Building a strong team early in your company’s life-cycle is one of the key attributes that pre-disposes your company to success and to gathering investor interest.
In this presentation, I cover some of the attributes that makes an A-Team compelling.
The Slideshare Slides for this presentation can be found here –
Identifying milestones for your company’s development is beneficial for an early stage startup for many reasons: the first is that planning milestones allow you to focus what you will be working on, secondly the process of identifying and planning them make you question when and in what order you and your team should try and execute something, and lastly, from a fundraising perspective (something I cover in more detail in my blog post on milestones) milestones are useful to tie together what you need to accomplish with how much money it will take to get there, and fundraise accordingly.
On this post, however, I’d like to address a very important concept that should be considered during this process of outlining and planning milestones. I call it, “keeping milestone optionality”.
The principle is very simple… even though you plan your company’s future growth and associated cash needs, you can’t lose sight of the fact that you’re a nimble startup.. not a large corporate that has to report to analysts and public market shareholders. Your nimbleness is your strength. A startup’s growth plan isn’t linear, it’s more like a series of zig zags. As such, whilst it is useful to forecast your milestones so that you have a plan, and understand your cash needs, it is also useful to look at that plan with one eye, while the other eye looks out for actions which might be more beneficial to your company than what you had originally envisaged or agreed with existing shareholders.
On my post on 7 reasons for founders to avoid tranched investments I spoke about how a future tranche (a glorified milestone, if you will) could have a negative impact by dictating what a company should do, even if midway through its execution it turns out that it was a bad idea for the company to have that goal. For example, imagine if your plan had in place a monetization strategy (and associated revenue stream) kicking off in month 6 of your operations. Month 6 comes along and well, uptake is poor and your revenues are not coming in as expected. You have some chats with your customers and you find out that actually, the value they are getting from your product is mostly around the emerging network effect of your product, and because the network is still small, your early monetization is stifling the value they are getting because the barrier for new users to sign up is still high, and thus those that would be likely to pay are reluctant to pay.
Well, if you (or your investors) held you strictly to your original plan for the sake of ‘keeping to the plan’, you’d kill your company quite quickly, but by staying nimble and adapting your milestones to what you think should be the new direction, you might actually be better off than you would have been before. Naturally, this optionality comes at a cost, as your original plan will have changed and thus your cash burn will change and your goals (KPIs) will change as well… and that’s ok as long as you are aware how.
Good early stage investors (particularly those that invest in pre product-market fit companies) know that this kind of change mid-way through their funding is a possibility and they should be backing you in your ability to make these difficult calls even if it means a deviation from the plan they invested in. However, you should be mindful that there are many investors out there, that for some reason, still believe highly in the adherence to a stated plan. If you can, avoid taking money from them. At the very early stages in a company’s development, particularly during the pre product-market fit phase, investors should invest in you for your ability to adapt to changing and evolving circumstances, and not in your ability to predict the future 18 months in advance and stick to the plan when it clearly isn’t working.
Of course, this isn’t a recommendation to throw out all forms of planning, it still helps to create a milestone plan based around your hypothesis of growth (and relevant KPIs), cash needs, for you can’t be changing strategies every month and you need to keep an eye on cash burn. At the same time, however, you should constantly monitor whether there is another milestone optionality play coming up. If you do find, however, that you are constantly questioning your original hypothesis for growth, perhaps there is a bigger problem you are facing, but by keeping an eye open for milestone optionality events, you might fare better than if you exert uber discipline to a rigid plan that was built before you learned many new things.
In conclusion, as a founder, plan for the future, identify key milestones to grow towards, but always keep milestone optionality, particularly in pre product-market fit companies.
A lot of entrepreneurs talk about optimizing their products so they run faster, look better, go viral – but it’s important to remember that none of this can happen unless you are constantly getting feedback from your most valuable asset: Your customers.
During Seedcamp’s recent U.S. trip, we met with many companies like Return Path, Erply, Zemanta, Percolate, OneFineStay, BarkBox, GrabCad, Pinterest, Airbnb, and RunKeeper, to name a few. The consensus from these conversations is that you must continually talk to your customers. Without doing so, you won’t be able to focus on what’s most important: Providing them the value you promised.
In concept, customer communication seems relatively straightforward. But in practice, everyone we spoke with shared that they all experienced varying degrees of difficulty.
