March Report
Sunday, 08 April 2018

Report: “Company”

First the good news, then the bad, then the ugly.

THE GOOD NEWS IS…

We’re targeting 100+ clients and $35K revenue by the end of April, and we’re on track to hit it with nearly $15K in revenue already. Our revenue number for March was ~$17,000, down from February. But that’s partly because we extended the February window into March, so March was an artificially short month. And despite our impressive active client growth, from 50 to 70, our minimum spend was only $250. Our new minimum of $1000 guarantees that if we continue to grow that fast in April, we’ll report a far more impressive number. If we hit $35K in April, we’re going to shoot for $55K in May and $80K in June.

Service quality is getting better fast, from 2/10 at the end of February to a 5/10 by the end of March, targeting 7/10 by the end of April as our systems harden and we continue to fill remaining hiring gaps.

Our organization is scaling to meet the demand: with over 20 partners and 60 agents — we’re an 80+ person organization. Growing that fast is dangerous, but our partnership model keeps burn down and has selected for a type of leader that responds well to challenge and stress. Our supply-side teams — operations, support, finance, product and engineering — have strong managers in place for all key functions. These managers are aware of the problems in their areas, and are executing against solid plans to solve them. Now that managers are in place, keeping up with growth should be much smoother — with the top and the middle filled out, the hierarchy can expand at the lowest level.

GIVE ME ALL YOUR MONEY NOW!!!

An incredible amount of de-risking has occurred in the last two months. There is still an incredible amount of risk still in the business, but we’re at an inflection point and ascending rapidly. When I zoom out and take a strategic view of the business, I’m incredibly bullish — because it is just a matter of time before we achieve some major milestones. Even if some of these take longer to materialize than I anticipate, any one of them would be a game-changer and force-multiplier, making it easier to achieve the others. This gives me the confidence I need to scream: “GIVE ME ALL YOUR MONEY NOW!!!” to investors.

I am four hires away from having a complete executive team. Me falta un designer, marketer, recruiter and salesperson. Once these hires are made, my three-front war (fundraise, hire, sell, repeat) will become a one-front war (fundraise), and I will win. With functional completeness, I can hold everyone accountable for results in their area — and return my focus to management, taking strategic meetings only. My calendar will go from blue to white.

I am one distribution channel away from unlimited growth. By the end of April, we’ll have tested our new growth strategy and I expect it to work. If it works, it will scale. And it’s cheap. Our cost per acquisition will be below $100. Using Invisible, we’ve built processes to identify infinite leads, and get their email addresses. Then we’re hiring and training specialist sales agents to personalize email templates, answer questions, build our FAQ database and do onboarding video calls.

I am one month away from product-market fit. Service quality improved from a 2/10 at the end of February to a 5/10 at the end of March, in our estimation. By the end of April, we’re targeting a 7/10. The primary drivers are speed — faster response and execution times, including coverage nights and weekends — and quality — fewer mistakes, clearer communications. From May onwards, the game shifts towards optimization and scale.

I am two months away from proving lock-in. We continue to successfully upsell. Our largest client has now spent nearly $15,000 with us. Relationship managers are the key. We’re hiring them for $10 per hour, and over time promote them up to $15 per hour. We bill their time out at $20 per hour. When you call your bot, they pick up the phone. They also call you when you have free time on your calendar every day. They make delegation easy. They help you design new processes. They follow up to make sure you’re happy with the service. They encourage you to refer new team members. The more processes we have running in the background, the harder we are to rip out. All of this creates lock-in, and gets service quality closer to 10/10.

I am one quarter away from building my wall. On our website, there will be a wall of videos for all 600+ processes, categorized by function (inbox processes, calendar processes, sales processes, etc.) The version numbers will keep going up, as we keep upgrading them. The speed benchmarks will keep going down, as we keep making them more efficient by streamlining operations and building automations. You’ll be able to see our promise — better, faster, cheaper — made real before your very eyes.

I am two quarters away from promising unbeatable cost advantages. Through automation, we’ll be able to demonstrate that our processes are getting cheaper and cheaper over time. The main limiting factor was the size of our engineering team. We’ve finally figured out how to reliably source great engineers who love our model and our mission. With a growing engineering team, we’re finally dedicating resources towards automation. Because of our model, we can take an incremental approach to automation: focusing on small, easy wins with simple software like scripts and operator tool features that create 5% or 10% gains. To automate 100% of one process, other companies have to solve hard technology problems and go after small markets. But we get to solve easy technology problems (incremental gains) and go after big markets (lots of processes).

