The Boston Globe reported this morning that Governor Deval Patrick will propose today a sweeping legislation to make it easier for workers in technology, life sciences, and other industries to move from job to job by banning the non-compete agreements companies use to prevent employees from jumping to rivals.
I for one have been a proponent of just such a move — I think it's been a long time coming.
There's expected to be some conflict as large companies continue to try and maintain this antiquated model of limiting worker mobility despite the fact that there is clear evidence this hinders innovation and in the long-run doesn't help anybody.
California and New York, both regular members in the rankings of top states for venture capital and startup innovation made this change years ago and have been using it to recruit some of the best people from some of our best companies ever since. There's no evidence that abolishing non-competes has hurt them — quite the contrary.
Here are the reasons why we should support this proposal to kill non-competes in MA:
1. Companies should have the right to protect their intellectual property and their people. As it turns out, they already can with non-disclosure agreements and non-solicitation agreements neither of which will be effected by this change.
2. We're forcing innovation out. The best and brightest want to work in an ecosystem that maximizes the impact and influence of their work. By artificially constraining where they can take their expertise we are causing unneccessary friction. Friction that will cause more talent to leave for more innovation-friendly states.
Here's the irony: Non-competes do limit competition. They limit the ability of our innovation economy to compete with the likes of California.
3. Although some companies may think that non-competes are helping them, their value is questionable at best. Having a standard non-compete in place is one thing — actually trying to enforce it is another.
4. Innovation is about openness and collaboration. Company leaders should be focused on attracting the best and brightest talent that will come up with creative ways to meet market needs and drive growth. The trust and loyalty of these kinds of people is not based on pieces of paper that dictate where they can't work in the future — it's built on transparency and autonomy and how you foster a culture to help them do what they do best now. Nobody wants to spend calories worrying about artificial and arbitrary rules. Especially, super-smart, creative folks.
So, if you're on the side of rationality and innovation, do yourself and the community a favor. Help spread the word. Here's the campaign page for killing the non-compete. It'll take just 5 minutes.
And, please share this article with friends and colleagues.
Thanks for your support.
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The following is a guest post by Chris Sheehan. Chris is COO of TrueLens, an early stage startup in the social marketing space. He is also a board member, advisor and investor in many Boston and NYC startups. You can follow him on Twitter at @c_sheehan and his blog Early Stage Adventures.
What the heck is corporate development and why should I care?
Back in the first wave of the Internet, I was part of the team at BEA Systems that built up in-house corporate development. Our charter was simple: add significant market cap value through acquisitions, investments, and partnerships. Specifically our stated mission: “To support BEA becoming the industry standard ebusiness application platform by leading the process with senior management in developing and managing corporate-wide strategy, acquisitions, equity investments, and selected strategic relationships”
For entrepreneurs, I think its helpful to understand the role corporate development plays in larger software companies. Could be for potential partnerships — maybe an acquisition. Or, maybe you're growing fast enough yourself to warrant acquiring other companies. Regardless, it helps to have a basic understanding of what the corporate development team does.
What is corporate development?
- most public consumer and enterprise software companies (and increasingly many high growth private companies) have a person or sometimes a team in charge of corporate development
- the mandate varies from pure deal execution to a role that combines strategy, execution, and integration. Sometimes the charter includes strategic partnerships and minority investing
- for example, at BEA Systems, we adopted the former model. Each of us were embedded deep in a business unit, working closely with the product, engineering, sales, finance and marketing teams on overall strategy and how strategic alliances, investments or acquisitions could add significant value. Our team had a solid mix of backgrounds including investment banking, VC, engineering, and operations. So we covered strategy, deal sourcing/execution (partnership, investment or M&A), integration, and post deal measurement
Is there any point in talking with corporate development unless I am thinking about an investment or acquisition?
- I lean towards the view that it can be very helpful. It's often hard to navigate Byzantium organization structures from the outside and the corporate development executive can help facilitate who you should be talking to for partnerships/customer relationships. They can also be incredibly helpful in simply understanding the product and business priorities of divisions
- And most M&A deals typically don’t just magically happen. Rather, they are often the culmination of bus development/partnership/vendor-customer relationships where fit is tested first, the product is kicked around and deals are somewhat more de-risked. Developing relationships with corporate development early can prove very helpful later down the line when you might be thinking about investment or acquisition
How would my company be perceived from an acquisition viewpoint?
- the reason for doing an acquisition varies and it’s important to understand where your startup fits. Some reasons deals are done in the software space include:
- acquire talent (look at what Yahoo! has done in the mobile space)
- acquire important pieces of technology (vs build or partner. Quite often time to market pressure pushes companies to buy rather than build)
- extend the product suite (eg Oracle’s recent acquisition of BlueKai filled an important gap in their Market Cloud suite)
- acquire new capabilities (eg the acquisition of many cloud/SaaS/mobile companies by larger software companies as they move from on-premise/perpetual license business models)
- extend the software platform/portfolio into related/new markets (eg VMWare’s $1.5Bn acquisition of AirWatch is a big bet on the enterprise mobility space)
- I’ve also seen deals that are “change agent” deals, designed to help senior management change the nature and culture of an organization by bringing in new senior executives to be a catalyst for change
- Understanding the “why” from a potential acquirers perspective is key
Types of acquisitions
- very simplistically, software acquisitions tend fall into two broad categories – smaller, tuck-in acquisitions or larger more strategic deals. Some common characteristics of tuck-in acquisitions:
- small value relative to the market value of the acquirer
- the analysis is often build/partner/or buy
- cash & or stock deals with 1 to 4 year retention packages
- often done in-house (no investment bankers, but sometimes external counsel and accounting diligence)
- simpler integration (but that doesn’t mean it can’t be messed up)
- at the other spectrum are larger strategic acquisitions that will have a significant impact on the acquirer. Significant could be measured as % of market cap the acquirer is paying, impact on operating margins, earnings per share, etc.
- the much reported on Facebook acquisition of WhatsApp is an example of a significant strategic acquisition, with Facebook spending 10% of its market cap. These deals often involve investment bankers (Allen & Co advised Facebook while Morgan Stanley, one FB’s underwriters, advised WhatsApp), and investor calls to explain the strategic rationale of the deal (Facebook’s is here)
- prices paid in these deals often reflect the total addressable market opportunity
What’s the typical investment/M&A process?
