Category Archives: Strategy

When Customers Attack

Not all of your customers will love you. 320px-LemonsharkIn fact, many of them won’t even like you. In my career building products and services, I have been referred to as: idiot, moron, incompetent, joker … and many, many more offensive terms involving profanity which I won’t reproduce here.

It is hard building something new and sending it into the world. As a maker, you feel that your work is a reflection of yourself and the way people respond to your product is how they respond to you. If they love your product you feel validated, but if they hate it you feel like a failure. You have to rise above that in business. You should not fear angry customers.

You should fear customer apathy.

The most dangerous thing for you and your business is customers who don’t care. They look at your product and move along. They never engage, they never care, they never think about it again.

You want customers to be angry, because that means that at least they care. Someone who is angry is someone who cared and was disappointed. Maybe the customer thinks your product is too hard to use, too expensive, not powerful enough, etc. Whatever the reason, they wanted your product to be better than it is. They wanted to love you.

Many of the best customers I’ve ever had, the ones that become evangelists for my products and brand, started off hating my products. It is by working hard to reverse their disappointment and make them happy that they become happier than someone who is satisfied at the beginning. An unhappy customer is a chance for true customer success.

So, how do you turn an angry customer into a friend? There is no one answer but here are a few things that will help:

  • Active listening. Respond quickly and clearly, demonstrating that you understand why they are angry. Many people get angry just because they feel ignored. Eschew automated email responses for personal phone calls or in person meetings.
  • Customer empowerment. As I mentioned – angry customers care. People who care have great ideas! Empower them by asking them how they would improve the product. What would they like to see done differently? Take that feedback and show them that you are listening through product improvements. Close the loop and ask what they think after the improvements are made.
  • Stay calm. If someone is screaming at you, it’s easy to get angry yourself. Always remain calm and treat them with respect. Your calm and respectful presentation will calm them down and have them treat you with respect in return.

It is not always possible to turn an angry customer into a friend. Sometimes customers are angry for reasons that have nothing to do with you or your product and are just using you as a punching bag. Even so, you need to treat every angry customer as an opportunity since you can never know that ahead of time.

We all want all of our customers to love us and be perfectly happy. That will never happen, so focus on the skills necessary to turn around bad relationships. You may find some of your best customers that way.


My new company, Outlier, is hiring our first few employees! If you are interested in joining an early stage company and working on the cutting edge of data intelligence, coffee is on me. Drop us a line here


 

Image made available by Albert Kok via the Creative Commons Attribution-ShareALike License.

Backwards, Thinking

When you get to where you are going, are you sure it will be where you needed to be?

Many first time founders set their company treasure-map-153425_640goals based on what they can do. They focus on product improvements they can make, how many customers/users they can acquire and which employees they can hire. All of this thinking is extrapolating from where they are right now to where they think they can get to in the foreseeable future. This kind of thinking makes you feel like you are in control.

Unfortunately, it’s an illusion.

The reality is that where you can go is completely meaningless. What really matters is where you need to be. If you want to raise funding, become profitable, etc. there are clear goals you have to reach. It is rare that you can reach them just by slowly moving forward.

What you need to do is think backwards.

Instead of thinking about what you can do, start with where you need to be. In 12 to 18 months:

  • How many customers/users do you need to have?
  • What does your growth rate need to be?
  • Who do you need to have on your team?

Once you have those goals, work backwards to set your quarterly, monthly and weekly goals. Make decisions that will increase the likelihood you can get to those goals. Those goals should be your lighthouse in the fog of war. If something does not get you closer to those goals, even if you can do it easily, skip it.

For example, I spoke with one founder of a social mobile application which was doing pretty well as a side project. His plan for growth was a series of blog posts and content marketing strategies because that is what he knew well and could get done in a few weeks. However, those blogs only reached a few hundred people. When he learned he needed to get to hundreds of thousands of users (instead of just hundreds of users) to make his business viable this strategy seemed silly. Yes, he could write the blog posts but even if it went well it would never get him to where he needed to be. Instead, it was better to focus his efforts on channels that had the potential to get him there.

If you have read about the “Series A Crunch“, this is one of the major factors. Raising a seed round is a great milestone, but if you don’t work backwards from what you need to be able to raise your Series A you can burn through all of that seed money and not be in a position to raise any more.

Think about where you need to be and work backwards to figure out what you need to do. You’ll be much happier knowing that you are pursuing a worthwhile goal.


 

My new company, Outlier, is hiring our first few employees! If you are interested in joining an early stage company and working on the cutting edge of data intelligence, coffee is on me. Drop us a line here


 

Image belongs to the Public Domain

Cheating is Allowed

One of the things I struggle tracingwith as an artist is a constant inferiority complex. While I am a pretty good illustrator, whenever I spend time on any art sites I see the amazing work done by others and feel like I am a complete novice. I’ve spent 20 years learning and perfecting my technique but these others make me feel like I’ve only just gotten started. How did they find an easy button where I still struggle?

