139 Startup Notes

Building a startup is a wild ride…

… here you’ll find 139 of my notes based on my personal experience.

This is mostly down-to-earth stuff applicable to any early stage startup.

The CFO and KPI notes are mostly specific to subscription Software-as-a-Service (SaaS) businesses.

I have been fortunate to work with many fantastic people from whom I learned much of what is contained here. Most significantly the founders, staff and shareholders of Unbounce — my favorite startup of all.

Here’s the breakdown:

  • The first 45-or-so are about the very beginnings.
  • The next 40 are mostly to with core management and HR principles.
  • The rest are about your first major financing and getting to scale.

Notes on the ‘Notes’:

Some basic concepts have been described in detail even though they will already be familiar to some. Technical detail that I have not included for specific terms are likely a quick internet search away.

All views expressed here are my own personal opinions and no-one else’s. Also, I make no claim that any of the ideas here are original. Everything here is drawn from the particular experiences and situations I have encountered — your situation may be different — use whatever you see on this this web site at your own risk.


001 — Its going to be tough on your personal life.

Prepare those close to you for the many ups and downs of startup life. In some ways your personal life will be squeezed much smaller in order to save money and make your resources go further. In other ways your life will expand faster than it ever has before with new pressures, contacts and opportunities to grow and learn all vying for your time.

Make sure you have the support of those close to you, friends and family, because its going to affect your relationships.

002 — The four stages of startup evolution.

1 We’d like 1 customer
2 We have 1 customer, now we’d like 1000
3 WWWWOOOOOOOOOOOAAAAAAAAAAAAAAAAAAAHHHHHH!
4 Exit (or …not.)

Most startups don’t make it to stage 1, vanishingly few make it to stage 3.

Angel investors only get seriously interested during the part that occurs between stage 1 and stage 2. They may stay interested beyond that, but they only really begin to get interested once you have a paying customer.

When VC’s talk about ‘traction’ they mean the part that occurs just before stage 3.

The “or not” part of stage 4 could be a good thing or a bad thing depending on your goals and how successful the company is.

003 — Don’t just know your customer. Be your customer.

Feel their pain, make their hopes your hopes. Never get tired of this.

004 — If you can’t genuinely feel your customer’s pain, you’re in the wrong startup.

This applies to at least some extent whatever your role.

005 — Maximize focus on things that truly matter.

Reject forces that reduce focus. The biggest risk to your venture is the human tendency to get distracted.

006 — A pro forma capitalization table is the foundation stone of assessing the viability of a new startup idea.*

If you can’t envision how the capitalization of your company will develop to at least some credible degree, you must ask yourself if you have enough experience to make the venture successful.

If the revenue growth you can reasonably envision doesn’t imply the kinds of valuation that would support the necessary return on capital, then the idea isn’t viable.

The moment those two things come into line — game on.

Once you get going with a venture, someone should have responsibility for maintaining the cap table and for creating new pro-forma versions as new strategic possibilities or ideas emerge.

*It will also be a key part of incentivizing key people to jump on board at the founder / pre-salary phase, and as you develop and update it, for justifying and explaining the value of financing efforts to these and other stakeholders down the road.

007 — Assessing market size.

The key thing is to not mix this up with making your pro-forma projections.

Pro-forma projections are a function of the internal KPIs you expect your business to have and your projected cash input viewed in light of your top-down goals. They can also be characterized as a reasonable take on whats possible.

Potential market size is an assessment of the whole market assuming anyone were ever able to capture it.

You would obviously expect the gap between what’s possible (projections) and what’s impossible (capturing the whole market) to be significant.

It can help to describe the market in narrative terms before attempting to come up with a number, perhaps beginning with a classic “everyone who …” statement. This can also help make the task more manageable if you are tough on yourself with the definition.

A shoe manufacturer may describe their potential market as “everyone who has feet,” but clearly this is preposterously broad. In reality there will be limiting factors due to the kind of shoes being sold (“everyone who jogs to stay fit,”) operational factors (“everyone who jogs to stay fit and lives in the United States,”) and more. Focusing on these factors can make the search for actual numbers easier.

008 — Pro-forma projections hinge off staff and pricing, not market size assumptions.

Think long and hard about what its going to take to get a customer (staff,) and what you are going charge that customer. Come up with a reasonable estimate for variable / direct costs as a % of revenue. Everything else flows from that.

If you feel uncomfortable doing all that, good. You should be. If you can’t have at least a stab at it you’re either not ready to be an entrepreneur or you are looking at the wrong business.

Investors will focus more on market size / opportunity. This is natural since its not worth investing in a business that doesn’t have potential for a big upside and you shouldn’t expect investment if you can’t provide that prospect. The answer to the question of potential market size is of course, you don’t know.

009 — You don’t know.

Its ok to say “I don’t know” when a potential investor asks you about market size. In many ways its builds your credibility because its exactly the sentiment that the investor has felt with every tech investment he or she has ever looked at.

If you are drawn into providing specific numbers there is a high likelihood you will loose the credibility battle.

You do need to be able to characterize potential market size in some way though. For Unbounce it was “Potentially anyone who runs a PPC campaign.” Was this a completely satisfactory answer for everyone we told it to? Nope! Nothing short of a crystal ball is going to do that for you. But for the right people, the people who were somewhat familiar with our space, it was enough to get their appetite up.

010 — “Startup = Growth” — Paul Graham

Paul Graham’s blog post on paulgraham.com entitled “Startup = Growth” is the single most useful post on the nature of doing a startup that I have found to date.

Finding a successful business idea and model for a tech start-up is incredibly difficult and unlikely, but assuming that you have, the purpose of a tech start-up is to take advantage of the high potential efficiency of a tech business to produce maximum growth.

011 — Your business plan is a work of expressionism.

The purpose of your business plan is to put enough blobs of the picture in place to give shape to the overall form. The goal is a kind of macro ‘granular accuracy’ that doesn’t get bogged down in expectations of a perfect micro-accuracy that would be impossible to achieve.

In this way you create a picture that while imperfect in detail conveys an accurate depiction of the whole.

012 — The right number of founders is …

Whatever the right number is for your business.

Its really about having the people you need, with enough of the right kind of experience and committed to the right degree in order to get the job done. 3 is an often suggested number. 6 worked for Unbounce and I can’t imagine we would have succeeded with a different group. I believe 5 is a good number to aim for. This allows for enough variety of expertise, enough ability to get stuff done, prevents a tie in the event of a vote, and is still manageable while providing plenty of stability if one founder decides to champion some crazy idea.

Understand why you have the founders you do. Make the decision with a clear head — each selection having a thoroughly defensible rationale.

013 — A company’s name should be both meaningful and memorable.

