Startup strategy is like Kung Fu. There are many styles that work. But in a bar fight, you’re going to get punched in the face regardless.
I can only teach you my style. Others can only teach you theirs.
This is my style.
“MVPs” are too M to be V. They’re a selfish ploy, tricking people who thought they were customers into being alpha testers. Build SLCs instead.
I don’t like freemium; I want to learn from people who care enough to pay, not from the 20x more who don’t.
Founders almost never have a real strategy. They say things like “we have a unique feature” and “the incumbents are dumb,” which might be true, but isn’t a strategy. They don’t know how to analyze a market or competition, so they make it up instead learning how to do it. This is a common but largely unacknowledged reason why companies fail. Founders explain failures with things like “our two main competitors did [thing] to us” or “customers didn’t understand [our point of view].” The implication is that this was unknowable or bad luck, but the truth is, this was a predictable result of not understanding the market.
All startups are screwed up. Even when they’re succeeding they are screwed up. (HT Mike Maples Jr) Corollary: A startup has to be so excellent at one or two key things, that they can screw up everything else up and not die. Sometimes that’s airtight product/market it. Sometimes that’s defensible distribution channels. Sometimes that’s product design so thrilling that every customer spreads the word to five more. Sometimes that’s a market insight that takes competitors five years to understand. Sometimes that’s a dream team that weathers the storm that sinks the other boats. The bad news is, you don’t know ahead of time what that thing will be. The good news is, it’s OK that most things are screwed up.
Another Corollary: Your competitors are screwed up too. Don’t assume they’re smarter than you, faster than you, more strategic than you, growing faster than you, making better decisions than you. They are doing that sometimes, but you are too, and all of you are screwed up. When you look at them, you’re seeing their best, exaggerated projection, which isn’t the truth. Every time a company dies, read what they were writing a week earlier: proud, confident, optimistic, possibly even arrogant and boastful. Ignore all of it.
It’s better to complete 100% of 8 things than of 80% of 10 things. (HT Dave Kellogg)
Too often, decisions are made “because a competitor is doing [something]” or “because a competitor might do [something].” Occasionally, that’s the right motivation. But usually, you should focus on what’s best for the customer and your company.
Churn needs to be lower than you think; 3% monthly churn is too high, and means you either not delivering recurring value, haven’t found product/market fit, the market stinks, or some other critical problem.
There isn’t one most important SaaS metric. Priority depends on your goals (e.g. profitability versus size) and on what, at this moment, is so out of whack that ignoring it is fatal.
You’re not allocating enough costs to gross margin or the cost to acquire a customer. You think this doesn’t matter because you’re not a public company or didn’t raise money, but it does matter because it means you don’t understand the financial mechanics of your business.
Fermi estimation is a good way to figure out whether a startup or product could even theoretically be viable. Beware: people tend to round up to the better power of ten because they don’t want to face the truth. Real life usually rounds down.
Being focussed on SaaS metrics is not incompatible with valuing employee fulfillment and customer happiness. In fact, the latter two is what produces results.
Find and focus on one reliable distribution mechanism before diluting your time diversifying. If you can’t find one sustainable, sizable source of customers, the company is doomed.
The shiny new fad is hyper-competitive, temporary, and money pouring in means crappy companies can mess about for years, poisoning the market. The “boring” but established, large market is where revenue is easy and competition is old, slow, and has something to lose.
The only time you need “truly unique” tech and “an impossible-to-cross moat” is when your goal is to build a $1B+ company, which almost no one is (or should).
You can start by selling to small customers and evolve to larger ones, because you’re starting with a low cost-basis and then maturing your product and service. Or you can start selling to enterprise — nothing wrong with that — but then your high cost-basis of marketing, sales, and service will not scale downward.
If you think Biz Dev is the solution to a difficult problem, you’re wrong. If you think it’s a way to add incremental value, then maybe, but still unlikely until you’re at $50M+ in ARR.
Great products don’t sell themselves, but they can cause customers to talk about it to other customers. You still have to get the first customers, and most of the rest, yourself.
Most “customer discovery” is really a founder in love with a product, trying to justify to herself that there is a market. She does this by selling for forty-five minutes instead investigating and disproving. And by talking about cool features instead of asking about price. And by remembering confirmatory evidence while conveniently forgetting or explaining away the rest, even though “the rest” is where the real learnings reside.
It’s hard to get 1000 paying customers. It’s easy to get to 100 if you have a real product. Price so that 100-200 is enough for all the founders to work full-time. This means you have to charge $50-$500/mo, and make something of genuine value.
