What we can learn from edtech startups’ expansion efforts in Europe

It’s a story common to all sectors today: investors only want to see ‘uppy-righty’ charts in a pitch. However, edtech growth in the past 18 months has ramped up to such an extent that companies need to be presenting 3x+ growth in annual recurring revenue to even get noticed by their favored funds.

Some companies are able to blast this out of the park — like GoStudent, Ornikar and YouSchool — but others, arguably less suited to the conditions presented by the pandemic, have found it more difficult to present this kind of growth.

One of the most common themes Brighteye sees in young companies is an emphasis on international expansion for growth. To get some additional insight into this trend, we surveyed edtech firms on their expansion plans, priorities and pitfalls. We received 57 responses and supplemented it with interviews of leading companies and investors. Europe is home 49 of the surveyed companies, six are based in the U.S., and three in Asia.

Going international later in the journey or when more funding is available, possibly due to a VC round, seems to make facets of expansion more feasible. Higher budgets also enable entry to several markets nearly simultaneously.

The survey revealed a roughly even split of target customers across companies, institutions and consumers, as well as a good spread of home markets. The largest contingents were from the U.K. and France, with 13 and nine respondents respectively, followed by the U.S. with seven, Norway with five, and Spain, Finland, and Switzerland with four each. About 40% of these firms were yet to foray beyond their home country and the rest had gone international.

International expansion is an interesting and nuanced part of the growth path of an edtech firm. Unlike their neighbors in fintech, it’s assumed that edtech companies need to expand to a number of big markets in order to reach a scale that makes them attractive to VCs. This is less true than it was in early 2020, as digital education and work is now so commonplace that it’s possible to build a billion-dollar edtech in a single, larger European market.

But naturally, nearly every ambitious edtech founder realizes they need to expand overseas to grow at a pace that is attractive to investors. They have good reason to believe that, too: The complexities of selling to schools and universities, for example, are widely documented, so it might seem logical to take your chances and build market share internationally. It follows that some view expansion as a way of diversifying risk — e.g. we are growing nicely in market X, but what if the opportunity in Y is larger and our business begins to decline for some reason in market X?

International expansion sounds good, but what does it mean? We asked a number of organizations this question as part of the survey analysis. The responses were quite broad, and their breadth to an extent reflected their target customer groups and how those customers are reached. If the product is web-based and accessible anywhere, then it’s relatively easy for a company with a good product to reach customers in a large number of markets (50+). The firm can then build teams and wider infrastructure around that traction.

#column, #ec-column, #ec-edtech, #ec-how-to, #edtech, #education, #europe, #finland, #france, #norway, #owl-ventures, #spain, #startups, #sweden, #switzerland, #united-kingdom, #united-states, #venture-capital

4 ways to leverage ROAS to triple lead generation

Businesses that don’t invest in their future may not have a future to look forward to.

Whether you’re investing in your human resources or in critical tech, some outlay in the short term is always needed for long-term success. That’s true when it comes to marketing as well — you can’t market your product or service without investing in advertising. But if that investment isn’t turning into leads and conversions, you’re in trouble.

A “good” ROAS score is different for each company and campaign. If your figure isn’t where you’d like it to be, you can leverage ROAS data to create targeted campaigns and personalized experiences.

It’s vital to identify and apply the most suitable metrics based on business goals, and there’s no one best practice or one-size-fits-all method.

However, smart use of the return on advertising spend (ROAS) data can triple lead generation, as I discovered when I joined Brightpearl to restructure the marketing campaigns. Let’s take a look at some of the ways Brightpearl used ROAS to improve campaigns and increase lead generation. The key is to work out what represents a healthy ROAS for your business so that you can optimize accordingly.

Use the right return metric

It is paramount to choose the right return metric to calculate your ROAS. This will depend partly on your sales cycle.

Brightpearl has a lengthy sales cycle. On average it’s two to three months, and sometimes up to six months, meaning we don’t have tons of data on a monthly basis if we want to use new customer’s revenue data as the return metric. A company with a shorter sales cycle could use revenue, but that doesn’t help us to optimize our campaigns.

We chose to use the sales accepted opportunity (SAO) value instead. It usually takes us about a month to measure, so we can get more ROAS data at the same time. It’s the last sales stage before a win, and it’s more in line with our company goal (to grow our recurring annual revenue), but takes less time to gather the data.

By the SAO stage, we know which leads are good quality­ — they have the budget, are a good fit, and our software can meet their requirements. We can use them to measure our campaign performance.

When you choose a return metric, you need to make sure it matches your company goal without taking ages to get the data. It also has to be measurable at the campaign level, because the aim of using ROAS or other metrics is to optimize your campaigns.

Accept that less is more

I’ve noticed that many companies harbor a fear of missing out on opportunities, which leads them to advertise on all available channels instead of concentrating resources on the most profitable areas.

Prospects usually do their research on multiple channels, so you might try to cover all the possible touch points. In theory, this could generate more leads, but only if you had an unlimited marketing budget and human resources.

#advertising-tech, #column, #customer-relationship-management, #ec-column, #ec-how-to, #ec-marketing-tech, #lead-generation, #marketing, #roas, #sales, #search-engine-optimization, #social-media, #sql, #startups

3 strategies to make adopting new HR tech easier for hiring managers

Recruiting for technical roles can be challenging. There are often too many roles to fill, too many or too few candidates to interview and not enough time to get it all done and develop relationships with your key stakeholders: Hiring managers and the executive team.

Working with talent acquisition (TA) leaders and technical recruiters can help companies scalably, accurately and fairly assess potential candidates’ technical skills to fill high-value engineering roles. Technology also offers many advantages that help achieve TA objectives. But in my experience, many TA and HR leaders get frustrated when new tools fail to launch or deliver underwhelming results, because they aren’t adequately adopted, trusted or utilized by end users.

I find that hiring managers are more open-minded to “mechanical” or automated hiring tools if those tools aren’t evaluated on their own, but are evaluated relative to status quo hiring processes.

All of this leads to technical decision-makers and stakeholders developing a natural skepticism for mechanical or automated hiring tools. If your hiring managers seem doubtful about using tech for hiring, here are three strategies to help them embrace hiring tools.

Expect skepticism, it’s natural

Researchers studying how to make scientific hiring tools more effective have discovered an interesting phenomenon: Human beings are naturally skeptical of tools that outsource our decisions (Highhouse, 2008). Left to our own devices, we are hardwired to trust gut instinct over external data points, especially when developing and nurturing new relationships, including who we work with.

Scientists have offered up a few explanations for this preference of gut over data. Some people consider external, mechanical decision-making aids as less trustworthy because of a lack of familiarity with how they work, or because using them reflects poorly on the decision-maker’s value and worth as a leader or manager.

It could also be because there’s a fear of surrendering control and agency to a tool that doesn’t seem to consider or understand context clues. However, research has shown that people make better choices when using mechanical decision support tools than when either humans or mechanical tools make decisions alone.

#column, #ec-column, #ec-enterprise-applications, #ec-how-to, #hiring, #hiring-engineers, #hr-tech, #management, #personnel, #recruitment, #startups, #tc

5 things you need to win your first customer

A startup is a beautiful thing. It’s the tangible outcome of an idea birthed in a garage or on the back of a napkin. But ask any founder what really proves their startup has taken off, and they will almost instantly say it’s when they win their first customer.

That’s easier said than done, though, because winning that first customer will take a lot more than an Ivy-educated founder and/or a celebrity investor pool.

To begin with, you’ll have to craft a strong ideal customer profile to know your customer’s pain points, while developing a competitive SWOT analysis to scope out alternatives your customers can go to.

Your target customer will pick a solution that will help them achieve their goals. In other words, your goals should align with your customer’s goals.

You’ll also need to create a shortlist of influencers who have your customer’s trust, identify their decision-makers who make the call to buy (or not), and create a mapped list of goals that align your customer’s goals to yours.

Understanding and executing on these things can guarantee you that first customer win, provided you do them well and with sincerity. Your investors will also see the fruits of your labor and be comforted knowing their dollars are at good work.

Let’s see how:

1. Craft the ideal customer profile (ICP)

The ICP is a great framework for figuring out who your target customer is, how big they are, where they operate, and why they exist. As you write up your ICP, you will soon see the pain points you assumed about them start to become more real.

To create an ICP, you will need to have a strong articulation of the problem you are trying to solve and the customers that experience this problem the most. This will be your baseline hypothesis. Then, as you develop your ICP, keep testing your baseline hypothesis to weed out inaccurate assumptions.

Getting crystal clear here will set you up with the proper launchpad. No shortcuts.

Here’s how to get started:

  1. Develop an ICP (Ideal Customer Profile) framework.
  2. Identify three target customers that fit your defined ICP.
  3. Write a problem statement for each identified target customer.
  4. Prioritize the problem statement that resonates with your product the most.
  5. Lock on the target customer of the prioritized problem statement.

Practice use case:

You are the co-founder at an upcoming SaaS startup focused on simplifying the shopping experience in car showrooms so buyers enjoy the process. What would your ICP look like?

2. Develop the SWOT

The SWOT framework cannot be overrated. This is a great structure to articulate who your competitors are and how you show up against them. Note that your competitors can be direct or indirect (as an alternative), and it’s important to categorize these buckets correctly.