I am two quarters away from launching The Specialist Line. Over time, our best agents learn how to do more and more complex work, and we promote them accordingly. This creates opportunities for us to launch more advanced tiers of service. An Agent that starts at $1.50/hr under The Process Line, may earn up to $15/hr under The Assistant Line, and up to $22.50 under The Specialist Line — in a meritocratic promotion game ladder. The Process Line executes instruction-based work. The Assistant Line provides thoughtful general support. The Specialist Line provides specialists — like writers, researchers, project managers, data managers, network managers — to do advanced work in response to only high-level delegation. This advanced work ultimately informs process upgrades, as instructions are written and passed down to The Process Line. Talent gets moved up, which makes Invisible more powerful as a service. Work gets moved down, and ultimately, automated, which makes Invisible cheaper and more scalable.

I am three quarters away from being sexy. We’re about to hire a brand and interface designer, a UX designer, and a marketer. That means that by the end of the year, we’ll have a client dashboard, an agent interface, a sexy website, and strong content marketing to build a PR machine around.

I am three quarters away from doing big corporate deals. Our larger engineering team also means we can finally devote resources towards upgrading our security. Right now we can only approach companies with less than 200 people, because our security isn’t strict enough to pass compliance at large companies. But if we can save 10 hours per week for a 500 person company, that’s a $1M deal. Once we move our Digital Assembly Line from Slack to a Slack clone where we control the interface, we can provide agents with an in-window browser that will track and record all activity, prevent browser actions, and let us make strong guarantees.

I am three quarters away from scaleable supply via open-source training. We have 500+ job applicants in our applicant tracking system! But that’s not enough. We need thousands of agents world-wide to learn how to execute our 600+ processes, and earn credentials in our system. The more we open-source our training systems, the easier it is to rely on a large pool of “reserve” agents — and notify them to log into our system when there is a demand spike.

I am three quarters away from efficient load-balancing. The larger the deals that we do, the easier it is to manage load-balancing issues — and the more profitable and efficient our business becomes. Certain data projects, for example, can absorb huge amounts of work when our agents would otherwise be wasting their downtime. The more data we collect, the easier it is to do data science and predict when we need supply and when we don’t.

I am one year away from profitability. Our partnership model hits all salary caps and starts generating net profits at a $5M run rate. If we get to a $1M run rate by June, with the right team and systems in place, we can accelerate in Q3 and Q4 and get to a $3–5M run rate by the end of Q4. This means that one year from now, by the end of Q1 2019, we could be profitable. Once we’re profitable, game over. Profitable companies can’t die.

I am one year away from profitability — or one deal. A single great corporate deal early on could give us complete financial security. I am looking for it.

I am one year away from undeniable economies of scale and network effects. Once we prove unfair advantages, game over.

BEHOLD, UNFAIR ADVANTAGES!!!

Economics
 — Better: text, email, slack, call or video call a single bot that can do everything, that is in all of your apps.
 — Faster/cheaper: 24/7 operations, speed benchmarked execution, process upgrades, and automations.

Technologies
 — Digital assembly line (routing tech, process guide, process builder, messaging protocol, time tracker).
 — Automations (investing in now).
 — Security (investing in now).
 — Roadmap (we’ve got enough ideas to last decades).

Economies of scale
 — The bigger we get, the more specialized each agent becomes.
 — The agents up-skill, the more tiers of service we can provide.

Network effects
 — The more clients we have, the more processes we build and upgrade.
 — The more people use us inside of one company, the better the experience is for everyone.
 — The longer one client uses us, the more tailored our experience is for that person.
 — The larger our agent network is, the easier it is for us to recruit agents.

Team advantages
 — We’ve got the lowest cost of labor for partners and agents.
 — We’ve got the will to power.
 — We’ve got the vision to build a $1T company.
 — We’ve built a myth/cult: you are either with us or with the enemy!

WE ROCK AT MOTIVATING PEOPLE!!!