Most of the time, real pain points addressed by great products are not a business. Which is why founders confidently begin and are surprised when it fails. A business also requires that there are many potential customers, who realize they have the problem, who you can reach at a reasonable cost, and then convince to convert, at a profitable price, against existing market dynamics, and last for years. Early on, your job is to validate that there’s a business, not to validate that your idea is good or that a pain exists.
“Sales” is not a dirty word.
A reliable paid acquisition channel results in a somewhat stable business. It’s boring and doesn’t make you famous and doesn’t play into the false but common narrative that SEO and viral content will launch your startup into the market with almost no money. So people run after the false narrative instead of the thing that’s most likely to work.
People don’t value their time. They will do crazy things to save $2. Don’t sell a product that saves time to people who don’t care about saving time. Businesses often don’t care just as much as consumers don’t care.
Bet on things which are true today, and will be even more true in five years; not on your guess at how the future will be different. (HT Jeff Bezos) You want to argue that the future is unknowable, but that’s just an excuse for not having a strategy.
The “long tail” can sound appealing, but it sure is easy to sell vanilla ice cream at the beach even when you’re right next to another ice cream stand.
Yes, marketplace businesses can be valuable and defensible. But their failure rate is much higher than product businesses, and they require copious venture funding. They have to work with 10 people in the system, not just when there’s 10M.
If someone checks in code and brings down the entire system, the fault is with the brittleness of the system, not with the person.
Corollary: If a talented person at your company does something “dumb,” the next question is: What did you fail to do as a leader? Did that person not have the right information, or enough context, or were they worried about something, or what?
One-on-ones are never a waste of time. Agendas are optional and sometimes even counterproductive.
If you’re the smartest one in the room, you’ve made a terrible mistake. Either you haven’t hired great talent, or you have but you’re disempowering them. This is the opposite of what a great leader does, and minimizes the success of the organization. Andrew Carnegie wrote for his own tombstone: “Here lies a man who knew how to bring into his service men better than he was himself.” Ignore the gendered language but heed the lesson.
If someone at your company has no way to grow into a new role, they will leave, as well they should. “New role” can mean sophistication, management, or a different job. “No way” can mean because they’re unable or because the role they want cannot exist.
Founders are caught by surprise by the scaling phase. If you haven’t operated at the executive level at a scaling startup, you don’t appreciate how different and difficult it is. There are not enough blogs or books about this phase; often leaders go underground. Founders arrogantly believe that the beginning is the hardest part, because it is hard. But many startups top out between $5m-$20m in revenue. That’s fine if you don’t wish to scale. But if you do, your arrogance prevents you from the necessary transformations. What got you to $20m is very different from what gets you to $100m. You need help, new sorts of employees with a different organization, and you’d better surround yourself with people with more experience and skills than you have. How will your ego cope with that?
If you can’t unplug for a month without adversely affecting the business, then you have a brittle business. If the business is young, this is inevitable. Otherwise, this is a failure of organizational development.
Management systems, whether about performance management, or leadership, or healthy teams, or product strategy, or one-on-one interactions, or meetings, or productivity — are like deciding between coding styles. They’re all pretty good, so just pick one system you can stick to, and maximize it.
Make important decisions by optimizing for the one or two most important things, not by satisfying a dozen constraints. Maximize opportunity rather than minimize down-side.
Leave money on the table. The customer should derive 10x more value than it costs them. You earn loyalty and future upgrades. Karma works.
If you can’t double your prices, you’re in a weak market position. Determine the causes and address them purposefully.
Your product must materially impact one of your customer’s top three priorities. Otherwise, they don’t have time to talk to you. (HT Tom Tunguz)
A good strategy is to be the System of Record for something. (HT Tom Tunguz)
If your sales and marketing expenses are high, that either means your marketing is extremely competitive, or that people don’t naturally believe they need your product. If the latter, they might be right. If the former, you need large differentiation — more than a feature or two. If you don’t solve this problem, the company is ultimately unsustainable.
No one will read the Important Text in your dialog box.
Design is important, yet many of the $1B+ SaaS public companies have poor design. So, other things are more important.
Operate on cash-basis. Analyze on GAAP-basis. Don’t cheat on GAAP — you’re only lying to yourself.
“I don’t have time” actually means “I don’t want to.”
The only cause of Writer’s Block is high standards. Type garbage. Editing is 10x easier than writing.
Vitriol online usually comes from that person defending self image or impressing others. Either way, it’s about them, not you. Often there’s a constructive learning inside which you should take to heart, but discard the petulant packaging.