#business, #business-intelligence, #column, #customer-experience, #ec-column, #ec-how-to, #growth-marketing, #market-research, #marketing, #startup-advice, #startup-tips, #startups, #tc, #verified-experts

3 keys to pricing early-stage SaaS products

I’ve met hundreds of founders over the years, and most, particularly early-stage founders, share one common go-to-market gripe: Pricing.

For enterprise software, traditional pricing methods like per-seat models are often easier to figure out for products that are hyper-specific, especially those used by people in essentially the same way, such as Zoom or Slack. However, it’s a different ball game for startups that offer services or products that are more complex.

Most startups struggle with a per-seat model because their products, unlike Zoom and Slack, are used in a litany of ways. Salesforce, for example, employs regular seat licenses and admin licenses — customers can opt for lower pricing for solutions that have low-usage parts — while other products are priced based on negotiation as part of annual renewals.

You may have a strong champion in a CIO you’re selling to or a very friendly person handling procurement, but it won’t matter if the pricing can’t be easily explained and understood. Complicated or unclear pricing adds more friction.

Early pricing discussions should center around the buyer’s perspective and the value the product creates for them. It’s important for founders to think about the output and the outcome, and a number they can reasonably defend to customers moving forward. Of course, self-evaluation is hard, especially when you’re asking someone else to pay you for something you’ve created.

This process will take time, so here are three tips to smoothen the ride.

Pricing is a journey

Pricing is not a fixed exercise. The enterprise software business involves a lot of intangible aspects, and a software product’s perceived value, quality, and user experience can be highly variable.

The pricing journey is long and, despite what some founders might think, jumping head-first into customer acquisition isn’t the first stop. Instead, step one is making sure you have a fully fledged product.

If you’re a late-seed or Series A company, you’re focused on landing those first 10-20 customers and racking up some wins to showcase in your investor and board deck. But when you grow your organization to the point where the CEO isn’t the only person selling, you’ll want to have your go-to-market position figured out.

Many startups fall into the trap of thinking: “We need to figure out what pricing looks like, so let’s ask 50 hypothetical customers how much they would pay for a solution like ours.” I don’t agree with this approach, because the product hasn’t been finalized yet. You haven’t figured out product-market fit or product messaging and you want to spend a lot of time and energy on pricing? Sure, revenue is important, but you should focus on finding the path to accruing revenue versus finding a strict pricing model.

#artificial-intelligence, #aws, #column, #ec-column, #ec-enterprise-applications, #ec-how-to, #enterprise, #enterprise-software, #product, #saas, #salesforce, #startups, #tc

Have ‘The Privacy Talk’ with your business partners

As a parent of teenagers, I’m used to having tough, sometimes even awkward, conversations about topics that are complex but important. Most parents will likely agree with me when I say those types of conversations never get easier, but over time, you tend to develop a roadmap of how to approach the subject, how to make sure you’re being clear, and how to answer hard questions.

And like many parents, I quickly learned that my children have just as much to teach me as I can teach them. I’ve learned that tough conversations build trust.

I’ve applied this lesson about trust-building conversations to an extremely important aspect of my role as the chief legal officer at Foursquare: Conducting “The Privacy Talk.”

The discussion should convey an understanding of how the legislative and regulatory environment are going to affect product offerings, including what’s being done to get ahead of that change.

What exactly is ‘The Privacy Talk’?

It’s the conversation that goes beyond the written, publicly-posted privacy policy, and dives deep into a customer, vendor, supplier or partner’s approach to ethics. This conversation seeks to convey and align the expectations that two companies must have at the beginning of a new engagement.

RFIs may ask a lot of questions about privacy compliance, information security, and data ethics. But it’s no match for asking your prospective partner to hop on a Zoom to walk you through their broader approach. Unless you hear it first-hand, it can be hard to discern whether a partner is thinking strategically about privacy, if they are truly committed to data ethics, and how compliance is woven into their organization’s culture.

#column, #digital-advertising, #digital-rights, #ec-column, #ec-how-to, #foursquare, #identity-management, #lawyers, #privacy, #security, #startups, #terms-of-service, #verified-experts

Debt versus equity: When do non-traditional funding strategies make sense?

The U.S. produces more new startups and unicorns each year than any other country in the world, but 90% of startups fail, with cash flow often being a major challenge.

Entrepreneurs trying to raise funding for their new businesses are faced with a maze of options, with most taking the common route of equity rounds. There’s clearly a lot of venture money to be raised — and most tech entrepreneurs happily take it in exchange for equity. This works for some, but too often founders find themselves diluting their equity to unrecoverable portions rather than considering other financing options that allow them to hold on to their company — options like debt capital.

Even if you’re growing quickly, not all founders want to set a valuation for their company. In that case, you can offer investors “convertible debt.”

Despite the VC flurries of 2020 creating an ecosystem of seemingly endless equity, it’s important for entrepreneurs and founders to understand that there is no one-size-fits-all model for raising capital. Debt capital, which refers to capital raised by taking out a loan, is an alternative route that entrepreneurs should consider.

Understanding the real cost of venture debt and when it makes more sense than the traditional equity route relies on an understanding of what you and your company hope to achieve.

Understanding your goals

We mainly see two kinds of startups today: Those that want to try something new, and the ones that focus on making things faster, cheaper or simpler. Facebook, Twitter and Instagram are good examples of the first kind — social media didn’t exist before the internet. Discount airlines, cell phones (not smartphones) and integrated circuits are good examples of the “faster, cheaper, simpler” variety, because they simply displaced familiar incumbents.

Many entrepreneurs are eager to be the next “try something new” success story, and I applaud them for feeling that way. Carving out your own market is a fast-track to entrepreneurial stardom if you’re successful. But unless your main goal is to be famous, it’s often impractical and distracting.

People tend to think that category creation is less risky than incumbent disruption. However, as long as you’re truly faster, cheaper and simpler, patience and strategy can propel you to where you want to be.

 

Just as there are different market approaches, there are a number of funding strategies that work best for your goals. Landing investments from leading VC firms has benefits and is a good avenue to opt for if you’re a young startup carving out a market and in need of validation and experience. These firms bring trusted advisers that are laser-focused on growth and have the resources and experience to navigate the murky waters of category creation.

#column, #ec-column, #ec-how-to, #entrepreneurship, #finance, #funding, #private-equity, #startups, #unicorn, #venture-capital, #venture-debt

5 factors that can make or break a startup’s growth journey

The “health” of a startup’s growth can be a strong predictor of how large and valuable it can become. Our generation’s most valuable startups have all sustained a high rate of user/revenue growth over an extended period of time. As such, founders, employees and investors are all trying to figure out if their startup can achieve sustainable growth to create a large and enduring business over time.

Simply looking at top-line growth tells you relatively little. Two startups that are currently growing users or revenue 300% every year can each have different long-term prospects. It’s almost like looking at two people of the same age, height and weight, and projecting the same quality of life and longevity for both — there are many more factors that can help you make better predictions. Startups are similar, and it’s important to dig deeper into the health of a startup’s early growth and work to build the right foundation from an early stage.

Paid marketing can be a useful tool in your toolkit to accelerate an already humming flywheel. Just don’t let it be the only one.

Prior to becoming a VC at Defy, I founded two companies and was Eventbrite’s VP of growth for over six years from startup through IPO. Working across all stages from founding through to public company and advising many other startups along the way, I’ve landed on five critical factors for healthy and sustained growth that can be the difference between a startup failing, getting to a modest exit or building a valuable and enduring billion-dollar company.

Healthy engagement and retention are key

At its core, any successful product or service delivers more value to the user/customer than it costs to use (money or time). To see if your product is delivering true value, ask if it is achieving strong user engagement and customer retention. My friend and growth guru Casey Winters captures this well: “Product-market fit is retention that allows for sustained growth.”

Consumer startups can evaluate this via through cohort-based retention analysis of how frequently customers use the service, and how long they are retained for. SaaS businesses should be talking with customers often to gauge their happiness while also looking at logo retention as well as gross and net revenue retention — ideally, the business should show early signs of being a net-negative churn business, wherein revenue from existing customers actually grows over time, even after accounting for churned customers.

Many people incorrectly think “startup growth = customer acquisition.” In reality, retention is the most fundamental aspect underlying sustainable growth.

Customer obsession creates “pull” from the market

Customer obsession, plus organic pull from the market, are indicators of early product-market fit and signals of future growth potential.

Here are a couple ways to measure this:

See if a healthy percentage of the business is growing without paid spend, generally through word of mouth or some other form of virality. If your business is seeing more than 50% organic growth at a fast rate (200% to 300%+ year over year), you’re solving people’s needs well enough that they’re now sharing with others and creating a positive viral effect.

#column, #customer-retention, #ec-column, #ec-how-to, #eventbrite, #growth-hacking, #product-market-fit, #startups, #tc

How engaged are your employees?

Managers are occasionally evaluated by their team’s occupational wellness — the sometimes-hazy calculation that rates employees’ professional and personal contentment. What may not be as commonly tested is the connected concept of employee engagement, which measures how committed employees are to helping their company succeed. While 71% of executives cite employee engagement as essential to their success, a mere 15% of U.S. employees consider themselves engaged.

