Tag Archives | Startups

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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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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The SalesCrunch Startup Story

I decided to take Fred Wilson’s lead on AVC today and write about how and why I started SalesCrunch.  Basically, I started SalesCrunch from a burning need.  During the four-and-a -half years prior to SalesCrunch, I had built the three sales teams at Trulia that now account for 200 of its 400 employees.  Hiring and ramping the first 10 salespeople was all about me getting in the trenches with them, meeting with customers, doing demos, creating collateral, preparing proposals, etc.  I nearly lived on a plane the first few years. When we hit 10 people it was clear that “strategy” couldn’t scale any further and I had to get off the road.

But if I couldn’t be on the front lines with the salespeople, seeing and hearing what customers were saying, how was I going to coach them?  More importantly, how could I take the hundreds of hours of training I put into each of those first 10 salespeople and transfer it quickly it across to the next 200 salespeople?   When I looked around at all the other fast growing and even large technology companies that were building large sales teams, it seemed no one had a solution. Everyone was simply hiring as many salespeople as they could and throwing them into the fire with maybe a week or two of training.  They expected most would fail and they would find two or three good salespeople for every five to ten they hired.  I thought that was nuts. First of all, its extremely costly.  It takes months for even the best salespeople to ramp up, so you don’t know if someone is going to work out until you have tens of thousands of dollars invested in them.  Worse, it’s completely demoralizing to the salespeople, including the head of sales who holds the key to the revolving door.

I thought about how to solve this problem every day for a few years when three trends came together that presented a solution to me:

  1. More and more sales were happening virtually. Between online meetings, presentations, demos, email, IM, LinkedIn and Facebook, larger and larger deals were getting done without ever meeting someone face to face.
  2. Salespeople had to login to an increasing number of tools to get their job done to keep up with #1.
  3. The dominant online meeting platforms created in the 90s were horribly broken and singularly focused.

Now, to understand how these three things came together for me to create SalesCrunch, you have to appreciate that Trulia is obsessed with using data to make smart, informed decisions.  For consumers, Trulia makes it extremely easy to understand massive amounts of housing data from home sales to local crime statistics, school information, average commute times and even how much your neighbor paid for their house so you can make a smart home buying decision.  Trulia visualizes all this data and more in a way that is simple and easy to understand, like these interactive maps.    Internally, we analyzed reams of data every day to run our business. If I could share the KPI (key performance indicator) spreadsheet we reviewed every morning,  you would fall over, overwhelmed by how much is measured.

So when I looked at the three trends above, I saw a huge opportunity to create a single, next-generation meeting platform that would fully integrate into tools people already use everyday like email, LinkedIn and Salesforce. By simplifying people’s lives, we could capture and measure every single interaction they have with or about customers, analyze what’s working, what’s not and constantly improve everything based on real-time data. We could also take what the top 20% of salespeople say and do with customers to create 80% of the revenue in most companies and instantly transfer those best practices to the rest of the sales team.  We could not only save companies money by reducing the churn of their salespeople, but also we could help them and their salespeople make a great deal more money by making what works for some repeatable and scalable by everyone. Most importantly, we could offer the 5 million people who try sales and fail every year a greater opportunity to succeed and become financially independent.  How’s that for impact? Now you know why I started SalesCrunch and how we are going to save the world, one meeting at a time.

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

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Is Super Pro Rata Super Bad?

I was talking to one of our investors the other day about our upcoming fundraising when told me his firm wants to participate in this new round “super pro rata”.   It reminded me of all the funny MBA-speak we have in the Internet startup world. So what does he mean by super pro rata and is that a good thing?

There are two answers to this question, but let’s define pro-rata before we talk about super pro rata.  It is extremely common for investors to have “pro-rata rights”, or the right to maintain their percentage ownership in a company in later stages of financing. So, if Accel invests $1M in your first round in exchange for 20% of your company they have the right to keep that 20% ownership in subsequent rounds of financing by investing more money. Incidentally, your company is now worth $5M ($1M is 20% of $5M) after the financing or “post-money.”   Let’s say you raise $10M in your second round of financing. Accel needs to invest $2M in that round just to keep their 20% ownership stake, which leaves 80% of the financing to new investors. So let’s say these new investors are also buying 20% of the company for this new $8M. This means your company is now worth $40M ($8M is 20% of $40M) post-money.  That means Accel owns 20% and the new investors own 20%, for a total of 40%, and both investors have the right to keep their 20% stake going forward. While Accel had to pay up to own exactly the same percentage of the company, their 20% is now worth 8x their original $1M investment or a whopping $8M. Not a bad return, but it’s only on paper right now so don’t get too excited.

Now, let’s look at where super pro rata comes into play. There are two different ways super pro rata is used. One is super good and one is super bad:

  1. Super Pro Rata – If Accel wanted to own more than 20% of the company in the second round of financing then they would want to participate “super pro rata”.  Simply put, they want to own their pro rata percentage of 20% and they want a piece of the other 20% the new investors are going to own with additional $8M investment.  Presumably, they want to own more because the company is doing well and it’s smarter to invest more money into something you know is getting traction rather than to invest in a new, unproven company or concept.  It is ultimately up to the founders to let investors own more than their pro rata in subsequent rounds. When an existing investor wants to participate super pro rata, it is a good sign and it sends a positive signal to other investors that things are going well since existing investors have the most information about a company.
  2. Super Pro Rata Rights – This is when an existing investor adds the contractual right to buy more than their pro rata share in subsequent rounds into the term sheet of the first found of financing.  It might seem like a subtle difference, but wanting to own more and having the right to own more are very different.  Plenty has been written about why super pro rata rights are bad by Mark Suster, Brad Feld and David Beisel. Net-net, this is bad because it significantly reduces your options for new investors in subsequent rounds, which drives the valuation of your company lower and reduces your chances of getting funding at all.  As Mark points out, if the investor that has super pro rata rights exercises them, then there might not be enough room in the round for new investors, so they get to name their price. If they have super pro rata rights and don’t exercise them, it sends a red flag to new investors. Basically, you’re damned if they do and you’re damned if you don’t, so don’t do it!

So, to sum it up, super pro rata is super good, super pro rata rights are super bad.

28 more posts to go in my 30 posts in 30 days challenge, so stay tuned.

Photo complements of Break.com and EntertainmentWallpaper

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