Bait and switch acquisition offers ✶
Ouch. Here's an anonymous story from a founder who got screwed during an acquisition. Killer quote:
He tells me, “I’m sorry, but the CEO changed his mind. We’re not moving forward with you guys.” What? I was furious and trying not to panic. “Why not?” He gave me several reasons, including uncertainty about how our product would integrate into their suite of offerings (shouldn’t that decision have been made back in October?) and disagreement on the roadmap we presented (remember that chaotic three hours on the second day of due diligence? Also, he’s the CEO, if he wants it, he gets it, right?). The one that stuck with me the most was “Our engineers looked at what you showed us during due diligence and told our CEO ‘It doesn’t look so hard, we can build it ourselves.’” Information that we had shared under NDA.
If you're getting serious about selling your company, read this first. It will save you from these kinds of mistakes - mistakes which are not only costly, but also infuriating.
Sad, tired and alone - or not ✶
Zak Homuth discusses his perspective on getting depressed while running a startup:
The highs are higher, and the lows are lower. If you're a founder you've felt like this before. If you're about to startup you will feel like this someday. And it's ok. It's baked in. You quite simply can't change the world in a couple of years without doing more than most people do in a lifetime.
That's true, but...
I am currently in the midst of the deepest, darkest, and longest depression I have had in the last 2 years of my life. Possibly ever. (...) 82 weeks ago I started my third startup. Since starting Upverter I've felt this depression about a half a dozen times, I guess once a quarter. Its normally just a really, really bad day. Sometimes longer. (...) For me, the sadness normally means I hide. I sleep. I stare at my screen knowing what I need to do, but not doing it. I eat too much or not at all. And I drink. Im at a coffee shop right now writing this - and its the first time I've left my room in three days. During school and Sandvine I got fat - like 265lbs fat. It was pretty bad. I was able to lose the weight (80lbs), but it wasn't easy - it was a lot of support, a lot of friends and family, and a lot of quiet-time introspection.
This seems a little bit extreme.
Everyone has up days and down days. Most of the people I've worked with consider me to be very productive. I don't sit around and do nothing... or do I? I regularly have days when I just can't summon the energy to do anything. Even in the midst of being extremely busy, there'll be the odd day (probably once every couple of weeks at the very least, sometimes once a week) when I just don't do anything at all for a whole day. No blogging, no working, barely answering emails, etc. You know, one of those kinds of days where you just feel like you wasted the day.
It sounds very much like what Zak describes, except for one huge difference: I don't call it depression. I accept it as a natural side-effect of the way my brain works.
As Zak rightly points out, "the highs are higher, and the lows are lower". That's not just a function of being a startup founder, but simply of having the kind of highly creative, driven, productive mind that can even consider starting a startup. Certainly, the pressure of running your own business (particularly if you've taken funding and/or people's livelihoods depend on you) will exacerbate both the highs and the lows (not many jobs give you the high of earning yourself £100k in one day - or the lows of failing to earn it when it was just within your reach).
However, whether it is "depression" or simply a natural low is a matter of perspective. Instead of fighting the lows, I embrace them. I learn to recognise "those days" as symptoms of my brain telling me "hey, today I'm on a break." Instead of trying to force myself to work through that (which rarely works anyway), I embrace it and allow myself to not do anything. I allow myself to let go, to feel like nothing is working out (despite evidence to the contrary), like everything is out of shape. What enables me to do this is the knowledge that a) it's temporary, I'll feel different tomorrow, and b) it's ok, I'm productive enough the rest of the time to make up for a day off every now and then.
Sometimes the answer to being down is simply to accept that it's ok to be down, and do something else while you wait for it to pass.
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SaaS Economics ✶
Excellent two-part article, by David Skok of Matrix Partners, about the economics of using salespeople in a SaaS startup. Part 1 and part 2 are both extremely interesting, and although they're long, they're essential reading for any B2B SaaS startup that is nearing the critical stage of having found product-market fit.
It also makes a good case (if such a case was needed) for why VC funding can be essential to winning a market, once you've found a repeatable, scalable sales model.