Unfortunately for employers, when we look through either the contentment or engagement lens, we see a workforce in crisis — upward of 70% of U.S. workers are so unhappy in their roles that they are thinking about and/or actively looking for a new job.

What’s behind all this? Developmental stagnation at work and the opportunity for a better role elsewhere, often defined not merely as one with more pay, but as one presenting a pathway toward personal and professional growth and upward mobility.

Rather than list out the litany of errors, let’s gauge your company’s employee development and engagement efforts.

The pandemic has only exacerbated the dissatisfaction of many employees — at varied levels — who feel stuck in unfulfilling jobs, with little guidance on how to advance or pivot in their careers and achieve the dignity of meaningful, impactful work.

This piece aims to deliver a simple action plan for assessing your employees’ engagement level and taking targeted steps to build the kind of committed and reliable workforce necessary to survive and thrive in today’s marketplace.

Common failures in corporate career development efforts

While researching employee retention when building our startup, we identified a number of common and recurring shortcomings in career-development practices — ones that are likely to be familiar to most Fortune 500 companies, as well as scaling, high-growth startups.

We focused on the activities and strategies companies use to align their skills needs with workers’ capabilities and aspirations — specifically, their approach to advancing staff toward jobs deemed both desirable to employees and essential to employers.

We found significant behavioral-design failure points across three main areas: Their strategic framework for employee engagement and advancement; implementation process and templates; and goal setting and rewards.

To understand the companies’ strategic framework, we examined upskilling and tuition reimbursement policies and spend; individualized employee future-fit assessments; tools for employee career pathway modeling and advancement; and early-in-career and diverse-hire career-progression programs.

For implementation processes and templates, we examined onboarding; employee performance and development cycle; manager feedback; and succession planning.

For goal setting and rewards, we examined manager and VP-level goals and rewards connected directly to their activities and performance in developing and advancing employee careers.

Take this employee development survey

Let’s gauge your company’s employee development and engagement efforts. How many of the following can you answer with a “yes”?

  1. Has your company run a process to define skills or talent-gaps across organizations in the past two years?
  2. As part of such a process, did your company define a role taxonomy for essential roles?
  3. Do you have a process and the tools for mapping existing personnel to that taxonomy, whether from within or outside the relevant organization?

    #column, #ec-column, #ec-how-to, #employee-engagement, #employee-learning, #employee-management, #employee-wellness, #employment, #hiring, #human-resource-management, #performance-management, #startups

A founder’s guide to effectively managing your options pool

There’s an old startup adage that goes: Cash is king. I’m not sure that is true anymore.

In today’s cash rich environment, options are more valuable than cash. Founders have many guides on how to raise money, but not enough has been written about how to protect your startup’s option pool. As a founder, recruiting talent is the most important factor for success. In turn, managing your option pool may be the most effective action you can take to ensure you can recruit and retain talent.

That said, managing your option pool is no easy task. However, with some foresight and planning, it’s possible to take advantage of certain tools at your disposal and avoid common pitfalls.

In this piece, I’ll cover:

  • The mechanics of the option pool over multiple funding rounds.
  • Common pitfalls that trip up founders along the way.
  • What you can do to protect your option pool or to correct course if you made mistakes early on.

A minicase study on option pool mechanics

Let’s run through a quick case study that sets the stage before we dive deeper. In this example, there are three equal co-founders who decide to quit their jobs to become startup founders.

Since they know they need to hire talent, the trio gets going with a 10% option pool at inception. They then cobble together enough money across angel, pre-seed and seed rounds (with 25% cumulative dilution across those rounds) to achieve product-market fit (PMF). With PMF in the bag, they raise a Series A, which results in a further 25% dilution.

The easiest way to ensure you don’t run out of options too quickly is simply to start with a bigger pool.

After hiring a few C-suite executives, they are now running low on options. So at the Series B, the company does a 5% option pool top-up pre-money — in addition to giving up 20% in equity related to the new cash injection. When the Series C and D rounds come by with dilutions of 15% and 10%, the company has hit its stride and has an imminent IPO in the works. Success!

For simplicity, I will assume a few things that don’t normally happen but will make illustrating the math here a bit easier:

  1. No investor participates in their pro-rata after their initial investment.
  2. Half the available pool is issued to new hires and/or used for refreshes every round.

Obviously, every situation is unique and your mileage may vary. But this is a close enough proxy to what happens to a lot of startups in practice. Here is what the available option pool will look like over time across rounds:

 

Option pool example

Image Credits: Allen Miller

Note how quickly the pool thins out — especially early on. In the beginning, 10% sounds like a lot, but it’s hard to make the first few hires when you have nothing to show the world and no cash to pay salaries. In addition, early rounds don’t just dilute your equity as a founder, they dilute everyone’s — including your option pool (both allocated and unallocated). By the time the company raises its Series B, the available pool is already less than 1.5%.

#capitalization-table, #column, #ec-column, #ec-how-to, #entrepreneurship, #funding, #hiring, #options, #startups, #stock-options

Use cohort analysis to drive smarter startup growth

Cohort analysis is a way of evaluating your business that involves grouping customers into “cohorts” and observing how they behave over time. A commonly used approach is monthly cohort analysis, where customers are grouped by the month they signed up, allowing you to observe how someone who joined in November compares to someone who signed up the month before.

Cohort analysis gives you a multivariable, forward-looking view of your business compared to more simple and static values like averages or totals.

Cohort analysis is flexible and can be used to analyze a variety of performance metrics including revenue, acquisition costs and churn.

Let’s imagine you’re the CMO of the “Bluetooth Coffee Company.” You sell a tech-enabled “coffee composer” that brews coffee, tracks consumption and orders replacement coffee when users are running low. The longer your customers are subscribers, the more money you make. You recently ran a Black Friday feature on a popular deals site and you’re interested to know if you should run it again.

The chart below is a simple analysis you might do to gauge your marketing performance. It shows the total customers added each month, and a clear spike in November following the Black Friday promotion. At first glance, things look good — you brought in more than double the monthly customers in November compared to October.

Marketing campaign results in significant uptick to users added

Image Credits: Sagard & Portage Ventures

But before you rebook the promotion, you should ask if these new Black Friday consumers are as valuable as they seem. Comparing monthly customer percentage is a good way to find out.

Below is a monthly cohort analysis of new customers between September 2020 and February 2021. Like our previous chart, we’ve listed the monthly cohort size, but we’ve also included the customer engagement rate (calculated by dividing daily active users by monthly active users or DAU/MAU for each month (M1 is month 1, M2 is month 2, and so on).

This analysis lets us see how the customer engagement of each monthly cohort compares to the next.

Customer engagement by cohort

Image Credits: Sagard & Portage Ventures

From the figures above, we see that most cohorts have a customer engagement rate in their first month (M1, 42%-46%), meaning 42%-46% of new customers use the coffee composer everyday. The November cohort however has materially lower engagement (M1, 30%), and remains lower in subsequent months (M2, 26%) and (M3, 27%). Interestingly, the customer engagement rate only drops with the November cohort, returning to normal with the December cohort (M1, 45%).

#business, #business-intelligence, #column, #customer-engagement, #customer-lifetime-value, #customer-retention, #ec-column, #ec-how-to, #facebook, #product-marketing, #startups, #tc

6 tips for establishing your startup’s global supply chain

Startups are hard work, but the complexities of global supply chains can make running hardware companies especially difficult. Instead of existing within a codebase behind a screen, the key components of your hardware product can be scattered around the world, subject to the volatility of the global economy.

I’ve spent most of my career establishing global supply chains, setting up manufacturing lines for 3D printers, electric bicycles and home fitness equipment on the ground in Mexico, Hungary, Taiwan and China. I’ve learned the hard way that Murphy’s law is a constant companion in the hardware business.

But after more than a decade of work on three different continents, there are a few lessons I’ve learned that will help you avoid unnecessary mistakes.

Expect cost fluctuations, especially in currency and shipping

Shipping physical products is quite different from “shipping” code — you have to pay a considerable amount of money to transport products around the world. Of course, shipping costs become a line item like any other as they get baked into the overall business plan. The issue is that those costs can change monthly — sometimes drastically.

At this time last year, a shipping container from China cost $3,300. Today, it’s almost $18,000 — a more than fivefold increase in 12 months. It’s safe to assume that most 2020 business plans did not account for such a cost increase for a key line item.

Shipping a buggy hardware product can be exponentially costlier than shipping buggy software. Recalls, angry customers, return shipping and other issues can become existential problems.

Similar issues also arise with currency exchange rates. Contract manufacturers often allow you to maintain cost agreements for any fluctuations below 5%, but the dollar has dropped much more than 5% against the yuan compared to a year ago, and hardware companies have been forced to renegotiate their manufacturing contracts.

As exchange rates become less favorable and shipping costs increase, you have two options: Operate with lower margins, or pass along the cost to the end customer. Neither choice is ideal, but both are better than going bankrupt.

The takeaway is that when you set up your business, you need to prepare for these possibilities. That means operating with enough margin to handle increased costs, or with the confidence that your end customer will be able to handle a higher price.

Overorder critical parts

Over the past year, many businesses have lost billions of dollars in market value because they didn’t order enough semiconductors. As the owner of a hardware company, you will encounter similar risks.