“Desire to seem clever, to be talked about, to be remembered after death, to get your own back on the grown-ups who snubbed you in childhood, etc., etc. It is humbug to pretend this is not a motive, and a strong one. Writers share this characteristic with scientists, artists, politicians, lawyers, soldiers, successful businessmen — in short, with the whole top crust of humanity.” — George Orwell, Why I Write
The desire to impress others drives behavior more than logical argument. Founders start companies to show everyone else that they’re better than those everyones give them credit for. Angel investors want a story and..
You roll down the windows and wear a helmet when you take your car to the track. This does not make me less terrified of a fiery death.
The American Autocross champion was sitting in my passenger seat screaming at me to not let my foot off the pedal until I bounced off the RPM limiter. She was properly intense. I didn’t know what I was doing, but it’s fun to power through curves in a high-speed tenuously-controlled skid in my Mini Cooper S (plus Cooperworks).
The proper driving strategy for Autocross is bizarre. It is possibly the worst-case scenario for wear and tear on a car. The strategy solves for the spaghetti-like pattern of the track, which is composed mostly of turns and banks, so that the winner is the one who can best negotiate a complex path, rather than which car is fastest on a straight-away.
(The actual track I was on)
Driving strategy hinges on this constraint: a car can accelerate quickest when it is not turning. “Accelerate” means getting faster or getting slower. Mashing the accelerator pedal or brake pedal while turning, results in a spin-out.
So, you do this strange thing where you aim the car at a particular point near the first section of the turn and accelerate as much as possible in a straight line, as if you’re going to fly off the course. As you near that point, you break with just as much vigor. Still without turning the wheel. Then you turn and (more slowly) accelerate at just the right pace such that you’re gently skidding, but still in control. Until you can see the next point on the next turn that you full-accelerate straight towards.
What point should you pick? That depends on the curve, but drivers will find what they believe to be optimal points, and will often put small orange cones there as visual guide, especially during practice runs.
While this results in a unnatural, jerky, discontinuous motion, it is also the fastest way through the course.
Intuitively, it seems like there would be some smooth, efficient, graceful path, but that’s the slower way. And the goal is speed, not grace. (Of course, there’s a certain grace in speed, but not for the passenger being thrown about the cabin.)
Companies in the scaling phase feel like this too.
In most ways you are moving faster than ever, particularly when you’re moving in a straight line. For example, a new incremental product will launch to your existing customer base, with immediate impact in the millions of dollars — something a small company will take years to accumulate.
But in other ways it is jerky, unnatural course-corrections. Teams reform with new people and new missions. Things that worked for seven years suddenly don’t work, and “tiger teams” assemble to fix it, while new people wonder why it was ever built this way in the first place and older people laugh knowing that in two years, future-new people will be saying the same thing about what the now-new people are building.
We all know that startups should make decisions quickly. Fast decisions leads to rapid action, which accelerates the loop of production and feedback, which is how you outpace and out-learn a competitor, even one that already has a lead.
But some decisions should not be made in haste, like a key executive hire, or how to price, or whether to raise money, or whether to invest millions of dollars in a new product line.
How do you know when your current decision should be made slowly: contemplative, collaborative, deliberate, data-driven, even agonizing?
I’ve made the following scorecard to figure out whether it’s wise to go slow:
Can’t undo. This is the classic one-/two-way door delineation. If you can’t easily undo the decision, it’s worth investing more effort into analyzing the likelihood of the upsides and risks.
Huge effort. Some things take less time to implement than to estimate or to debate. Remember that it might take two engineers a week to implement something, but a few debates and some research might itself involve an entire engineering and product for a week as well. This is one reason why small teams without process can produce results faster than larger teams with process. If the effort to implement the decision is smaller than the effort to make a decision, just knock it out. But if you’re deciding on a path that could take six months to measure results from, taking time up front to research is wise.
No compelling event. If the status quo isn’t that bad, there might not be a reason why a decision should be made quickly. Without time-pressure, it’s more justifiable to spend more time on the decision. Conversely, time-pressure means the more time you spend deciding, the less time you have for implementation and unanticipated problems, so you’re adding risk by dragging out the decision.
Not accustomed to making these kinds of decisions. Online marketing teams are accustomed to throwing creative things at the wall, with new technology and platforms, because that’s the day-to-day reality of their job. Because they’re good at it, they don’t waste time hang-wringing over whether or not to try an advertising campaign on the latest social media platform; they just do it. Conversely, most organizations have no experience with major decisions like pricing changes or acquisitions, and most founders have no idea how to hire a great executive, or how to decide whether to invest millions of dollars in a new product line as opposed to “just throwing something out there and iterating” as was the correct path at the start of the company. When the organization has never made this type of decision before, the decision is at great risk, and being more deliberate with research, data, debate, or even outside advice, is wise.
