Posts

Recently I met a startup founder who explained a technique for building his product roadmap in a novel way. “We research what our users are doing three minutes before they start using our product and the three minutes after.” I like the idea because it is a simple and ingenious mechanism for brainstorming product ideas, and this type of product development exploration evokes empathy from a product team, which is a the first step of the Stanford d.School and IDEO’s Design Thinking Processes.

Since it was first written in 1982, the Simple Mail Transfer Protocol, the mechanism for sending emails, has remained largely remained unchanged. Today SMTP delivers 70 trillion emails to 5B inboxes each year. Overwhelmed by tens of thousands of emails, most of us can sympathize with Nick Bilton, who said:

There is no escape: Email is probably most invasive form of communication yet devised.

Unlike SMTP, email is changing very quickly. In particular, email is undergoing a great unbundling, similar to Craigslist’s, in which startups are seizing upon important use cases of a generic service and building a better, dedicated version of it as a stand-alone company/product. This is happening to a certain extent in consumer products like ephemeral messaging (SnapChat) and location sharing (Glympse).

Several weeks ago, I wrote a post about the Optimal Contract Value for a SaaS company. I wondered whether startups serving enterprises might be more or less valuable than those serving small-to-medium businesses (SMBs). Interestingly, the data showed there was no optimal customer value to build a publicly traded SaaS company.

Having written that post, I began to wonder about other differences between different types of SaaS companies. In particular, do SaaS startups serving SMBs spend more or less than their counterparts in the mid-market and enterprise? And which type of SaaS startup grows the fastest?

Is it better to raise your startup’s seed round from only angel investors, or is it better to include a VC or two? Several founders on the precipice of launching their seed fundraising processes have asked me this question.

It’s a very difficult one to answer hypothetically because there are many different variables to balance. For example, VCs may invest larger sums than angel investors. The imprimatur of a VC’s investment in a company might help convince potential customers and recruits. But some might argue their money brings potential signaling risk.

For the past several years, early stage VCs have entered the seed market with vigor. VC’s entry has resulted five different important trends in the past five years:

1. The total dollars entering the seed market has increased by 132%.
2. The mean seed round size has increased by 114% to $1.4M.
3. VCs’ typical seed investment has grown by 50%.
4. Mega-seeds, those seed investments over $2M, have reached historic highs exceeding 80 instances in 2013.
5. The mean mega-seed round is $2.26M during the past five years but in 2013 that figure reached $2.8M, which implies mega-seeds have replaced traditional early Series A.

Though total number of seed investments increased by 30% comparing 2013 to 2011, but astoundingly, the total dollars entering the seed ecosystem has increased by 132%.

Marketing investments are unlike any other investment a startup. They are the least-tangible, least-measurable investments and that’s why they are perceived as the riskiest investments.

After raising a round of capital, a startup’s management team has a pool of capital to invest. They can choose from different projects: growing the engineering team to build products faster, spending more on infrastructure to speed page load times, moving to a bigger office, adding salespeople to prospect more customers. All of the aforementioned products have long-term value and the benefit of the investment can be seen immediately. New hires are in the office every day and will remain with the company for years. The speed benefits of faster infrastructure accrue to the company daily and a better product engenders a happier customer base.

HBS Professor Michael Porter created the Five Forces Framework in 1979 in a landmark book called Competitive Strategy. One of those forces, the threat of substitutes has intrigued me for quite a while because in the world of the Internet, the prevailing wisdom on switching costs argues they are trivial on the web. After all, how difficult is it to change from Google search to Bing search? This is the question Google wrestled with during its search share battle in the mid 00s.

In his book Behind the Cloud: The Untold Story of How Salesforce went from Idea to Billion Dollar Company and Revolutionized an Industry, Marc Benioff shares the 111 plays he learned through Salesforce triumphant rise to the most valuable SaaS company in the world.

Play 15 is my favorite from the book. Benioff writes “position yourself either as the leader or against the leader in your industry.” Play 15 highilghts the most frequently forgotten of marketing’s four Ps, positioning. Positioning is easily forgotten because it’s the least tangible of the four. Price immediatly impacts revenue. Product, well, everyone has a point of view on product. Placement in today’s ecosystem means ad placements, most often. In performance marketing, the numbers speak for themselves.

Is there a common characteristic of successful freemium companies? Piotr asked this question earlier this week. This is the framework I’ve seen work well for freemium startups.

At its core, freemium is a novel marketing tactic that entices new users and ultimately potential customers to try a product and educate themselves about its benefits on their own. By shifting the education workload from a sales team to the customer, the cost of sales can decrease dramatically. So, freemium can be a huge strategic advantage in a competitive market because those companies that successfully implement freemium can scale faster and more efficiently than traditional sales-driven companies might.

What are the tradeoffs when considering different sales hiring plans and which is the right one for your startup? There are many different considerations in creating a sales hiring plan. Balancing them all can be tricky, but thinking through the trade-offs is important to scaling the business well.

First, let’s compare the financial impact of three different sales hiring strategies: six sales people hired at once, two sales people hired for each of three quarters and one sales person hired each month. In this hypothetical example, the sales people have a $350k annual quota, cost the startup $100k annually, and achieve their quota over six months with the following attainment percentages by month: 0%, 0%, 25%, 50%, 75%, 100%.