Once your business has been running for a little while, and is starting to make a bit of money, it's worth spending some time to figure out what it is that drives the activity in your business.
Every business will have a different type of "driving process", but in all cases, they are activities (often meetings) out of which many tasks flow out.
The driving process for a project to deliver a piece of software will be the weekly or daily meetings to assign the tasks for the coming day or week. The driving process for sales is a sales meeting where currently active leads are reviewed and actions decided. The driving process for a service being provided to a number of clients might be reviewing the status of all the clients and deciding on next steps for each of them.
Some of those business activities need a certain rhythm in order to pick up momentum. There are various ways to achieve that, but meetings is certainly one of the most common ones. However, in a young company, meetings don't happen unless you make an effort to keep them happening - there's always something else to do that seems more appealing than having a meeting. Unlike the corporate environment, where meetings seem to thrive and multiply until the only thing being done is having meetings, startups have the opposite problem: startups are a toxic environment for meetings.
If, however, you know that a certain kind of meeting drives a key, critical process in your business, you will probably find it much easier to summon up the effort to keep that meeting alive - especially once you see the effect of the meeting on getting stuff done.
Two concrete examples
Here are two concrete examples of meetings driving key processes, taken from my own business, GrantTree. The two most important meetings we have are both weekly, and are scheduled on Monday morning, to drive the work for the rest of the week.
The first one is a sales meeting. We keep all our leads in Highrise, and the meeting consists of simply going through all the active leads in the database, adding any that are missing, updating the information on each of them, and deciding next steps for each lead. This creates a number of actions and follow-ups which end up driving the sales activity over the next few days. It's a clear, tangible, useful meeting.
The second meeting is the tax credit process review meeting. We track the status of all our clients in Trello, and go through all of them (active or inactive) to make a conscious decision as to whether actions are needed, what actions should happen this week, whether a client needs urgent attention, etc. This creates a number of actions and follow-ups which end up driving the tax credit process for the week. It's also a clear, tangible, useful meeting.
Those are the key drivers for GrantTree: sales and delivery. Each business will have its own specific driving processes, which will result in different types of meetings (or even things other than meetings!). I'm not suggesting that your business should have the same structure as mine - however, what you should do is think about what those key driving processes are for your business, and see if giving these activities a weekly or daily rhythm helps to make them more effective.
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Principles for designing and deploying internet-scale services ✶
Excellent paper from 2007, by James Hamilton, who was formerly at Microsoft and has been at Amazon since 2008, on how to design and deploy web services at scale. The paper is fairly technical, but some of the key principles are worth knowing even for completely non-technical readers.
First, he outlines three simple tenets:
- Expect failures. A component may crash or be stopped at any time. Dependent components might fail or be stopped at any time. There will be network failures. Disks will run out of space. Handle all failures gracefully.
- Keep things simple. Complexity breeds problems. Simple things are easier to get right. Avoid unnecessary dependencies. Installation should be simple. Failures on one server should have no impact on the rest of the data center.
- Automate everything. People make mistakes. People need sleep. People forget things. Automated processes are testable, fixable, and therefore ultimately much more reliable. Automate wherever possible.
Out of these key principles, some other design principles emerge, for example, for operations-friendly design:
- Design for failure
- Build in redundancy and fault recovery
- Use commodity hardware
- Have a single version of the software
- Host everyone on the same version of the software (aka Multi-tenancy)
The paper is quite friendly to non-technical readers (at least at the beginning), and a breezy read for technical ones, and should probably be required reading for people building services which they intend to scale.
Even as a non-technical founder, you should be able to understand this paper, if only so that you can communicate with your CTO. It's probably a good idea to grab a print-out, and spend a couple of hours walking over it with your CTO and asking questions about the bits you don't understand. You'll come out of it knowing a lot more about the key technology concerns for a growing startup.
As a final note, it's worth adding that while early stage startups with few or no users should be aware of these principles, actually implementing them all from day one would be gross over-engineering. Get users first - scale once you have the users.