Don’t know how to evaluate the options. Even after generating the choices, does the team understand how best to analyze them? If the company’s strategy is clear and detailed, if relevant data is at hand, if it’s clear what your goals are, if the deciding team has confidence, then the decision could be easy and fast; if these things are absent, perhaps more deliberation is needed to clarify those things.
Can’t measure incremental success. After the decision is made and implementation begins, can you objectively tell whether things are going well? If yes, it is easy to course-correct, or even change the decision, in the presence of reality. But if progress will be invisible or subjective, such that you will sink person-years of time into the implementation before knowing how things are going, it’s worth spending more effort ahead of time gaining confidence in the path you’ve selected.
Imperfect information. Buying a house is nerve-racking, mostly because it is likely the most expensive and difficult-to-undo purchase of your life, but also because you know so little about the goods. What does the seller know but isn’t telling you? What will you not discover until you’ve moved in, or a year later? Often it is impossible to get the data or research you need to make an objective decision. When this is the case, it is sometimes wise to spend extra time gathering whatever information you can, maybe investing in reports or experts (which is what you do with a house). Or you could look at it the opposite way: If it’s impossible to get objective data informing the decision, then don’t spend lots of time debating subjective points; just make the decision from experience and even gut-check, because we just said that’s all you have to go on anyway.
Decision requires multiple teams who haven’t worked together before. At WP Engine we’re extremely collaborative across teams. The benefit is that we work together for a common goal, taking care of the needs of support, sales, marketing, engineering, product, and even finance, rather than solving for one department’s goals at the expense of another. But this also can make decisions more difficult, because finding a good solution is complex, often requiring compromise or creativity which requires time to be realized. This effect is amplified if the teams (or team members) haven’t worked together before, and thus have less rapport, common language, and common experience. In that case, give the decision more time to breathe and develop, because really you’re giving people the time to build relationships and discover great solutions, and that in itself is a benefit to them and your organizational intelligence, which is a long-term benefit worth investing in.
Actually this isn’t a scorecard, because important decisions aren’t a Cosmo Quiz. Don’t use this as a rubric; don’t score it 1-5 and add it up with a spreadsheet.
Rather, this is a framework for thinking through what needs to be done. Honestly answer these questions, and by the time you’re through, you’ll have a good sense of whether a light touch, quick decision is fine (which should be the default answer!), or whether you’ve justified taking more time.
And, depending on which pieces are problematic, you’ll have a guide for what needs to be done next.
For example, if “Can’t undo” is a big problem, can you rethink the solution so that it can be undone, maybe by investing more time, or creating a disaster recovery plan of action, or splitting up the decision so that part of is is undoable?
Or for example, if “No compelling event” is a problem, maybe the best answer is to “not decide,” i.e. don’t spend time on this right now, since you don’t have to. Some people will be disappointed in the lack of a decision, but it’s better to honestly state that “we can’t figure out the answer right now” than to make a rash decision that does more harm than good, or to invest time in a decision that doesn’t need to be made, at the expense of work that does need to be done.
I hope this helps you make the right decisions, in the right way.
As a result, repositioning can allow you to charge many times more than you think. Here’s how.
You’ve created a marketing tool called DoubleDown that doubles the cost-efficiency of AdWords campaigns. You heard that right folks — as a marketer, you can generate the same impact, the same number of conversions, the same quality of sales leads, but with half your current ad-spend. Wonderful! Who doesn’t want higher ROI.
What can you charge for this tool? Clearly you can’t charge as much as the money the customer is saving on AdWords, otherwise the net result is no savings at all. Let’s say you can charge 25% of the savings and still find many willing customers.
Here’s what your sales pitch looks like to a specific customer who spends $40,000 per month on AdWords:
Great deal! The VP of Demand Gen will be able to boast to the CMO that she saved the company $15,000/mo even after paying for DoubleDown, and you’re raking in a cool $5,000/mo. Everyone’s happy!
Now let’s see why you can actually charge eight times as much money for the same product.
Marketers have a single paramount goal: Growth. Even indirect marketing like brand, events, and PR have the long-term goal of supporting growth. In the case of DoubleDown’s customers it’s direct: Growth through lead-generation through AdWords.
Growth is much more valuable than cost. To see why, consider the following two scenarios:
CMO reports to the CEO: I was able to reduce costs 20% this year. The CEO is happy. The CEO’s follow-up question is: How will we use those savings to grow faster?