If you are a founder of a company, you understand that feeling well. You see your friends and colleagues raise large rounds of funding or get lucrative acquisition offers and you are still struggling to get those first few meetings. Where is the easy button they found?

Often, when you feel this way, you are making some bad assumptions. For example, when I first see a beautiful illustration of a person’s face I always assume that the artist draws the same way I do – from memory or imagination. In reality, many artists trace photos. In fact, there is evidence that even the great Renaissance painters were tracing their subjects with the use of mirrors. Tracing is infinitely easier than drawing free hand, and the result is always significantly better.

However, by assuming they were approaching the problem a certain way I assumed they were simply better than me. In reality, they just found another approach to the problem which is easier and has much better results!

Some artists consider tracing to be cheating, but in reality no one cares. No one looks at a given piece of art and says “Well, they didn’t do this the hard way…”. The same is true for your company! Your goal is to build a successful business, not to build a business the hardest way possible.

What are some short cuts you can take as a founder?

  • Sell to your friends. Every enterprise software company’s first 10 customers are friends of the founder. In fact, many of those customers might buy the product only because they are friends! That is perfectly fine as long as you quickly move on to non-friend customers, since all they gave you was a head start.
  • Leverage existing networks. Every YCombinator enterprise software company launches with 50+ customers – how do they do it? Most of them are other YC companies who want to help out a fellow founder. You can do this as well, by plugging into the network of your investors and advisors.
  • Hire your old team. Many experienced founders initially hire people from the teams at their prior job. Considering how hard it is to hire in the technology market, having the advantage of a trusted relationship and existing work style is a great way to build your initial team. It’s both less risky and easier to close someone who knows you already.

These short cuts won’t build your business for you, but they do give you a head start in a time when you desperately need the help.

The next time you feel like things are really hard perhaps it is worth rethinking your approach to try and find a short cut. Or, maybe it’s just really hard.

Image courtesy of Flickr user Smoobs via the Creative Commons Attribution 2.0 License.

Selling Your Company

It happens to every founder at some point. Fsbo_tabletYou realize building your business is harder than you expected. You’ve been working for a few years without finding breakaway growth. The team is tired and losing some of their passion, overwhelmed by the work that needs to be done. You need to start a new round of fundraising soon and are not sure you want to invest another 3-4 years into building this company. All of a sudden, you find yourself thinking of selling.

Selling your company always seems like an attractive option. Instead of working harder you can get out now for a few millions dollars, pay back your investors and pocket a little extra for the few years of hard work. You read about it happening everyday in Techcrunch so why not you? You have a great team and an awesome product, some large company would surely pay for that.

Unfortunately, that is not how it works.

Companies are bought, not sold (as everyone will tell you). Selling your company when things are not going well requires a number of forces to converge in your favor at the same time:

  • An acquirer must have the need for your team, product or customers at a price you will accept.
  • Your team must be willing to work for the larger company for a few years.
  • Your investors must be willing to sell for a price that is likely a loss for them.

It is surprisingly rare that these three factors converge at the same time. When acquirers come knocking, you and your team might be fresh off a round of financing and flush with your dream of riches. When you and your team decide to sell there may be no acquirers ready to move. And even if your team and an acquirer are on board your investors might not be willing to give up.

That being said, selling while under distress can be done. It takes a lot of work on your part, as a founder, as you need to do a number of things at once:

  1. Focus on maximizing the value (and hence attractiveness) of your business by emphasizing the things acquirers will value. That includes your customers, product, team, etc.
  2. Spend a lot of time networking to find any and all potentially interested acquirers. You need two or more to get a decent deal in negotiations and these will usually come from existing partners who know your business well.
  3. Convince your team to continue to work hard during the search for an acquirer, despite all the uncertainty and unknowns. This can be the hardest part, especially if they are already feeling burned out.

It is a hard balance and few companies successfully navigate it. I have seen teams fall apart right before a deal is closed because of fear and uncertainty. I have seen great teams with great products look high and low never to find any interested acquirers. Even if you find an acquirer, most distressed companies are treated as “acqui-hires” which means the team gets a token bonus in addition to a job offer. A small reward for years of hard work.

The only real chance you have for being rewarded for all your hard work is to build a business that grows. If that looks impossible, maximize the strategic value you can provide through your product, team and customers while pursuing relationships with potential acquirers. In other words, the normal things you do as a founder.

So, time to get back to it.

Image made available By Prokopenya Viktor (my own picture collection) [Public domain], via Wikimedia Commons

Efficient Analytics for Start Ups

Years ago, being data driven in your decision making gave you a competitive advantage. These days, being data driven has become table stakes to compete in the hyper-competitive business world.

But, what does it mean to be data driven? How do you even get started?

Last week, I gave a talk to help answer those questions at the Alchemist Accelerator and I was told it was very helpful. You will find a video of the talk embedded below, optimized for your web viewing pleasure. I hope you find it useful.

If there are other topics you would like to see me publish talks about, please let me know.

The Last Startup Company

“Evernote is our life’s work. It’s my third company. The whole point is we don’t want to sell another company. We wanted the next thing to be sufficiently epic, so that we never want to do anything else. I hope to be involved in Evernote forever.”