The supply for certain components, like computer chips, can be limited, and shortages can arise quickly if demand increases or supply chains get disrupted. It’s your job to analyze potential choke points in your supply chain and create redundancies around them.

#column, #ec-column, #ec-hardware, #ec-how-to, #ec-manufacturing-and-supply-chain, #hardware, #logistics, #manufacturing, #semiconductors, #startups, #supply-chain, #supply-chain-management

The pre-pitch: 7 ways to build relationships with VCs

Most founders fall into an extremely common trap: Just because you produced outstanding results for the last round of investors doesn’t mean new investors will believe you. This new cohort hasn’t seen that performance firsthand, and they have no reason to trust you yet.

As a founder approaching your next round, it’s common to wonder, “How do I get this new group of investors to trust that I will perform?”

In our experience, founders who fundraise successfully are great at building relationships, and they usually deliver what we call “the pre-pitch.” This is the “we actually aren’t looking for money; we just want to be friends for now” pitch that gets you on an investor’s radar so that when it’s time to raise your next round, they’ll be far more likely to answer the phone because they actually know who you are.

But the concept of the pre-pitch goes deeper than just having potential investors be aware of your existence. Building relationships with potential future investors requires you to think less like a founder and more like a marketer — much of the relationship heavy lifting comes long before it’s time to ask for a capital commitment.

If an investor has made a deal in your space, there’s a good chance they know an earlier-round investor who could potentially be a good fit for you today.

There’s a host of advantages to the pre-pitch approach:

  • Good practice: You’re not asking for money. Instead, you’re offering a sneak peek. Since your relationship-builder pre-pitch doesn’t have millions on the line, you’ll invariably be less anxious, which leads to better relationships. Remember: If it’s not a good fit, who cares?
  • Candid feedback: When you’re not asking for money, you’re more likely to receive honest feedback that you might not get in a high-stakes environment.
  • Set the baseline: You should go over where you’re currently at, why it’s actually not time to raise capital quite yet (the inverse of “Why Now”), and what you still have to accomplish until the time is right.
  • Performance-based trust: Put your performance where your mouth is by showing your potential investor where you are today and what you expect to do in the short term. Later on, you can prove to them that you achieved what you said you would.

7 ways to build relationships with VCs

Now you’re probably wondering, “What the heck do I say to build a good relationship with that next-round investor?” Here are a few notes on how to approach the pre-pitch:

Seek the relationship, not the money

Acknowledge you’re early, but mention that you think it could potentially be a good fit later on. State it up front that you’re seeking a relationship and want to find out if you could eventually be a good fit for one another. Don’t sneak in an ask; let the relationship blossom organically.

Here’s an example: “We’re actually not raising yet, and we’re probably too early for you. But I think this is something you might be very interested in, and thought it made sense to reach out, open up a relationship and see if there might be a fit.”

Don’t waste time

#column, #ec-column, #ec-how-to, #fundraising, #fundraising-tactics, #startup-pitch, #startups, #venture-capital

You can’t hack your YC application, but here’s what to avoid

The Y Combinator application season is upon us. I have been through YC a couple of times and have reviewed thousands of applications as a volunteer in later years.

Typically, you hear advice focused on ways to improve your YC application so it gets accepted. Here are some tips on what not to do and why so many YC applications get rejected. I’ve also put down some advice about what else to anticipate and take into consideration as you navigate the application process.

In short, don’t overthink your application, and keep it simple and straightforward.

When should I submit my YC application?

When in doubt, read YC’s instructions and answer the question literally. Avoid verbose marketing lingo and keep answers short and concise.

The best applications are often those made at the last minute, because applicants do not overthink their responses and toil over details they think need to be shoved into a question. While I do not recommend submitting applications at the deadline because the system has had issues receiving submissions, you can capture the essence of last-minute submissions by being clear and concise.

Remember that your application should be good enough to get an interview, not win a prize. Go back to work instead of spending more time perfecting an application.

YC experiments frequently. For this batch and the last, there was an early deadline that would give accepted teams access to YC before the batch officially began. Applying early gives you an opportunity to land an interview in the early round and to update your application to be considered in the standard round.

Is it OK to submit my YC application late?

#accelerator, #column, #ec-column, #ec-how-to, #facebook, #funding, #san-francisco, #startup-accelerator, #startups, #venture-capital, #y-combinator, #yc

Are B2B SaaS marketers getting it wrong?

Which terms come to mind when you think about SaaS?

“Solutions,” “cutting-edge,” “scalable” and “innovative” are just a sample of the overused jargon lurking around every corner of the techverse, with SaaS marketers the world over seemingly singing from the same hymn book.

Sadly for them, new research has proven that such jargon-heavy copy — along with unclear features and benefits — is deterring customers and cutting down conversions. Around 57% of users want to see improvements in the clarity and navigation of websites, suggesting that techspeak and unnecessarily complex UX are turning customers away at the door, according to The SaaS Engine.

That’s not to say SaaS marketers aren’t trying: Seventy percent of those surveyed have been making big adjustments to their websites, and 33% have updated their content. So how and why are they missing the mark?

They say there’s no bigger slave to fashion than someone determined to avoid it, and SaaS marketing is no different. To truly stand out, you need to do thorough competitor analysis.

There are three common blunders that most SaaS marketers make time and again when it comes to clarity and high-converting content:

  1. Not differentiating from competitors.
  2. Not humanizing “tech talk.”
  3. Not tuning their messaging to prospects’ stage of awareness at the appropriate stage of the funnel.

We’re going to unpack what the research suggests and the steps you can take to avoid these common pitfalls.

Blending into the competition

It’s a jungle out there. But while camouflage might be key to surviving in the wild, in the crowded SaaS marketplace, it’s all about standing out. Let’s be honest: How many SaaS homepages have you visited that look the same? How many times have you read about “innovative tech-driven solutions that will revolutionize your workflow”?

The research has found that of those using SaaS at work, 76% are now on more platforms or using existing ones more intensively than last year. And as always, with increased demand comes a boom in competition, so it’s never been more important to stand out. Rather than imitating the same old phrases and copy your competitors are using, it’s time to reach your audience with originality, empathy and striking clarity.

But how do you do that?

#b2b-saas, #column, #customer-experience, #digital-marketing, #ec-column, #ec-how-to, #enterprise, #marketing, #saas, #saas-marketing, #sales, #software-as-a-service, #startups

Let’s make a deal: A crash course on corporate development

Wash, rinse, repeat: A startup is founded, first product ships, customers engage, and then a larger company’s corporate development team sends a blind email requesting to “connect and compare notes.”

If you’re a venture-backed startup, it would be wise to generate a return at some point, which means either get acquired or go public.

If you’re going to get acquired, chances are you’re going to spend a lot of time with corporate development teams. With a hot stock market, mountains of cash and cheap debt floating around, the environment for acquisitions is extremely rich.

And as I’ve been on both sides of these equations, an increasing number of my FriendDA partners have been calling for advice on corporate development mating rituals.

Here are the highlights.

Before my first company was acquired, I believed that every acquisition I’d ever read about was strategic and well thought out. I was blindingly wrong.

You need to take the meeting

Book a 45-minute initial meeting. Give yourself an hour on the calendar, but only burn the full 60 minutes if things are going well. Don’t be overly excited, be a pleaser and or ramble on. Pontificate? Yes, but with precision.

You need to demonstrate a command of the domain you’ve chosen. Also, demonstrate that you’re humble and thoughtful, but never come to the first meeting with a written list of “ways we can work together.” That will smell of desperation.

In the worst-case scenario, you’ll get a few new LinkedIn connections and you’re now a known quantity. The best-case scenario will be a second meeting.

But they’re going to steal my brilliant idea!

No, they aren’t. I hear this a lot and it’s a solid tell that an entrepreneur has never operated within a large enterprise before. That’s fine, as not everyone gets to have an employee ID number with five or six digits.

Big companies manage operational expenses, including salaries and related expenses, pretty tightly. And there frequently aren’t enough experts to go around the moneyball startups for new domains, let alone older enterprises.

So there’s no secret lab with dozens of developers and subject matter experts waiting for a freshly minted MBA to return with their meeting notes and start pilfering your awesomeness. Plus, a key component to many successful startups is go-to-market (GTM), and most larger enterprises don’t have the marketing and sales domain knowledge to sell a stolen product.

They still need you and your team.

#column, #corporate-development, #ec-column, #ec-how-to, #ma, #mergers-and-acquisitions, #startups

A VC shares 5 things no one told you about pitching VCs

The success of a fundraising process is entirely dependent on how well an entrepreneur can manage it. At this stage, it is important for founders to be honest, straightforward and recognize the value meetings with venture capitalists and investors can bring beyond just the monetary aspect.

Here are five pointers that founders should consider while pitching to venture capitalists:

Be honest and accurate

Raising a venture round is, in a way, a sales process, but any claims that could call into question a founder’s trustworthiness can result in a negative outcome rather than an investment.

As VCs, we cannot overemphasize how important it is that founders are transparent and upfront.

Here are a few select cases of such claims:

  • Overstating traction or revenues, which due diligence brought to light.
  • Concealing material attributes of the founding team — such as a co-founder’s commitment to the company, which at best was part time.
  • Speaking of committed investors who were about to wire money to the company, except they were still at the due diligence stage and eventually decided not to invest.

