Have you ever seen the startup competitions and investment panels, such as those run by the VC TaskForce
These events are designed for early stage startup founders to sharpen the pitch and practice speaking about their companies to a rather critical investor audience. The format allows a brief presentation (often without slides) followed by several minutes of Q&A. It is designed this way in order to impose a Twitter-like design constraint on the presenter. The purpose is to force the entrepreneur to get to the very core of their idea. Having been on the other side of the table many times, we are very empathetic to the problem of getting lost in the minutia and not being able to explain the core value in a concise and powerful way. And we value the clarity of thought that is required to use this format effectively.
Besides the market need, team composition etc, most other questions tend to focus on four somewhat related topics:
§ How will you scale customer acquisition to acquire a large number of customers?
§ How do you get a lot of high-quality revenue? “High-quality” money, in our minds, means recurring revenue coming from strategic activities. We frequently see companies that generate revenue from professional services or other forms of customization. This is tactical revenue and it tends to defocus the company.
§ How do you not only enter the market effectively but also shut the door behind you? How do you make your product inherently sticky?
§ If you actually win, is it a game worth winning? Is the business something that can capture substantial protectable value and change the ecosystem if you actually make it happen?
What we aim to do in this paper, is dispel the idea that a “small” startup has little chance of success over large established players. Instead by following key concepts, many proven through the investment forums mentioned above, startups can play big and succeed.
Here’s how we think about it: 1.
One of the keys to scaling customer acquisition is “trial-ability”. Trial-ability goes far beyond a free trial or money-back guarantee or the freemium model. Trial-ability is a quality of the product stemming from deliberate and systematic elimination of all obstacles a user faces when trying your product for the first time. Every extra step customers need to take before being able to use your product, every decision they need to make, every question they need to answer, every bit of software they need to download and install, every bit of information they need to type in is an obstacle. It is essential to think about what is the unavoidable and necessary minimum. 2.
Two key components of high quality revenue is combination of high margin and high value vs the Next Best Alternative (NBA). The trick here is to be mindful of what is the NBA. Often, entrepreneurs compare their solution only to direct competitors. They often say “my product is great because no one else is doing exactly what I’m doing”. This is a wrong way to think about the business. Good questions to ask are: What would my customers do if our service didn’t exist; Can customers address their need in another way; Can a similar solution be “jury-rigged” using existing services; Can they get value without a big upfront time investment? This has to not only consider the monetary cost but the cost of effort and time. 3.
One of the best ways to prevent customers from leaving is to deliberately design products with very high switching costs (the cost for a customer to cancel your service). These costs can be expressed in dollars – like contract termination fees for wireless carriers – but this way isn’t the best because it actually reduces trial-ability (see 1). A much better way is to measure switching costs in units of satisfaction (or inconvenience). Think about leaving Dropbox
after you’ve shared your documents with a bunch of people. If someone offered you a similar service for a couple of bucks less, would it be worth the hassle? 4.
One way of thinking about the impact of your business on the ecosystem is by using game theory. Game theory offers methods for evaluating how ecosystem participants are likely to react to your strategic “moves”. Another idea is by focusing on network effects. This term is often used and almost as often misused. A network effect is impact that one user of a services has on the value that another user derives from this service. Social networks are an obvious example. But there are many more examples: Wireless carriers offer discounts on calls made “on network” because they have a lower cost. In the payment industry, wholesale rates depend heavily on volume of transactions so payment processing companies with larger volume are able to offer deeper discounts to their customers.
Personal examples: Our companies MerchantCircle, and Influitive offer some examples of how these approaches were implemented in practice.
Influitive, which just raised its seed round from 11 investors, is designed to be sticky. Advocates engage with companies they are passionate about (such as ActOn, Dell Kace and Eloqua) through Influitive’s Advocate Hub platform. As the key interface to companies’ most valuable constituency and through deep integration with other players in the ecosystem, such as CRM, Marketing Automation and Demand Gen vendors, Influitive becomes an integral part of these companies’ go-to-market strategy.
At MerchantCircle, the key focus was on two fundamental problems in the local business, both of which came down to distribution. We knew we could provide value to local merchants and consumer once we had a critical mass network, so we spent every day working experiments to build a network of merchants through organic and eventually business development efforts.
Not everything we did worked, and there are 20 things we would do better the next time, but we knew that the product focus was building a network of merchants on a scalable basis. We did this with a free platform, if there is a network effect and a zero marginal cost of delivery, the answer is always focus on distribution and free is a big part of the answer. People are always asking about how we did it, the short answer is we got out of bed in the middle of night thinking about how to grow merchants. If you have a smart team who is willing to experiment and they focus on a key metric like distribution or RPU or content depth, it will happen. The key thing is picking a metric that matters for the product and that once you have won on it, will matter.