Its worth the time and care it takes to come up with a name you, your team and your customers can really get behind.

014 — Qualify the people you take advice from carefully.

Make sure they understand your business.

015 — Good corporate lawyers make the seemingly impossible possible.

And crucially, understand that this is their main purpose in your business.

016 — Choose corporate lawyers who are solution orientated not confrontation orientated.

I have been very lucky with my experience of corporate lawyers, having the good fortune to work with some of the best. Good corporate lawyers understand that their role is to find solutions for moving businesses forward through whatever they need to do. Good lawyers help to avoid confrontation, put fires out quickly and quietly when they occur and provide reassurance to all parties when uncertainty raises its head. They will also have enough experience in your space and enough of an entrepreneurial mindset to help you to structure your company towards your goals.

Good lawyers understand that the big guns have their greatest power when they are never used.

If your council doesn’t check all those boxes, find someone else.

017 — Unless you have a genuinely new invention or technology, view the value of patents, registered trademarks and other intellectual property protections with skepticism.

Some protection likely accrues to you naturally since you are the person or business actually doing the work. Also, formal intellectual property protection can be costly and time consuming to put into place in anything like a thorough way.

A reasonable minimum is probably trademark protection in your biggest one or two markets.

018 — Constructive relationships are built on mutually agreed goals.

Establish relationships by making goals clear and concrete. Give everyone an escape route in case things don’t work out or goals change.

019 — Lifeboats are a good idea. Whatever voyage you are embarking on.

This applies to any important agreement or contractual situation. The goals of any two parties often change and priorities shift.

Beware any contract that doesn’t have a way for all parties to walk away quickly, easily and unharmed when circumstances change. A contract of any kind that locks people in completely or only allows change under some kind of punitive arrangement is a problem waiting to happen.

020 — Use common stock to lock in founders and to provide equity in return for commitment. Use stock options for employee incentives and bonus programs.

I am now of the opinion that nobody should ever accept stock options in lieu of salary, even if the strike price is set at a negligible rate. I reckon this set-up comes with way too many potential pit-falls. If someone’s time is valuable enough for them to receive equity in a situation where you can’t afford to pay them its only right that they get actual shares.

Stock options are an awesome tool for use in addition to salary to help hiring, boost morale or as part of direct performance incentives and bonus programs.

Reverse vest all straight stock over a schedule that spans the principle goal of the venture. Straight stock can be promised in the early stages (with enough of a paper trail to make everyone feel secure,) and then actually granted at some future opportune moment (when you eventually do a financing for example.)

Vest all stock options assuming they have not been issued in lieu of salary. A one year cliff is standard for options. If someone does accept stock options issued in lieu of salary there should certainly be no vesting schedule attached.

Track dilution on an ongoing basis using a pro-forma cap table that includes all promised stock and options (not just the option pool.)

Characterizing any form of equity related grant explicitly as ‘in lieu of salary’ can have tax consequences so its important to make sure you have had advice on this.

021 — ‘Stealth mode’ is highly overrated and usually a waste of time.

Nobody is going to copy your idea until you have proven it out, and the best way to prove it out is to talk with people while you build it.

When it is built it will either:

  • Fail, in which case nobody is going to copy you, or …
  • Succeed, in which case you will be so far ahead that any potential copyists will have a long way to catch up.

Also, going public with your trademark and content early will help to accrue your natural intellectual property rights.

022 — All marketing starts with word of mouth. Your mouth.

Talk with your customers. Talk with them before you even have any customers. Keep talking with your customers.

023 — Blog early and blog often.

Personally, its taken me a long time to get around to blogging — I’ve been happy to leave this up to the extremely talented people who acclimatized to it earlier. Hopefully 139 is a change in all that.

Marketing is talking about the landscape your product serves, its challenges and how your product helps to address some of those challenges. Your blog will allow you to do this in a way that is easy to promote, drives traffic to your site and builds into a stack of content with longevity. Start blogging as early as possible. Its the voice of your company and the beating heart of your brand.

If you don’t like to blog give someone special responsibility for it. Do this even if you do like to blog.

024 — Your brand is not a fantasy narrative.

Its the story of what you actually do — The actions that you take that are driven by your values.

This is the biggest thing to change in branding over the last 20 years. Your brand = values first, immediately followed by authentic action, then the portrayal of your actions in a way that your customers will get behind.

025 — Inbound, low friction, self serve.

  • Inbound — Create great free content to form a genuine dialog with your market. Encourage them to come to you.
  • Low friction — No cost to try. No need to talk to a sales person or consultant. Your customer picks their plan, enters their credit card number (maybe,) and they’re off and running.
  • Self Serve — the customer accesses your service and uses it. Some technical support and advice will be required by some customers, but this is the opposite of a client / supplier relationship.

026 — Set your values right at the start.

Your values are the most important thing of all.

Spend some time at the beginning to make sure they are agreed to and understood by the team. Keep doing this periodically as you grow.

027 — Banks can be frustrating. They just can’t help it.

The truth is I work with many excellent people who work for banks all the time and they’re great, but they are locked in a constant struggle with how difficult the banks themselves are and how difficult the banking system is in general.

Don’t get frustrated, just be prepared for a slog.

Having said that, not all banks are created equal, so choose carefully. The best I’ve found so far is TD, but I have not done an exhaustive study.

028 — Cash is a company’s life blood. Morale is the pump that keeps the blood flowing.

Without these two things you have absolutely nothing. Do what you need to do to secure both.

029 — Avoid valuations early on.

Unless its part of a well organized plan to manage the company’s valuation upward — something that should only be attempted with expert guidance.

Attempting to value a company at a very early stage is a tricky business. There is a high likelihood of giving up too much and creating a precedent that will hurt you once you have traction and want to do a VC seed round or Series A, or setting it too high such that you’re facing the prospect of a down-round before you’ve even begun.

Valuations can also have tax consequences for equity holders in future if not handled well.

Convertible debentures (‘Convertible Notes’) are tricky for non finance types to understand — and come with their own problems — but can be a great way to make sure that very early investors get treated fairly and the company isn’t saddled with an unhelpful early valuation.

030 — Respect capital.

Investors create growth and prosperity by putting money to work. Its a beautiful thing. Respect it, especially if anybody chooses to invest in you instead of one the myriad other choices that he or she has available.

031 — Don’t pay your board or advisory panel or grant them equity just for showing up.

If you really think they’re the right advisors try to get them to invest — even if its a small amount.

Its a way healthier dynamic and a much better story.

Also, you don’t need any formal group of advisors until you are going for your first serious round of investment.

032 — Celebrate getting things done, even if not every aspect of the goal was achieved.

I got this one from my experience of working with Oli Gardner, Unbounce Co-Founder and soon-to-be-if-not-already media celebrity.