- at any point in time, corporate development has a pipeline of opportunities which they are tracking. Some of this is inbound, some outbound (as I was writing this, I looked at one of my old BEA pipelines which had close to 50 opportunities listed, categorized between very high priority, high priority, low/medium priority, no interest)
- while corporate development plays a key role, finding a sponsor is critical, which could be the CEO, business unit president, head of product/engineering, etc. This person is the one raising their hand to champion the deal – and being held accountable for the results. How hard or easy this is within each technology company varies greatly. Knowing insiders can be very helpful (talk to other entrepreneurs who were acquired to give you a sense of process and key players)
- how long it takes to close a deal varies. Sometimes it’s a relatively quick process, other times it takes months, often driven by the complexity of the diligence and integration process, and the competitive dynamics
Can your VCs help?
- yes, by making the appropriate introductions to companies of interest, either at the corporate development or operations level
- an interesting, early trend, is the institutionalizing of a corporate development team within venture firms, to assist portfolio companies with their sell and buy side strategies. I think this is a smart move and has potential to add significant value to portfolio companies and help drive a VC firms returns and overall track record. See Andreessen Horwitz team here. Their pitch: “helping companies plan their strategic and financial future. It’s all about anticipating needs, and architecting the right way forward for your company”.
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The following is a guest post by Todd Garland, the founder and CEO of BuySellAds. Todd is a long-time friend, and was one of the early employees at HubSpot before he set out to build his own startup. This article is about how Google (the 900 pound gorilla) launched a product that directly competed with Todd's company. The story is worth reading because almost every entrepreneur with any amount of success will have this happen some day. -Dharmesh
A few week’s ago, Google launched a service that directly competes with what our business has been doing (very successfully) for 6 years now, a service that helps publishers sell ads directly to advertisers. While I have thought about the “what if’s” and the scenarios surrounding a goliath competitor taking us on before, I never thought this day would actually come.
The first hour
I was numb – not in a bad way, but just numb; uncertain what to think, what to do, while attempting to make sense of, and digest, what had just happened. I scrambled a defensive comment together to post on TechCrunch who covered Google’s product release.
Then, I composed an equally haphazard tweet:
… to which our supporters rallied around (ever so slightly) with support in the form of likes and re-tweets. “Ha”, I thought to myself, “don’t mess with us Google”, and the kind of bravado Google ad execs celebrating the release likely got a kick out of (if they even noticed…).
My team and I continued to talk about this, attempting to understand what it meant for our business. As a startup CEO, it’s times like this when the pressure is on. You have to sharpen your thoughts quickly and be able to articulate to your team how this might affect everything.
I’m uber-competitive, like most people trying to build big businesses, but sometimes being “uber-competitive” also means you venture into the “uber-defensive” state of mind. Lucky for me, I have a co-founder who helps me keep a cool head. All this to say: during the first hour you really just need to keep your cool and give yourself time, and some space, to let your thoughts process.
Knee-jerk reactions like those I made don’t actually do much for you, or the business. It’s best to just stay quite and give yourself time.
As the first hour came to a close it started to become evident that the BuySellAds world as we knew it wasn’t actually going to implode upon us. The following are my key takeaways from the 900-pound gorilla entering the ring with us:
The truth is that if Google actually wants to compete with your business, there is a decent chance you will lose. Google wins everything. Sure, there are outliers… Facebook, Twitter, et al who became so large that it was too late by the time Google entered the ring. The point is that most businesses the size of mine will get crushed if Google truly wants to compete… especially in the ad space. While the direct ad sales space is interesting, Google crushing my business will have an infinitesimally small impact on their balance sheet.
For the last 6 years, they’ve had bigger fish to fry (until now)
I discovered that they had actually started working on this product about 4 years ago (two years after BuySellAds first launched). Which means one of two things:
1. It could be that the direct ad sales landscape is just starting to mature enough to the point where they think it’s worth making a play.
2. Perhaps they are just closing off one of their flanks as this space starts to gain traction.
Competition from Google is a blessing in disguise
There are many reasons for this:
1. There’s no better way to get the most out of life, than knowing that one-day you will die. The very threat of a larger competitor will help us sharpen our product and our pitch to customers.
2. We have learned quite a bit that they have yet to learn about the direct ad sales space. Believe it or not, we have a hand up in experience in this specific space.
3. We’ve had a series of competitors over the last 6 years who haven’t seemed to achieve blazing success (despite raising large sums of money), which always worried me. Sure, it’s fun to think that you’re doing such a great job that you are beating them, but the truth is that they aren’t blazing a trail by us because the market just isn’t there. Trust me, our balance sheet, while showing signs of “success”, doesn’t have a hockey stick (yet). Any competitive market that is worth being in usually has at least a few solid competitors duking it out.
4. Smart people work at Google, and smart people typically like to work on things that are interesting with the hopes of achieving some level of success. Sure, not every product Google launches turns to gold; however, somebody smart at Google got the concept for this product past the $100 Million Dollar Man, who gave it his blessing to be worked on. That’s a positive signal for our space in general.
5. A teeny-tiny wee bit of added validation. Similar to my previous point, anything a company the size of Google does is noticed. They have far greater reach than BuySellAds, and there’s a good chance that they will end up sending us a decent amount of business simply because we have one of the best competitive solutions in the space.
Nothing actually changes
This is the most important takeaway. Sitting here a few weeks since Google’s launch, I can tell you with absolute certainty that nothing has actually changed. Looking back at the 6 years we’ve spent building BuySellAds, it’s clear that any time we spent thinking, researching, or reacting to our would-be competitors was a complete waste of time. In fact, there’s no better way to waste time than to think about (or even follow) what your competitors are doing. The only thing that truly matters are YOUR customers. I can’t tell you how hard it has been to get this engrained into my mind. It is by far the most important thing in building a business (to focus on your customers), yet so hard to practice when you see other activity and the glorious tech-headline touting presumed (or actual) success. They call it “customer driven development” not “competitor driven development” for a reason.
