Startup Lessons: Tough Decisions

This is the 6th installment in the Startup Lessons series I have been writing in the wake of my experience with Get Satisfaction. This one is a tough one to write and it is important to acknowledge that when it comes to strategy there is a lot of nuance and the fact remains that you are dealing with a complex multi-variant problem so there is no playbook you can pull off the shelf and just hit go. Having said that, a key failing of startup management teams is the inability to develop and adhere to a strategic planning process that lays out priorities and initiatives that have to be attacked in order to achieve the only metric that matters, growth.

To recap, here is the series thus far:

1) Hiring
2) Dynamic Org Structures
3) Product First
4) Marketing
5) Board Management

6) Tough decisions: Today I want to highlight is the challenge of making tough calls in a startup, decisions that may mean giving up one thing you already have in exchange for something you would like to have. You can’t have it all so you have to narrow down the range of strategies you are executing to those things that sustain the company over the short and medium term, grow shareholder value, and result in a culture of winning. The bottom line is that your resources will constantly be 120% consumed and the only metric that matters is growth, so bias every decision you make to delivering growth

Case in point during my tenure was the observation I made in late 2010 that a reliance on a feature driven packaging approach was hamstringing the company and creating a bias to the direct sales side of the business. Enterprise sales models deliver revenue and there is an extensive library of company case studies on building large businesses off enterprise license agreements but those models don’t deliver customer number growth and coverage across businesses of all sizes.

We kicked this can for a full year – we wasted a year – until we took one step in the right direction and replaced our antiquated billing system. The problem is that this is just one piece of the puzzle and it wasn’t until I took it on myself to start driving change on the pricing model itself that the product, packaging, and pricing aligned. The massively frustrating part of this work was getting people to look beyond the revenue impact in the current customer base. Once we moved beyond the protracted months long debate that centered on existing revenue streams, people got behind it and delivered a thoughtful and well presented agent-based pricing model. and then abandoned it.

This realization helped me understand the human psychology of decision dynamics more than anything else. People, rational and educated people no less, have a tendency to overvalue the thing they already have relative to the thing they are moving to. Looking at the revenue impact of customers moving from high price points to lower price points that are consumption metered misses the point that protecting the existing revenue is not the strategic priority. growing the business is. The risk in allowing the compromise to be driven by existing customer dynamics is that it is is encapsulated by the saying “a camel is a horse designed by committee”. so much gets compromised in order to protect something that you end up in a position that really isn’t much different than where you already are.

When you push out tough decisions that will ultimately never be made with perfect information you are wasting the one resource you will never get more of – time. Assumptions have to be made and decisions fully committed to, the consequences of failing are serious but equally serious consequences result from failing to act when action is precisely what is required. If the decisions and commitments were easy they would already have been made, the fact that teams struggle with tough decisions is not the exception but when you know with certainty that what you are doing today is not optimal and within your capacity to improve, there is no excuse for pushing it for the sole reason that doing nothing is easier until the point when you literally have no choice but to change.

Startup Lessons: Board Management

This is the 5th installment in the Startup Lessons series I have been writing in the wake of my experience with Get Satisfaction. This one will certainly inspire a lot of head shaking around the table as anyone who has been involved with a startup can relate to this.

To recap, here is the series thus far:

1) Hiring
2) Dynamic Org Structures
3) Product First
4) Marketing

5) Board management: My point here is not about criticism of investors because at the end of the day what investors provide above all else is access to capital, and point in fact their motivation is ultimately pure, which is they are in it to make money. Clarity of purpose is really a blessing but as anyone who has been involved with venture capitalists from the perspective of a startup can attest, there is a lot of complexity.

Investors do not do that much to help a company operationally, despite what they may want to believe about their contribution. They are a sounding board and provide critical objective voice on strategic subjects, but an investor is far too removed from the day-to-day decision making to be useful in an operational capacity, and if they are involved in the day-to-day then the are no longer simply investors.

Where this all comes to a head is when a company is facing headwinds. People in general tend to want to simplify things down to the just one thing moment and any problem set in the modern tech startup that can be distilled to just one thing at it’s root is an exception if there ever was one.

An example of this is having a board member say “well you should just charge more” without first considering the competitive dynamics of a market, or the product and customer perspective on value. If the challenge of running and growing a business like this is easy then anyone could do it, so for all the investors reading this right now, it would be helpful to acknowledge that people running these businesses have more knowledge than you do about the business itself. As much as you want to pattern match, that isn’t always helpful because no one person has experience with all the patterns that can be identified and patterns of the past are not indicators of future performance.

Companies and markets are highly volatile multi-variant problem sets that defy simple explanations and recommendations. What investors across the board should be doing in environments like this is helping clear the fog and applying intellectual horsepower where it is really needed, the planning side of the business. Building good forecasting models against the backdrop of fast changing performance factors is no small task, and planning is 1/2 of the planning/controlling responsibility a team is responsible for, but typical boards end up spending a lot of time on the controlling part of the equation.