Progress is progress. Let it be recognized. Reap the benefit in improved morale.

033 — Few things are more fun than designing an entire product before building it. Never do this.

Given my design background this one has been difficult for me to come to terms with; I’ve been down the ‘design the whole thing’ road and have come to realize that its far too inefficient and the risks are far too great. Aim for an MVP with an extremely limited scope and go organically from there.

034 — The ‘M’ is the most important letter in MVP.

MVP or ‘Minimum Viable Product’ is an idea familiar to anyone acquainted with the Lean Startup methodology popularized by Eric Ries during the Web 2.0 era. It refers to focusing the minimum amount of resources on unproven product development prior to a launch that will allow your product assumptions to be put to the test. It is also arguably the best single idea that has been applied to product development in the last 20 years. I can thank fellow Unbounce co-founders Justin Stacey, Carter Gilchrist and Carl Schmidt for collectively immersing me in this world over the course of the last seven or eight years. Always err on the ‘minimum’ side of ‘minimum viable product.’ The idea is to get to prove your idea as quickly and easily as possible. There will always be new things to add. As soon as you get something out there your customers will tell you where the gaps in the ‘viable’ part are.

035 — Don’t sacrifice quality.

Sacrifice scope if you sacrifice anything. If your customers are demanding more scope, your product is a success. If they are demanding more quality it is the opposite. Quality does not necessarily = perfectionism.

036 — Perfectionism can cause problems.

People often say that “perfect is the enemy of good.” I reckon its more like “Perfectionism is the enemy of everything if not used very sparingly.” Not as catchy I know … Use perfectionism sparingly on a few things that really count if it gets you the level of quality you need. Overused it can be a futile waste of resources and a huge morale destroying energy suck. Perfectionism does not necessarily = quality.

037 — Kindness is the most underrated management trait.

Kindness demands empathy, but also action (or restraint where action might normally be expected.) Its your personal brand.

038 — Take the MVP approach to everything you do.

Once you learn this habit, never grow out it.

039 — Avoid integrating a third party service into your product in such a way that you can’t switch it out easily in future.

Your third party systems will come and go, but prioritizing your engineering team’s time away from focusing on releases that will help drive marketing and sales never gets any easier. Make it as easy as possible by not wiring a third party service in so tight that it will require a major engineering effort to replace it with something else. It may be impossible to avoid, but try.

040 — One Terms Of Service.

Avoid the temptation to give in to requests for custom TOS or SLA agreements. They’re costly to craft, difficult to track and impossible to enforce in any reasonable way. The same goes for your Privacy Policy and anything else that defines your relationship with your customers.

041 — Use simple language…

… in your Terms of Service and Privacy Policy.

I’m on the lookout for good resources for this kind of material. If anyone reading this knows a source they think is good I’d love to hear about it.

042 — The biggest customer misperceptions around Terms of Service are often to do with content or data ownership.

If you’re providing an online service its likely that your TOS will need to include language granting you the right to store and publish any content or other data that the customer reasonably considers to be theirs and theirs alone. This language can understandably result in customers accusing you of trying to steal their stuff.

Do everyone a favor and make it clear that you only need rights in order to provide the service, nothing more.

043 — Not all bullsh*t comes from cynicism, but all cynicism is bullsh*t.

044 — The two most difficult things to change about your product or service are pricing and customer churn.

Think seriously about these elements of your business model right from the beginning.

045 — The position of “Its better to price too high because its easier to reduce price later than raise it” doesn’t make as much sense as it might sound.

Price cuts are easy to do operationally but difficult psychologically.

What? Surely its the other way around?

Nope.

A price cut is damaging to product perception, team morale and sets a bad precedent. Its usually more natural to increase prices as you introduce new features and customers come to understand the true value of your product.

Also, in a startup, early revenue is a big deal, so you’ll want to look like good value out of the gate.

Of course you would never raise prices on existing subscribers without them opting in to the new scheme. If you do need to raise prices, existing customers who do not want to opt in to a new pricing scheme should be grandfathered in to the deal they originally signed-up for.

The only situations where grandfathering doesn’t work are where the original price has been set really egregiously low. You should have put enough thought into your pricing at the beginning to avoid at least this.

046 — Revenue will change your world.

Cling to that knowledge in the early stages.

By all means talk to professional investors right from the start but unless you have an impressive track record of successful startups the only people who are likely to invest are friends, family and (if you are lucky,) people you have worked with in the past.

After the first dollar (or euro or yen) of revenue, some other people will dare to believe.

047 — In the early days you can stay on top of a lot of systems manually.

Its amazing what you can do with email and spreadsheets when you have only a few customers. Implement and replace systems incrementally as necessary.

048 — KPIs are a piece of cake. If you have the data.

If you don’t have the data you’re at a big disadvantage.

Really think about what data you need to collect from your app/product in the early stages and make sure the right data collection mechanisms are embedded from the very start. Getting this stuff fitted retroactively can be a pain and… you will need it!

049 — Data collection needs never end.

The core stuff should be built into your product from the start. As you add third party services make sure you are maximizing the reporting features that they provide.

The disadvantage of this approach is that the numbers will never exactly correlate to the numbers you get internally (due to small details of how data is collected, etc.) This doesn’t matter as much as having data that allows you to see how one or more aspects of the company are developing for better or worse.

The advantage is that its way quicker than developing the tools yourself. The discrepancies will matter more and more as your business (and your financial models) become more complex.

050 — Trying ideas quickly and cheaply to see what happens is the soul of capital efficiency.

The practical upshot of this approach is that you will be able to say ‘yes’ to a greater number of potentially fruitful initiatives because you know they have been de-risked to the greatest possible extent, only proceeding further with the ones that show movement.

051 — “Finding the right way starts with choosing a way.” — John Maeda

052 — Semper Gumby.

Always be flexible. Dogma is no good. Adapt.

If you can’t be flexible (some prerequisite is obligating you to be inflexible on some point — a deadline or some other goal,) find a practical way to satisfy the prerequisite without hampering your ability to flex around it.

053 — Always show your working.

Any kind of transparency requires bravery, but the bravery that really counts is the kind that it takes to not only show the numbers but how the data was sourced and how the numbers were derived. I’ll admit that I’ve not always found this kind of transparency easy, but I’m trying. Transparency turns into a buzzword very if not done well.

054 — Treat competitors with respect. Talk to them. Learn what sets you apart.

It can be a bit counterintuitive when you’re in the thick of things but its nearly always a good piece of advice, and one I can thank Unbounce Co-Founder and CEO Rick Perreault for pointing out to me.

You are almost certainly concerned about similar things as your competitors, and if not, that will tell you something too.