Every month, we grant new partners less equity in the company. The de facto price of the company is going up. And partners are gladly joining. This means our cost of talent is getting even cheaper. This is the ultimate recruiting test. The company is so exciting and attractive to a certain type of person, that they’re willing to make an extreme investment in us. We’re effectively fundraising from our partners. And if we hire the right people and they solve real problems, then it becomes a self-fulfilling prophecy: revenue keeps growing, the company does indeed become more and more valuable, and a more and more attractive place to work.

To lower our cost of labor even further, we would like to create an option pool of 1,000,000 shares — the same amount of equity I have — and offer it to our agents. They would be able to take all or part of their compensation in shares. Every dollar saved is a dollar earned. So we’d effectively be fundraising from our agents. At a $10M post-money valuation, we’d be able to save the company a ton of cash.

Moral objections have been raised to this, and I dismiss them. There is something neo-neo-marxist about workers owning their own factory. Who better to own and to believe than them? They’re the ones doing the work.

IF SUPPLY & DEMAND ARE GROWING, WHAT’S THE PROBLEM???

Problems? Of course there are problems!

The crisis environment I described in my last report persists, but is less intense. The team has hardened to the stress, and there are enough systems in place that the turbulence doesn’t feel like it will rip the plane apart. That said, there are many problems. Many, many problems, everywhere. The question, of course, is — which problem is the real problem? Which one is the limiting factor, where the minimum effort yields the maximum effect?

Our supply grows itself. We’ve built a labor network. There are “network effects” — agents refer other agents. There are 500+ applicants in our applicant tracking system. More qualified people want to work for us than we can hire.

Our demand is also growing organically, we’re getting up to five leads a day, but we haven’t figured out how to scale it systematically yet. But once we figure out how to scale demand with a distribution strategy, neither supply nor demand will be the limiting factor.

If neither supply nor demand are the limiting factor, what’s the problem? The problem is friction between supply and demand. There are six operations and support teams: routers who route messages, operators who execute processes, builders who build processes, sentries who manage account access, reviewers who check work and fix mistakes, and relationship managers who support clients. On each one of these teams, there are a dozen small problems that need to be solved, and a competent manager is solving these problems at, say, a rate of two per week. But with scale increasing at a rate of 5 or 10% a week, there are, say, two new problems being created every week. It isn’t clear whether problems are being created faster than they are destroyed, or at the same rate as they are destroyed, or slower than they are destroyed. My sense is that we are, thankfully, fighting a winning battle. And that systems are providing leverage to solve the next problem.

The bad news is… I am too far removed from these systems to directly affect the outcome. Or, rather, I am too necessary to fundraising, hiring, and sales to spend time solving operations and support problems. I have to trust my team, give them resources, and pray to dear God that they figure it out.

Over the course of the next month, it will become clear whether we are hardening systems fast enough, and whether we have the foundations for scale. If we emerge victorious, then in May it should become clear whether supply or demand is the limiting factor. And it may teeter-totter between them as we figure out how to scale both. Ultimately I predict that training supply will be the limiting factor, once we’ve built a strong sales and marketing machine. We’ll always be solving systems problems and improving the underlying service; but if the foundation is solid, then the machine should scale as fast as we can train agents and find stressed out people with budgets.

To summarize: if supply isn’t the limiting factor, and demand isn’t the limiting factor, then the friction between supply and demand is the limiting factor. As we solve problems and build systems over the next month or so, we should eliminate that friction — and either supply or demand will emerge as the clear limiter.

Friction is the first “problem.” And the solution is building a better machine, building better systems. But there are two more clear “problems.”

The first is lock-in. We need to demonstrate that the processes we’ve built for clients are so hard to live without, and so repetitive, that we are safe from the vicissitudes of client satisfaction and temperament. With every upsell, we take another step towards proving that the lifetime value of our clients is far, far higher than the cost of acquiring them.

The second is product-market fit, as demonstrated by both depth of market demand, and service quality. If we find a repeatable sales channel and improve our service quality significantly this month, then we’ll have the “thing” that needs to scale. We’ll have gone from zero to one. So close.

To a great degree, we have already demonstrated depth of market demand. We have a significant number of clients, and are generating lots of leads. But the repeatable sales channel indicates depth — this isn’t just a weed, but a seed planted on fertile ground. Because demand is still organic, revenue growth is jumpy and unreliable. Our graph needs to look like a tribute to steady and accelerating progress.

