Friday, 18 January 2019

Strategic Analysis

Reality is always evolving. If you don’t keep updating your model against reality, you miss these constant shifts, and drift — making you dangerously vulnerable to blind spots. It is important to continually revisit your strategic analysis. What is the situation? Are we orienting correctly? Are we moving in the right direction? I had a friend once who called this “way-finding.”

My strategic analysis at present is as follows:
— We have runway through August. That runway will shrink or extend as we under or over-perform relative to our goals, as we are gross-margin positive and burn is going down. So this will create either a vicious or a virtuous cycle.
— On the product side, our platform has three pillars: 1) The Website, 2) The Digital Assembly Line, and 3) The Client App. Although we have limited engineering bandwidth, we can upgrade each once per quarter. By the end of January, Operations will have finished migrating to Digital Assembly Line 2.0, and by the end of February designs will be revealed. The Client App is scheduled to launch in mid-February. And the website launched last quarter, and will be upgraded again by the end of this quarter. So by the end of Q1, the foundations will be in place for upgrades throughout 2019. I’m confident that our product, product roadmap and product vision will be so sexy, imminent and compelling that we’ll be able to raise our Series A.
— On the sales side, we’re surging. Last quarter, we successfully evolved into a subscription business. And by the end of this quarter, MRR should be around at a $1M/yr run rate, by Q2 or Q3, we should cross the $2M/yr threshold, and hopefully by the end of the year, we’ll cross the $3M/yr threshold. After crossing the $1M/yr threshold, in Q2, we’ll raise $500K+ in bridge financing to extend our runway into 2020. After crossing the $2M/yr threshold, we’ll star raising a Series A, and target closing by October. I am very confident that we now have Product-Market Fit, are investing in the right growth channels, have the right account expansion strategy, and have the right unit economic targets. So it’s an execution game.
— I perceive that our greatest risk right now is in operations. The migration to DAL 2 strains the system. And right now, with the current surge in sales, we’re over-capacity. Capacity is 200 hours per day on the DAL, and we’re at almost 250. Thankfully our hiring and training systems are working, and we should have eight new agents starting next week. But meanwhile, we’ve noticed a spike in delivery issues, quality issues and client complaints. Every client relationship that we damage or lose affects the strategic outlook. Our historical clients are grandfathered in to an average revenue of $8/hr, and with costs at $5/hr, our margins are thin. With our new pricing, new clients generate an average of $12.50/hr, and our margins are healthy. But if we spend money acquiring these clients, paying customer success agents, and still lose them, our financial dynamic quickly goes from rosy to scary. Damage so far seems very minor, but it’s important to take every warning signal seriously until we’re sure.

Synthesis: if we win in operations, we win the war.

What resources do we have at our immediate disposal?
— Marshall shifted Skyler to support Kamron and Sam on quality: they didn’t have someone monitoring quality full-time; now they do.
—I’ve asked Shane and Chris to do an end-to-end analysis of every system and sub-system within operations, to recommend any opportunities for immediate low-hanging-fruit changes that don’t require upgrades, and then to make sure that our upgrade roadmap maps to front-line realities, and is designed and sequenced correctly.
— I’ve asked Erinn and Dilip to stay focused on hiring senior engineers as a first priority, but then to move up to second priority hiring Operations partners and agents like Sam, Bruno, Jesus and Oyón. I’ve asked Erinn to accelerate hiring a training partner for her team, as training directly affects quality.
— I have also put the partnership and management team at Kamron’s disposal, if he needs additional input or resources beyond the above. Marshall led the Operations War Room this morning before Kamron joined, and both of us spent time with Kamron to make sure we’re all clear on what to do.

Synthesis: we’re redirecting resources to reinforce Operations, the situation is under control, and we’re optimistic about it improving rapidly.

What resources will we have at our disposal the rest of the year?
— I think we can win with our current team. We’ve got the right flying formation. This is a very lean team. We can’t afford to lose almost anyone. But we’ve got a loyal team of effective leaders that are realistic about the problems, see what needs to be accomplished this year and are confident in their own ability to get the job done. The main thing is culture: sticking together, enduring through the suffering, maintaining morale, focusing on the goal and getting to the Series A.
— If we hire more engineers, we go faster. If we hire a security partner (we made an offer this week), we decrease risk. If we hire another operations partner, we decrease risk. If we hire a training partner, we decrease risk. If we hire marketing, sales or customer success partners, we increase upside. But fundamentally, we don’t need these hires.
— Which is a good thing, because, realistically, we can’t afford many new hires. Even after closing $500K in bridge in Q2, we won’t have much hiring flexibility, as that money should go to runway. We won’t have hiring flexibility until after the Series A. Anyone we do hire this year needs to be a “pirate,” because cash comp will still be low. Dilip has a strong enough hiring machine in place, that we are likely to pick up at least a few pirates every quarter.
—Hiring the right COO is driven by chemistry, and we haven’t found the right person yet. The right person would create immediate and long-term leverage and value. My executive assistant, Aimee, has already given me real leverage, and that leverage is increasing over time, as she leverages Invisible. When I start fundraising, there are changes we can make to my management rotation to free up time. And Aimee is on track to evolve into a Chief of Staff to help me run the business when I can’t be in every meeting. I’ve got strong leaders on the management team, and in my absence, Marshall continues to bring the management team together to solve issues. Even if we don’t find the right COO before Series A, it’s not ideal, but we can manage.

Synthesis: Before the Series A, we won’t be able to provide market cash compensation, so we won’t have hiring flexibility, and will continue to hire “pirates” who see the vision and want to take this risk with us. Even without additional hires, we can win. The main thing is culture: sticking together, enduring through the suffering, maintaining morale, focusing on the goal and getting to the Series A.