You may be relieved to discover that they aren’t your competitor after all (going after a somewhat different market for instance,) and there may even be the possibility of mutual benefit.

When challenged about potential competitors its useful to be able to say “Yes, we spoke to them. Nice guys but they’re in a different market …” and mean it.

055 — No need to jump into strategic partnerships with both feet.

This another one I owe to Rick Perreault, Unbounce Co-Founder and CEO.

Prove the value of any potential partnership, starting with light, easy to walk away from quid-pro-quo type initiatives.

Don’t waste time hashing out a complex agreement before you are absolutely certain there is value in the relationship.

When the moment comes for legal work in order to protect everyone’s interests and make it easy for either side to escape the arrangement without harming the other (the key part of any business arrangement,) make sure the structure is simple and focused on those two goals.

056 — Basic accounting is easy enough to do yourself.

Look for a firm of accountants who match your entrepreneurial attitude (difficult to find in my experience but well worth the effort once you do,) and rely on them for yearly reports and any assistance you might need.

No need to hire an in-house bookkeeper or accountant in the very beginning. Choose a good system — I like Xero but there are others — and do it yourself.

If one of your founders is looking after the CFO side of things, they should be able to stay on top the books themselves for a while with little problem. Save hiring a bookkeeper until after you have traction. Save the big accounting firms and their ridiculous fees for later than that.

057 — MRR = Monthly Recurring Revenue.

The above will be met with a resounding “Well, duh …” from many, but the term is not always used correctly even by those who should know better.

‘Revenue’ is an amount of money paid to you by customers during a specified period. MRR is the total monthly value of your paying subscribers at a specific moment in time. If someone says “MRR for October was $x” they are using the term incorrectly.

“Revenue for October was $y” is ok — thats simply the total amount you took in October. “MRR at close of day October 31st was $z” is ok too — this means the total number of customers at EOD October 31st multiplied by the value of a monthly subscription.

Subscription Saas companies live and breathe their MRR number, and it is constantly changing.

058 — Subscription billing = cash flow predictability.

  • Revenue month-to-date / number of days month-to-date x total number of days in the month = revenue projection for current month.(Usually quasi-accurate by 15th of the month or so.) *

I know it’s a very rough methodology but in the early days of Unbounce, when cash flow was ultra-tight, I looked at this first thing every morning, constantly taking the pulse of the business.

Its not all that accurate, and If MRR is growing quickly the projection will be low of course, but the rate of growth should be visible in the rate at which the projection changes every day. You can verify this by looking at previous month sign-ups and using a conversion and churn rate assumption to make a different estimate that you can cross reference. A little conservatism is ok though — remember you’re using this as a cash flow management tool so its sensible to err on the safe side a little.

  • Current month revenue multiplied by twelve = current Run Rate.

If you know typical run-rate valuation multiples for companies of your type you can use this as a rough predictor of what your company might be worth now or in a few months time. If that doesn’t motivate you as a founder then nothing will.

* Following month is way more tricky in my experience — too many variables — but if anyone has come up with a foolproof method I’d love to hear about it.

059 — Inbound marketing works.

Of course the viability of any business is fundamentally to do with the cost of acquiring and maintaining a customer versus the revenue that customer provides to the company.

And ‘Crossing The Desert’ is a key feature of subscription SAAS businesses. Profitability takes a while to get to because the total value that each customer represents trickles in over time.

The cost of acquiring a customer therefore matters a great deal.

Inbound marketing allows you to effectively grow your customer base on very low acquisition cost per customer, making the most of whatever your MRR happens to be at any given time.

Just don’t underestimate the amount of effort it takes.

060 — What inbound marketing gives, churn can take away.

Inbound marketing, if done well, really can deliver on the promise of low cost acquisition that makes relatively early success with subscription SAAS possible. Churn can be high though given that sales are far less qualified than they would have been using more traditional methods.

Don’t lie to yourself about your overall churn rate, but also make sure you look at the churn rate for customers who truly adopt (stay with you for 3 or more months and clearly make use of your product.) These are the customers that tell you the true viability of your product.

A high number of customers may leave you in the first three months of your tenure but at least they’re paying you while they figure out if they are going to be long term users or not.

At the end of the day a business model’s viability is measured by the ratio of the cost to acquire a customer versus the value that customer brings. Its the ratio thats important.

061 — Subscription churn is the metric that is most specific to your company’s founding concept.

Its not the only kind of churn to look at, but it is the most closely related to your customer’s habits and workflow.

Think about this long and hard in the very early stages. What are the your customers’ typical behaviors that will have an impact on their likelihood to churn?

062 — Subscription churn is not your only churn story.

You may not be able to move the needle on subscription churn without changing the customer, changing the product or both.

Fortunately there are other kinds of churn to focus your efforts on. See note 064

063 — It’s not about the customers you loose.

It’s about the customers you keep.

064 — Upsells and upgrades can reduce MRR churn radically.

Its useful to think of it in terms of keeping $1 of revenue from a given cohort as close to a dollar as possible through the entire lifetime of that cohort. If each customer pays you $1 per month and the customers who stay with you with upgrade to a $2 per month account within the first 12 months, your MRR churn is practically zero for the period even if half the cohort has left by month 12.

This is obviously an extreme example for illustrative purposes, but if you know your KPIs you should have the number in your head for bridging the gap for your company within a matter of seconds.

Ask your team to reduce churn by 2 or 3 percentage points and they may look at you like you’re crazy. Ask them for ways to turn a happy $100 per month customer into a happy $130 per month customer in the first year of their subscription and there’s a much better chance you’ll get some ideas from them.

The caveat is that upsells and upgrades need to represent a significant proportion of the starting subscription price. Its difficult to move the needle if they only represent a few cents on the dollar.

065 — Negative MRR Churn.

The holy grail of customer churn mitigation.

When your program of upselling is so successful that revenue gains per customer more than offset customer attrition such that the revenue taken per month from each cohort actually increases.

066 — Need to increase your prices? Grandfather existing customers.

This will seem like a no-brainer to people who cut their teeth in subscription businesses, but for others it might not be so obvious until its pointed out to them.

Provide incentives for existing customers to update their plans, but if they decline you must honor your original agreement. It will screw with your reporting for a while of course, but otherwise it keeps things simpler and is a good brand story for customers who have shown loyalty.

067 — Position your customer service team so that their principle mission is to help customers get value from your product or service.

If you believe in your product then you should believe that your customers should continue to use it, continue to pay and eventually upgrade to a higher priced subscription because they need your product and get value from it.

Given this the principle mission of your customer service team should be to help customers get to that level of success.

Empower them to do whoever they need to do to clear the path to value for your customers. Don’t burden them with the mission of keeping customers who should not be customers.

068 — There is a first step prior to legal action. Its called talking.