I must say, 6 years feels like a very long time looking back. We’ve written a ton of code, been through hell and back, and are still here. We’re bootstrapped, have been profitable, grown quarter over quarter, made the Inc500 (the only popularity contest that involves your balance sheet…), and while it certainly would be fun to coast off into the sunset, I feel like we’re just getting started. There is no better way to reinforce this feeling than welcoming the 900-pound gorilla into the ring. Everybody loves an underdog, and for us, it’s time to get to work.
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In early meetings, if a VC ever asks you what your exit strategy is, you should run, not walk to your nearest…um…exit.
You want your investors to be more curious about how you're going to enter a market than how they're going to exit their investment.
Thankfully, I hear much less talk about exit “strategies” in the startup world than I used to. Back in the day, no business plan was complete without a discussion of exit strategies. And, they almost invariably came down to the same two options: Here are the list of companies that might buy us…and we could go public!
Today, most tech entrepreneurs don't even write business plans (which is good, because nobody reads them), let alone have a detailed discussion on potential exit strategies.
Here's why I think an exit strategy is an oxymoron.
The purpose of a business is to build something of value for customers — which in turn creates value for stakeholders. When you're walking out onto the field, you should be asking yourself “how do I best play this game?” not “Hey, once the game is over, how do I exit the arena?”
Planning your exit is a good thing when entering airplanes, theaters and bar brawls (of which I have no clue, I've just been watching too much Banshee) — not when entering a market.
My advice: Spend your calories crafting strategies for how you will build value, how you will connect to potential customers — and how you will differentiate yourself from everyone else. Leave the exit planning for when you actually need to figure out an exit.
By the way, I have no problems with startups exiting. Happens all the time, and is part of the circle of life in the startup world. I've been on both sides of the table (sold a startup, acquired some startups). My problem is when entrepreneurs are forced to unnaturally focus on the exit -- and mistakenly calling such things a "strategy".
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There is an unspoken rule: to launch a startup, you need to build a product, and to do that you need someone that can write code.
Whether that means chasing down a technical co-founder, learning to code, or even building that "Lean MVP" - the conventional wisdom is that without tech abilities you're nothing more than a dude (or dudette) with a Powerpoint.
A growing number of startups, however, are quietly disproving this assumption.
They're getting their first customers with minimal technology, and often no code at all. Instead of building fancy technology from the outset, they're hacking together inexpensive online tools such as online forms, drag-and-drop site builders, advanced Wordpress plugins, and eCommerce providers.
They're jumping right in to serve customers in any way possible - heading right for their first paying customers.
Most importantly, unlike the majority of their peers, by the time they start building a product, they already have a humming business.
How are they doing it?
Focus on Serving Customers Instead of Building a Product
Successful founders all know one thing: it's more important to serve a customer than it is to build a product.
This is the mindset you must get into when you start out. Most entrepreneurs are narrowly set on building a product that they lose sight of the real goal - to solve a problem for a customer.
Or, as Ben Yoskovitz eloquently put it,
"Customers don’t care how you get things done – just that you get it done and solve their pain."
Replace Technology with People
Think about the hardest part of the business you want to build. The part that would require the most complex development - the true innovation that no one else does.
Can a real person perform these tasks manually?
For many startups, this was the secret to massive success:
David Quail is a super talented software engineer, with one exit already under his belt. He wanted to solve his ultimate annoyance: scheduling meetings over email.
David's original idea was to build an artificial intelligence tool that could read an email chain and automatically schedule the event. But this would take months if not years.
His shortcut to launching a business ASAP? He simply set up an email address for his customers to "CC" that forwarded to him, and did the work manually at first to prove that customers were willing to pay.
Over time he automated more of the service - but not before he already knew there was clear demand and was making revenues.
Another example - a marketplace:
Tastemaker is a marketplace connecting interior designers with homeowners for small design gigs. They started by contacting interior designers and building a physical list of those interested in extra work.
They then asked their network who needed help with interior design - and made the connection, processing payment themselves.
The Tastemaker founders used pen and paper to solve their customer's needs and prove the market. They then built their online platform in parallel (which eventually became their core business).
You've probably heard many famous stories like ZenLike and Tastemaker. They range all the way from companies like Groupon or Yipit (raised $7.3M), to Aardvark (acquired by Google) and Diapers.com (acquired by Amazon).
What did they have in common starting out? At the core of many businesses, instead of fancy algorithms, you would have found the founders themselves, like the "man behind the curtain" in the Wizard of Oz, working hard, acting as the secret sauce.
Use These Off the Shelf Solutions
While your core tech might in fact be a service starting out, you can wrap it with an online presence, digital interactions, and the administration of a true technology business.
In short, you can act, look, and smell like a fully automated online company that employs a posse of software developers and an in-house graphic designer.
* Use e-commerce services to accept payments and even subscriptions using "hosted payment pages" - requiring zero code.
* Let your customers interact with you through sophisticated online forms you can publish (and brand) using drag-and-drop editors.
* Build a support knowledge base and community forum with Zendesk, Uservoice, or GetSatisfaction
* Use copy-paste widgets from around the web like contact forms, Skype buttons, live chat, etc.
* Use simple-yet-sophisticated website creators to publish your central website and glue together all the tools into one presence. Strikingly and Unbounce are great for beautifully designed landing pages.
I could go on listing these forever (well, I did here). As you can see, the web is full of tools that let you conjure entire features with the click of a mouse.
The key is to always search for what you want before reinventing the wheel. Chances are someone has already thought of how to make your life easier.
The Hidden Treasures of Wordpress
To most of us, the Wordpress brand connotes a free blog, or a simple way to create a content website for non-technical folks.
But the true magic of Wordpress is the ability to extend its functionality to create many kinds of web platforms - while keeping your hands (mostly) free of code.
Wordpress itself is free, and you can purchase inexpensive plugins that automatically transform your website into a membership site, ecommerce portal, social network, and even daily deals site.
Instead of spending thousands on a designer, you can buy a high-end theme for around $40 and customize it to your brand. If you have a bit more saved up, you can hire a local Wordpress expert for a few hours of their time for small custom tweaks and a personal tutorial. And, if you don't want hosting headaches, you can use WPEngine (hi, Jason!).
Wordpress is one of the most incredible tools on the web for non-technical entrepreneurs. There's a bit of a learning curve, depending on how you want to use it, but definitely a faster option than finding a developer or learning to code.