HOW CAN THIS BLOW UP IN OUR FACE???

The ugly. There’s always the ugly.

I am flying blind. I haven’t had a good look at the financials for two months. I know the cash position and burn rate estimate — and figure I have up to six months left, if we figure out how to improve our load balancing efficiency. Load balancing: this is the major thing I did not count on several months ago. If we can double our efficiency, growth can be cash-flow neutral. But as it is, growth increases our burn rate. Ideally, of course, growth would shrink our burn rate — and if we were 100% efficient, we’d be generating actual gross profits every month.

The only other thing that’s driving the burn rate is the $10,000 starting bonuses (split $2K per month over 5 months) that we give to new partner hires. As we’ve grown the partnership from 10 to over 20 in two months, that’s over $100,000… I predicted that we’d reach our flying formation at 30 partners. That still sounds right. So we’ll incur another $100,000 in liabilities over the rest of the quarter if we hit our hiring targets. We’ve discussed cancelling the bonuses entirely to conserve cash, although it may cost us great hires. If fundraising doesn’t accelerate this month, I’ll do that.

The reason for financial blindness is that we pay agents every week, and after setting up our accounting system, Ric’s first priority was automating payments. Running them manually took up a huge number of hours. Thankfully, within a week or so, this system should be almost entirely automated, and Ric’s time should be freed up to prepare updated financials, including a cap table and projections.

Corey is spinning up a sales team as fast as he can. And I’m continuing to send sales leads in as fast as I can. I’m wrapping up one sales trip as we speak and am going to two target-rich conferences this month to generate more leads. But what if our price-hike to $1000 doesn’t work the way we expect? What if the leads I generate come in too close to the end of the month and we don’t close them in time? Then we have another soft sales month. Then a vicious cycle develops. Then, then, then…

One of our partner hires didn’t work out. This was a humbling reminder of the risk that we’re building a house of cards. We need to be able to count on every single person — until we’ve built systems that we can trust. Our culture is scaling well, but with an organization this large, I’m of course worried about HR risks of every kind. Even with amazing hires, management is such a great challenge.

I am one security nightmare away from failure. I am one mistake away from losing every client. We are still fighting fires every week. This is an amateur operation. This doesn’t feel like an incredibly streamlined, de-risked machine.

I am one key man away from failure. If revenue doesn’t go up to $80,000 in June, there won’t be confidence that we can reach $240,000 to $400,000 nby December, there is a risk of partner departure, because partner salaries are tied to profits (revenue x 0.5 / # partners). We’re doing our best to make the organization independent of any one partner. But there are still key men and women.

Our team is very junior, overall. “You don’t know what good looks like” is a valid criticism. The bar is higher than we’re setting it. We know we’re not qualified for our jobs. We’re willing to hire senior executives. Most of my executive team are willing to take demotions to hire their boss. But it is hard to hire executive talent without a ton of capital raised, and without the ability to focus all of my time exclusively on that. I’m too time-split. It IS hard. But it isn’t impossible. I am always looking for the chosen one.

I’ve raised about $500K on this new $2M fundraising round, with over half of it closed. I would very much like all of it to close, and for pending commitments to wire. We keep closing, but we haven’t passed the tipping point yet. In late January and early February, a bunch of institutions were interested, but decided it was too early. So I stopped wasting time with funds, and focused instead of individuals and family offices — I do very well with sole decision makers. Once we cross the tipping point, capital will pile in. Mimesis.

GIVE ME ALL OF YOUR MONEY NOW!!! PART 2

In conclusion, “just add water.” You really should give me all of your money now. Because all of the problems are imminently solve-able and the risks are mitigate-able — we just need the time, resources, and security to get the job done. “Don’t worry about victory, remove the possibility of defeat.” The amount of capital we’re raising would take us to profitability, and put us in a position of profound strength in every conversation. Our model itself will force us to stay disciplined and not waste cash. The upside is mind-bogglingly insane: it’s like a revolution, stacked on top of a revolution, stacked on top a revolution! Superlative hyperbole aside, this company can actually change the world. The main thing to overcome, spiritually, is impostor syndrome. Are we the ones to do this? Is this what “the one” feels like? Do we wait for numbers, or do numbers wait for us?