If someone seems to be treading on your toes in some way (using the same name or similar URL, perhaps,) find out what your legal options are, but try talking to them in a reasonable way. Suggest that perhaps they made an honest mistake and ask them to correct it. Nobody needs legal trouble and expense. Not you. Not them.

069 — The three stage checklist for how to deal with incoming legal issues.

  • Ask yourself if the threat is real or not. Is it an actual threat? Does it have any real power to damage you? What is your exposure really?
  • Talk directly to the people involved.
  • If talking directly to the parties doesn’t smooth things out, talk to the lawyers and loop back to the team with whatever advice the lawyers have given you.

070 — Operational Management = the application of resources to release trapped or untapped potential in your business.

This requires clear insight into pain points within the company and available strategic opportunities (trapped or untapped potential,) as well as the finances (resources) of the company.

If you have both a CFO and COO they need to work in close harmony. Consider combining the two roles to begin with.

071 — Burn Rate is an oft misused term.

I know because I misused it myself for too long until someone called me on it. Its not the amount of money you’re spending. It is the variance between the amount you’re making and the amount you’re spending in a company that is not yet profitable. The amount you’re going into the hole every month in other words.

In truth I think I knew the correct definition but just assumed that everyone knew I was talking about something else. That didn’t stop me from feeling foolish when it was pointed out to me.

  • Runway = your bank balance / burn rate.

072 — Manage cash flow constantly.

Meaning, every day. Use your instruments, daily revenue reports, near term projections and clarity on near term expenses to manage your cash flow position, from relatively conservative to relatively aggressive on a day to day basis.

A startup that can grow revenue while adequately managing its fixed costs will survive. Don’t let this simple fact get lost in all the noise.

073 — Daily cash flow management means tracking your projected near term revenue growth versus your projected near term growth in expenses.

Its not rocket science in other words, but you have to stay right on top of it.

In a SaaS startup this means tracking your ratio of fixed costs to MRR, which in reality is entirely related to how fast you are hiring.

Keep a running table of near-term hiring goals plus current fixed costs versus near term revenue expectations. Refer to it and update it constantly.

Its fixed costs that kill SaaS businesses, but you’ll want to run as hot as possible to maximize growth. This means being on top of the hiring situation every day.

074 — Manage expenses methodically.

  • Break out your Customer Acquisition Cost Ratio data and treat it as a discrete set of metrics from the get-go.
  • Scrutinize variable costs for efficiency savings or areas where you can negotiate better deals.
  • Hold down capital expenditure that doesn’t directly improve your product or service. Be extremely careful of capital expenditure of any kind, and don’t let any capital expenditure or purchasing program turn into an unintended fixed cost.**
  • Obsess over your ratio of fixed cost to MRR.
  • Never compromise on getting value. Make this a life lesson for all your staff.

** I say unintended here because obviously there are some situations where you will decide to allow it to happen. Look for ways to do this that are low $ impact for a high return in your people’s ability to do an awesome job. Buying groceries for the office is a good example of a purchasing program that is a both a fixed cost and (usually) great value — Just make sure the budget is set at the right level. Putting relatively junior people in charge of programs like this can give you a good. low-risk insight into how well they manage money and an opportunity to mentor them on a good mind-set regarding spending money well.

075 — Don’t let capital expenditure programs act like fixed costs — even in periods of high growth.

Everything is case-by-case and monitored as the initiative moves forward — empower a limited number of people to make decisions of this kind and demand discipline on this point. If someone cannot demonstrate this kind of discipline then they cannot be one of the decision makers.

As you gain traction there will be opportunities for capital expenditure on all sides. Make sure that each case is treated separately and your capital expenditure does not starting acting like a fixed cost.

Its fixed costs that kill small companies if they hit a bump in the road.

076 — Annualized Revenue = MRR x 12

More realistic than a projection, more forward looking than trailing data (which in the beginning you won’t even have,) and easier to calculate than either. Its a handy way to keep in touch with the macro performance of the company on a constant basis.

077 — If you know the annualized revenue valuation multiples for other companies in your space it takes seconds to apply that knowledge to yours and get a quick handle on your company’s potential valuation as part of your regular routine.

Super easy, super motivating and keeps you connected to the big picture without diverting time or energy from the things you really should be focusing on.

You do know the valuation multiples for companies in your space, yes?

078 — Detail and accuracy are important, but not as important as accessibility.

The ability to make decisions based upon rough estimates is a skill that everyone should develop. Unnecessary detail is an enormous time waste in reporting and ultimate accuracy may not be available for technical or other reasons.

Better to have the broad strokes out there so that people can easily wrap their head around the situation and get on with moving things forwards.

The detail should be to hand if needed.

079 — A Monthly Performance Summary includes:

Funnel:

  • Web traffic to Free Trail conversion rate
  • Trial to Paid conversion rate
  • Paid to Adopted conversion rate

Acquisition:

  • Acquisition Cost per Customer (CAC)
  • Months to Recover Acquisition Cost
  • CAC ratio (ALTV / CAC)
  • Acquisition cost as a percentage of Revenue (Total Monthly Acqusition Cost / MRR)

Customers:

  • Total at the beginning of the month
  • Gained in the month
  • Lost in the month
  • Total at the end of the month

Metrics:

  • Monthly Recurring Revenue (MRR)
  • Average Revenue per Customer per Month (ARPU)
  • Churn Rate
  • Average Customer Tenure (1 / Churn Rate)
  • Average Lifetime Revenue (Average Customer Tenure x ARPU)
  • Average Lifetime Value (ALR -(Monthly Retention Cost x Average Customer Tenure))

Expenses:
You’ll want to look at expenses broken down in two distinct ways

  • Acquisition expenses (including acquisition staff.)
  • Non acquisition staff
  • Other

And …

  • Fixed Costs (mostly staff, but also rent and other non-variable costs.)
  • Variable costs (payment processing, etc)
  • Capital expenditure, one-off and other.

Income:

  • Net Income
  • Growth
  • Cash

Obviously you should also be producing standardized financials (Income statement, Balance Sheet and cash flow summary on a monthly basis.)

080 — Dashboard your KPIs

Make them available to the entire company, ideally on monitors on the walls of the office (or something equally clear, bold and ever-present,) updated in real time.

081 — Use a hypothesis led approach to problem solving in business.

This is another one I learned from fellow Unbounce co-founder Rick Perreault.

Hypothesize around problem areas then gather the correct data set to either prove or disprove your hypotheses. This tends to be much more productive than rooting through a mountain of data and trying to spot the problem from that end.

In my previous work as a designer I used a hypothesis led approach to solving qualitative problems all the time, but for some reason, as my business life put a greater number problems requiring quantative analysis my way, my instinct was to start at the other end. A mistake.