Investing in early-stage companies is often about making bets on people. As VCs, we cannot overemphasize how important it is that founders are transparent and upfront. It is critical to help establish the initial seeds of trust with a capital partner.

Further, most investors understand that things change — if there are any material shifts during the diligence process, communicating them promptly is an additional signal of maturity and uprightness. This will go a long way during the capital raise and beyond.

Know your BATNA

Founders often enter conversations with venture capitalists with a good handle on their product and the business. However, it’s common for entrepreneurs to falter at the negotiation stage, not knowing what their best alternative to a negotiated agreement (BATNA) is.

We have witnessed founders who mistake initial interest in the venture market for real commitment, and unreasonably hike their valuation, which results in them losing serious investors. We have also seen founders fail to ascribe the value serious VCs bring to the table and consequently hesitate to discount their valuation, only to later realize that the existing cap table lacks firepower.

The best way for founders to uncover their BATNA is to run an efficient process. This requires:

#column, #corporate-finance, #ec-column, #ec-how-to, #entrepreneur, #entrepreneurship, #finance, #private-equity, #startups, #venture-capital

How to establish a health tech startup advisory board

When you enter the health tech industry as a new startup, an advisory board is a crucial foundational step. A board can guide you through industry-specific nuances, help you make important decisions and prove your legitimacy to investors looking for a strong industry background.

An advisory board will be able to give you strategic insights about both your company and the wider healthcare and technology industries.

In my experience of raising capital, the unpredictable financial situation at the beginning of the pandemic meant we nearly lost our $2 million round, but came through with a committed $250,000, which we used to bring in about $500,000 in revenue.

Something that helped this process was building our advisory board and starting small — we didn’t go for all of healthcare but instead focused on two healthcare verticals. This allowed us to prove our concept, build case studies and win contracts with specific teams in our customers’ companies.

It pays off to stay focused and prove your worth so that your advisory board members can champion you in niche markets, with the potential to expand in the future. For this reason, it’s important to identify the main intention behind your board, and exactly who should be on it.

Who to recruit

Three to five people is an ideal starting point for an advisory board, depending on the size and stage of your company. In health tech, you need more than just the healthcare perspective — you also need the insight of those who have already grown technology companies, perhaps outside of the industry. Our company’s board is an even split of two healthcare and two technology advisers, and, ideally, you want to find a fifth who is well versed in both industries.

It pays off to stay focused and prove your worth so that your advisory board members can champion you in niche markets, with the potential to expand in the future.

An M.D., a Ph.D. from a respected institution or a thought leader in your relevant field of healthcare is the most important asset to an advisory board. These are the highly decorated physicians who have strong connections and act as a reference for their peers.

They provide instant credibility for your company, help you get into the minds of both patients and healthcare providers, and can outline how various health systems work.

#advisory-board, #board-member, #column, #corporate-governance, #ec-column, #ec-consumer-health, #ec-enterprise-health, #ec-how-to, #health, #healthcare, #startups, #tc

Insider hacks to streamline your SOC 3 certification application

If you’re a tech company offering anyone a service, somewhere in your future is a security assessment giving you the seal of approval to manage clients’ data and operate on your devices. No one takes security lightly anymore. The business costs of cyberattacks have now hit an all-time high. Government bodies, companies and consumers need the assurance that the next software they download isn’t going to be an open door for hackers.

For good reason, security certifications like the SOC 3 really put you through the wringer. My company, Waydev, has just attained the SOC 3 certification, becoming one of the first development analytics tools to receive that accreditation. We learned so much from the process, we felt it was right to share our experience with others that might be daunted by the prospect.

As a non-tech founder, it was hard not only to navigate the process, but to appreciate its value. But by putting our business caps on, our team was able to optimize our approach and minimize the time and effort needed to achieve our goal. In doing so, we were granted SOC 3 compliance in two weeks, as opposed to the two months it takes some companies.

We also turned the assessment into an opportunity to better our product, align our internal teams, boost our brand and even launch partnerships.

So here’s our advice on how teams can smoothly reach an SOC 3 while simultaneously balancing workloads and minimizing disruption to users.

First, bring your teams on board

Because we can’t expect employees to stack those hours on top of their regular workdays, as a leader you have to accept — and communicate — that the speed of your output will inevitably decrease.

As a founder, you’ll be acting as captain steering a ship into that SOC 3 port, and you’ll need all members of your crew to join forces. This isn’t a job for a specially designated security team alone and will require deep involvement from your development and other teams, too. That might lead to internal resistance, as they still have a full-time job tending to your product and customers.

That’s why it’s so important to start by being crystal clear with your employees about what this process will mean to their work lives. However, they have to embrace the true benefits that will arise. SOC 3 will immediately raise your brand’s appeal and likely see new customers come in as a result.

Each employee will also come out the other end with well-honed cybersecurity skills — they’ll have a deep understanding of potential cyber threats to the company, and all security initiatives will carry a far lighter burden. There’s also the sense of pride and fulfillment that comes with having an indisputable edge over your competitors.

#column, #computer-security, #cryptography, #cyberwarfare, #data-security, #ec-column, #ec-cybersecurity, #ec-how-to, #security, #security-tools, #startups

Growth tactics that will jump-start your customer base

Five years ago, the playbook for launching a new company involved a tried-and-true list of to-dos. Once you built an awesome product with a catchy name, you’d try to get a feature article on TechCrunch, a front-page hit on Hacker News, hunted on ProductHunt and an AMA on Quora.

While all of these today remain impressive milestones, it’s never been harder to corral eyeballs and hit a breakout adoption trajectory.

In this new decade, it is possible to first out-market your competitor, and then raise lots of money, hire the best team and build, rather than the other way around (building first, then marketing).

Outbound marketing tools and company newsletters are useful, but they’re also a slow burn and offer low conversion in the new creator economy. So where does this leave us?

With audiences spread out over so many platforms, reaching cult status requires some level of hacking. Brand-building is no longer a one-hit game, but an exercise in repetition: It may take four or five times for a user to see your startup’s name or logo to recognize, remember or Google it.

Below are some growth tactics that I hope will help jump-start the effort to building an engaged user base.

Laying the groundwork for user-generated content

Before users are evangelists, they are observers. Consider creating a bot to alert you of any product mentions on Twitter, or surface subject-matter discussions on Reddit (“Best tools to manage AWS costs?” or “Which marketplace do you resell your old electronics on?”), which you can then respond to with thoughtful commentary.

Join relevant communities on Discord, infiltrate Slack groups of relevant conferences (including past iterations of a conference  —  chances are those groups are still alive with activity), follow forums on StackOverflow and engage in the discussions on all these channels.

The more often you post, the better your posts convert. The more your handle appears on newsfeeds, the more likely it will be included on widely quoted “listicles.”

Most “user-generated content” in the early innings should be generated by you, from both personal accounts and company accounts.

Build in public …

Building in public is scary given the speed at which ideas can be copied, but competition will always exist, since new ideas are not born in vacuums. Companies like Railway and Replit post to Twitter every time they post a new changelog. Stir brands its feature releases as “drops,” similar to streetwear drops.

Building in public can also lend opportunities for virality, which requires drama, comedy or both. Hey.com’s launch was buoyed by Basecamp’s public fight against Apple over existing App Store take rates.

Mmhmm, the virtual camera app that adds TV-presenter flair to video meetings, launched with a viral video that hit over 1.5 million views. The company continues to release entertaining YouTube demos to showcase new use cases.

Help TechCrunch find the best growth marketers for startups.

Provide a recommendation in this quick survey and we’ll share the results with everybody.

… or build in private

Like an artist teasing an upcoming album, some companies are able to drum up substantial anticipation ahead of exiting stealth mode. When two ex-Apple execs founded Humane, they crafted beautiful social media pages full of sophisticated photography without revealing a single hint of what they set out to build.

#airbnb, #column, #ebay, #ec-column, #ec-growth-marketing, #ec-how-to, #hims, #quora, #social, #social-media, #startups, #tc

The gray revolution: Fundraising within the older adult space

The technology industry is often thought of as being the domain of the young and the new. We see an emphasis on young founders (“40 Under 40”), innovative ideas and disruptive challenges to legacy brands, incumbent companies and “old” ways of thinking.

But one of the things I’ve learned on my journey in co-founding my latest startup is that technology should be enabling and accessible to all, and nowhere is this more critical than for empowering our older adults.

Older adults are one of the most underrepresented audiences for new technology products and platforms. There is a massive opportunity to provide products and services that will make life better for today’s seniors and future generations of older adults to come. Founders in every space, from edtech to healthcare, from financial services to robotics, can make a bigger impact if we recognize the opportunity of being of service to older adults.

One of the best strategies for tech companies that want to serve the older adult market is to focus your value proposition on empowering older adults.

Don’t make a product “for old people”

Older adults often get overlooked by tech companies. In fairness, it can be hard (and insensitive and uninspiring) to market products and services as being “for old people,” because people in this group don’t tend to think of themselves as “old.”

One of the best strategies for tech companies that want to serve the older adult market is to focus your value proposition on empowering older adults. Don’t make a product “for old people” — make a product that helps older adults lead a healthier, more active, more connected life.

Whether it’s the education tech space, financial services, health tech, consumer products or other innovative digital services for seniors, tech companies have big opportunities to empower older adults.