CMO reports to the CEO: I was able to increase growth by 20% this year, but it also cost us 20% more to achieve. The CEO pumps her fists amongst peels of joyous laughter. The value of the company increases non-linearly. The additional revenue growth more than pays for the additional marketing cost that generated it. The CEO’s follow-up question is: How can we ensure this happens again next year?
It’s always 10x more valuable for a business to grow faster than it is for the business to save money.
This insight points us to an alternate pitch for DoubleDown. It’s not about spending less for the same amount of growth, it’s about spending more to create more growth.
In particular, using our example of the customer who currently spends $40,000/mo, suppose that customer is generating 200 quality sales leads per month from that spend. The sales pitch changes as follows:
You’re paying $200/lead right now, yielding 200 leads per month. Using DoubleDown, you can double the number of leads you’re generating, still at a cost of $200/lead:
The key is this: The customer is willing to spend $40,000 to generate 200 leads, and therefore is happy to spend $80,000 to generate 400 leads. It doesn’t matter how much of that $80,000 is going to AdWords versus going to DoubleDown. The key is not to “save money on AdWords,” but rather to “generate more growth at a similar unit cost.”
In the “saves money” pitch, the value was $20,000, and the customer needed to keep 75% of that value-creation. Whereas in the “generate growth” pitch, the value is $40,000, and the customer is happy to pay 100% of that value-creation to a vendor. Both the amount of value created, and the percentage of value the customer is willing to pay, is a multiple higher for the “growth” pitch versus the “save money” pitch.
So the next time you want to formulate your product as a way to “save time” or “save money” or “be more efficient” …. DON’T!
Instead, figure out how your product creates value in the way your customer already measures value, and position your product as a way to accomplish that.
Customers demand an improved UX, but they don’t want to learn a new UX.
Team members want consistency but don’t want policies.
Developers want to be more efficient but don’t want to change how they work.
Strategy is ineffective if it’s constantly in flux, but a strategy that remains unchanged in the presence of new information is incorrect.
The right choice is almost always “change.” This is because change is a reaction to uncovering facts, getting smarter, or a shift in the outside environment. Death awaits any organization that chooses the comfort of the familiar over the discomfort of change.
Yet, though inevitable, change is uncomfortable and exhausting. Even we who relish change, who love bragging that “it’s hard but every day is different,” reach a breaking point after years of adaptation and fake-gleefully exclaiming that “failure is how you learn!” Yeah, but all this learning is fricking tiring.
This is important for leaders to understand, if indeed “change is the only constant” as the insipid cliché goes. Even your most stoic, change-loving mortals sometimes need a break from change. Yes “it’s a marathon” but sometimes you need to walk a mile to catch your breath. Look for signs of burnout or decision-fatigue, and address it proactively.
This is equally important for everyone in a startup, whether you manage others or not. Constant change can feel like management has no plan and no strategy. It takes careful consideration to distinguish between being rudderless and a culture of self-reflection and improvement.
This is exacerbated by the fact that not all change is for the best. Sometimes, when we try to solve a problem, we make it worse. Sometimes, when we try to make code faster, we make it slower. The difference is that we can see slow code objectively in the profiler and continue to make changes before we commit the code; it’s not so easy when the change is happening to a whole team, or a major product release, or a cross-departmental strategic initiative.
Even deciding what to change is hard. Successful companies can stall out because they lose sight of the fundamental reasons they earned success in the first place — the key insights and UX of the product, or the key culture and values that attracted their first hundred or thousand employees. But successful companies also stall out because they’re so dogmatic about their strategy or “non-consensus but correct” ideas that when the world changes around them, or scale breaks their previously-correct notions, they fail to adapt. It is not generally true that “what got us here will get us there,” and that means deep change is required.
There’s a mindset that everyone can use to address all of these difficulties:
Maybe don’t judge too harshly if your organization tries to improve and ends up not improving, or where the organization takes too long to implement change. Maybe don’t judge too harshly if the person to your left needs to work on something easy for a few sprints or take a vacation.
Edison had to try thousands of materials before finding the one that make lightbulbs practical. Would you have judged him for “thrashing?” Invention is often frustrating.
You should judge harshly if nobody is thinking about this. If nobody cares whether there’s change or not, if there’s no rhyme or reason to the company strategy, if everyone is expected to act and feel happy and productive all of the time, then you should definitely judge. An organization that isn’t striving to improve, will rot and disintegrate.
There are no straight paths in life or startups. All we can do it keep being introspective, and keep trying the right sort of change.