082 — Where possible each department should ‘own’ at least one KPI.

This naturally leads to the creation of quantitive goals for each department, gives everyone something to aim for and focuses their energy on the day-in day-out incremental improvement of the main performance aspects of the business.

It also gives you goals that you can attach employee incentives to.

083 — Building your own startup is a marathon, not a sprint.

084 — Constant incremental improvement.

Based on quantitive KPIs.

There’s a reason why athletes and motor racing teams train against the stopwatch. You find a little extra every day and weeks later you realize how far you’ve come, how much you’ve improved, and (crucially) why.

085 — Good companies thrive on insight. They have a kind of love for it. They are in love with insight.

Good decisions are based on good insights, poor insights lead to poor decisions. Nurture the love of insight in your staff, support them as they learn to make good insights based upon their growing understanding of your business, distance people who cannot learn how to make good insights from the decision making process.

Look for senior management who are insight driven.

086 — High acquisition cost does not necessarily mean that you should spend less on marketing.

It may mean that you need to spend more in the near term. Acquisition cost is a measure of efficiency just like any other and rising CAC can be more a result of underperforming sales and marketing efforts than overspending.

If your CAC is rising but your acquisition spending is falling as a % or overall revenue for instance then its possible that your company has lost its focus in sales and marketing and increased spending is required to drive them through it.

087 — In the early days, when cash is tight, manage your burn rate so that it tracks to zero with about a one month cash cushion.

Still pretty nerve wracking but at least you’re under some kind of control while being as capital efficient as possible. During this period, if you dip below that occasionally thats ok as long as you know its not a sustained position (running with less than a month’s cash in the bank for a period of two month’s or more.)

If its impossible to do this — i.e. you need to cut things more tightly in order to grow revenue — you need more investment from somewhere.

088 — The Ever Present Question.

Are you hiring as fast as you can?

This may seem like basic stuff, but its more nuanced depending on your company and what stage of development you’re in.

The basic view — more people = more revenue = a good thing — is valid, particularly once you have traction. Its obviously what ‘scale’ is mostly about, but doesn’t address the underlying goal of an efficient, money making machine.

The mentality that leads to better capital efficiency, lower equity dilution, less time in the desert and more income growth in the future comes down to the ratio of fixed cost to revenue. If you can focus on optimizing (or if its already pretty good, maintaining) this while hiring as fast as possible you’re in good shape.

089 — You have ‘traction’ when …

The company is growing so fast you can’t keep up with it.

The tricky part is knowing the first signs that traction is on its way, because this is likely the time when your company will need more financing.

Look for opportunities to release performance from specific KPIs that would be made possible by focused spending.

If these opportunities begin to coalesce on a ‘growth story’ (“we spend x$ on this, this and this and we see these KPIs improve and this results in growth of y%.”) this becomes the narrative that describes your company’s capital needs.

Just knowing what this story is allows you to focus your day-to-day efforts on achieving traction even if you determine that no new capital is required to turn the story into reality. Even if you get only partially down the road to achieving the full potential of the ‘story’ this still goes some way to proving your hypothesis and strengthening your argument for your target valuation.

090 — When to do a financing.

  • When lack of cash is restricting growth. Growth you are confident will be released with an injection of cash.
  • When new investment will enable you to win your market (particularly if you are facing real competition.)
  • If and your other major shareholders have no plans for exit before an IPO or some other far off event, and you know you’ll need more money at some point and you want to take advantage of the fact that the money is available now (maybe because it may not be available in the future.)

In all cases make sure that taking additional money matches with new and existing shareholder goals. Its going to mean delivering on a multiple that may imply a longer exit timeline than some had been hoping for.

In general, bringing new money on should, on balance, reduce risk, but new risks will certainly be present, even if they are outweighed by the mitigation of existing ones.

091 — When to not do a financing.

When none of the reasons listed in 090 apply.

092 — Pre Money Valuation.

The value of the company prior to any new investment. When discussing the value of a company in anticipation of a possible investment round its typical for everyone to be talking in terms of Pre Money.

  • Pre money / pre deal equity = share price for the deal
  • Amount to be invested / share price = number of new shares to be issued
  • Pre deal equity / (pre deal equity + new shares) = percentage to which initial shareholders will have diluted their position after the deal is done

Note: Pre deal equity is normally calculated on a Fully Diluted basis (including all outstanding shares and options and any approved option pool.) If you can get it calculated on a Shares Outstanding basis then obviously thats better for you.

093 — Post Money Valuation.

The value of the company after the deal is done, including the investment being considered, assuming the deal goes through.

  • Pre money + investment amount = post money

094 — Frame internal discussions for taking more investment using revised revenue projections and a new pro-forma cap table.

Just the same as when you started the business, these two documents form the basis of your arguments for and against.

Understand and explain the dilutive impact of any new financing using a new pro-forma cap table describing what the post money landscape will be. Communicate the potential future value of the deal by relating revenue projections to typical company valuations for your space and looping back to the pro-forma cap table.

095 — Valuation isn’t everything.

You’re going to want a valuation that you think is fair and aligns with the goals you have for the company’s capital structure. And you’ll want to minimize dilution and satisfy existing shareholders that you are getting maximum value.

However, an unrealistically high valuation does no-one any good if it increases the risk of a down-round later on.

There are other things to think about too:

  • Will the investor take common stock? (everyone in the same boat, hold off on the ‘prefs ladder’.)
  • How enthusiastic are you about having the investor as an advisor?
  • Will the investor put the product at risk?
  • How well are the investors long term goals aligned with your own?
  • How will it effect your ability to be in control of the company’s destiny?
  • How will it effect your ability to be in control of your own destiny?
  • How badly does the company need the money?

Taking investment means taking on increased expectations while (potentially) having less control. Niether of these things are intrinsically bad if they are managed correctly, in fact they can improve your chances of success.

Make sure you are looking at the deal holistically so that you are getting the balances and alignments right.

The balance of risk is a bit more subtle — the risk to the business is likely decreased thanks to the extra cash. The risk that the whole venture won’t turn out the way you hope is potentially increased. In most situations the best approach is to embrace the reduced business risk while carefully managing the variables that influence the risk to your personal goals and those of your existing shareholders.

096 — If you have exit expectations be clear about them.

If you don’t, be clear about that too. The key point here is that you’re looking for a match.

097 — A successful negotiation is one where everyone gets what they need.

Everyone at the negotiating table should be focused on finding solutions that optimize the deal for all concerned.

Not everyone will get everything they want, but everyone should feel like their principle goals have been met.

This is particularly important in a startup financing. To begin with you should only be doing a deal with people who’s views you respect. Also, you are going to be married to your new shareholders after the deal has closed — you’ll want nothing but a halo of good feeling around the whole thing.