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Is it the right idea? ✶
Paras Chopra offers three key questions in determining whether an idea is worth pursuing. He calls them "validation", but I hesitate to accept that, since validation is external, whereas the questions Paras picks out are basically introspective angles on an idea:
- Do you think what you are providing is creating significant value for anyone? Value should be so significant that people should curse you if you take that service away from them. Do you think it could happen?
- Do you think there is big enough market for the service AND the market is easy to reach (without spending bootloads of money)?
- Are you enjoying doing this? Do you see yourself doing this for several next years?
Notice the "do you think" angle. Validation questions would be "Are people telling you that what you are providing creates significant value for them?" and the answer to that question would involve data. An idea is not validated just because you think you know the answer.
That said, those are three important questions to consider before throwing yourself into an idea. If you're providing no value, the market is too small for your ambitions, or it's not an idea you feel passionate about, it's probably not the right idea.
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Paid iPhone apps vs in-app purchases ✶
Tony Wright investigates the economics of paid apps vs in-app purchases, and finds that IAPs are where the money is.
So why are free apps outperforming paid apps? That deserves its own post. In brief, it comes down to ARPU (average revenue per user). Farmville-style games can pull in an ARPU $5 or more per month. In fact, there are reports of $13 ARPUs. Per month! Per user! Average!
How is this possible? Virtual goods elegantly fill up the demand curve for an offering. In other words, they accommodate customers who can happily spend hundreds or thousands of dollars (“Whales”, in Vegas parlance) without having to give up mainstream users (who can still be valuable as evangelists beyond the fact that they give the whales someone to play with).
This shouldn't be a huge surprise. After all, there's a good reason why SaaS is such a popular business model: a low monthly price tends to generate more revenue than a higher up-front price (for most types of products). IAP's throw in the advantages of an app-store like model where people can keep buying more without entering their credit card details.
In conclusion: if you can make your app charge via IAPs (but that's not always possible or advisable), do so, because it will make a significant difference to your revenues. In particular, as Tony suggests, try to ensure that if a customer turns up who, for whatever reason, feels like blowing $500 on your app, give them a way to do so.
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How to approach an angel investor ✶
Andrew Scott, founder of location-aware recommendation startup Rummble and several others before that, has written a good beginner's guide to approaching angel investors.
A key extract:
Ask an Angel up front some basic questions. Don’t be shy. You need to know:
- Do they have the money?
- What is the typical size of the investment they do
- What was the size of the last 3 investments and in to which companies
It's key to know these sort of things to avoid wasting time pitching someone who can't or won't invest. Another founder I know, who's building a startup that's currently pre-revenue and pre-traction, always starts by asking:
We're pre-revenue and pre-traction. Does it still make sense for us to pitch?
This makes it harder for the investor to then turn around (as european investors are wont to do) and say, after a long pitch process, "We'd like to invest, but come back when you have traction."
Have a read if you need a refresher on raising investment, or want to find out more about it.
How to reply to an angel investor intro ✶
Excellent stuff, by Elad Gil:
Unfortunately, a lot of otherwise savvy entrepreneurs don't follow up with investors well. You have to remember that every thing you do can signal to an investor a lack of urgency/interest in your company, the fact that you are taking your startup casually, desperation, or a lack of ability to follow through. Also, if you don't create urgency or a sense that the investor may miss out on something interesting, then the angel may drag their feet in meeting with you, extending the time of your fundraise.
Elad proceeds to give a solid example of a good investor reply. Bookmark and keep in mind for the next time you need it.
Read up on SEO and Link Building ✶
Kristi Hines has put together this list of (reputable) blogs, articles and tools around the topic of SEO and link building.
For many tech founders, SEO is associated with spammers, direct marketers, and other "social media experts" - i.e. fluff. But that's a one-sided view. People like Patrick McKenzie demonstrate that SEO can be an extremely powerful part of your toolset.
This list of links, along with Patrick's blog is a great starting point if you want to learn more about SEO and link building.