Furthermore, when it comes to planning the typical startup has the additional dynamic of being not well equipped to push back against investors who have an expectation of growth rates in the early stages that well exceed 100%. This is where the multi-variant challenges rears it’s head, which is that no market is static so while you are building a product, growing a customer base, facing new competitive threats whether they be other startups or incumbents who have identified you as a threat, and then hiring people to support growth in the business. well a lot of things can derail the best laid plans.

Managing for growth vs. managing for margin enters the discussion because investors want to manage cash efficiently while also proving the growth capability of the company in order to get to the next stage of financing. There is little room for error here and the capital markets are far less forgiving of pivots than they were 2 or 3 years ago.

I also want to talk about shareholder interests and the Board members positions are, typically, preferred shareholders. What is really lacking in tech startups today is a strong voice for common shareholders, the employees, in private companies. The executive members of the board are supposed to fulfill this but all too often their voice is not equal to that of the other board members when it comes to shareholder classes. Preferred shareholders are inherently conflicted in this regard because they enjoy advantages such as liquidation preferences and anti-dilution protections that give them a built-in advantage over the common class of stock.

The modern board needs to cast off the standard operating procedures of the past, in the process becoming more inclusive of shareholder classes as opposed to representing the preferred shareholders first and everyone else second. Board meetings require great structure and strong leadership, and board members need to accept that there will be pushback and dissent based on facts and information that they may not see plainly relative to executives of the company.

As a startup you have a choice, you can be subservient to the board, bending to their pre-determined points of view, or you can be a strong force that counterbalances the parochial interests and instead favoring the greater good. Lastly, boards should be focused exclusively on the substance of the company and less about the personalities of the board members and the executive team.

Startup Lessons: Marketing

This is the 4th installment in the Startup Lessons series I have been writing in the wake of my experience with Get Satisfaction. We are getting into the topics that are much more specific to Get Satisfaction, therefore I have an obligation to redact certain details that are confidential however in the spirit of shared learnings I will cover as much as I feel is appropriate.

To recap, here is the series thus far:

1) Hiring
2) Dynamic Org Structures
3) Product First

4) Marketing. and all that implies: What can you say really, if there are 2 things that a startup in tech should be good at, it’s product and marketing, everything else succeeds or fails on the basis of being good at those core activities.

Get Satisfaction was blessed – and I mean truly blessed – with the kind of brand that most companies in the space would kill for. It is at it’s core an aspirational brand message about all of the promises that the social technology revolution has presented to companies as they remake how they interact with people. I really loved telling the story of GS for this reason alone, it is about what is possible by empowering people, customers and employees, rather than saving a few dollars here or picking up some extra revenue there.

The problem with aspirational brand messages is that if you don’t back it up with hard hitting marketing that converts goodwill into revenue, you are wasting it or worse, educating the market about how to evaluate competitive products.

We did very well in 2010 and 2011 with a highly differentiated creative marketing strategy but then we had our VP Marketing leave just after the B round closed (awkward.) and the role went unfilled for the better part of a year. Actually, it was worse than that, we had a consultant that one of our investors recommended and that was a disaster that resulted in a botched website project, what I thought was a stupid book project, and a lurching repositioning of the company to traditional enterprise software. Disaster.

The last issue is particularly sensitive for me because at the time I was responsible for the freemium business and nobody was trying to understand what this part of the business needed in a website. The result was, predictably, a website that catered to the old world traditional call-to-action of “call us and talk about enterprise”. Not surprisingly, the new customer acquisition ramp for the monthly subscription business flattened out dramatically almost immediately when this site launched.

We did eventually replace the marketing consultant with a VP Marketing but by then the damage was done. Brand voice was lost, our demand gen was wonky because of the confusion we were creating around our market focus, and “shit wasn’t getting done”. Remember what I wrote about in my first post in this series about hiring and how bad hires are a cancer?

Even after putting in place a full time marketing leader things didn’t really get that much better. I think this goes to the dynamic that executives in this industry, and others for that matter, exhibit which is in times of challenge they go back to what they know. I do not believe that Get Satisfaction should have been directed at large enterprise sales opportunities as a primary revenue source, but that’s what happened and our marketing reflected that in spades.

My stated preference was to point the marketing at the upper SMB and mid-market buyer, also called the departmental buyer, and qualify 100% of the business off what was coming in from the web funnel. The is what companies like Yammer, Hootsuite, and Zendesk have done, they drive the traffic to the site and skim the enterprise opportunity funnel off the top. The objective in this approach is getting people into a rich product experience and then converting them or upselling them into an enterprise buying lane, rather stating a preference or making them choose up front.

