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daily articles for founders

Here are 10 quality posts from the Founder's Library:

How many VCs should you have?  

Mark Suster makes the point that the ideal number of VCs to have invested into your business is 2.

"Many" has benefits but it also has drawbacks. If you plan to do it I highly recommend that most of the VCs be smaller funds and ones who are generally not looking to invest much more after your first round of capital. There are firms with this stated objective - seek them out if you want to load the VC roster on your deal.

(...)

There is an obvious pitfall to working with just one VC - if you fall out of love you're screwed. There are reasons why VCs sometimes don't support deals once they've invested.

(...)

In my mind [two VCs is] the perfect scenario. You get all the benefits of the "many" deal without the drawbacks. If you can pull it off, I love the "two-handed" deal. If you're doing well but need a little more gas to prove yourself, it's so much easier for VCs to split an inside round. It's both a smaller check and it's external validation that somebody else was willing to fund.

Mark ends with some practical advice for managing herds of VCs, for those of us unlucky enough to have this problem:

  1. Always have a lead: no lead = no one on the hook for tough times.
  2. Make sure the lead VC is the right lead for your stage: generally, don't raise a $2m round from a $1b VC, or a $10m from a $100m VC.
  3. Make sure they have enough left in their funds, or are raising the next one soon, so they can fund follow-on rounds.
  4. Make sure they play nicely: if they don't play nice while they're still trying to charm you while you're raising the fund, they'll get worse later.
  5. Always pitch outsiders first for follow-ons: it keeps the insiders honest.
  6. Always make room for value-added angels.

Sales comes out of who you genuinely are

Have you seen Glengarry Glen Ross?

It's a pretty awesome movie based on a play by David Mamet. There's a scene in there that has been posted ad nauseam, the Always Be Closing speech where Alec Baldwin puts some serious pressure on the small sales team at some kind of real estate company that's never fully described.

A less well-known feature of that film is the sales pitch and approach followed by that company's star salesperson, Ricky Roma, played by Al Pacino. Ricky is shown spouting ten shades of bullshit in a bar with his "mark", convincing him to buy a product that's clearly not good for him (and very expensive), and then actually lying to his face to try and maintain the sale when his customer realises (after being told by his wife that she'll divorce and ruin him if he doesn't cancel the sale) that he made a really, really bad deal that's about to literally destroy his life and put him in the gutter.

What does Ricky Roma do in this situation? He lies and pretends the contract can be cancelled later, so that he can lock in this "customer" into this sale that will destroy him.

Ricky Roma is a complete asshole and a stain on the reputation of salespeople. David Mamet must not have known a lot of salespeople, to have this view of what a good salesperson is, because that is definitely not how great salespeople work.

Which brings me to real salespeople, the ones who actually make sales in the real world, rather than in fantasy plays. The kind that you need to become yourself, to an extent, in order to be a successful founder.

Win-win-win

Successful salespeople don't pressure or bullshit the prospect into a sale. They are persistent, but they are always focused on achieving a deal where it will benefit all parties.

This means that a great salesperson will never be selling something that they don't believe actually helps the customer. And that has to be the starting point of every conversation with a potential customer. How can I help you? Is there something that I sell or someone that I know that can make your life better?

For the last few months, I immersed myself deeply in the sales process for GrantTree, but over the last few years, I've observed quite a few competent salespeople at work, and been part of many sales, both successful and not, and the conversation, particularly when selling high-value, high-price items, always starts with how to best help the person sitting in front of you (or on the other side of the phone call).

How you can help someone always starts with who you are. I'm a serial entrepreneur, with a blog full of advice for startups, with connections and experience that come from 5, 6 years of doing this, and with a business that sells a product that can help tech startups. So my conversations always start with understanding where the person on the other side is at the moment, and how I can help them. The best situations for me to help most tangibly is if there is a match between the services GrantTree offers and the state their business is in, but if those services won't help them, I would never push them into deals that won't provide a clearly positive outcome for them.

For example, some clients are too small for GrantTree to be able to add much value. It's the nature of government incentives, which are based on how much you spend, that the more you spend, the more you can get back. And the more you can get back, the bigger the difference it makes to use a specialist. I regularly speak to founders whose businesses are too small or early to make the most out of GrantTree's services. In those cases, I try to help them anyway - even without getting anything out of it for GrantTree.