We are seeing some great examples, including:

  • AgeBold is doing interesting work with at-home exercise programs for older adults to improve their balance, strength and mobility. The value proposition: Exercise for better aging. It’s a product “for” older adults, but the message is focused on empowerment and building strength, helping people live healthier, more active lives as they age.
  • Eldera.ai connects children with vetted older adult mentors, for one-on-one or group conversations and remote learning activities. This concept is powerful because it helps older adults share their life experience and build relationships with other families.

Older adults have so much to offer. Instead of approaching this market as a “problem” to be solved, startups should engage with older adults as an active, curious, ready-to-learn group of people who are eager to be empowered.

Recognize the size of the opportunity of the older adult market

It often seems like so many consumer-facing apps today are created for younger people. But there’s a big disconnect between where so much of the tech industry’s attention and investment is going and the spending power and lifestyle preferences of today’s older adults.

Older adults are the most underserved demographic for the tech world. They’re also one of the fastest-growing age cohorts. The number of people worldwide who are 65 and older is expected to grow from 524 million in 2010 to 1.5 billion in 2050.

The “silver economy,” driven by the spending power of older adults, is expected to grow into the 2030s because the senior population is the wealthiest age group and their numbers are growing 3.2% per year (compared with 0.8% for the overall population).

#column, #ec-column, #ec-how-to, #entrepreneurship, #funding, #healthcare, #online-classes, #peer-to-peer, #startup-company, #startups, #tc

Perform a quality of earnings analysis to make the most of M&A

As a startup founder, there will be three scenarios in which you’ll need to understand how to properly do a quality of earnings (QofE) if you want to maximize value.

The first scenario will be when you decide to raise a Series A and subsequent VC rounds, followed by when you do a strategic acquisition, and lastly, when you sell your company.

This post is a framework for how to think and organize your QofE and go through the most common items that you’ll want to keep top of mind for every M&A and private equity transaction you may be part of.

Why perform a QofE?

The goal of a QofE is to adjust the reported EBITDA to calculate a restated EBITDA that best reflects the current state of the company on an ongoing basis. It also presents a historical adjusted EBITDA that is comparable throughout the last two or three years.

QofE can have a significant impact on a company valuation for three main reasons:

  1. The adjusted EBITDA will be used by a buyer/investor as the basis for valuation (for companies valued based on an EBITDA multiple).
  2. The adjusted revenue will be used to recalculate the effective growth rate.
  3. The adjusted revenue and EBITDA will form the basis of forecasts.

With that in mind, every entrepreneur must understand how to properly form a view of what is the proper adjusted EBITDA and adjusted revenue of your company. It is common for founders in an M&A process to be unfamiliar with the notion of QofE and leave value on the table.

When performed by a professional transaction service advisory team, the quality of earnings is a result of a thorough review of all the documents generally available in a data room.

This breakdown aims to ensure that you won’t be that founder and that you’ll be armed to negotiate your company valuation on equal ground with your investors. If you are in the seller’s shoes, you will get the advantage of understanding how an experienced investor or buyer thinks. If you’re in the buyer’s shoes, you’ll benefit from understanding and valuing your acquisitions better.

How is a QofE professionally performed?

When performed by a professional transaction service advisory team, the quality of earnings is a result of a thorough review of all the documents generally available in a data room. These include, but are not limited to: Legal documentation, financial statements (P&L, balance sheet, cash flow), audit reports, management presentation and contracts.

When doing a QofE analysis, it’s key to consistently ask yourself: “Can or should this information translate into an adjustment of revenue or EBITDA, net working capital (NWC) or net debt?”

Why did we include NWC and net debt? That is because they often have an indirect impact on adjusted EBITDA. Think of an adjustment to the historical level of inventory. Less inventory likely means fewer storage costs. So if you adjust historical inventory, you’ll want to also impact your adjusted EBITDA.

On top of reviewing all the aforementioned documents, your QofE analysis will heavily rely on interviewing management. No matter how long you look at the financials, if you can’t have management confirm information or explain trends, you won’t be able to draw proper conclusions and understand the numbers.

Principles for efficiently building your QofE

  1. Automatically link everything you read and hear to potential QofE adjustments. This has to become second nature during the engagement.
  2. Always think about all the ways an event or item that qualifies for an adjustment impacts the financial statements overall. For instance, if the event impacted revenue, did it impact costs in some way as well?
  3. Make sure that the cost you are adjusting was not already offset by another accounting entry (i.e., had no impact on EBITDA).
  4. Make sure that the cost you adjust for was classified above EBITDA in the first place.
  5. Make sure that you can quantify each adjustment in the most objective and rational way. This is sometimes not possible and you may have to come up with a range.

    #accountant, #column, #corporate-finance, #ec-column, #ec-how-to, #entrepreneur, #finance, #ma, #mergers-and-acquisitions, #private-equity, #pwc, #startups, #united-states, #valuation

How to hire and structure a growth team

Everyone at an organization should own growth, right? Turns out when everyone owns something, no one does. As a result, growth teams can cause an enormous amount of friction in an organization when introduced.

Growth teams are twice as likely to appear among businesses growing their ARR by 100% or more annually. What’s more, they also seem to be more common after product-market fit has been achieved — usually after a company has reached about $5 million to $10 million in revenue.

Graph of the prevalence of growth teams in companies, by ARR

Image Credits: OpenView Partners

I’m not here to sell you on why you need a growth team, but I will point out that product-led businesses with a growth team see dramatic results — double the median free-to-paid conversion rate.

Free-to-paid conversions in companies with growth teams are higher

Image Credits: OpenView Partners

How do you hire an early growth leader?

According to responses from product benchmarks surveys, growth teams have transitioned dramatically from reporting to marketing and sales to reporting directly to the CEO.

Some of the early writing on growth teams says that they can be structured individually as their own standalone team or as a SWAT model, where experts from various other departments in the organization converge on a regular cadence to solve for growth.

Graph showing more growth teams now report to CEOs than marketing, sales or product

Image Credits: OpenView Partners

My experience, and the data I’ve collected from business-user focused software companies, has led me to the conclusion that growth teams in business software should not be structured as “SWAT” teams, with cross-functional leadership coming together to think critically about growth problems facing the business. I find that if problems don’t have a real owner, they’re not going to get solved. Growth issues are no different and are often deprioritized unless it’s someone’s job to think about them.

Becoming product-led isn’t something that happens overnight, and hiring someone will not be a silver bullet for your software.

I put early growth hires into a few simple buckets. You’ve got:

Product-minded growth experts: These folks are all about optimizing the user experience, reducing friction and expanding usage. They’re usually pretty analytical and might have product, data or MarketingOps backgrounds.

#brand-management, #column, #digital-marketing, #ec-column, #ec-how-to, #growth-hacking, #growth-marketing, #growth-tactics, #hiring, #hiring-for-growth, #marketing, #neologisms, #personnel, #product-management, #startup-hiring, #startups, #user-experience

Craft your pitch deck around ‘that one thing that can really hook an investor’

Michelle Davey’s pitch to Jordan Nof of Tusk Ventures about Wheel, a startup focused on providing a full suite of virtual care solutions to clinicians, was front-loaded with early metrics. It may not be standard practice to start with the numbers, especially early on, but she explained to us why she chose that strategy — and Nof told us why it worked.

Davey and Nof joined us on a recent episode of Extra Crunch Live and went into detail on why Tusk was eager to finance Wheel, walking us through the startup’s Series A pitch deck and sharing which slides and bits clinched the deal.

Extra Crunch Live is a weekly virtual event series meant to help founders build better venture-backed businesses. We sit down with investors and the founders they finance to hear what brought them together, what they saw in each other and how they work together moving forward. We also host the Extra Crunch Live Pitch-Off, where founders in the audience can pitch their startups to our outstanding speakers.

Extra Crunch Live is accessible to everyone live on Wednesdays at noon PDT, but the on-demand content is reserved exclusively for Extra Crunch members. You can check out the full ECL library here.

When to lead with traction

Davey emphasized the importance of not sticking to a rigid format for building a pitch deck. She said it’s important to instead focus on crafting your pitch around what makes you appealing and unique. That should be on the foreground and featured prominently.

For Wheel, that meant leading with traction, since the company had impressive uptake even early on. That remained true for their recent Series B raise, too.

#ec-healthtech, #ec-how-to, #ecl, #events, #extra-crunch, #extra-crunch-live, #health, #jordan-nof, #michelle-davey, #startups, #tc, #tusk-ventures, #wheel

Founders must learn how to build and maintain circles of trust with investors

Many VCs tout their mentorship and hands-on approach to founders, especially those who run early-stage startups. But in the recent era of lightning-fast rounds closing at sky-high valuations, the cap tables of early-stage startups are becoming increasingly crowded.

This isn’t to say that the value VCs bring has diminished. If anything, it’s quite the opposite — this new dynamic is forcing founders to be extremely selective about exactly who is sitting around their mentorship table. It’s simply not possible to have numerous deep and meaningful relationships to extract maximum value at the early stage from seasoned investors.

Founders should definitely pursue big rounds at sky-high valuations, but it’s important that they recognize how important it is to manage who they allow into their mentorship circles. Initially, founders should make sure their first layer consists of the real “doers” — usually angels and early venture investors who founders meet with weekly (or more frequently) to help solve some of the most granular problems.