Here are the two main reasons why it can be tough to continue listening.
1. It’s hard to tell who you should really please
As a startup, you have the pressure of fundraising and needing to articulate to potential investors a “big vision,” which in many ways can be an extension of your original value proposition. However, that can sometimes lead to an over-extension in order to give the appearance of not thinking too small.
The problem is that unless your customers validate your assumptions shortly after your successful fundraise, you may find yourself going down the wrong path to keep up an “appearance” rather than refocusing on what you know to be the real value to your customer. This may, in turn, burn valuable resources along the way.
It’s a tough call to make, but it is one that could literally cost you your startup if made too late.
2. Not everyone’s needs can be addressed
When you personally believe a product feature or functionality is what will provide value, you may suffer from self-confirmation bias rather than resorting to a real understanding of the needs of the customer. This could result in creating too many features that were requested by your customers (or yourself), thus distracting you from building on the core proposition.
When turning down feature requests from customers, you don’t always have to coldly reject the critique with a big “No.” Rather, as Jason Jacobs, CEO and founder of Boston-based startup Runkeeper suggests, think about whether their comments can be useful in the future, and tell your customers,”Not yet.”
But you still must focus on customer conversations
Continuing to listen is only half the battle. The first half is identifying who your customers are and knowing how to speak to them effectively.
Rob Fitzpatrick’s new book, “The Mom Test,” does a nice job highlighting the methodical process which you can use to avoid the typical pitfalls of customer conversations. This could include confirmation bias and looking for compliments rather than actual feedback. You may think your product is the best thing out there, but be prepared to hear otherwise from the people who matter.
Secondly, it’s important to know who your customers are in the first place. In typical B2C companies, that might be more straightforward, but for non-B2C companies, it can take a little bit more work.
Take B2B2C models for example. These cases pose a unique challenge because it can be tempting to stop short of talking to the end customer and primarily focus on the immediate buyer, partner, or distributor. Don’t forget that the “C” stands for consumer, therefore, it is crucial that the customer that derives most value from your proposition in your marketplace.
In the example of a B2B2C business, you will want to have a relationship with the end customer if you want to keep control of your brand and what it stands for. Your marketing message will likely still have to be targeted to them and you will have to invest in those efforts to reach them, even if there is an intermediary step of the ultimate “buyer.”
Customer conversations should involve understanding the dynamics of both the end user and the B2B side of things. With customers, you must communicate with them to position your product vis-a-vis the competitors. You can do this better than your distributors or partners may be able to, even if they are helping you reach them.
Focusing too much on partners may leave you with a product that the end customer doesn’t care about or is wrongly adapted to their needs because you spent too much time caring about distributors.
Another form of customer conversation that needs to be done in tandem is one that is part of a two-sided marketplace. Yes, it will be twice as much work, but it is necessary in order to make sure you aren’t building an “unbalanced” customer acquisition process and product development. Below are some of the articles that thoughtfully discusses the topic.
- All Markets Are Not Created Equal: 10 Factors To Consider When Evaluating Digital Marketplaces
- How To Structure A Marketplace
- Liquidity hacking: How to build a two-sided marketplace
- Launching a two-sided marketplace: How to kickstart supply and demand
- Multi-Sided Platforms
- How to win with marketplaces: The three success factors
- A Rake Too Far: Optimal Platform Pricing Strategy
Keep in mind who you are talking to
The most complex situation is when the customer is not various individuals, but many people disguised as a single figure. This usually happens in situations where the end user is not empowered to actually make the decision to buy. Rather, there is a series of people within an organization that jointly make a purchasing decision.
In slides 49 to 51, Michael J. Skok has a good break down of what he calls the Decision Making Unit (DMU). He discusses the potential constituents of a DMU, and encourages you to think of them as a unit. This means “speaking to your customer” equates to speaking to all of them as they jointly make the decision. Not all organizations have all the components of Skok’s full DMU list, so it’s just about finding the ones that are required to make a decision – and think of those as the DMU.
After hearing many founders share their stories, it is clear that you need to constantly keep in touch with your customers as you continue to evolve your proposition and maintaining focus on what delivers value. The further you are from the reference customer, the more you need to be mindful of not losing touch with your users and their needs, for that can be fatal in an early stage business.