This is how I start. My cofounder, Paulina, approaches clients differently. Her strength includes a very wide network of people who might be great connections for the person she's talking to, so naturally she leverages that, rather than tech startup experience, to help the potential client. But again - the focus is on helping the other person, never on trying to squeeze a deal out of circumstances where we can't make a positive impact on their business.

How will you approach your potential customers? That entirely depends on who you are, what you bring to the table. But it always has to be first focused on helping the other person. Otherwise, you are not a salesperson, you are a scammer looking for a quick buck, like Ricky Roma.

Getting over the money hurdle

With that in mind, as a geek, I used to find it hard to get past the fact that ultimately, I was doing this to make some money. This is probably the greatest hurdle for anyone (even people who eventually become master salespeople): realising that it's ok to make money from a deal.

It sounds trite, cute almost, but it's a real problem. Most people who have not spent a considerable amount of time selling will feel that the whole process is made unwholesome because they are, ultimately, doing it out of self-interest too. Yes, I'm trying to help the other person, but I'm also trying to make some money, so I must be selfish, right?

This comes back to believing in your product. If you don't believe that your product genuinely adds to your customers' lives, genuinely makes things better, genuinely helps, then don't sell it until you do, because then you are selling a scam and you should indeed be ashamed of doing so.

However, if you do believe in your product, then focus on that and the issue will go away. Here are some examples:

Patrick McKenzie wrote about how he started charging a lot more for his services after a conversation with Thomas Ptacek, who pointed out the vast amounts of value he was creating for the client business. Charging more enabled him to focus on providing top quality advice to people who could really make use of it. He's since helped many other companies to multiply their revenues. He wouldn't be able to do that unless he charged a lot for it (he wouldn't have the time to do it properly, with the right amount of focus). Patrick believes in his product (and should). If Patrick tries to sell to a business that would be a good fit, I'm sure he has no doubt in his mind that if the sale goes through, both himself and the client will benefit greatly. Is that a product you can believe in? Absolutely.

George, one of our recent hires at GrantTree used to work for Point-Two, who sell air jackets for horse riders that inflate upon impact. These jackets can save your life. He showed me a video recently of a woman whose horse hesitated before a jump. She went over the obstacle. The horse came tumbling after, on top of her. The 600-kg beast landed squarely on top of her. The air jacket meant that she walked away with a few bruised ribs. That jacket saved her life. Is that a product you can believe in? Absolutely.

GrantTree sells help with getting government funding. For the right clients, we increase the amount of funding obtained substantially, through our knowledge of the rules, as well as reducing the amount of time spent preparing the filings and the risk of doing so. Many of our clients would not file, or would file much smaller claims, if it wasn't for us. We regularly take on clients who have lost all belief in UK government funding, and are very surprised when the funding does go through. Or we take on clients who are already making use of the funding schemes and we substantially increase the amount that they get. Is that a product you can believe in? Absolutely.

Given that these are all products that add very tangible amounts of value to the clients, is it reasonable to make money for them? Absolutely. Making money from his consulting services means that Patrick has been able to go around the world helping well targeted businesses with his knowledge. Making money from the jackets means that Point-two have been able to save lives. Making money from government funding services means that GrantTree has been able to grow and help even more businesses. None of those things would have happened if those businesses did not make money.

So don't feel bad about the fact that you'll get money out of the deal too. If you believe your product genuinely helps your customers, then making money from it is absolutely deserved and reasonable.

Focus on the win-win nature of every deal you make and, over time, the self-accusation of selfishness will fade away.

In conclusion

Mythological salesmen like Ricky Roma, who are really highly skilled scammers, have given the sales profession a bad name. If you want to be a successful founder, sales is one of the many skills you need to learn.

Get over your fear of making good money from selling good services by realising that every sale you make will benefit your customers (if your product is worth selling) far more than it will cost them, and start every sale from the point of view that you are trying to help the other person.

Good luck with it! Sales is damn hard, even without misconceived notions about whether it's ok to make money when selling something.


