Archive | March, 2012

How Much Equity to Give Employees

I am surrounded by hundreds of amazing technology startup companies of all sizes and stages, including all the fellow portfolio companies of our equally amazing investors.  I am surprised how many recreate the wheel when it comes to employee equity. It seems there are almost as many ways of doling it out as there are companies. If there is one popular “method”, it’s go with the gut.

We use Fred Wilson’s employee equity model as a benchmark for all positions. It comes very close to what we were doing before and its a nice, objective third party source you can point candidates to for validation. We don’t exactly have a statistically relevant sample set, but we have never had anyone object after pointing to that as our methodology.  We have added on top of it when someone is exceptional in someway, which only makes them happer when they do the math and our offer comes out ahead of the model.

We vary the amount a little based on a candidate’s level of experience, expertise and/or appetite for risk.  So, if a candidate wants more upside we are more than happy to offer more equity in exchange for less monetary compensation. It helps us conserve precious capital while providing employee more skin in the game and, therefore, more incentive to work smarter to help us achieve our full potential.  If a candidate is more risk adverse, we are willing to offer a little more salary and a little less equity, to a point. It’s a pretty straight forward quid pro quo scenario and helps everyone find their optimal situation.

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The Spaghetti Strategy

In a startups, you are constantly trying new things across every aspect of your business, from product to marketing.   You throw a lot of proverbial spaghetti against the wall to see what sticks.  Far more stuff lands flat on the floor than sticks to the wall.   This type of “failure” is not only expected, but encouraged.  In fact, if you are not failing a lot, you are not doing enough.  The keys are to only try things rooted in your core mission and to fail fast.  It’s easy to feel like you are desperately trying everything and anything to find something that works and it’s easy to wander off in a different direction.  But if everything you try is deeply rooted in your core values and/or mission, you never wonder astray.

Google is a great example.  Its core mission is in life is to “organize the World’s information.”  If you think about all the services that Google provides from search to Gmail, Google Docs, Google Checkout, etc they all tie back nicely to organizing the World’s information. Google has tried and failed at many other services along the way, but never lost sight of the mission.  Our mission at SalesCrunch is to apply science to the art of selling.  We are bound to make a little bit of a mess along the way, but this mission gives us the confidence and conviction to fail on the way to success.  What’s your mission?

Point of no return: 15 more posts to go in my 30 posts in 30 days challenge.

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The Opposite of Network Effects And Viral Loops

A few days ago, I wrote about network effects and viral loops.  Yesterday, I read about new private social network Pair on TechCrunch.  I work a lot and travel a fair bit, so I actually think the idea of a two-person private network to stay connected to your significant other is a great idea. I even downloaded the iPhone app and invited my wife to join. She was touched.

But the more I thought about Pair the more I realized it is a great opposite example of network effects and viral loops. Let’s start with network effects.  In most social networks, the value of the service increases as more people join.  As more of your friends joined Facebook, for example, you could keep up and in touch with increasingly more of them in one place, so stickiness increased. The opposite is true with Pair. Inviting a third person kills the intimacy factor.  Now what about viral loops?  As far as I can tell, Pair only has one.  Every time your significant other posts a picture, video or cute message it’s going to bring you back. But the problem is that as soon as you experience fatigue with the service there is no other hook.  I am an extremist on Facebook. I use it heavily for weeks or months and then not at all for a while.  Something one of my ~300 friends posts is always the catalyst that brings me back for a period of heavy usage.  But Pair doesn’t have this luxury.  Sure, it has some old-school off line word-of-mouth potential where you hear about other friends using it, but that is not a mechanized viral loop that will scale.  Path is another private social network that suffers some of these symptoms, but at least Path is for your whole family and closest friends, so there are network effects, even if they are within a smaller pool of people, and there are more than two people to count on to bring you back.  So what does all this mean? Well, unless Pair figures out a way to add network effects and viral loops without breaking the intimacy factor it was founded on, is not going to have the kind of insane growth trajectory that Facebook and Twitter enjoyed to make them huge over night.  More likely, it will grow very linearly using old-school marketing techniques like PR and advertising.  What’s wrong with that you ask? Well,  the most likely business model for Pair is advertising.  I can tell you from experience that buying advertising to bring to people to you service so you can sell more advertising to monetize them is called arbitrage and it is extremely hard and the margins are very slim. To make real money at the advertising game you need reach and frequency, which means you need scale.  Let’s see how fast Pair can scale without network effects or more than one viral loop. 