It puts fate into your own hands.
Put It All Together
Go back to that core customer need, and think of how to satisfy it by any means. Now how can you make that solution accessible? What would the process be for finding you and reaching out? How can you charge and provide support?
Chances are good that you can pull it all off yourself. If not, consider starting a bit smaller than you originally imagined, if only to start generating revenues today and fund your development.
Once you have your first few customers, you'll have a very good picture of where your business is going, and what technology you absolutely need to build - and very clear motivation.
Does working this way pay off?
Tech companies started this way have sold for between $50-$540 million, or have gone public. They are growing at double digit rates. And they launched in a matter of weeks or months - not years.
If this approach makes you uncomfortable - that's great. It's a sign that you're learning to think differently. However, entrepreneurs presented with this approach often have similar gut feelings:
What Will Investors Think?
They will think you are clever, resourceful, flexible, persistent - and know how to focus on the right things.
To quote one of our investors, Len Brody, on his portfolio: "I call them the workaround culture... [they] just work around anything - and you have to."
If for any reason they are put off by your creativity and resourcefulness, then you're not talking to the right investors.
What About Scaling?
This is a very understandable fear. It's a scary situation to think, "Great, we got our customers, and now we're going to disappoint them."
Don't let that thought paralyze you. Growth is rarely if ever a black and white, rocket-ship-spike. It's a steady process that leaves you plenty of time to transition between solutions.
In other words, there's a spectrum between do-it-yourself and full-robot-revolution. You might hire a few people in the meantime (with the revenue that their hire would naturally generate) while also developing a scalable technology.
As most entrepreneurs will tell you the way you get your first 50 customers certainly won't be the way you get your first 5,000.
For those of you feeling held back by your lack of technical skills - or deep in development muck - ask yourself, what can you do *today* to get your first customer.
Give it a shot. In contrast to paying a developer, you don't have a lot to lose. Do whatever you need to do to get your business going.
Remember: you're not here to build a product - you're here to solve a problem. And you certainly have the skills to do that.
Want more specifics, examples, and tools? Check out my newest Skillshare course, How to Launch Your Startup Without Any Code (use code ONSTRTPS for %15 off)
This is a guest post by Tal Raviv. He is the co-founder of Ecquire.
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Every company has ideas that come up (sometimes frequently). And, based on the stage of the startup and the degree to which the idea is unconventional, there are always good, rational reasons why the given idea can't possibly work. There are also bad, irrational reasons too. The problem is, it's hard to tell the difference.
Here are some of common reasons why something won't work:
1) We've debated this several times before and have decided it wouldn't work.
2) We've tried this before, it didn't work.
3) Doesn't really fit our sales model.
4) It's not appropriate for our industry.
5) It might work for tiny/small/large/huge companies, but we sell to tiny/small/large/huge companies, and it won't work for them.
6) Our investors/board would never agree to it.
7) It might work, but we can't afford the risk that it won't. (Note: When someone says “it might work…but…” they're almost always thinking: It won't work)
8) Our team/plan/pitch-deck is not really setup for that.
9) We could try it, but it's a distraction. (Note: This often means “I've already decided it's not going to work, but I can tell I need to convince you we shouldn't try it…”)
There are many, many more reasons why any given idea won't work, but the above are a sufficient sample for this article. Oh, and by the way, I have at various points in time made all of these very same arguments myself (“I have met the enemy” and all that)
2 Mental Exercises To Try
Now, here are a couple of mental exercises to try when you or you or your team is stuck.
Exercise #1: What if I told you that it's working really, really well for XYZ Company? How do you think they made it work?
The idea here is to assume the idea is good and has worked for a company very similar to yours. Then, ask yourself (or your team): Now that we know it worked for them, what do we think they did to make it work?
What this does is mentally nudge you to think about how to work through whatever the obvious limitations to the idea already are.
Example: I know that nobody in our industry uses a freemium model because the infrastructure/support costs are just too high. But, we just learned that XYZ Company is launching a free version. What do we think they did to make it work?
Exercise #2: What if we had the proverbial gun held to our heads and we had to do [x]?
The idea here is to assume/accept that the decision to implement the idea has already been made — presumably by some higher authority. Now, assuming that, what would you do to make the best of it?
Example: Our major investors just told us that before they can agree to funding our next round, we need to build an inside sales team. They think inside sales teams are the bomb. We can't afford not to listen to them — what do we do to make the best of the situation? If we had to build an inside sales team, how would we go about doing it?
Note: In neither case am I suggesting that you mislead your team (or yourself, in case you're like me and have conversations with yourself late at night). These are meant to be mental exercises, just to help drive discussion and analysis. Though I'll confess, there is a small part of me that wonders what would happen if one did make the hypothetical seem real (at least for a short period of time).
What do you think? Any mental tricks or tactics you've used (or thought of using) to help break-through conventional thinking?
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As many of you may know, MIT is near and dear to my heart. As my co-founder, Brian Halligan likes to say, “HubSpot was born out of the loins of MIT”. As such, I like to stay in touch and speak at MIT as often as I can. Over the years, I've built up a relationship with many of the people there. The leader of the entrepreneurial efforts at MIT for the past four years has been my friend the energetic and successful entrepreneur himself, Bill Aulet. While my “geek center of gravity” style is different than Bill’s (“business center of gravity” but loves technology), I have come to really appreciate what he has been accomplishing at taking MIT’s entrepreneurial education/training efforts to a new level. Recently I got a pre-release copy of his book, “Disciplined Entrepreneurship: 24 Steps to a Successful Startup” and my appreciation was taken to a whole new level. There is an art and science to entrepreneurship in that there is a body of knowledge that can improve entrepreneurs’ odds of success significantly, and it definitely involves discipline.
While it would have been more appropriately titled “Disciplined Entrepreneurship: 24 Steps to getting the Product-Market fit right when launching your high growth new venture as a standalone or inside a large company but also relevant to existing entrepreneurs who want to revitalize their startups” I realize that would have been a bit too long so I accept the shorter version. It really is a breakthrough guide on how to launch new products for entrepreneurs in a systematic manner. It is very complementary to what is already out there by Eric Ries, Steve Blank, Alex Osterwalder while deftly incorporating classics such as Crossing the Chasm, Blue Ocean Strategy, Innovator’s Dilemma, Democratizing Innovation and many more – as well as (humbly) Inbound Marketing. It pulls many different elements together very nicely in what Bill appropriately calls a “toolbox approach”.