This doesn’t mean you should be a rollover. You need to be happy about the deal as well, and some grit will be required to make sure the deal points you care about most meet with the right outcome.

098 — If you want to get the deal done and there are negotiating points that you *really* don’t want to give way on, bring them up as early in the negotiation as possible.

You will have had some general conversation about valuation before negations began and this will have been expressed in explicitly in a term sheet, but the deal isn’t done until its done.

Good investors respect entrepreneurs who fight for a valuation they believe in. Everything else is just a grind.

Get the grind out of the way first and, assuming the fundamentals of the business are as good or better than they were when the term sheet was received, you will better placed for a constructive defense of the term sheet valuation should one be required.

099 — You don’t need to give up board control.

Or even a board seat if you don’t want to.

It may be expected, and may be a deal breaker for many investors, but that isn’t to say that a deal can’t get done without giving up this stuff if its really important to you.

It also doesn’t mean you shouldn’t give up a board seat under the right circumstances, just that you don’t necessarily have to. Many investors will say that you should welcome the help of a motivated and experienced shareholder to the the board and in many cases they will be right.

The argument about whether investors should take an active role in governance is a separate matter. There’s a strong argument to say that they should, but with this as always your first responsibility is to make the sure the company is getting the right mix of everything to make it successful.

100 — Respect shareholder input.

This is the flip side of keeping board control. Build credibility by demonstrating that you are prepared to listen and put the performance of the company before your own ego. Shareholders need to believe this about you.

101 — Investors are some of the most awesome people you will ever meet. Be very careful before letting them steer your product.

You should be the best person (or people) to set the direction for your product. Of course you should listen to their advice and weigh it carefully. If ever you, as a founder look inside yourself and find you are not the right person for the job of steering your product or service, its time to replace yourself.

102 — In SaaS gross margin calculations are more of an art than a science.

They’re at the heart of why investors invest in tech though, so understand the method by which yours are being calculated and make sure you believe in it.

103 — Budget. Don’t over budget.

Sketch out your budget and make sure it makes sense, but the emphasis should be on using cash flow tools to assess spending priorities on a constant basis.

104 — Should you build projections from the top down or the bottom up?

Both.

First, come up with your revenue goals for the future. These will be driven by your understanding of the potential of the business, the overall strategic goals for the company and your required return on investment.

These targets should be ambitious but defensible on a basic common sense level. Its the “if all goes well, this is where our gut tells us we should be, a year, two years, three years from now” target.

Secondly, model a set of bottom-up projections based on historic actuals, current performance and all the relevant KPIs.

Speculate on performance improvements in places where you have a proven ability to move the needle, using quantitative results from that experience as your guide. Only after that speculate on potential improvement in other areas.

Then restart the process at the other end again. What KPIs will be improved to bridge the delta between your current trajectory and your targets? What initiatives will be required to move the needle on these KPIs? And what are the cost implications? What tactical and strategic changes will be required? In what areas are you falling short of new ideas? Can it be done or are your supposedly realistic targets unrealistic after all and must be reassessed?

Only be satisfied with your projections when they completely defensible from a top down (goals) *and* bottom up (actuals, KPIs) perspective.

105 — Unrealistic planning sucks on effort, credibility and morale.

You need ambitious goals and they need to be convincingly achievable. This is the internal purpose of your revenue projections and other pro forma documentation.

106 — Budget content order:

  • Revenue targets.
  • Acquisition targets. Broken down by something the sales or marketing team can actually effect/ affect (channel, customer category, product category or plan level — whatever makes sense for your business.)
  • Revenue Projection. Implied by acquisition targets.
  • Departmental budgets. Including staff budgets.
  • P&L and bank summary. Including Gross Margin, expense totals from the departmental budgets, net income, EOM bank balance and runway.

107 — A company does not exist to report.

Reporting falls into one of three categories:

  • Required to give the necessary insight to improve the performance of the company.
  • A contractual obligation (as the result of agreements with investors or business partners.)
  • A legal requirement. Deal with the first is a way that is real time, transparent and extremely focused. Use dashboarding tools. Keep the second to a bare minimum and systemize its publication. Be rigorous, timely and minimal with the third.

108 — Track budget variance.

The main question is every case is how the ratio of budget to revenue is looking compared to what you hoped it would be. Track discrete cost components as a percentage of revenue. Track actual dollar variances on a line by line basis. Showing line item variances as a % of budget allows the major variances to jump out more easily.

109 — A GAAP (or other accounting standard) Income Statement (P&L) is not the easiest or most relevant way to keep a grip on your costs for operational purposes.

You should publish standardized financials very month and at every year end of course right from the very beginning, making sure that the their layout is appropriate for your business. Its often way easier to keep tabs on your expenses if you report and group them in a different way (or ways) for decision making purposes.

One of the best cost breakdowns I have come across is from Mark MacLeod (aka ‘StartupCFO’) it goes like this:

  • All Customer Acquisition Cost (including CA staff.)
  • All non Customer Acquisition Staff
  • Everything Else

This allows you to cut very quickly to the important performance vs. acquisition cost KPIs and allows a rapid take on whether non-staff costs are increasing at an uncomfortable rate.

I also like the classic:

  • Variable Costs
  • Fixed Costs
  • Capital and one-off Expenses

110–90% of being a good leader is about hiring well.

Hire great people and make everyone’s life better. Bad hires incur a huge penalty in wasted time, resources and morale, and in extreme cases, the damage created by a bad hire may never be overcome.

111 — Community engagement is by far your most effective recruitment tool.

Also happens to be something the extroverts on your team are going to find the most fun.

112 — Hire people for who they will become.

Imagine how they might develop and believe in that vision.

You will likely be surprised at some point down the line, but often in really amazing ways.

Give them the security to admit when they screw-up (everybody does at some point.) Not every hiring story will work out, but many do and they will be some of your best memories of growing the business when you look back on it in the future.

113 — Brave left-field hires nearly always work out.

Conventional career paths are overrated. If someone is taking a bold step in their life by switching career paths to come to you, there is a high probability that they will be highly motivated, bring a positive attitude and jump on every opportunity for success.

114 — Show new hires your unflinching support and confidence in their ability during the first 60 days, no matter what happens.

In a startup 60 days is a long time. If they continue to fail or make egregious errors you (and they) will have to face facts after a few months of course. But don’t let it be because you didn’t support them at the start.

115 — People care most about three things in their work.

  • To work on a project that they feel is important.
  • To have ownership of an important part of that project (however small.)
  • To be able to work in the style that they believe makes them most effective.

Deliver on these things and everything else will fall into place.

116 — Everyone deserves growth.

Everyone. This is the first principle of leadership.