17 more posts to go in my 30 posts in 30 days challenge.

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Mission Critical Apps Are Hard

When considering what kind of company to start or app to build, think twice before building something that is mission critical to your customers. Building software is hard and nothing works perfectly all of the time. In fact, as soon you get your app to work perfectly you will add new features and functionality, which inevitably causes regression.  Regression is software speak for you will likely break something that previous worked just fine.  It’s frustrating if Evernote doesn’t work when you want to take a note in a meeting, but its catastrophic if Dropbox loses your presentation 15 minutes before meeting with your single largest client.

I mentioned in this previous post that we never intended to get into the online meeting space at SalesCrunch. We did it because we could not think of a better way to literally get into customer facing conversations and measure what works. In fact, it’s not about the meetings themselves, but the wealth of knowledge shared in meetings that has never before been captured or analyzed that we care about. Unfortunately, we needed to build a better, smarter, mission critical meeting application that our customers use with their customers in order to give them valuable intelligence in return.   The good news is that every day we build a pretty defensible wall behind us to keep the competition out. The challenge is that we have very little room for mistakes.  If we had it to do over again, we might think twice before building something with so little forgiveness.

18 more posts to go in my 30 posts in 30 days challenge.

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How to Never Work a Day in Your Life Again

Perhaps the best reason of all to start a company is that you get to do what you want to do, how you want to do it.  If you love what you do, you will never work a day in your life again.

Photo courtesy of Ananabanana

19 more posts to go in my 30 posts in 30 days challenge.

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Network Effects And Viral Loops

Network effects and viral loops are the holy grail of growing the user base of an internet service rapidly and cheaply.  I talked a little about network effects in my previous post about using radically reduced pricing to disrupt a market. But in case you missed it, when network effects are present, the value of a product or service increases as more people use it.  Online social networks are a great example; sites like Facebook, Twitter and Google+ become more useful as more users join.  Groupon is an amazing case study of leveraging network effects to get new users to invite everyone they know your website, as the more people they invite, the cheaper the products and services on Groupon become for them and everyone else. The businesses that list their services on Groupon get access to massive amounts of new customers in exchange for offering them volume discounts. In other words, the value of Groupon increases for everyone involved the more people use it.  At SalesCrunch, we tap into network effects by capturing and measuring all the knowledge that is transferred in business meetings across your company.  The more people that have meetings, the more statistically relevant, actionable intelligence we can give them in return.  The graphic below is a perfect example. Because we measure when people are paying attention in meetings that happen on our platform vs. when they are off checking email, for example, we can look at thousands of meetings and tell you the optimal length of a meeting based on how long people tend to pay attention and at which point they tend to drift off.

Viral loops are the self-perpetuating mechanisms that constantly bring new people to your service.  The first well know example is hotmail.  Every hotmail email had “get your free hotmail account” in the signature, which drove millions of new users in a matter of months. Facebook’s photo tagging feature is also a great example.   You upload photos of you and your friends and tag everyone in those photos. Your friends and your friends’ friends get an automatic email from Facebook letting them know they and/or someone they know have been tagged in one of your photos.  That brings them to Facebook too see the photos, which increases the likelihood they will upload their own photos and tag their own friends, which brings those people to Facebook to see photos of themselves and people they know, and so forth and so on.

As you can see from the below diagram, the way this plays out at SalesCrunch is that our users bring lots of attendees to our platform for meetings. Some percentage of those attendees become users and bring even more attendees.  More attendees drives more users, and more users drives more attendees, etc.  Per the above, the more users using the platform the more interesting and statistically relevant the information we can provide you about the effectiveness of your meetings.  That intelligence spurs more enterprises to have more employees host more meetings with more attendees to get better insights and so forth and so on.