How to optimise facebook campaigns  

Ilya Lichtenstein proposes some solid advice for running Facebook advertising campaigns. The highlights are:

  • Expect to start off losing money (and so run lots of smaller campaigns to tune and optimise them).
  • Cut low-performing ads after about 30 clicks, and invest more in high-performing ads.
  • A good CTR to aim is about 0.1%.
  • Expect CTR to slip over time due to saturation and banner blindness.
  • Use the reports help tighten your ads' focus.
  • Lower your bids until you find the sweet stop (and disregard suggested bids).
  • Once you've found profitable ads, scale up the spending, and look at foreign markets for extra-cheap traffic.

There are many more insights in the article. Read it if you want to learn how to get value out of this source of paid traffic.

The idea funnel  

Great, solid post by Stef Lewandowski explaining in some details how he goes about how to create lots of projects and then filter them down to a few working projects (an idea which I explored in this post, but which he seems to have taken to the next level!):

This last eighteen months, I've deliberately tried to go for a strong idea, loosely held approach-to allow myself to be open to lots of things, and to not be too convinced that they will definitely be right. The strategy was to try out many tiny ideas at an early stage, do a series of quick prototypes, play with them, often in public, and then invest in the ones that looked the most promising as the beginnings of digital businesses.

We're at something of an inflection point in the process now, where three "winners" have emerged from the cohort and have the potential to turn into fully-fledged "startups" in their own right. That's Attending, Wrangler and Hire My Friend. We also have made a few lovely little things that have a fair degree of usage but aren't clearly startup material-Linkydink, for example.

Read more here.

Stealth mode startups  

Mostly correct advice, for most cases, to startups in stealth mode:

... stop being in stealth mode. Stop asking for advice. Stop doing your start-up. You're not ready.

Jason Freedman of HumbledMBA proposes these key reasons why you should never be in stealth mode:

  1. Execution is more important than the idea;
  2. Someone else has the exact same idea anyway;
  3. Completely unique ideas generally don't make it;
  4. The most likely cause of failure is your incompetence, not the competition;
  5. You desperately need real feedback;
  6. First mover advantage is just silliness.

Another side-effect, perhaps less important, of stealth mode, is that people you meet in networking events will think you're a startup newbie (and they'll probably be right). You won't get the same level of introductions, because who wants to risk their reputation introducing someone who doesn't even know the basics of startups? Instead, you'll get lots of advice about why you shouldn't be in stealth mode.

My first startup was involuntarily a stealth startup. We didn't tell anyone other than friends because we didn't think it was that important, and we wanted to build a sense of excitement around the launch. It was one of the main reasons the product stank at launch.

If you don't get user feedback from the right people during product development, your product will suck. That was lesson from startup number 2. It's not enough to get feedback, you need feedback from paying users, as soon as you possibly can, or else your product development bus will drive down the wrong road, and it's damn hard to turn it around later.

There's always a caveat, though, always a context where this doesn't work. I believe it works for most web startups, but in other industries, stealth mode may be de rigueur.

Be specific in your requests  

Jason Freedman proposes an approach for people who are looking for job referrals:

Whenever you talk to someone about job search stuff/career advisory stuff, give them a very specific interest. For instance, tell me that you're interested in joining a seed-stage team focused on mobile payments. Or a post-Series A startup doing social discounts. Or a high-growth startup in advertising optimization. Whatever! Just make it very specific.

This is spot-on for job referrals, no doubt, but perhaps Jason is applying his own trick there in being so specific to that field.

Whenever asking someone for help, or for a sale, or for almost anything, being specific about what you want is almost always a great thing.

For example, when doing business development, you can approach it two ways:

  1. Approach lots of interesting people, have meetings/coffees/discussions with them, and let a cooperation emerge.
  2. Figure out what kind of business deal you want, draw up a list of people who might be able to help, then approach them with this plan in mind and let the goal drive the discussion.

Method 1 will certainly yield you more meetings - but guess which method will get you more deals?

Be specific: know what you want, and ask for it clearly.