Phil Libin, CEO of Evernote

There seems to be a growing trend of founders to want to create lasting, iconic companies. On a regular basis I hear founders describe their current startup as a “100-year company” or “my last startup”, implying the company will last for a very long time. Gone are the days when being a “serial entrepreneur” was the aspiration of founders, now they want to found the definitive companies of the next century.

Why the change?

I have no simple answer, nor enough data to create a complete picture of how large this trend might be. However, I do have some observations that I think shed light on why the thinking around entrepreneurship is changing:

  • The cost of starting a company has plummeted. There was a time when simply starting a company and bringing a product to market was a major achievement. These days, technology, automation and outsourcing means that high school students can launch revenue generating products between classes. With little value attached to simply founding a company, founders aspire to a higher standard.
  • Failure really sucks. Despite anything you might read, failure really sucks. Any entrepreneur that has failed at least once will actively avoid repeating that experience. If you’ve failed more than once, the idea of starting a company and running it forever sounds pretty great. It means you’ll never fail again (at least in that way) and can wrap yourself in the warm blanket of success.

Why does all this matter?

Whatever the reason, I admire the vision of creating a 100 year company while at the same time worry about how it changes the thinking of founders. In the same way that aiming for a short term acquisition will hurt your company (see Why You Don’t Want to be Acquired), aiming for a perpetual business may cause you to make decisions that are not ideal for the business.

For example, early in the life of your company you need to focus as much as possible (see The Only Thing That Matters). This means that you might need to pass on some big market opportunities or not build products that have large future potential. If you are focused on the present this decision is easy, but if you focus on the future you might be unwilling to give up so much future value. Once that decision becomes hard, you will start to make mistakes.

Likewise, you are much more likely to over-capitalize your company in the early days if you are aiming for the kind of company that lasts forever. Ensuring you have the right amount of funding for the stage of your company is important (see Fundraising Fever) and you can limit future options by over or under capitalizing. If you are focused on a 100 year plan, over-capitalizing might seem like a good idea and lead you to make mistakes.

These are just some examples and not all founders are blinded by their 100-year aspirations. However, no matter how self aware you might be you are shaped by your goals. Adding any goal, especially the goal of existing forever, will shape your thinking even if you don’t realize it.

100 years is a long time

If you aspire to creating a 100-year startup, I sincerely hope you succeed. I would love to know that in this age of short-term earnings focus it is possible to build a long-lasting company.

I will leave you with a list of the oldest companies in the world, according to Wikipedia. Unsurprisingly, the companies that last the longest are the ones who work in businesses that are fundamental parts of human life (hospitality, construction, food). I wonder if technology and especially software will ever be in that category.

Unfortunately you and I will never find out. 100 years is a long time, after all.

Unbroken Markets

Many startup pitches start off with the 512px-Broken_glasssimple claim that something is broken. “Email is broken.” “Messaging is broken.” “Advertising is broken.” If you hear too many pitches, you might start wondering how anything at all gets done since everything around us is so broken.

It’s a common refrain which you expect from aggressive founders who are eager to change the world. When your vision of the future is powerful and truly innovative, the current state of the world can seem very broken in comparison. However, such powerful vision and dismissal of the status quo overlooks the fact that the status quo exists for a reason.

If something is broken, why are people using it everday?

Activation Energy

In chemistry, changes come through chemical reactions. Reactions don’t just happen on their own, they require some minimum amount of energy to get started. That energy is known as the activation energy of the reaction.

Innovations are similar to chemical reactions. Where chemical reactions transform materials, innovations transform markets. What, then, is the activation energy of innovation? In business, activation energy takes the form of the amount of effort you need to displace existing tools and services with new innovations. That effort is a combination of how radical the innovation is and how much you need to invest to get that innovation adopted in your market.

Depending on the characteristics of a market the activation energy required for innovation can differ greatly. For example, a highly mature and slow moving market with large, entrenched competition such as the taxi industry requires a massive innovation and investment in the form of Uber/Lyft. A young but fast moving market like online messaging requires less innovation and investment in the form of WhatsApp/Snapchat to transform the market.

Your activation energy is not only overcoming the existing market competitors, but the ingrained habits of your customers. Customers who have a regular habit of using a product, even if that product is bad, will resist changing out of sheer momentum. In these cases you need even more activation energy to transform the market.

Unbroken Markets

So, how does chemistry help you start a company? By helping us make good assumptions.

It is dangerous to assume that the activation energy for your market is low, but that is exactly what you are doing when you assert it is “broken.” Instead, assume your market is stable and healthy, so that your innovation needs to be radical to succeed. Also assume that the effort to bring that innovation to market will be significant as well, so you will plan accordingly. Any other assumption will allow you to become complacent.

Your market may, in fact, be broken. Assuming otherwise will ensure that you do not underestimate your challenges.

Image By Jef Poskanzer (originally posted to Flickr as smash) [CC-BY-2.0 (http://creativecommons.org/licenses/by/2.0)%5D, via Wikimedia Commons