The book is not only an invaluable framework (make sure to order early & sign up to get the poster – it is super helpful and very complementary with the book) but also has many interesting insights. The following are thirty five short highlights from Bill with convenient tweetable links so you can let your friends know about this and spread the good word of disciplined entrepreneurship.
31 Tweetable Insights from “Disciplined Entrepreneurship: 24 Steps to a Successful Startup”:
1) Entrepreneurship Education Crisis: Demand soaring yet high quality supply does not scale; gap filled by storytelling [tweet]
2) To build scalable eship education, we need frameworks that are flexible yet rigorous; valuable yet not constraining [tweet]
3) Hypothesis testing is unquestionably great but the question is which hypotheses do you test & in what order [tweet]
4) 1st Law of Eship: The single necessary & sufficient condition for a business is a paying customer [tweet]
5) 2nd Law of Eship: WOM (Word of Mouth) is critical to success of a high growth startup [tweet]
6) 3rd Law of Eship: We are an attacker w/ dramatically less resources than the defender so have 2 b much more efficient [tweet]
7) 4th Law of Eship: We have to have the unit economics work in a reasonable period of time [tweet]
8) 5th Law of Eship: We have to have a core (something that will be unique & very hard to duplicate) to be great [tweet]
9) 24 Steps are grouped into 6 themes & starts not with your technology or product but with "Who is your customer?" [tweet]
10) The 1st hypothesis 2 test is whether you have a well defined target customer who has a problem & money 2 pay 2 fix it [tweet]
11) Disciplined Entrepreneurs r not driven by 1 customer nor by spreadsheets but by a well defined target customer group [tweet]
12) Once mkt is selected, must deselect rest. Deselect = discipline. Every1 loves to select; no1 likes 2 deselect [tweet]
13) Q: Is deselection important? Steve Jobs: "I'm as proud of what we don't do as I am of what we do." - Ans: Hell yes! [tweet]
14) Build the company from the customer back & not from what you want out. Target Customer 1st, Product 2nd [tweet]
15) Primary Customer Research is essential: Walk in your customers' shoes - economically, emotionally & socially [tweet]
16) In eship, specificity wins & generalities don't - hence eship is about the quest for the holy grail of specificity [tweet]
17) Don't make your persona a composite, make it real person. This ends debates much faster & more effectively [tweet]
18) Validate your persona by listing 1st 10 customers & check to persona; also derisks & gives team confidence & focus [tweet]
19) "What can you do for your target customer?" - it must be specific, compelling & unique [tweet]
20) "How does your customer acquire your product?" maybe boring but essential - often overlooked [tweet]
21) "How do you make money off your product?" - unit economics of COCA vs. LTV must work [tweet]
22) "How do you scale your business?" - b/c limited resources, must start small & plan 2 grow big [tweet]
23) We need to train our entrepreneurs to have the spirit of a pirate & the execution skills of a Navy Seal Team [tweet]
24) "It is more fun to be a pirate than to join the navy" - Steve Jobs & embraced by MIT entrepreneurs [tweet]
25) MIT has spirit of a pirate ("creative irreverence" = hacking) but also enormous discipline hence success in eship [tweet]
26) Entrepreneurial Myth: "Entrprnrs are undisciplined" Wrong, great ones have enormous self-discipline [tweet]
27) Gr8 entrprnrs derisk risk & only bet when they know the odds are in their favor & there is a big payoff [tweet]
28) Fake it B4 U Bake It: Don't build until u have derisk market w/ real customers; build a site & market test 1st [tweet]
29) Don't build a plant to produce dog food until you prove the dogs will eat it. Logic is not enough, u need real proof [tweet]
30) Wisdom is scar tissue & scar tissue comes from failing & learning in the process. @24StepsofEship is based on wisdom [tweet]
31) "Truth will set you free" rather "Action will set you free" [tweet]
Which is your favorite? Which do you disagree with? Would love to hear your thoughts in the comments.
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Remember your first business loan? Or, if you're like many entrepreneurs, you may have initially bootstrapped your startup by buying some stuff on your credit card. You were excited and apprehensive: Excited because now you had the cash to invest in your business, apprehensive because you had just taken on a debt you would have to repay.
But that was okay, because you were confident you could create more value than the interest you would pay. Even though you eventually have to pay off a financial debt, gaining access to the right resources now often marks the difference between success and failure.
That’s true for financial debt – but it’s almost never true for culture debt.
Culture debt happens when a business takes a shortcut and hires an employee with, say, the “right” the skills or experience… but who doesn't fit the culture. Just one bad hire can create a wave of negativity that washes over every other employee, present and future – and as a result, your entire business.
Unfortunately the interest on culture debt is extremely high: In some cases you will never pay off the debt you incur, even when a culture misfit is let go or leaves.
Here are five all-too-common ways you can create culture debt that can keep your startup from achieving its potential:
1. You see the ivy and miss the poison
The star developer who writes great code… but who also resists taking any direction and refuses to help others… won't instantly turn over a new interpersonal leaf just because you hire him.
The skilled salesperson who in the short-term always seems to outperform her peers… but who also maneuvers and manipulates and builds kerosene-soaked bridges just waiting to go up in flames… won’t turn into a relationship building, long-term focused ambassador for your company just because you hire her.
The interview process is a little like a honeymoon. You see the best the candidate has to offer. If a prospective employee doesn't look like a great fit for your culture before he is hired, he definitely won’t be after he’s hired.
Never risk making a deal with the culture-fit devil. The soul of your company is at stake. Seriously.
2. You discard the attitude and play the skill card
Skills and experience are worthless when not put to use. Knowledge is useless when not shared with others.
The smaller your company the more likely you are to be an expert in your field, so transferring those skills to new employees is relatively easy. But you can't train enthusiasm, a solid work ethic, and great interpersonal skills – and those traits can matter a lot more than any skills a candidate brings.
According to this study only 11% of the new hires that failed in the first 18 months failed due to deficiencies in technical skills. The majority failed due to lack of motivation, an unwillingness to be coached, or problems with temperament and emotional intelligence.