Everything from hiring to operational hurdles all the way to deeper, more personal challenges like balancing family life with a rapidly growing startup.

This circle is where the real mentorship happens, where founders can be open and vulnerable. For obvious reasons, this circle has to be small, and usually consist of two to six people at most. Anything more simply becomes unwieldy and leaves founders spending more time managing these relationships than actually building their company.

How founders manage their VC circles can mean the difference in success or failure for a thousand different reasons.

The second layer should consist of the “quarterly crowd” of investors. These aren’t necessarily people who are uninterested or unwilling to participate in the nitty gritty of running the company, but this circle tends to consist of VCs who make dozens of investments per year. They, like their founders, aren’t capable of managing 50 relationships on a weekly basis, so their touch points on company issues tend to move slower or less frequently.

#column, #ec-column, #ec-how-to, #entrepreneurship, #finance, #funding, #investment, #mentorship, #private-equity, #startups, #venture-capital

A blueprint for building a great startup founding team

In a company’s early days, the difference between C-level executives and the rest of the organization is simple — employees can walk away from a failure, but the leaders cannot. Under these conditions, certain kinds of people thrive in leadership roles and can take a company from ideation to production.

While there’s no magic formula for what works and what doesn’t, successful startups share common traits in terms of the way their foundational leadership teams are built.

We’ve all experienced what it looks like on the negative end of the spectrum — people making points simply to hear their own voice, leaders competing for credit and clashing agendas. When people would rather be heard than contribute, the output suffers. Members of a healthy leadership team are unafraid to let others have the limelight, because they trust the mission and the culture they’ve built together.

An honest self-assessment is necessary and this is something that only exceptional and selfless founders are capable of.

We are all imperfect human beings, founders included. There are always going to be moments that leaders can’t predict, and mistakes come with the territory. The right leadership team should be able to mitigate the unexpected, and sometimes make the future easier to predict. Putting the right people in the right roles early on can be the difference between success and failure — and that starts at the top.

Start by determining who will lead as CEO

Investors love founder-CEOs, and founders are often fantastic candidates for this role. But not everyone can do it well, and more importantly, not everyone wants to.

Startup founders should ask themselves a few questions before they lose sleep over the prospect of handing over the reigns:

  • Do I even want to be CEO? If yes, for how long?
  • Can I maximize the potential of the company if I’m not the CEO?
  • Am I really the best person for this job at this stage?

An honest self-assessment is necessary and this is something that only exceptional and selfless founders are capable of. In many cases, founders decide they need outside help to fill the role. While a CEO may not be your first hire — or even one of the first five — the person you choose will ultimately occupy your organization’s most critical leadership role, so choose wisely.

What to look for: Ambitious vision grounded in execution reality. Your CEO should have hands-on experience that allows them to see around corners, predict pitfalls and identify opportunities.

What to watch out for: Leaders who lack respect for the founding vision or the ability to hire and balance an executive team quickly. A good CEO should be able to manage short-term cash flow and go-to-market needs without compromising the true north, while building a foundation and culture for the long term.

Then, hire a leader for your engineering team

#business-models, #ceo, #column, #ec-column, #ec-how-to, #entrepreneurship, #hiring, #leadership, #private-equity, #startup-hiring, #startups, #tc

Avoid these common financial mistakes so your startup doesn’t die on the vine

The startup world can be a rollercoaster. While investment continues to pour in — with both founders and investors looking for the next unicorn — the reality is that 90% of startups fail, with over half of those going under in the first three years.

I’ve founded two companies that I grew and sold (Mezi and Dhingana). I encountered many of the issues that new founders face, learned on the job, and thankfully persevered. Using the knowledge that I acquired in my previous companies, I’ve founded a third — Zeni — to try and help founders make more informed, sustainable financial decisions.

For many founders, a transformative idea and initial outside investment doesn’t translate into understanding the underlying financial complexities of running a business.

Whether you’re just wrapping your seed round, or on to Series B, avoiding these common issues is the best way to ensure that you’re set on solid ground and free to focus on your vision.

Why most startups fail

Startups go under for a variety of reasons. Some fail to achieve product-market fit in a scalable way. Many others simply run out of money. While the above two reasons are often cited as the two primary reasons for startup failure, they’re also related. If you don’t solve a market problem and don’t generate customers, you’re eventually going to run out of money.

Unfortunately, many of the startups that fail shouldn’t. They’re led by bright entrepreneurs with a great idea. But for many founders, a transformative idea and initial outside investment doesn’t translate into understanding the underlying financial complexities of running a business.

When you break down the various complexities founders face in understanding business finances, there are three primary hurdles they face:

  1. Fragmentation of financial systems.
  2. Time-consuming manual tasks.
  3. Lack of real-time financial insights.

All of the above issues put increased workload and strain on founders, which can lead to burnout. Owners, on average, spend around 40% of their working hours on tasks like hiring, HR and payroll. While hiring is integral to a founders’ day-to-day role, other administrative tasks related to finance, HR and payroll distract founders from focusing on their overall vision and goals.

The good news is that by being aware of the above issues, you can solve them and eliminate the consequences of burnout, distraction and, ultimately, failure. Let’s talk about how.

Consolidate fragmentation

The financial decision-making and tasks of most startups start and stop with the founder. This means that bookkeeping, bill paying, invoicing, financial projections, employee payments and taxes all run into a bottleneck. Even worse, each of these functions requires another employee, vendor or third-party expert — finance firms, admins, CFOs, CPA firms — each using its own software and applications to accomplish their goals.

Each of these parties is reporting back up to the founder, who is then in charge of making sense of it all and disseminating the information to the entities that need it. This means that not only is everything slower, but often things fall through the cracks, as communication can become a serious issue.

Worse still, this creates cash flow problems, as bills go unpaid, invoices go unsent, and important financial documents are delayed. I’ve seen revenue go unreported and invoices unsent and uncollectable due to the fragmentation-bottleneck system most founders experience.

#artificial-intelligence, #column, #ec-future-of-work, #ec-how-to, #entrepreneurship, #finance, #startup-company, #startups, #tc

5 factors founders must consider before choosing their VC

Though 2021 is far from over, it’s already witnessed a record level of venture capital activity in the technology sector. With larger round sizes announced daily, founders may have their pick of term sheets — but they need to think critically and strategically about which firms to add to their cap table.

So far this year, we’ve seen $292.4 billion in venture financing across the globe, of which $138.9 billion was raised in the United States. Specific to tech companies, the capital is only accelerating: In Q2, founders raised 157% more capital compared to the same period last year, according to the latest data from CB Insights.

It’s not just that more companies are raising money they are doing so at a higher valuation. Median seed and Series A stage valuations today stand at $12 million and $42 million, respectively, up 20% to 30% from 2020. This can be partly attributed to growing exits/M&A activity in the technology sector, a record number of IPOs and a general bullishness around technology, as well as low interest rates and liquidity in the market.

Good VCs who are aligned with a startup’s vision create more value than the dollars they bring to the table.

At a time when we are witnessing record VC activity, founders would be well served to go back to the basics and focus on the principles of fundraising when determining who sits on their cap table. Here are a few pointers for founders in that direction:

1. Value > valuation

Good VCs who are aligned with a startup’s vision create more value than the dollars they bring to the table. Typically, such value is created across a few distinct functions — product, sales, domain expertise, business development and recruiting, to name a few — based on the background of the partners of the fund and the composition of their limited partners (investors in the venture fund).

Further, the right VC can serve as an authentic, objective sounding board for CEOs, which can be an asset to have as a startup navigates uncertainty and the typical challenges that come with scaling a young company. As founders assess multiple term sheets, it’s worth thinking through whether they should optimize for VCs who offer the highest valuation, or for ones who bring the most value to the table.

2. A two-way street

Running an efficient fundraising process, in part, entails holding VCs accountable to their own diligence requests. While it is unfortunately common for VCs to request a lot of data upfront, startups should share information after assessing intent and appetite on the investors’ part.

For every additional data request, founders are well within their rights (and should) check with their potential investors on where the process stands and get indicative timelines for moving forward with next steps. Mark Suster said it best: “Data rooms are where fundraising processes go to die.”

#brad-feld, #column, #ec-column, #ec-how-to, #entrepreneurship, #funding, #jason-mendelson, #mark-suster, #private-equity, #startups, #venture-capital

Demand Curve: Tested tactics for growing newsletters

There are very few marketing channels as well rounded as email newsletters. They provide a direct, owned line of communication with your audience; nearly 40x return on investment (~$40 generated per every dollar spent), are infinitely scalable and virtually free.

But to unlock these benefits, you’re going to need to be strategic. In this article, I’m going to share tactics we’ve used at Demand Curve to grow our newsletter list to over 50,000 highly-qualified subscribers and maintain an open rate of over 50%.

Increase popup conversion using the 60% rule

While they’re often thought of as intrusive, pop-ups work. On average, they convert 3% of site visitors, and strategic, high-performing pop-ups can reach conversion of about 10%.

To make higher-converting, less intrusive pop-ups, try the 60% rule.

