“My goal is to make you love rowing.” That’s how my first rowing started. I had never picked up an oar or stepped into a racing shell before. With 100 other freshman men, I had assembled at the boathouse along the maple and conifer lined Connecticut River. I’ll never forget those words.
I had played many sports before. In every other case, the focus, the mission, the motivation had always been to win. This was different.
Last week, I shared a presentation with an executive team at a large public SaaS company on everything I’ve learned about pricing. Here’s a summary of the frameworks and theory that I’ve aggregated over a decade of investing in startups.
Why do we set prices? Setting aside the important reasons of generating revenue and maintaining solvency for a business, there are many other reasons to set price. Price reinforces brand because price telegraphs whether a product is a premium product or a value product. Price differentiates products in the market and can be used as a go-to-market strategy. Underprice the competition to gain share. There are many others too.
In December 2017, the amount raised in ICOs nearly equaled the amount raised by Series A investments globally. The technology innovation catalyzed by Bitcoin and Blockchain is creating many multibillion dollar economies quickly. The ICO market today bears many similarities to the dotcom era. Startups can raise hundreds of millions of dollars on an idea. Twenty years ago, the idea had to be sketched on a napkin. Today, the protocol must be detailed in a white paper. But the ability to access huge amounts of capital at a similarly nascent stage is identical.
Below are 7 predictions about the startup software ecosystem. How many of them do you agree with?
I like writing these lists because they are very likely to be proven wrong in the fullness of time and looking back at them a few years later gives you a sense of what the world felt like back then. Have a great new year, everyone!
There’s a crisis in the scientific academic world. It’s called the Replication Crisis. Scientists have found that they cannot replicate the results published by many scientific studies. The same thing is happening in the world of business.
Over the last 15 years I’ve read several hundred business books, and I’ve written one. Across those 15 years, one of the most interesting is a book called The Management Myth, which traces the history of management science back to its less than solid origins. The book illuminates the history of scientific management and Taylorism, and supplies evidence that much the original data underpinning these theories was fabricated. I was curious if this was a broader trend, and it may be. I found other cases.
When negotiating your next fundraising round, should you talk valuation in premoney terms or postmoney terms? Premoney is the valuation before the investment, employee stock option pool (ESOP) expansion, debt-to-equity conversion and investment. Postmoney is the value of the business after all that.
As an investor, postmoney is simpler. Despite the improved simplicity, I don’t think the industry is going to move to postmoney anytime soon.
Why are postmoney conversations simpler? Because the valuation of the business is fixed. The value of the business doesn’t float from variables like pro-rata participation, ESOP expansion and debt-to-equity conversion.
A friend suggested that I read the Five Dysfunctions of a Team over the weekend. Though I’m passionate about business books, I rolled my eyes. I had seen this one on best seller lists for a long time, and never thought it would have much to offer. I admit my book-cover bias was wrong. The author has a counterintuitive assertion. Meetings shouldn’t be boring.
“Evidence from science suggests that business people must be insane to use brainstorming groups.” That’s a shocking statement. Adrian Furnham, a professor of organizational and applied psychology at University College London, said it. It turns out it’s completely true.
Participants in interactive brainstorming groups rated their performance quite favorably…[and] felt that interactive group brainstorming was more productive than individual brainstorming…However, actual performance data [showed] …interactive groups generated fewer distinct ideas.
How quickly do the fastest growing software companies build their teams? The answer is incredibly quickly. In fact, this data bolsters the notion that management team’s top priority is recruiting, especially after the business has reached product market fit and capitalized itself well.
Above, I’ve charted the headcount growth rate for 10 of the fastest growing software companies in recent history. I’ve normalized the years for when all the businesses were roughly at the same headcount - fewer than 50 people. This is a proxy for when the business established product market fit.
There’s a parallel between cryptoassets today and the British colonial period predating the US. In the late-1600s, colonies began to print their own money. Today, we’re seeing many startups coin their own money, creating an explosion in the number of new (crypto)currencies.
States printed colonial money to pay debts to citizens. During tax collection times, the state accepted citizens’ bills as payment and retired the bills from circulation. Citizens would pay each other with these bills. They could also exchange them across state lines, but not at 1:1. Each state’s bills had a different exchange rate.