Think of it this way: The candidate who lacks certain hard skills might be a cause for concern, but the candidate who lacks the beliefs and values you need is a giant culture debt red flag.
3. You try to sell a used car
It’s tempting to over-sell a candidate on your company, especially when you desperately need to fill an open position and you've been recruiting for seemingly forever.
Don’t sell too hard. Great candidates come prepared. They've done their homework. They already know whether your company is a good fit for them based on what they've read about you online. The really great recruits might have been stalking your company for many weeks or months -- seeing what the company feels like.
Describe the position, describe your company, answer every question, be candid and forthright, let your natural enthusiasm show through… and let the candidate make an informed decision. But, don’t oversell.
The right candidates recognize the right opportunities – and the right cultural fit. If you have to try too hard to convince someone, and the love is unidirectional, it's not setup for long-term success.
4. You mistake the rumblings for hunger
Nothing beats a formal, thorough, comprehensive hiring process… except, sometimes, a dose of intuition and gut feel.
At my company HubSpot (grew from 0-500 employees in 6 years) there are five key attributes we value:
· Humble. They’re modest despite being awesome. They’re self-aware and respectful.
· Effective. They get (stuff) done. They measurably move the needle and immeasurably add value.
· Adaptable. They’re constantly changing, life-long learners.
· Remarkable. They have a super-power that makes them stand out: Remarkably smart, remarkably creative, remarkably resourceful…
· Transparent. They’re open and honest with others – and with themselves.
In short, we look for people with H-E-A-R-T, because they help us create a company we love. So we always weigh our impressions against more qualitative considerations. You should too. Think of it this way: The more experience you have – the more lumps you’ve taken and hard knocks you’ve received and mistakes you’ve made – the more “educated” your “gut.” While you should never go on intuition alone, if you have a funny feeling about a candidate… see that as a sign you need to look more closely.
And look more closely.
For a detailed insider’s peek into how we think about culture at HubSpot, check out our Culture Code slides (embedded below for your convenience).
Bottom line: Define the intangibles you want in your employees and never compromise by hiring a candidate who lacks those qualities.
5. You decide to double down
There are two basic kinds of risk you can take on a potential employee.
First the worthwhile risks: Taking a shot on a candidate you feel has more potential than her previous employer let her show; taking a shot on a candidate who is missing a few skills but has attitude in abundance; taking a chance on a candidate you feel certain brings the enthusiasm, drive, and spirit your team desperately needs. Those are good chances to take.
Now the foolish risks: Taking a shot on a candidate with a history of performance issues that you hope will somehow develop a strong work ethic; taking a chance on the candidate who left his last two jobs because "my bosses were jerks;" taking a shot on the candidate who has no experience yet only wants to talk about how quickly and often she will be promoted.
Why do you rationalize taking foolish risks? You're desperate. Or you're lazy. Or you have "other issues to focus on." Or you figure your culture is strong enough to withstand the impact of one ill-fitting employee.
Don't take foolish risks. They almost always turn out badly. Occasionally take potentially worthwhile risks, because they can turn out to be your most inspired hires and, eventually, your best employees.
And never, ever take a chance that creates high-interest culture debt.
The cost to your organization is just too high. And, life is short.
A variation of this article was also posted as part of my participation in the LinkedIn Influencers program.
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A couple of weeks ago, HubSpot shared our culture code deck (http://CultureCode.com) — a document that describes what we believe and how we work.
The presentation, despite being 150+ slides long and on a topic that doesn't involve celebrities, cat photos or currently trending topics has been remarkably well received. It has had over 340,000 views. It's one of the most viewed presentations on slideshare in the past year. I've received many, many emails and tweets with positive comments about the culture code deck (thanks!)
Deck is included below, for your convenience, in case you haven't seen it yet.
Now that the deck is out there and has garnered so much interest, I thought it might be valuable to dig into some of the core tenets of the HubSpot Culture Code and try to do an honest assessment of how well we live up to the tenets. Or, stated differently, how well do we "walk the talk"? In the deck itself, when a particular tenet was more aspirational than descriptive, we tried to call it out. (I think this candor is one of the reasons people like the deck). But the call-out doesn't always capture the degree to which we live up to the ideal, so we're double-clicking here.
So, here are the core tenets with a self-score on how well HubSpot lives up to the tenet. Of course, even this take is biased (I'm a founder, and all founders are naturally biased about their startups) and it's a qualitative judgment call. On my list of things to do is to see if we can make this more measurable. But, that's a topic for another day.
1. We are as maniacal about our metrics as our mission.
Lets break this one down a bit. First of all, we are very passionate about our mission to transform marketing and move the world towards more inbound and creating marketing people love. It's a noble vision, it's a big one — and we invest in it and mostly live up to it.
Mission score: 9/10: I dock us a point because we do have some outbound marketing in our mix of marketing spend. We're not pure inbound marketing. We spend some money on PPC, some telemarketing and some paid online channels. Not a lot — but enough to deduct a point.
Metrics score: 9.5/10: We really are maniacal about our metrics. We pore over data. We slice and dice things like customer cancellation data, SaaS economics metrics, employee happiness surveys, marketing channel data. I've talked to many, many startups and fast-growing companies. Of those, HubSpot is one of the most data-driven and metrics-obsessed companies I know.
2. We obsess over customers, not competitors and “Solve For The Customer”
The statement itself is mostly true (we spend 99% of our time worrying about customers and very little time worrying about competitors), but the underlying mantra of “Solve For The Customer” is not yet as true as we'd like it to be.
We get points for the way we have handled pricing and packaging over our 6+ year history. We have raised prices almost every year, and each time, we go out of our way to grandparent our existing customers and reward them for putting their belief in HubSpot. So, on this front, I think we do really well.
We deduct points because the overall experience of HubSpot is not as smooth as it could be. It's not customer-friendly enough. We sometimes make decisions that are for our self-interest or convenience rather than customer happiness. We're working on this.