In a nut shell, network effects and viral loops can drive massive amounts of users significantly faster and cheaper than any traditional marketing.  The key is to build them into your service from the very beginning, not try to bolt them on after your product is built.

20 more posts to go in my 30 posts in 30 days challenge. It is actually getting easier and more enjoyable to write a post every day.

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A Word of Caution Before Starting a Company

I received my MBA from Babson College, ranked #1 in Entrepreneurship for 19 consecutive years by U.S. News & World Report.  One of my two favorite professors, Les Charm (his real name), bestowed on me many memorable pieces of advice about starting and running companies. My favorite by far “It’s a lot easier to get into something than it is to get out it.”  Think hard on this advice before you start a company, as you will likely be in it with no sign of escape for ~10 years.

21 more posts to go in my 30 posts in 30 days challenge.

Photo courtesy of JasonEscape

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The Air in the Room at a Startup

You are in a constant race against the clock at a startup.  The amount of money you have in the bank divided by your monthly expenses is the number of months you have until you run out of cash, otherwise known as “the air in the room.”    You are always just a matter of days, weeks or months from certain death by asphyxiation. This remains true in any business until the cash coming in is greater than the cash going out.  The more money you raise from outside investors the more air in the room, but rest assured you are on life support until you can breath on your own.   Most companies in technology chose to put growth before profits to reinvest as much as possible back into the business, stay ahead of competition and become the dominant player in their space. Amazon wasn’t profitable until years after it when public.  Many of the technology companies that have gone public recently, including Groupon, Jive, Yelp and Pandora are not yet profitable, but continue to grow rapidly and are the leaders in their respective spaces.

I have heard it said many times that most startups fail not because they didn’t have a great idea, but because the air in the room ran out before they could realize their full potential.  How much air is left in your room?

22 more posts to go in my 30 posts in 30 days challenge.

Photo courtesy of TripsGeek

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How to Write a Search Engine Friendly Blog Post

Here is a super simple Sunday tip on how to make the titles of your blog posts, and the posts themselves, a little easier to find for people searching relevant topics on Google, Bing and Yahoo. Go to the free Google Keyword Tool in AdWords and type in the subject of what you are writing about. It will give you a list of permutations on what people actually type when looking for that topic ranked from the most searched terms to the least searched terms each month. You want to use the most searches words and phrases in the title and the body of your post when relevant and appropriate.

For example, when I wrote How to Choose a Venture Capital Investor, I searched Venture Capital and found that “how to venture capital” gets searched 2,240,000 times a monthly globally.  I made sure that phrase was in my title and the body of the post. I also noted other variations and included them in the post as well.

When I wrote What’s the Difference Between a Leader and a Manager, I found the below terms:

I am no SEO expert and I am sure this is just the tip of the iceberg. I learned this little tip on the SEOMoz blog, which is chock full of amazing SEO and SEM tips.  They are experts, so read that if you want to dig deeper.

23 more posts to go in my 30 posts in 30 days challenge.

Homepage Google photo courtesy of Lifehacker

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What’s the Difference Between a Leader and a Manager?

I don’t think many people in business ask themselves this question, or at least they don’t think about it often enough.  I would like to believe I came up with a great, or at least fun, way to answer this question a few years ago using logging as an analogy.  It’s super simple and visceral and once you hear/see it you will never forget it, so here it goes:

The manager in a logging company is the woman who finds the most efficient way to chop down every tree in the forest.  She plans diligently weeks or months in advance, going over every minute detail, every contingency to ensure she has the proper equipment, licenses and people to do the job as safely, quickly and cost effectively as possible.

The leader in the logging company is the woman that climbs to the top of the highest tree and shouts “hey guys, we’re in the wrong forest!”

And there you have it: big picture vs. day-to-day management. Both are extremely valuable, but also very different. I feel like this should be on one of those inspirational posters, but then again, maybe that’s where I got it from in the first place.

24 more posts to go in my 30 posts in 30 days challenge.

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