For a long time, the mantra has been – address customer’s needs. And it seems like we are there. Almost every pitch we hear does a good job of solving customer’s problems. But that isn’t enough anymore because your competitors are thinking the same way, too. And there are always many ways to solve each problem. So how do you pick the right one? Well, you can use some of the tools we suggested above, but most importantly don’t just focus on designing a great product – design a great company.About Authors
is the VP of Business Development at Influitive. Influitive is a platform for mobilizing brand advocates. He’s also an angel investor and startup advisor. Prior to his role at Influitive
, he was the head of strategic alliances at RingCentral
. His blog is vbelfor.weebly.com
and his twitter handle is @vbelfor
Ben T. Smith IV
is CEO of ShopCo, a startup focused on reinventing online discovery shopping by delivering the most engaging social shopping experience for consumers, wherever they happen to be. He is also a Venture Partner at Accelerator Ventures and co-founder of MerchantCircle.com
. Ben blogs
at btsiv.com, and you can follow him on Twitter at @bentsmithfour
This article was co-written with Ben Smith and came out on PEHub March 5th, 20012.Here's the link http://www.pehub.com/138876/victor-belfor-ben-smith-we%E2%80%99ll-trade-100-employees-for-one-a-player/
As I re-read it, I wonder whether 2 key points we were trying to make really came through: 1. For a Start Up, NOT getting A players (regardless of position) is very dangerous. We need not only A executives but A doers in every capacity.
2. Obviously, it is important to look for competent, experienced and intellectually curious employees. But what sets A Players apart from the rest is Will and Humility. When hiring, we rarely explicitly focus on these two qualities. In fact, we often think that bragging etc is a positive trait. We tell people not to be shy about tooting their own horn. For certain positions (e.g. sales and marketing), humility is often considered a handicap! Also, Will is more than just passion. Will is specifically self-motivation / drive and track record of overcoming adversity. So when Interviewing / talking to references, we should to deliberately look for evidence of these qualities in addition to professional competence and cultural fit.
Below is the full text of the article:Victor Belfor, Ben Smith: We’ll Trade 100 Employees For One A-Player
Posted on: March 05, 2012
Mark Zuckerberg famously commented that a great engineer is worth a 100 average engineers (something every developer knows deep in her heart). He was talking about A-players, and in our opinion the worst thing any startup can do is accept less than the best and brightest.
Think of Jony Ive at Apple (Sir Jonathan as of December). Compare his impact to that of an average designer.
Supporting rapid growth at a company requires the rapid growth of human capital. New engineers and product managers come on board to build out a company’s product. Service and support staffs expand the customer base. Settling for B-players is the same as inviting mediocrity.
Entrepreneur turned Dallas Mavericks’ owner Mark Cuban once said a company should hire A-players in only core positions and pay market rates for anything non-core. We disagree. This may be true for a fully scaled company. But at the early stage, a company may not even realize what its true core is.
One good example of this is Groupon. Groupon started to focus on the daily-deal market, but when the company experienced early success, the space became very competitive. New competitor LivingSocial, even eBay and Amazon, offered daily deals. What separates Groupon from the pack and what has become its core competency is its powerful sales machine. This wasn’t anticipated at first. There should be no room in a company’s early development for B-players.
What is an A-Player?
In his book Good to Great, Jim Collins said the highest expression of leadership is the combination of humility and will. These are traits A-players possess. Their strength of will assures motivation. They never point fingers. The ball stops with them. A-players don’t need to be micro-managed or proactively motivated. They only need to be pointed in the right direction.
Humility is often overlooked and equally important. Humble people do not seek personal credit and gladly give it to those who deserve it. They don’t engage in politics. The simply have no interest. When they voice an opinion, whatever you may think of it, you can always be sure that it is what they believe. They have no ulterior personal motives. Humility assures that a company is not overrun with attention-seeking prima donnas.
Some of the best A-players you will hire have had a failure or two, but accomplished a lot and took risks as part of that failure. A-players aren’t always great leaders. But that doesn’t matter. You want humble people with the will to succeed not only as executives, but as your “doers.” Startups need not just A-level strategy and A-level vision, but A-level execution.
MerchantCircle found an A -player in an unlikely spot: working on his struggling startup and a political campaign in northwest Florida. He was not from Harvard. He was from the University of West Florida. He did not come in as a strategist; he was a support person. He was even told by someone he should go to a big company to learn how to be an A-player, whatever that means. He executed, he listened, he read, he analyzed, and most importantly he learned. Five years later he had risen to head of product for MerchantCircle and drove some of the company’s biggest innovations and in doing so helped set strategy. Ryan Osilla has now helped created Peixe Urbano, one of the fastest growing Internet companies in Brazil.
In Silicon Valley, the job market is very competitive and companies such as Facebook, Google and Zynga pay top dollar. So startups, such as MixRank, have to be clever to keep up. That means using company culture – bright, driven people working together on big things – to set themselves apart.