We're getting better at having people call B.S. on decisions or directions that are not in the customers' interest. People will speak up with questions like “What's in it for the customer?” or “How is this solving for the customer?” or “Seriously?”. On the one hand, it feels good that people can be open and candid when they don't think we're living up to the SFTC (Solve For The Customer) credo. On the other hand, in an ideal world, these non-customer-happiness focused things wouldn't have to be called out, because we'd always be acting in the customers' interest. It would be natural and second-nature. But, we're a metrics-obsessed, goals-oriented, for-profit company — so it may take some work and practice to have SFTC be natural, 100% of the time. In the meantime, we'll continue to try and catch ourselves before we make decisions that don't make sense for the customer long-term.
3. We are radically and uncomfortable transparent.
We are super-duper, hyper transparent — and our transparency level has moved up over the years, not down. We share all sorts of crazy things with every employee. For example, one of the posts on our wiki goes into detail on every funding round we've done. Details include the What the valuation was, what the common strike price was, how much money was raised, how much dilution there was, etc.
We share just about everything. And, the things we don't share (like individual salaries), we're deliberate and clear about. Deducted half a point simply because nobody's perfect and we can always be better.
4. We give ourselves the autonomy to be awesome.
We're good, but not great in terms of giving ourselves autonomy. HubSpotters have a fair amount of freedom. You can run with an idea. Most things don't require permission. You can talk to anybody in the company, including the founders about whatever you want. We don't have formal policies and procedures for most things (our default policy on most things is “use good judgment”).
So, why the lower score? A few things: First, although we philosophically believe in the “work whenever, wherever” idea, this is not universally enjoyed to the same degree by every HubSpotter. We trust our team leaders to do what is right for their groups and use good judgment. We're also a bit conflicted because the data overwhelmingly shows that working together in the same office leads to more creativity and productivity. So, we understand the importance of co-location, but don't want to force it and take away freedom. For now, we've straddled the issue. Bit of a cop-out.
Our unlimited vacation policy has been a good thing (it's been in place for over 3 years). But, there were a couple of issues. First, some of us didn't really feel like they could take vacations without negatively impacting their work. Second, we had growing suspicion that on average people might be taking less vacation than they should. We didn't know if this was true, since we don't track vacation days — but we wanted to make certain that “unlimited vacation” didn't turn out to be “no vacation” for anyone at HubSpot. So, we made a tweak: Everyone has to take at least two weeks of vacation a year, or face ridicule by their peers. We've also tweaked some things to make it more likely that people do the right thing and take regular vacations.
5. We are unreasonably picky about our peers.
This is true. We are really, really picky about our peers. We're fortunate to have a lot of interest in the company, and for every open position we get many (often hundreds) of candidates. So, we can afford to be picky. It's actually harder to get a job at HubSpot than it is to get into MIT. Our acceptance rate is lower.
The reason for deducting a couple of points is related to the attributes we look for (Humble, Effective, Adaptable, Remarkable and Transparent). For the most part, HubSpotters manifest these attributes — we try to make sure of this during the recruitment and interviewing process. But, we don't always get it right. So, we get a negative point for that.
Also subtracting a half point because not only do we make hiring mistakes sometimes (despite our best efforts), we're not as good as we should be at calling people out when they do un-HubSpotty things. For example, we have being “Humble” as a core attribute (it's actually been an attribute from the beginning). But, not everyone acts in humble ways, and we often fail to call it out. Part of having a great culture is defending it.
6, We invest in individual mastery and market value.
Though we've always believed in investing in our people and wanting to “build not just a company we're proud of, but people we're proud of”, this hasn't been explicit in our culture code until recently. So, we have some work to do here.
First, we're going to take a hard look at where our “discretionary culture spend” (aka “employee happiness expenses”) — which, incidentally is over a million dollars a year. We want to shift our budget to things that help increase mastery and market value. Things like education and leadership training. Yes, we enjoy parties and celebrations too (and those are important), but all things being equal, we want to invest these dollars (in our people), not spend them.
But until then, we still get an 8 on this front. We can do much more.
7. We defy conventional “wisdom” as it's often unwise.
This culture attribute goes towards how much we question the status quo and do things differently. We're actually pretty good at this. Good, but not great. We get points for things like not having offices and executive perks. Our radical transparency and openness defies conventional wisdom. We're one of the few private companies that publicly shares its key financial data (like revenues) every year.
8. We speak the truth and face the facts.
We have a very strong culture of facing the facts and reality. Nobody is allowed to walk around with rose-color glasses on. We don't brush problems under the rug. We don't hide from issues. If anything, we can be faulted for being too critical sometimes. We also do a great job of speaking the truth and being candid about the problems we see in the organization. This happens in meetings, in hallways, over email and on the wiki. When problems show up (as they do regularly), we are usually quick to react.
9. We believe in work+life, not work vs. life
This one is a bit squishy and hard to measure. Generally, we do a really good job of work-life fit. Mostly flexible hours, unlimited vacation, centrally located and relatively easily accessible office. All of those things help. Things that fall into this bucket that we're not great at is diversity — particularly gender balance and getting more women into leadership roles. We're “leaning in” on this, and hope to get much, much better at this over the next few months. Stay tuned.
10. We are a perpetual work in progress.
This one's a bit of a gimme (note to self: We need to replace this tenet with something that's more substantive and less platitudinal).
We don't sit on our laurels. We celebrate victories big and small — but celebrations are short-lived. Though we are pleased with our modest success so far, we recognize that there is still much work to be done. We're constantly trying to improve how we run the busines and ourselves.
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The following is a guest post by Alan Wells, co-founder & product designer at Glyder. [Disclosure: I'm an angel investor in the company. -Dharmesh]
It has been widely reported that at there will be least 1,000 orphan startups this year - companies that raised a seed round last year and will fail to raise follow on financing. The popular opinion in the tech press is that most of these 1,000 orphan companies will die due to lack of capital. As a founder, it's hard not to let this influence your thinking - with all the talk of failing fast, acqui-hires, and overnight success stories, it's easy to believe that your only options are to find a soft landing or shut down and try again with something else. And compared to sticking it out, walking away is most certainly the easier path (although it might make you a punk).
But I believe that in those 1,000 orphan startups, there are great companies - companies that can still put a dent in the universe, companies that can break through if the founders stick to it. Ben Horowitz says that all great CEOs have one thing in common: they don't quit, and at Startup School last year, this theme played out over and over again. Almost every founder that spoke went through a trough of sorrow that lasted 18-24 months before things really started to click for their companies.
