Posts from management

Return On Hard Decisions

I spent much of yesterday going through board decks and other year-end reports.

It was an incredibly gratifying experience after a hard year.

I spearheaded quite a few restructurings this year. A lot of people lost their jobs as a result of those efforts.

It was a year of hard decisions and hard conversations.

But as I sat in my office and read through the reports and decks, what came across loud and clear was that we had made a bunch of right decisions.

A lot of companies that were wandering in the wilderness are now headed in clear and exciting directions.

I continue to feel badly for the people who lost their jobs or quit their jobs in the wake of these restructurings. I realize that many of them had a hard year too and I am sorry for that.

But I feel great for the companies who have been revitalized and for the people who are working in them with a jump in their step and a feeling of optimism and purpose.

This time last year I had a bad feeling in my gut and was having trouble sleeping. I knew what I had to do and dreaded doing it.

Right now, I have a good feeling in my gut and am sleeping like a baby.

That is a nice return on hard decisions.

The Top Of The Funnel

Whether you have a e-commerce business, a SAAS business, a media business, a marketplace business, or some other business model, you are going to start thinking about customer acquisition at some point.

And there are a lot of options out there for acquiring customers; direct sales, indirect sales, channel, search engine marketing, social media, email, display, etc, etc.

But the best option, if you can pull it off, is to own an organic customer acquisition channel that is large and that sustains itself.

At USV, we have investments in a bunch of companies that have very large organic and sustainable top of the funnel customer flows. Many of these companies use a number of customer acquisition techniques, but they start with the organic channel and optimize it with their product development efforts.

Here are a few examples:

Codecademy – Codecademy offers a number of subscription learning services to people who want to learn to code. But because it has been offering free curriculum for learning to code for six years now, it was the first organic result I got this morning when I typed “learn to code” into Google:

Quizlet – Quizlet offers over 200mm study sets on the web and mobile to people who want to study and master something. No matter what you want to learn, you can find a study set on Quizlet to learn it. Quizlet is the “Wikipedia of studying” and because these study sets are free on the web and mobile, they have a huge organic flow of new users every month. Quizlet offers two subscription offerings to students and one to teachers and this organic flow is the primary customer acquisition channel for these offerings.

SoundCloud – SoundCloud is the first place most musicians go to post their music on the Internet. There are upwards of 200mm tracks on SoundCloud, the vast majority of which are free for anyone to listen to. This content is a huge attraction for listeners on web and mobile. SoundCloud has three subscription offerings, two for listeners and one for creators. The organic channel is the primary acquisition mechanism for these subscription offerings.

Kickstarter – When a project creator launches a Kickstarter project, they share it with as many people as they can through email, social, blogging, etc. This brings millions of backers to Kickstarter every month. Most of those backers arrive to consider backing a specific project and move on. But enough of them stick around to see what else is going on that Kickstarter has been able to build a large and sustainable business without any need for paid marketing channels.

Etsy – Etsy is now a public company and is no longer a USV portfolio company but I am the Chairman and remain actively involved with Etsy. Etsy is similar to Kickstarter in that sellers who have shops on Etsy are actively promoting their shops through various channels. Most of the buyers who arrive on Etsy that way purchase from the seller who brought them but some stay and shop from other sellers too. Etsy explained in it’s IPO filing that the vast majority of it’s traffic was organic. That is slowly changing but in Etsy’s early years, all of the traffic was organic.

I could keep going but I think you get the point. One of the things I look for in an investment is a free and sustainable flow of customers. This big top of the funnel may not be the only way a management team will choose to build their business but it makes a great foundation to build on and the LTV/CAC is infinite.

Swinging For The Fences

A number of our portfolio companies use scoring systems to prioritize projects on their roadmaps. I like this one called RICE (reach, impact, confidence, effort). There are similar versions of this out there. The important thing about these systems is that you need to include probability of success in your analysis. Just looking at effort and impact isn’t enough.

