Commit to being an entrepreneur ✶
We've all heard the old parable. The chickens and the pigs decided to make breakfast. The chickens provide the eggs, and the pigs provide the bacon. The chickens are involved, but the pigs are committed.
Jeff Bussgang, VC at Flybridge Capital, makes the point that VCs naturally prefer investing in founders who are committed to the startup - i.e. they've quit their job, they've gotten started, they're getting it done with or without VC money.
Following on from this morning's article about shutting down your startup, I think it's worth drawing an important distinction here.
"Being committed" is important. I've observed founders who could have made a company work, but failed to do so because they never really committed into a sink-or-swim push. Being very good at keeping multiple options open, they never jumped into the startup struggle with enough single-minded focus to actually make their startup work.
However, conversely, I'd argue that the commitment is to being an entrepreneur, not to a specific company. Many of the successful entrepreneurs I know have their fingers in multiple pies. They're committed to working for themselves, they're committed to launching cool new things and making them profitable - but they are not committed to any single specific venture (at least not until that venture is clearly taking off and a surefire winner). They juggle, they make multiple things happen, and they follow success wherever it appears.
In 2011, it's not unreasonable for one person to be running several startups. Be committed to the entrepreneurial way, but don't put all your eggs into a single startup until you create one that's clearly a winner.
If you read this far, you should get more similar articles by email.
Over the past few months there have quite a few articles about metrics, which are, of course, a very important topic for startups. Metrics like these can and should drive your startup's development, once you get past the initial part of the hypothesis testing phase.
Yet there seems to be a surprising lack of clarity in many people's minds about what kind of metrics are useful, how to make them actionable rather than vanity metrics, how to use them, and when to use them. Here's my attempt to clear things up.
1. Why you should care
Metrics have an aura of scientific validity about them, and they take effort to measure. This means that if you do measure metrics, you're likely to care about them and act on them. If you measure the wrong metrics, or you measure them wrongly, or you draw incorrect conclusions from what you measure, you are quite likely to make incorrect decisions based on them.
So, if you're going to look at metrics and act on them, do it correctly. If you spend time and energy calculating metrics and end up making the wrong decision because of those metrics, that is much worse than not measuring metrics and going by gut feeling.
2. When not to use metrics
The first misconception, which I fell prey to as well in the past, is when to use metrics. If your traffic is too low for metrics to be meaningful, then measuring metrics is largely a waste of time, and making decisions based on statistical noise is potentially harmful.
If your traffic is very low, you may still be able to measure things like conversion rates and run A/B tests over a long period of time, but it will be a very slow process, and you are likely to get much better and quicker results by observing user activity directly and letting your subconscious do the work of spotting potential patterns. Don't forget to double-check those patterns before acting on them, though. The brain is a wonderful pattern-matching machine that will see patterns in the most unlikely places.
3. Actionable metrics
An actionable metric is one which directly leads to some kind of action. As Eric Ries put it, "if you cannot fail, you cannot learn". If your measurement does not lead you directly to some kind of decision, it's not actionable. And, if the measurement cannot lead to both outcomes for the decision (e.g. "build out the new feature" or "pull the feature"), it is also not a real actionable metric.
For example, measuring your monthly traffic is a classic vanity metric. Are you going to do something differently if the traffic is higher? Lower? The same? Why?
Another, less obvious example: if you put in a new feature, and you measure its usage, based on the idea that it is "testing your hypothesis that the feature is useful", this measurement is not an actionable metric unless you're willing to pull the feature if not enough people are using it. Many people will measure the new feature usage after they've already made the decision to keep the feature anyway, under the illusion that it's a meaningful metric.
Measuring metrics without linking them up to a hypothesis that you're testing is largely a waste of time, and may lead you to make incorrect decisions.
There are reasons to measure non-actionable metrics, but those are to do with managing the business).
4. Management metrics
There is a good reason to measure non-actionable metrics: managing the business. In order to manage the business effectively, you need to know how much money came in. You need to know how much tax you owe to the government.
A related point: you need management metrics when pitching your business. User count is largely pointless to measure, but if you're pitching to investors, or even customers, it's a metric that, if it looks good, will make them feel good (that's what a vanity metric is...), so it is useful to measure it even though it is probably not actionable.
But, management metrics are not actionable. They are subject to external influences, and internal biases (you tend to see what you want to see in them). Don't make the mistake of driving your product design on the basis of vanity, management metrics.
5. How to use metrics posts
How then, to use a post like this one or this one, which gives a set of metrics without actions. It looks useful, but is it?
Yes, it is. What these metrics posts do is tell you what are the fundamental metrics that your tests should boil down to. Measuring "how many people used a feature", for example, is not a fundamental metric. What metrics posts really point out are KPIs for your type of business.
Measuring the KPIs by themselves can often be a useful management metric, but it is not actionable. However, any actionable metric should boil down to a KPI. So, when you put in a new feature, don't measure "how many people used the new feature", measure "whether people who had access to the new feature were more likely to pay" or "whether people who had access to the new feature stayed on the site longer".
6. External influences
One more key point to make about metrics is that there are many external factors that can affect your measurements. Don't be caught out like this guy. Any test should be run with both options presented in parallel to compensate for seasonable changes. If you measure conversion with one landing page on Friday and another on Sunday, what you're measuring is a combination of your landing page changes with the weekly cycle of traffic. So, all tests must be run in parallel.