Maybe it’s coincidental that the trough of sorrow is usually just a bit longer than the runway you have after an average-sized seed round, but I’m beginning to believe that great companies are often the product of these trying circumstances. Unfortunately people don’t like to talk about what’s not going right with their companies, and there’s not much discussion going on around what founders are doing to successfully navigate these waters.
I’m the founder of a startup that recently decided to double down and do our best to beat the series A crunch, and in the interest of focusing on the road instead of the wall, I wanted to share some of the things I’m learning as we find a way forward.
Acknowledging Your Reality
Founders are optimistic people, so it's easy for us to believe that if we just add this one thing to our product, hit that one key metric, or sign that one partnership deal, investors will come banging on our door begging to give us money. However, if you know things aren't going well or you are already having trouble raising your next round, what your startup needs more than anything is a lucid founder that can realistically assess the situation and identify a path forward.
Doing an honest appraisal of the things that were and weren’t working in our business was an important moment for our decision to press forward. Inside the head of a founder, things can seem great one minute and terrible the next, so getting outside perspective can be valuable as a check to your instincts and emotions. Meeting with advisors and existing investors also helped us get some third party perspective about trends in the market and issues we’re facing.
Understanding Why You're Not Fundable
As a startup founder, you're working in a four dimensional problem space: team, product, market, and timing. Hopes and dreams are often enough to raise money at the seed stage, but in my experience, you need more than that for your next round: you need to convince investors that you're the right team building the right product for the right market at the right time.
If you've been fundraising for three months and haven't gotten a check yet, something is probably wrong in one or more of these areas. Understanding what's wrong is critical to figuring out your path forward, and investors that pass can be the best source for understanding what the missing pieces are.
Until recently, I don’t think I quite appreciated the complexity of getting all this right at the same time, especially when you throw in the added complexity of trying to match up with the various investment theses and historical biases of top tier firms. As Ben Horowitz said, “this is not checkers; this is mutherfuckin’ chess.” Getting useful information isn't always easy - most investors seem to be worried about offending founders and prefer high level statements like "not enough traction" over candid feedback about the holes they see in your business.
I want to thank a few folks that were candid and helpful to us in this way - Ashu Garg (Foundation Capital), Thomas Korte (AngelPad) and James Currier were among the the people that gave us really insightful, critical feedback.
The Founding Team Gut Check
With some honest datapoints on the investor perspective of your business, you have the information you and your co-founders need to have a gut check conversation about the state of your business. You'll likely find your product, market, team or timing are in conflict with what investors see as likely to be a homerun, and you need to decide how to respond to that mismatch.
In our case the problem seems to be mainly around market - we're targeting very small businesses, a fragmented market where there is no historical precedent for big winners being built within the timeline that venture investors need for their 10x returns. We're well aware of the historical challenges in serving this market, but we believe that due to a number of new trends, big winners will emerge in this space in the next 3-5 years. Very few investors agree with us.
Our focus on very small business is one of the founding principles of our company, and we believe deeply in the potential that lies in serving this market. Our conviction in serving this market increased when we launched Glyder and started seeing the positive user response to the product. Because of this conviction, we decided that we would rather continue focusing on this market than switch to a different target market, even if that means we're not fundable in the short term.
Having an open and candid conversation with our team about the challenges to our company was a great chance to gauge everyone's commitment to the business. Building our business without more capital will be difficult, but when everyone voiced renewed desire to keep going forward, it helped me as the CEO get excited about figuring out how to do it.
Moving Forward & Changing Tactics
Paul Graham likes to tell founders that "the surest route to success is to be the cockroaches of the corporate world." The analogy works particularly well for orphan startups, because without additional capital, you must be resilient, resourceful and self-sufficient as quickly as possible. Here are some of the changes we’ve made as we continue building our business.
Incentivizing Existing Investors to Stay Involved and Excited
Before we started trying to raise a new round, we gave our existing investors the opportunity to put more money into the company on fairly favorable terms. The cap on this new note was lower than the cap that we had previously raised money on - although our business was much further along, the funding environment had changed as well, and we wanted to make the decision to put additional capital in easy for our existing investors.
We also went back and amended the documents for all investors who had put money in on the higher cap and gave them the lower cap instead. This is unusual, not legally required, and meant that we were giving up additional dilution.
Why would we voluntarily increase dilution? Our investor group includes friends & family, angels, and the great team at 500 Startups. Our relationships with most of them started long before this company, and we hope they will extend far into the future. These relationships motivate us to keep building the business - they trusted us with their hard earned dollars, and although they all know the risks of betting on our startup, we want to show them results. When it comes to a decision like the one we made with the cap change, the cost in dilution was well worth the goodwill it generated among our investors. It also demonstrated our commitment to acting with integrity even when things aren't going according to plan.
Re-evaluating the Product Roadmap
As we heard the skepticism from potential investors while trying to raise more capital, product priorities were the first thing to change for us. We no longer have the luxury to focus on user growth over monetization, so our entire product roadmap shifted to focus on revenue. Our app, once offered for free (to maximize signups) is now a paid download. We don't have the luxury of supporting users that aren't willing to pay for what we make.
Lowering Burn Rate
In addition to shifting product priorities to revenue, we also made dramatic reductions in burn rate so we could reach profitability faster. This meant letting several team members go - by far the hardest decision in this entire process - and asking remaining team members to take a pay cut (we softened the blow with this by giving additional equity). The changes in product and burn rate have put us on a path to reach cash flow positive before we run out of capital.
Preparing For Battle
In addition to the tactical changes in our business, the process we’ve gone through in the past three months has mentally and emotionally prepared our team for the road ahead. We know who we are and what we’re working toward, we’re aware of and very comfortable with the contrarian stance we’re taking, and we believe the long term opportunity is well worth the short term sacrifices we are making. As they say on Friday Night Lights, “clear eyes, full hearts, can't lose.”
I think Andrew Chen had it right when he said
, "there’s always another move." If you’re the founder of a startup staring headfirst at the Series A Crunch and you can find the will to keep going, your job is to find that next move and make it happen. I hope to see more discussion on how companies are sticking with it and navigating the trough of sorrow. If you're in the midst of this process and need someone to bounce ideas off, drop me a note at @alanwells
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