But one thing I’ve seen about these scoring systems is that they can lead your team to do lots of low and medium impact things that have a very high probability of working.

I generally would like to see our portfolio companies taking at least one or two big swings a year. These are high impact, often high effort, and often low confidence. They don’t score that well as a result.

But if you aren’t going for it with at least some of your resources, you can get mired in a rut of small wins and that can be a problem for your growth trajectory, morale, and overall business mojo.

So while I like it when our portfolio companies use scoring systems, I generally suggest they add a requirement to take at least one big swing a year. Over the course of several years, they will get at least one of these right and it can make a huge impact on the business.

Resource Constraints

Most of the companies I work with tell me that they are resource constrained and do not have enough capital and engineers to do everything they want to do.

I tell them that is a blessing not a curse.

They look at me like I am crazy and rationalize it as me being an investor and not an operator.

I will plead guilty to both (being crazy and being an investor) but I am extremely confident that being resource constrained is a blessing in the hands of a great operator.

I have seen companies do amazing things with no money and tiny teams.

I have seen companies do absolutely nothing with all the money in the world and hundreds of engineers.

This experience, built up over thirty plus years in tech and startups, has convinced me that resources are never the limiting factor to doing great things.

The limiting factors are;

  1. having great management that can make the right decisions and drive exection
  2. knowing what to do and what not to do
  3. playing your game and not someone else’s

Resources, measured in available capital and headcount, often make #2 and #3 more challenging.

Organizations start to feel that they can do more than they can and should.

They start looking around enviously and counting the size of the fundraises and engineering teams of their competitors.

They stop knowing who they are. And that is death.

I believe that excess capital makes companies weak and unfocused.

I believe limited capital makes companies strong and focused.

And I don’t believe capital has ever helped a company win a market. Many have tried that approach and it always ends badly.

So I encourage all of you entrepreneurs out there to embrace being resource constrained and learn to love operating with less.

It will serve you well.

How To Hire Executives

Brian Armstrong, founder and CEO of our portfolio company Coinbase, writes a regular blog in which he talks about a bunch of things; Coinbase, things he has learned, the crypto market, and a bunch more. If you don’t follow Brian, you might want to.

Last week he laid out the entire process he uses to hire executives and it’s a really great post.

Here is the outline of the process:

  • Speak to subject matter experts [1–2 weeks]
  • Choose the hiring committee [1–2 days]
  • Draft the mission/outcomes/competencies (MOC) document [1–2 weeks]
  • Source candidates [2 weeks]
  • Build the relationship [1 month]
  • Evaluate candidates [1 month]
  • Close them [1 month]

If you plan to hire executives or are already doing it and would like to see how another CEO does it, I would suggest you go read Brian’s post.

One thing Brian leaves out, likely not intentionally, is the role of board members and investors in this process.

I have seen board members and investors play a valuable and highly engaged role in the “hiring committee” and most certainly in the closing process. I have done this for Brian a number of times and so have Micky Malka, Chris Dixon and Barry Schuler. We are very fortunate to have a great management team and Board at Coinbase and that makes a big difference in running an executive hiring process.

I have been an investor in Coinbase and have worked with Brian for almost five years now. I have watched him grow and develop as a CEO. He takes that very seriously and it shows. Putting down things like your hiring process is a great way to pass on to others what you have learned and get feedback too.

 

Video Of The Week: Purpose, Mission, Strategy

Last month my colleague Nick Grossman gave a really great talk at The Next Web in Amsterdam. In it, he talks about the importance of purpose, mission, and strategy and how to connect them in your company. And he shares a lot of great examples from our portfolio in his talk.

Putting Harassment On The Table Vs Under The Table

A lot has been written in the last week about the way the tech sector treats sexual harassment and a lot of suggestions have been made.