Last year after graduating from Y Combinator, MixRank co-founders Ilya Lichtenstein and Scott Milliken raised an angel round and set out to expand their team. At first they were unimpressed with the vast majority of the resumes. So they began to reach out into the community using Twitter, Hacker News, technical forums and open-source mailing lists to engage talented, passionate engineers. They wanted independent thinkers with a healthy disrespect for rigid rules and authority. What attracted the “right” candidates wasn’t the money, even though they offered market-based salaries and equity, but rather the vision and culture.
Good engineers like to work on difficult problems that keep them interested and engage their creativity, said Ilya. They are excited about the big data problems that MixRank is tackling and the opportunity to have a significant impact on the technical direction of the company.
Keeping A-Players Happy
In the 1980s, Benjamin Schneider developed the “attraction – selection – attrition” framework and the notion that organizations tend to become homogenous over time because they attract and select people who fit in. Those who don’t fit in tend to leave. The implication is that as long as a company has a somewhat homogenous group of A-players, it will remain a largely A-class organization.
But this is only part of the story. A-players need a pat on the back now and again. What’s interesting is that they only value pats on the back from other A-players. They don’t value the approval unless they respect and admire the person giving it. So developing a critical mass of A-players has an added benefit: the company tends to repel B-players and attract other A-players, reinforcing what it has built. Zappos employed this theory when it famously offered its employees $2,000 to quit under the assumption that A-players aren’t motivated by money and only B-players would take the deal.
The bottom line is this: B-players tend to be more vain and less secure. They want to be admired, regardless by whom, to make themselves feel superior. So B-players often attract other B-players and more commonly C-Players, who look up to them. In other words, A-players beget even more thoroughly A-companies and B-players eventually beget C companies.
A few things to consider:
§ A-players are not just from big name companies. They come from failed startups as well.
§ A-players don’t only come from the top schools. But they can learn just as quickly.
§ A-players are motivated by winning and being around other A-players.
§ A-players are not always the smartest, but they want to win and know that learning and execution are two of the key factors to making that happen.
§ A-players leave, but generally don’t want to. Find ways to keep them if they are aligned with your direction. If they are not aligned with the direction, they can kill you.
§ A-players are not always motivated by recognition and financial rewards, but give them both. Then other A-players will come.
By now, we’re sure you get the point. Don’t let down your hiring standards and your company will be better off for it.
(Victor Belfor (pictured top) is an entrepreneur and investor and currently runs strategic alliances at RingCentral. He can be found on Twitter @vbelfor. Ben T. Smith IV (pictured above) is a serial entrepreneur and investor and the co-founder of MerchantCircle and Spoke. He is available on Twitter @bentsmithfour)
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Wharton Business School has a program called Leadership Ventures
which consist of a series of challenges such as trekking in Antarctica, high altitude multisport in Atacama Desert in Chile, mountaineering on Mount Cotopaxi in Ecuador and tall ship sailing in the South Pacific.. The vision of the program is to develop leaders who excel
in stressful and ambiguous environments. The program is designed to put students under a lot of pressure in highly challenging situations where much depends on teamwork and leadership. One of its implicit goals is to enable students to experience failure.
Preston B. Cline, senior associate director of Wharton’s Leadership Ventures, explains: “Cutting-age companies which have adopted a team-based approach have proved to be the most successful and are believed to be the paradigms of the future. The business community is proving to be very dynamic and our graduates are required to be team oriented, quickly adaptive to changes in the business climate, and highly resilient when plans go awry. One of the unique things about some of the Wharton students is that they have faced a lot of academic success and so are, therefore, less equipped at recovering from failure. So to counteract those life experiences, opportunities for failure are built into the programs.”
Active combat is one of the most stressful and hostile environments imaginable and much research has been done in academia (including the Wharton school) on applicability of military leadership and decision making methods in the civilian / business world. Ten years ago, Wharton Leadership Ventures added a trek hosted by OCS (Officer Candidate School) at the Marine Corps HQ base Quantico. Enlisted men and women go through their training either at Camp Pendleton in Southern California or at Parris Island in South Carolina. All officer recruits go through their training through OCS at Quantico.
Every year about 300 Wharton Students enter a lottery and about a 100 of them get a chance to spend 24 hours at Quantico and for many of them this one day may be one of the most trying days they have faced.
They get to experience hands-on leadership and decision-making marine style. Some of the key concepts include Marine Corps Leadership Traits
, 70% decision making (if you have 70% of the information, have done 70% of the analysis, and feel 70% confident, then move. A less than ideal action, swiftly executed, stands a chance of success. If you have less information, your chance of success is too low, if you have more – you may have waited too long), and action-based decision making (Act-Learn-Adjust. Action gives you more information. Nothing is learned from inaction.)
That's me being "drilled"
A big part of the impact of the program is the element of surprise and that you can’t prepare for it, so we have been asked not to give too many details. I will oblige, but I will say that this was a very intense, difficult and in some ways eye-opening experience. If you enjoy stretching and testing yourself, going outside of your comfort zone and exposing yourself to new things, and if you ever get an opportunity – you should take it. Chances are you’ll like the experience as much as I did.