Where Most First-Time Founders Go (Horribly) Wrong

Since 2011 I’ve been advising a small group of really smart founders. We work on growing their revenue, hiring great people and generally scaling things up from $1–5M to $5–20M over a few years of working together.

After being a startup advisor & investor for 6 years (while building a few of my own companies along the way, including BigCommerce), I’ve started to come up with my own “lessons” for optimization, that me and my team diligently apply to the businesses I advise, to create fast and sustainable revenue growth.

Today I wanted to share some of those lessons with you, in the hopes that they’ll help you grow your business faster too.

Lesson #1 — They Always Under Charge

Unless they’re selling a commoditized “get it on Amazon” product, almost always, they are under charging for what they do.

If they sell SaaS software, they copy the low-end pricing of their competitors and are worried about charging more than them, because they aren’t familiar with defining what I call their “perfect customer persona”, which is the smaller segment of their market with the most pain who will pay disproportionately more for their product if it does a better job (real or perceived) at solving their #1 pain point.

One of the first things we do is hone in on their market. If, right now, they sell to “any small business owner” then we look at their existing customer database for two things:

  1. Customers who have been with them the longest
  2. Customers who pay them the most (highest LTV)

We then look for commonalities between those customers, such as a particular industry, location, pain point or company size and interview those customers (via survey or phone) to figure out why they chose their product, which competitors they looked at and how they articulate the pain they were experiencing before using the product.

We then take what they tell us and that becomes the foundation for our marketing messages, audience targeting (via Facebook Ads, for example), partners we reach out to (with similar customers), etc.

As a result, we communicate to a much smaller audience, but we amplify their pain, show them we have a product JUST for them and as a result, start to charge more.

Net/net we get fewer customers at a much higher price. This reduces the number of employees needed to scale and improves margins significantly.

#2 — They React To Churn Instead Of Predicting It

At BigCommerce (which I co-founded in 2009), we set up a fairly advanced set of data points, algorithms and modeling to predict churn.

In the end, it turned out that if you didn’t login for X days, you churned. Pretty simple, right?

In most businesses you just need to find the 1 or 2 most important indicators of churn and get ahead of them by being proactive. In MOST (not all) cases, you can keep the customer and rectify the issue.

What’s the simplest way to predict churn if you don’t want to set up expensive enterprise tools and do a bunch of data capture? Start with Net Promoter Score surveys and manually have someone reach out to customers who give you anything lower than a 9 out of 10 or 10 out of 10 rating and rectify their issue ASAP.

It’s not rocket science, but it’s incredibly effective.

“Do things that don’t scale”, the now infamous quote by Paul Graham comes to mind here.

As soon as we implement NPS surveys (using Drift — disclosure: I’m an advisor but also a raving fan because their product is insane), they see a very significant drop in churn. Usually within a few weeks.

#3 — They Don’t Align Their Personal Goals With Their Business

One of the first questions I ask any founder I advise is “where do YOU personally want to be in 3–5 years?”.

Most of them look at me with a puzzled look on their face. Or pause for a few seconds if we’re on the phone.

“I’m not sure. I just want to grow my business faster.”

Wrong answer.

The mistake a lot of founders make is sacrificing everything to build a business they become a slave to — when it can very easily be the other way around with a bit of pre-planning and foresight up front.

They build a financially successful business, but have no leverage, so they’re stuck working stupid hours and have no time to enjoy themselves.

This leads to burn out, stress, frustration and self-sabotage quickly.

After asking a few more questions about where they want to end up, we generally decide on one of three paths:

  1. They want to build their business to a point where they can go public or be acquired — and make a nice financial gain as a result (some want to stay on as CEO, some don’t)
  2. They want to keep “leveling up” as a CEO, stay at the helm of their company as it goes from 10 employees to hundreds and optimize for profit which they can use to look after their family and start ticking items off their bucket list (holidays, experiences, toys, etc)
  3. They want to build a great management team around them, so they can spend much less time working IN the business and more (most of) their time working ON the business — and sometimes, starting new businesses

Each of these 3 paths requires a very specific plan to make it a reality.

For example, if you want to build your company to 500 employees and take it public as CEO (and you’ve never done it before), then it’s a great idea to build an advisory board TODAY, comprised of founders who have built larger companies and taken them public, so you can learn from them what to do, what not to do, etc.

That way, when you do have 500 employees and IPO in 5 years, you’re prepared and have learned from people who have “seen the movie” before.

#4 — They Don’t Have A Predictable “Marketing Machine”

Great products are, unfortunately, useless if potential customers never hear about them.

One of the very first things we work on together is “architecting” a constant and predictable source of leads and customers.

We focus on building nurture funnels, conversion funnels and retention funnels. And we test the various customer acquisition channels to find a source of reliable short-term customers (such as Facebook Ads, Google AdWords, partners, direct mail, etc) while we double-down on building out our long term customer acquisition channels (which typically involve inbound marketing — but on steroids).

Once the short-term (paid) source of customers is worked out (using dozens of low-cost tests) — usually within a month or two, we bring stability and fast growth to the business, which helps us fund the long-term customer acquisition channels, hire more smart people to improve the products and handle sales, delegate a lot of the founders “low-value” tasks to their team, etc.

Good luck!

Follow me on Facebook if you’re a founder, entrepreneur or CMO. Every week I do a live stream where I talk about specific strategies to build your business. Recent topics include founder psychology, patience and building a predictable “growth machine” to drive new leads and customers.