In addition to that, if your users are interconnected, you need to be careful about how you group users together. Don't show one user one set of features, and a different set of feature to their colleague, or you will lose both and falsify your metrics. Remember that you don't need to have the same number of people on the A and B sides of the A/B test - you just need enough people on either side.
Management metrics are particularly susceptible to external influences, so do not use them to drive product design decisions.
7. Unmeasurable things
Finally, no metrics overview would be complete without mentioning that there are many things in the running of a business which cannot be turned into statistics. You should measure everything you can, but don't fall into the trap of thinking you can measure things like design, product vision or even the fitness of your first few key hires.
Trying to A/B test things which are not measurable is foolish and leads to bad decisions. Even worse, ignoring key things just because they're not measurable is selective blindness. Be very aware that there are many things in the running of a business which cannot be measured but are worth doing.
I've made a number of points that I hope will be useful to you. The key takeaway is that using metrics incorrectly is worse than using no metrics at all. Metrics are a knife. Sharp, accurate, strong, useful - but make sure you don't hold it by the blade:
- Care about correct metrics usage; using them incorrectly will lead you to bad decisions.
- Don't use metrics when you don't have the traffic; use user activity streams instead.
- Actionable metrics are metrics which drive a decision directly; don't act on vanity metrics.
- It's ok to measure management metrics, but be aware that they're not actionable.
- Metrics posts provide KPIs; make sure your measurements boil down to KPIs, but don't measure the KPIs by themselves, except as a management metric.
- Beware of external influences, they can falsify your tests.
- Don't discard unmeasurable things, and don't force unmeasurable things into an A/B test mold.
This is by no means a complete list - there are many more articles even on this site, let alone in other places. It takes more than one article to learn how to use metrics correctly, but hopefully this is a good starting point.
If you read this far, you should get more similar articles by email.
Startups (in particularly the tech kind) are renowned for their unique difficulties, for the fact that each startup faces an extraordinary set of problems that has never been seen before in this particular conjunction. This is largely borne out by the many people's definitions of "startup", which are all about uncertainty, hard technical problems, scalability, and so on.
However, in my experience, what usually kills startups is a set of much more mundane issues, like running out of cash (the ultimate killer), building the wrong product, building for the wrong market (both of these effectively equate to "building a crap product"), having a major fight between the founders, etc. The root reasons (which can be declined in a thousand different ways, but are all essentially the same) map fairly closely to Paul Graham's How to start a startup principles:
- start with good people;
- make something people want;
- spend as little money as possible.
Most startups (particularly those started by new entrepreneurs) will fail because they screw up one of those three basics, not because they face a unique set of never-seen-before circumstances unique to their market, their product, and their specific set of uncertainties.
Start with good people
The way this usually unfolds is that the founding team splits, taking the startup down with them. If you started with people who were not committed, not a good match with you, didn't have the skills, didn't have the mad perseverance to see things through, were too many or too few, and so on, then chances are the team won't survive the stress of a startup.
Even a "regular" business is ultra-stressful, putting any relationship to the test. A startup, with its pressure to grow fast, is ten times as stressful.
The way to avoid this is two-fold: proactively and protectively.
Proactively, you make sure you only start companies with determined, motivated, obsessive nutters who have the same priorities in life as you do. No "Oh heck, I'm about to start a startup, I want my chum John to be my cofounder, I've known him since we were kids!" When starting something new and scary, your impulse might be to gather friends around. That's the wrong impulse. You need to be extremely selective, and only start business with someone who is going to be as crazy about it as you will be.
Protectively, once you've picked the right person, make sure your arrangement is sustainable, and make sure the company can survive one of you changing their life priorities (it can happen to you too!). This means asking yourselves the right questions and picking the right kind of equity split approach. Vesting is not an automatic cure-all, though it helps in some cases.
Make something people want
There are a number of approaches to this. My favourite is obviously hypothesis-driven development, but all the variants of Lean Startup and Customer Development and other idea validation approaches will help you there.
The key mistake to avoid (which oh-so-many promising startups make) is building something in isolation, without any customers, with only theoretical ideas about what will drive sales of the product or user adoption. Don't fall for this, it's really tragic, it's avoidable, and it sucks when it happens to you (it happened to me twice, in variants).
An important caveat is to make sure you're fitting your product to the right market. If you're planning to eventually sell your product, don't fit it to a free-wheeling user base.
Spend as little as possible
Another way to phrase this would be "be on top of your finances". If you're bootstrapping, that'll probably come naturally (after all, it's your pennies going down the drain), but if you managed to raise funding, this can be harder than it seems.
You need to be on top of your accounting and your cash flow. This can't be delegated to someone else until you personally understand it. Similarly, even if you've raised funding, don't spend irresponsibly. It's better to be a zero-cost entrepreneur than to be an uncontrolled spender.
In short, this is about being aware of and on top of the basic life pulse of your business: its cash flow. A lot of startups stumble and fall because they've taken on way more expenses than they could afford given the stage and success of their project.
Failing in an interesting and unique way is hard. The average new entrepreneur's first startup will not face fantastic and exceptional problems - it'll die because of a combination of starting with the wrong people, building something nobody wants to pay for, and failing to be on top of the finances.
The good news is, if you can prepare yourself in those three areas, and avoid the most likely mistakes there, you'll greatly reduce the chances of a first-time flop.
If you read this far, you should get more similar articles by email.