Ideas and equity split  

Manu Kumar, serial entrepreneur and VC, makes the case that ideas do matter:

Ideas and Execution are Yin and Yang of the startup world. You need both in order to make magic happen. You need the right idea and the right team that is capable of executing on that right idea. One without the other will fall flat on its face eventually. You may have a brilliant idea, but if you can't execute it, it's not going to happen. On the contrary, and this is what people forget, that you might have an absolutely stellar team, but if the idea isn't right, even a stellar team isn't going to be able to pull it off.

He makes very good points (it's worth reading the full article), but I can't help the feeling he's arguing against a straw man. I don't believe anyone has ever claimed that having the right idea doesn't matter at all. Of course it does. We finally get to the point of the argument near the end of the article:

And it is because ideas matter that founders' equity splits should also reflect that. If one person has an idea and brings in one or two more co-founders to join in, even if nothing is built yet, it shouldn't be an even equity split. In fact, it should almost never be an even equity split:

The reason why people will say that ideas don't matter at that very early stage is because:

  1. You don't know if your idea is any good at that point. You may have to iterate several times and transform the idea through and through before it is any good. Why, then, should the person with the initial seed idea be rewarded more for just contributing what is most likely a bad initial idea?
  2. Even if the idea is brilliant, it's the team's execution that will make it come alive. The idea by itself is worthless. If you claim you can recruit another equally brilliant team, that is an argument for giving your current partner less equity (maybe). But recruiting an awesome team is execution, not ideation.
  3. On the other hand, a team that can execute successfully will squeeze at least moderate success even out of a mediocre idea, or will iterate over to a better idea together.

Ideas matter, but they don't matter enough to be worth having these arguments over. The real reason why it might make sense to split the equity unevenly, if you even want to, is that people will join with different levels of skill and experience, and at different stages of progress.

I really do think that this debate of ideas over execution is completely outweighed by the consideration of what sort of relationship you have with your cofounder(s). Arguing over percentages is only worth doing in the context of an interest-based relationship, as I've argued here.

Evolution of a dashboard: beware vanity metrics  

Des Traynor proposes 5 stages of a startup's dashboard's evolution. The right metrics can and should drive your decisions, so a dashboard can be essential to make your decision process quicker and smoother. The five stages are:

  1. One step above "select count(user_id)": when you just need some idea what's going on. Don't overdo it at this stage.
  2. Aggregation: when you want to spot patterns across groups of users. At this stage, it becomes interesting to calculate averages.
  3. Trends: display the averages over time on a graph so that you can more easily spot trends
  4. Insights and actions: mark up the graphs so that you can better attribute causes to changes in trends.
  5. Projections: when you have enough data that you can take guesses as to how changes in your activities will affect future changes.

It's an interesting post, but there is one problem: the focus is too much on vanity metrics. Not a single one of the metrics used in the examples are actionable metrics. Vanity metrics are dangerous for a couple of reasons:

  • They give you a sense of being in control even when you're not.
  • They can lead you to make the wrong decisions. Data is dangerous.

It can be useful to collect these types of metrics anyway, because gut feeling can sometimes uncover connections that data could not, but always be wary of wild guesses as to why something is trending one way or another. Metrics should be directly linked to hypotheses which you're testing, and directly lead to decisions which will increase your sales.

Faking initial user interest  

This very interesting article from a couple of months ago comes via this almost equally interesting "AMA" ("Ask Me Anything") post on Reddit, about how to build a social entertainment website.

The key point is that some businesses need to solve a chicken-and-egg problem of getting significant numbers of users before more users will join. One solution to this, which sites like Reddit or the new darling Quora have used, is to fake the initial activity, to present a higher level than would otherwise be apparent.

Of course, this doesn't mean put up false testimonials ("Great app; use daily! - Barack Obama), create fake real-time activity (extremely easy to spot), and fake your numbers (though I know plenty of startups that do, and it works).

Rather, you can engineer your appearance to give off a sense of size.

Worth a quick read.

Time-saving web design generators  

This will be useful to someone - particularly when trying to put together a decent design to test an idea quickly. Generators are listed for:

  • loaders
  • colour schemes
  • favicons
  • striped and dot patterns
  • miscellaneous backgrounds patterns
  • tabs, badges, buttons and ribbons
  • CSS3 effects.

Enjoy.

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