Succeeding at zero to low touch web direct sales models is not a challenge to take lightly, it requires an intense focus on web traffic generation and instrumentation of assets for funnel analytics. It also requires that people think outside of their comfort zone of campaigns, PPC, webinars, and landing pages. in fact I feel more strongly than ever that in order to be successful with this customer acquisition model that tech companies need to act more like media companies with a distinct editorial agenda and content strategy. For this kind of model to work you need a lot of traffic. paid, sponsored, and earned traffic, all of the above.

Even if we did all that I am not sure we would have been successful because at the core we were underinvesting in marketing, both people and spend. However, it is hard to fault us for not investing more in marketing because we clearly had not solidified the Magic Number math that is essential for justifying increases in marketing spend.

There was a bigger issue with the marketing performance that all companies need to be aware of. When you marketing team has as a primary objective enterprise demand generation, well what they measure is enterprise lead generation. Meanwhile, GetSat also had a line of business that was dependent on getting people into the website and into a product experience that converts into a monthly subscription relationship, therefore we had a real sync problem that would not have been resolved with more money thrown at it.

When you measure your marketing spend solely on the basis of lead generation, the slippery slope is changing the definition of lead to juke the stats and show improvement in the specific activity you are measuring. This is something I will forever be aware of, measure the result instead of the activity.

I will close by highlighting something really special I saw happen at Get Satisfaction. Based on the early product work and what we discovered as the first iterations of the business came together, it was clear that social technologies were driving a consolidation of the customer lifecycle that all companies are subject to, with customer support and marketing coming together for the purpose of serving the customers you already have while using that momentum to acquire new ones. Whether or not we did this well in the business is not the point, the fact remains that we identified an important shift in the market well ahead of competing companies. While we did not fully capitalize on this, in no way does that take away from the innovative work that was done to develop a differentiated marketing story to compliment the product.

Startup Lessons: Dynamic Org Structures

Last week I posted the first in a series of posts about my startup experience with Get Satisfaction. The first post focused on hiring and was appropriately the first in the series because hiring decisions will make or break your company.

However, it doesn’t stop there and once you have a team of smart capable professionals you have to create an organization structure that breaths and grows with them as the team accomplishes key objectives and develops an operational cadence around key business metrics.

2) Dynamic organizational structure: Not everyone will scale with the company and an essential strategy for accommodating and driving growth is continual reorganization. At Get Satisfaction we should have done more of this, moving people around as we grew and then pairing up different teams to accomplish specific objectives.

An example is that Marketing was inexorably linked to the enterprise sales demand gen requirements and while that would never go away the fact remains that other parts of the business suffered as that focus became all encompassing. In retrospect it would have been advantageous to pair marketing with a different team each quarter and set an an objective improvement in a key metric not related to demand generation, for example, working with customer support with the singular goal of improving customer communication efficacy.

As a company grows the requirements placed on individual leaders change and not everyone will make the shift so deliberate transition into different roles or out of the company is something that has to be planned. This isn’t a reflection of people failing but rather succeeding and the new demands evolving as a result.

Dynamic organizations reflect this by moving leaders into different roles not as a reaction to what is happening on the ground but as a forward motion intended to create progress in a new and emerging area. Successful startups move early executives into new roles frequently, not in an effort to sideline them but rather take advantage of their unique skills and organization knowledge to advance an area that would otherwise stagnate.

I am taken aback by how much time should be devoted to team and people issues in a startup, for a company like Get Satisfaction I would say at least half of the CEO time needs to be spent on managing this and recruiting the best people for the challenges that are currently being experienced and what lays ahead. Once you have a team of good people you need to continually optimize that for business results but also change it up keep the people you have operating at peak intellectual engagement and interest.

Part of the challenge with “the best people” is that they don’t neatly fit into the existing organization structure, and the other part is that everyone has a sweet spot of company phase that they thrive in. I am a good example of this, very large companies are soul crushing for me, the overburdened process and gravity to inertia absolutely deflates me, yet the pure play startup is equally outside my comfort zone because I don’t bring tools that are well honed for business creation. I am a best fit for a company with presence, a reasonably complete product, and customer assets, in other words growth stage or on the precipice of a growth stage buildout.

Creating organization structures for people based on their capabilities rather than your org chart and recognizing where people thrive and where they outlive their utility is essential.

Equally critical for dynamic organizations is to decentralize decision making to the nodes of the organization. This is no small challenge for companies that achieve mass after having slogged through a startup period that is an all-hands exercise. Top down decision making results in critical time lost and decisions that are inexorably compromised in order to satisfy the personalities of the team rather than the outcomes that is desired. You hire smart professionals who have, ideally, good judgment and intellectual capacity, why not lead them by getting out of the way and letting them do the jobs they were hired to do rather than managing indecision as a result of people not measured by the specific outcomes affecting the strategy and tactics required to get there?