I am particularly enthusiastic about what our fomer USV colleague Brittany Laughlin suggests, which is putting the entire issue on the table, talking about it regularly in the workplace, discussing specific situations as a group, and avoiding the urge to come to quick conclusions.

There is so much good sense in her blog post and I would urge you all to go read it.

Should Your Company Be Profitable?

Mark Suster just put up a long post on this topic. His message is “it depends” and he explains the rationale for investing in growth vs getting profitable.

I have come to think about this differently.

If you are bootstrapping your company without the help of outside investment (ie angels, VCs, etc), then you have to be profitable from day one. No debate or discussion there.

But if you have the ability to lose money because of the availability of outside investment, then you can and should lose money in the first three stages of your company’s development which are; 1) building the product, 2) shipping the product, 3) scaling the revenues. But once you have achieved those three objectives, I believe you should move on to #4 – getting profitable.

There is this idea that you can’t grow really fast and be profitable at the same time. There is also this idea that you have to keep adding engineering and product resources as you scale your business. And there is this idea that more salespeople equals more sales. I have found that all three of those ideas are wrong to some extent. And I have found that really strong execution in product, engineering, and sales, based on doing less, not more, and based on having a high performing team without a lot of baggage, will allow your company to grow fast and be profitable at the same time.

We have a number of portfolio companies that are now seven, eight, nine, and ten years old that for most of their lives have been unprofitable and focused on growing users, revenues, and the team. I have been working closely with a few of them in the last year or two to help them to change their mindset to get profitable. This has, in some cases, meant reducing the size of the team, in a few cases significantly.

It has been enlightening to watch what has happened with this cohort of companies. They have kept growing, sometimes at a higher growth rate than before the belt tightening. They are better places to work, more stable, more focused, and more successful. They are better companies and they are more valuable companies. They are easier to finance and they are easier to exit.

I would encourage all entrepreneurs and leaders out there to embrace the idea of getting profitable sooner than you might think you can or should. It’s good for your companies and it is good for you.

Being Transparent About Your Long Term Strategy

Elon Musk famously posted Tesla’s long term strategy in 2006 and ended the post with “don’t tell anyone.” That has led may entrepreneurs around the world to follow suit and be transparent about what they are up to and why. I think its a great practice for companies to follow. It helps the outside world understand your company and it helps with recruiting as potential employees can better decide which companies they want to work for and why.

Our portfolio Coinbase has been doing that for a while now and Founder/CEO Brian Armstrong just posted the latest version of their “secret master plan” to use Elon’s words.

You should go read the post as I think it does a nice job of explaining where they have been and where they are going. But if you want the quick summary, here are the four steps:

  1. First, we will make it easy for consumers to invest in digital currency by building a retail exchange (Coinbase). The differentiators for this product are trust (security, compliance, etc) and ease of use (access to convenient payment methods, intuitive interface, etc). This will allow more people to own digital currency, especially non-technical people.
  2. Second, we will enable professional traders and institutions to trade digital currency (GDAX). This will support the investment use case in step one, but also scale it by driving larger trading volumes. More liquidity in the markets will reduce volatility of the underlying assets, which is important to enabling the payment network. The differentiator for this product will also be trust (security, compliance, etc) to encourage larger, traditional investors to enter the market.
  3. Third, we will create a mass market consumer interface for people to start getting value from the payment network (Token). Now that a critical mass of early users have been drawn in by the investment use case, the industry is ready for its “Netscape moment”. This product will make it dramatically easier for consumers to use digital currency as a payment network, and for developers to build applications that utilize the payment network.
  4. Fourth, by lowering the barrier to create new digital currency applications, we’ll see an explosion in the number of ideas tried. We’ll invest in, partner with, or build a number of new applications in this space, including replacements for many of the services people use in finance 1.0. Some examples include merchant processing, remittance, loans, fundraising, venture capital, escrow, credit scores, and more.

If you have a secret master plan for your company, think about posting it publicly. I think it will do a lot more good than bad for you and your company.