117 — Make way for your staff.

Everyone is looking for their wave to surf — the one with their name on it.

When someone finds their wave, when they’ve seen some insight that gives them purpose and direction, make sure they have the freedom to paddle out to it.

118 — Risk is necessary for growth.

Ask yourself if each employee is taking on the right amount of the right kind of risk for them. Enough to be challenging, not so much that they are set-up for failure. Immerse your team leads is this mentality.

119 — Praise people for hard work.

Anyone who approaches their work with enthusiasm and commitment should do well. If they do both those things and don’t do well, its your fault for putting them in the wrong position or by not providing enough support. Smart people who don’t work hard aren’t helping themselves or anyone else.

120 — Every team member requires some amount of care and attention no matter how small.

This is the only reason for company reporting structure. To be clear: There is no other reason.

121 — No-one needs to be stuffy.

In my experience effective communicators do so in a manner that is natural, personal and with good natured humor.

122 — Your key people will require cash to do what they need to do, and not all of them will be natural money managers.

Make budgetary tools simple, provide easy, friendly support for those inexperienced in handling budgets, and focus everyone on optimizing value.

Show them that it’s easy to be responsible with the company’s money and if the returns are healthy they will be praised.

Ultimately though, managers must be competent with money and spending decisions / recommendations. If they are not, and they cannot learn, they cannot be in management.

123 — If you focus on monetary reward you will work harder. If you focus on maximizing your time you will be happier.

Everyone needs to do at least a bit of both.

124 — Your staff want your company to execute better too.

If you’re failing to execute you’re not the only one who’s frustrated. Your staff want to see plans turned into action and success every bit as much as you do.

125 — Bonus programs tied to quantitative targets work. Bonus programs tied to anything else do not.

Stock options tied to a vesting program are a great tool for bonus programs if they are tied to quantitative targets.

126 — Meetings are mostly bad.

They’re not all bad. Anything requiring a team will require meetings of some kind. But by and large they are a horrible time-sink.

Many will disagree, but in my view if someone needs to talk to someone they should just talk to them. If the person is busy they should wait until they are not. I reckon this is basic common sense.

The work environment should support natural encounters and brief discussions. Brainstorms and design or production meetings should be highly organized and facilitated by someone who knows how.

Big-tent everyone-in-the-company meetings are vital but should be special events.

127 — Allow the physical space to develop organically.

Every facility needs a balance of spaces that range from assigned through flexible, general through specialized.

Its more efficient to tip the balance somewhat towards the flexible and general side.

Imbue your staff with a spirit of flexibility and remind them that in a growing business nothing is forever and incremental improvement is the best way.

128 — Use highly targeted spending to make statements within the work environment.

Nobody ever gets to go on a spending spree. Nobody. Ever. Its just not healthy.

Everyone wants to feel like they work in an environment that is at least somewhat special.

Limited and targeted use of funds to do the rare special thing that boosts the environment for everyone is a good use of resources. Emphasis on limited and targeted.

Avoid environmental improvements that benefit only the few and again: Limited and targeted.

129 — When you decide to spend to make a statement, spend what you need to get the job done.

If its worth the expense, its worth expense. Just always insist on value, whatever the dollar figure.

130 — At the far end of the desert, when profitability is in sight, you don’t necessarily have to jump to it right away.

If you have managed your cash cushion you will find that it is possible to track to a roughly cash flow neutral state and stay there for a prolonged period of time, always maintaining the ability to switch to profitability within a month or two at will.*

Or you may decide to become profitable but only to the degree that it allows you to maintain your ratio of cash cushion to monthly expenses.

The decision to become profitable in this situation will hang on strategic concerns. If you are growing well, have no pressure from a financing standpoint to show profitability (no shareholder pressure or a need to demonstrate profitability to attract investment,) and there are no competitors in sight, you may well decide that the most capital efficient approach is to remain cash flow neutral and pitch your spending targets accordingly.

If you have external pressures that require a ‘profitability story’ or an expanded war chest (to maintain market position and fend off competitors,) pick a month to start banking the cash. *Of course if you are wildly successful you may not be able to spend money fast enough to avoid becoming cash-flow positive.

131 — The desert must eventually be crossed.

Keep managing the delta of income against your expenses so that the path to medium term profitability remains under your control. Growth is your principle aim but profitability is a very close second.

The need to eventually cross the desert applies to all businesses. Businesses that can push the date out for a hyper-extended period of time (from day one to an IPO opportunity for instance) come along only a few times in a generation.

132 — “If you are dependent on raising money, you will die.” — Sam Altman

All start-ups need investment to get off the ground, and should often keep taking investment to keep growing aggressively.

The point here is make sure that your internal KPIs are such that you are tracking for profitability within a time frame that is operationally realistic.

This is largely about managing your cash cushion and looking for potential changes in the business environment or unexpected emergencies that would push profitability further out.

133 — If you’re a shareholder, think like a shareholder.

Every day you are investing your time to build equity.

134 — Complexity is a drag.

In the sense that it holds back growth.

Growth requires confident and speedy decision making but it becomes more and more difficult to do that as the company increases in operational complexity.

In the early days this can be avoided but there comes a time when holding back the tide of complexity becomes impossible. At this point complexity can be mitigated with the use of experience (experienced staff who are better able to focus and prioritize effort,) and extra resources (cash, people,) who in turn add more complexity simply by being there.

Welcome to ‘scale.’

135 — Its much easier to get alignment on the future than the past.

A good deal more productive too.

Understanding this on an instinctive level is the biggest thing that good entrepreneurs and good investors have in common.

136 — Experience = confidence = speed.

Thats the idea anyway.

Senior leadership that does not support this equation is at best a waste of money, at worst potentially counterproductive and damaging.

Good senior management maximizes the effectiveness and high energy levels of those less experienced people that they guide and support.

137 — Hiring senior people well is one of the most important (and most difficult) skills that any entrepreneur must learn.

Its a high-class problem, but once you hit traction the necessity of hiring senior staff will quickly emerge. Its a scary, risky thing.

Be careful at first but make sure to learn quickly. An inability to hire senior people quickly without making costly and damaging missteps may hurt your business.

138 — Hire senior management who are enthusiastic about your vision.

Not just theirs. Senior management who only get excited about their vision about where the business can go shouldn’t be trying to get hired by you. They should go away and start their own business.

139 — Hire senior management who are enthusiastic about your people.

Its important that existing staff have buy-in on senior hires when they need to get made, but its even more important how your potential senior hire feels about your existing staff. A senior manager who genuinely feels a connection to your existing staff will likely find ways to do all things required to make them feel happy and motivated. This isn’t touchy feely stuff — this is about actually caring enough to always do the right thing on a practical day-to-day level.

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