business guy, and doesn’t develop software for a living).  In any case, we chatted for a while that night, followed up several weeks later and continued the discussion over dinner once.  I tried (in my own humble way) to convey to Matt why I thought it was going to be really hard to get his idea off the ground.  Proving yet again that perseverance trumps pragmatism, Matt went ahead and did it anyways.  Ultimately, Matt went on to launch his startup and it is now called Punchbowl Software and the website is http://www.mypunchbowl.com

 

If you travel in the same web circles I do, you’ll likely have heard of My Punchbowl already.  Matt has been able to generate what I would characterize as a disproportionate amount of “buzz” for his new startup (disproportionate in the sense that the idea is not particularly radical and there are many others already in the category).  I caught up with Matt at the local Web Innovator’s meet-up in Cambridge, MA and followed up again via email to find out one simple thing:  Why?  Why pursue what most would call a “me too” idea?  (admittedly, I’m also trying to figure out how he succeeded in proving me wrong, so I can adjust my thinking for the future).  The answer is I think common to lots of companies that enter a market with existing space that has prominent competitors: 

 

“Yes, there are competitors, but nobody has built a product yet that users really like…”

 

And there, quite simply is the crux of the motivation.  It is easy to discount companies as being “me too”, but the reality is we have seen a fair number of successes in the past in categories that we have felt were already crowded.  The reason is that nobody had really solved the problem quite right.  This is what motivated Matt, and this is why you shouldn’t let me (or others) talk you out of a startup idea simply because it might be labeled a “me too” idea.  If you think “me too” might turn into “me too will make mucho money” (apologies for the grammar), then by all means go for it.  I love when I’m proven wrong by a persistent entrepreneur that pursues an idea.  My best wishes to Matt and his team at Punchbowl.  I plan on one more follow-up to this article to look a little deeper into what Matt has learned as a business guy trying to launch a software startup.  Stay tuned (I should have this out later this week).

 



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