  1. Choose a page you’d like to put a pop-up on. We recommend pages that aren’t conversion-focused (like product pages, checkout and sign-ups). We’ve found content pages work the best and they can act as a signal for visitors who are looking for something specific.
  2. Open your website’s analytics and see what the average time spent on that page is.
  3. Set your pop-up to appear after 60% of the average time of that page has elapsed.

So if the average time spent on a page is 50 seconds, set your pop-up to appear 30 seconds (60% of total time) after visitors land on that page.

Why 60%? Readers have shown interest in your content, but are nearing the end of their session. Prompting them to join your newsletter to see more relevant content in exchange for their email will feel fair.

To encourage new subscribers to open your welcome email, try breaking the welcome email pattern using delayed gratification and a recognizable sender.

Give samples of your newsletter to prove quality

If a visitor is new to your content, asking them to sign up for your newsletter can be a big step, and most new visitors won’t convert. To narrow the gap between a new reader and subscriber, provide a sample on the sign-up page. Use your most engaging newsletter as a sample to prove that your content is high quality.

To source your most engaging content, filter by open rate and replies. In your email service provider, sort your previous editions by open rate. This will help you identify which subject lines are most popular with existing readers. Modify your most popular subject line to turn it into a header on your newsletter sign-up page.

Next, go into your inbox and sort by replies to your newsletter. Identify which newsletter got the most replies from your readers. This is a positive signal that the content from that edition resonated the most and would be a solid choice for your free sample.

Give samples of your newsletter to prove your quality

Image Credits: Demand Curve

Emails from real people are opened more often

People reflexively ignore welcome emails after they sign up. But, those who do open your welcome email are more likely to consistently open your newsletters.

To encourage new subscribers to open your welcome email, try breaking the welcome email pattern using delayed gratification and a recognizable sender.

Delay your welcome email by 45 minutes. This will bypass the reflex that new subscribers have to ignore an email that pings them seconds after signing up. We’ve found 45 minutes to be ideal, because the delay is long enough that it breaks the pattern, but not so long that your email gets buried in their inbox.

Send your welcome from a person, not from a business account. We’ve found this tactic to be especially effective when the sender is the founder of the business or someone with an established audience. Use a photo of that person and not your company logo to help the email stand out.

To avoid overflowing the sender’s real inbox, create a subdomain for your website that will be used exclusively for sending emails. Create an account for your sender and begin using it for your newsletter. This avoids overwhelming their inbox and maintains the health of your sending domain.

Emails from real people get opened more frequently

Image Credits: Demand Curve

Send a superissue to new subscribers

A new subscriber will be keen to receive their first issue. To ensure they’re satisfied, piece together your best content from past issues into a superissue. But be careful not to use the same content you included as samples on your sign-up page.

Send this first superissue with the welcome email so that your new subscribers are immediately receiving value from your newsletter. Starting with your best content first will get your subscribers excited to open future emails.

We’ve found that shorter welcome emails perform better than long-winded ones. Keep your welcome message short and your opening issue tight. Once they’ve received the welcome email and the first superissue, add them to the regular email cadence.

Send a super-issue to new subscribers

Image Credits: Demand Curve

Consider sending fewer emails

We polled over 24,000 marketers on Twitter asking whether people suffer from “newsletter fatigue,” causing them to unsubscribe.

The results: 80% of respondents unsubscribe when they get too many emails.

To avoid overwhelming your subscribers:

Give your subscribers control over how often they are emailed: Some subscribers want them weekly, while others want monthly. In the footer of your email, create opt-out links that allow subscribers to customize the cadence they’ll receive emails. Giving them the opportunity to opt out of frequent emails while still remaining subscribed keeps them as valid contacts on your email list. You want to avoid losing them completely as a subscriber.

Send fewer emails: Putting a constraint on how many emails you’re allowed to send every quarter will force you to be more thoughtful about the contents of those emails. A high volume of emails just for the sake of being in your subscribers’ inbox can burn you and your readers out. We’ve seen very little correlation between volume of emails and the resulting conversion rate.

Make your emails fun — not just educational

Most emails in your inbox are serious. To stand out, consider injecting some lighthearted memes, jokes or interesting links from around the web.

We’ve found this tactic works extremely well, because it gives your readers a dopamine hit in every email. Not every piece of newsletter content you write will resonate with every subscriber. Humor, on the other hand, can have broad appeal. Including interesting and fun content will ensure that every reader is left feeling satisfied.

It also helps build a habit. If every edition is slightly different, your reader will never be sure what they’re opening when a new edition hits their inbox. We’ve found that including something fun at the bottom of the newsletter gives readers a reward: Read the serious stuff, then get rewarded with the fun stuff.

We add a meme to each issue. People reply to tell us how much they appreciate it.

Add a funny meme or interesting content to engage your readers

Image Credits: Demand Curve

Make referrals seamless

Referrals are a free way to grow your newsletter. To increase the chances of subscribers referring you to others, make sure the process takes no longer than 25 seconds.

Remind readers at the end of each issue that they can refer others. A simple way is to ask them to forward the email to a friend who would find it interesting. Include a short sentence in the intro to your newsletter telling people being referred where they can subscribe. Include a link.

An advanced tactic is to include a subscriber’s unique link to a referral program so they can track how many people they’ve invited. Give them the option to share through email or social media.

You should also have a web version of every issue so that your content can be easily shared outside of email. Most email service providers will automatically generate a web link that you can promote through social media or elsewhere. You can also copy the content and post it to your website as a blog post to generate traffic from search engines.

Consider providing rewards to those who refer your newsletter. Merchandise will likely only work as an incentive if your brand is well known or very unique. We suggest incentivizing referrals using exclusive content. Send a monthly bonus issue to subscribers who have referred five or more friends. This will keep your costs down and give your subscribers more of what they already want.

Note that you will need a critical mass of subscribers before referrals will prove to be effective. We’ve found the threshold is about 10,000 subscribers. But if your audience is extremely engaged or the community you serve is active, implementing a free referral program has virtually no downside.

How to turn followers into subscribers

Your subscribers will likely become aware of your content through a social media channel, but social media audiences are rented from the platform — you do not own a direct channel to communicate with them. Converting followers into newsletter subscribers is one way to control a direct line of communication and deepen your relationship with your audience.

When pitching your followers to subscribe to your newsletter, include a link in your bio. This may sound obvious, but many people don’t do it. When someone comes across your social media profile, make signing up for your newsletter the call to action. Otherwise, they’ll have no idea that you even have a newsletter.

You could also cut a Twitter thread or LinkedIn post short and tell people to subscribe for the rest of the insights. You probably don’t want to overuse this tactic.

Create an offer or unique piece of content that can only be accessed through the newsletter. This will motivate your followers to join your email list to get access to exclusive content or unique offers.

Recap

Getting new subscribers: Use pop-ups that are relevant and only to high-intent readers on your site. Provide proof of why they should subscribe to your newsletter with sample content. Make your welcome email stand out and front-load the first issue with your best content.

Keeping subscribers: To keep your subscribers wanting more, send fewer emails. Sprinkle in humor and interesting links to turn your newsletter into a habit.

Promoting your newsletter: Use exclusivity and offers to hook your social media followers into subscribing to your newsletter. Ask your subscribers to refer your newsletter to others to grow your subscriber base.

#column, #computing, #content-marketing, #converting, #ec-column, #ec-how-to, #email, #email-marketing, #linkedin, #newsletters, #social-media, #startups

Demand Curve: Questions you need to answer in your paid search ads

Around 15% of website traffic comes through paid search ads. But to turn passive searchers into active shoppers, your ads should answer their question and entice them to click.

We’ve tested thousands of paid search ads at Demand Curve and through our agency Bell Curve. This post breaks down 14 questions your paid search ads should answer to ensure you’re only paying for the highest-intent shoppers.

Question 1: “What’s in it for me?”

An important distinction between paid search and organic search is that paid ads are an interruption. Users of search engines are simply looking for an answer to their question. The people who see your ads don’t owe you anything. Just because you’re paying to have your ad show up first doesn’t mean they’re going to pay attention to it.

To generate genuine interest in your paid ads, reframe your offer as a favor.

You can do this in two ways:

  • Describe the features of your product as the solution to your customers’ problem.
  • Emphasize the outcome your customer seeks.

For example, reframing free delivery as an extra convenience makes the offer that much more attractive.

Use ad extensions by listing additional benefits in the description of the page. For example, including “customized plans” in the pricing extension page signals to your customer that they’ll have control over the cost. This will help to attract the curiosity of even the most cost-conscious buyers.

To capture genuine interest in your paid ads, re-frame your offer as a favor.

Image Credits: Demand Curve

Question 2: “Why should I buy now?”

Approximately 80% of e-commerce shopping carts are abandoned, mostly because shoppers don’t feel any urgency to complete the transaction. Online shoppers aren’t in any rush, as the internet is open 24/7 and inventory feels unlimited.

Use ad copy that bridges the gap between their problem and your solution. The easiest way to create that curiosity bridge is by asking a question.

To answer the question, “Why should I buy now?”, you’re going to have to create an incentive to get them to take action now.

#ad, #advertising-tech, #column, #digital-marketing, #ec-column, #ec-ecommerce-and-d2c, #ec-how-to, #ecommerce, #marketing, #online-advertising, #online-shopping, #search-ads, #search-advertising, #search-engine, #search-engine-optimization, #search-engines, #startups, #targeted-advertising, #tc