This post first appeared on Venture Beat on Friday 22nd August.
Relationships are built on trust, and they require work to keep alive and well.
In his book The Trust Edge, David Horsager outlines the eight pillars he believes enable trust to occur within a relationship. The eight pillars are clarity, compassion, character, competency, commitment, connection, contribution, and consistency. Should any one of these start faltering, a relationship can quickly start falling apart and possibly lead to permanent damage.
In the craziness that is an early-stage startup, where founder roles are sometimes ambiguous to start with (even more so with leading co-founders), it’s no surprise that many of the reasons for companies falling apart are related to founder disputes and loss of trust between co-founders.
So what can you pro-actively do?
1. Create a culture around a set of shared values and live by them. Shared values and a strong brand built on them make decision-making easier, since you have a “constitution” that everyone agrees with, upon which to base your choices.
2. Define roles and responsibilities clearly so things don’t fall between the cracks, and make sure that everyone feels confident that each role has gone to the person most competent to handle it. One organizational model you might find useful to help outline this process is called the Responsibility Assignment Matrix (I prefer the one called RASCI), whereby you assign people responsibility for an item, but you allow others to be consulted, informed, and supported, and perhaps you allow someone else to be accountable as well.
3. Make each other accountable for your individual parts that contribute to the group’s goals — some people like to have standup meetings before the start of the day in front of the team to highlight what they are working on.
4. Communicate often, even if at times it can be difficult to do so. Although naturally lots of the topics of conversation will stem from work-related matters, lots of stress can also come from areas that are outside of work. By taking time during the week to just catch up, you can sometimes learn about external reasons for people’s reactions. Although this won’t excuse them, sometimes the awareness of an issue can lead to a meaningful discussion on how to jointly deal with it.
Also, keep in mind that as the company grows and requires new types of work, personal founder circumstances can change and can affect the amount of effort required by a one of the co-founder’s roles. This change can further amplify any latent issues, so communicate frequently to make sure you address these items quickly.
5. Have a plan should things fail between founders. If failure between founders leads to you having to part ways, it will be easier for everyone if you have a pre-agreed way of dealing with equity splits and intellectual property ownership. As a starting point, feel free to use the Founder’s Collaboration Agreement to deal with some of these issues.
6. If things do go sour, take action swiftly to reinstate trust or to re-organize internally as necessary.
If trust is breached, and things do go downhill between two co-founders, you need to align intentions. Ask yourselves whether you are open to the following options as outcomes.
Option 1 – complete reconciliation and re-establishment of trust between founders
Re-establishing trust is not easy. It takes courage to admit faults and failures and to apologize for them with a serious intent of not doing it again.
Because re-building trust can take time, both parties have to feel a desire and have the energy to address the issues that led to the breach of trust and then to come up with functional resolutions (a starting point would be the six actions outlined above) to not have them occur again. However, If one of the parties is offended beyond redemption, then it’s best to consider the alternatives below.
Option 2 – one founder takes the leadership hat and the other(s) a more operationally defined role Option 3 – the founders jointly agree to bring a new leader into the organization Option 4 – the offending (or offended) founder leaves the company Option 5 – the founders jointly agree to shut the company down
The last option, of course, is the least preferred one, but at least it is clear to all parties what the final option is when discussions start off. I have also omitted any kind of legal intervention action by other shareholders from the above list, not because they are not possible legally (depends on what your shareholders agreement states), but because they are best not done unless the founders are on board.
In conclusion, maintaining trust takes work, but by investing in it early and over time, you guarantee a far more functional and collaborative working relationship between all founding parties.
Carlos Eduardo Espinal is a partner at London-based startup venture acceleration platform and investment fund SeedCamp.
All Seedcamp companies can use SecureDocs at no cost for up to 6 months as part of the Seedcamp Founders’ Pack while raising their first institutional round of funding Series A.
Market Validation is Your Route to Success
At a recent Seedcamp Academy Day we focused on the importance of market validation to reduce risk, shorten your time to market and secure paying customers as soon as you launch. We called in an expert, Albert Oaten, VP of SecureDocs, who provided detailed insight on how they applied market validation for GoToMeeting, and now SecureDocs. “Most people think of GoToMeeting as the 800 pound gorilla of web meeting solutions. When we launched GoToMeeting, success was a long shot. There were 70+ other collaboration solutions already on the market from companies like Webex, Microsoft, IBM, and Lotus. As a new entrant, the small guy, market validation provided a roadmap on how to compete with the big guys.”
expertcity, the original name of the company behind GoToMeeting with 30 employees in 1999. Today, GoTo products employ 2,000, and generate over $500MM in annual revenue.
The key insight of market validation is to “Sell it before you Build it.” Or, as Albert said, “Don’t spend a year building your ark, and then hope the animals jump aboard. Instead, make sure the rain is falling hard and the animals want to buy tickets to your ark before you build it.”
The aim of the Seedcamp session was simple: identify one or two ways in which startups could apply market validation to their current product in order to decrease time to revenue and increase chances of success.
Lesson 1: What is the Problem and Who is the Customer?
Using Market Validation, the GoToMeeting team interviewed 100’s of potential customers and were able to identify an unmet market need for a specific segment of the market. Market validation revealed that it wasn’t just enterprise clients that wanted collaboration in the form of online meetings. SMBs wanted a web collaboration solution too, but they didn’t want the high variable cost, nor did they want all the features and complexity. Instead, they wanted flat-fee pricing and a simple way to start collaborating as quickly as possible. Instead of variable per-use pricing, GoToMeeting launched with an “all-you-can-meet” pricing model that was flat: $49. Instead of 20 features like polling, video, and file transfer, GoToMeeting focused on two key features: a small download, about 1/15 the size of competitors, that could work over dialup, and included a free conference bridge to eliminate variable audio minute costs. In addition, market validation revealed that customers were comfortable buying the product online. Today, Citrix Online makes over $500MM a year, and its success was due in large part to market validation.
Early days at SecureDocs prior to spinoff from its umbrella company. Albert Oaten, in the centre, reacts to engineering work presented.
Similarly, with SecureDocs, market validation revealed that most startups can’t afford the benefits of traditional virtual data room providers like Merrill, Intralinks, and RRDonnelley for their fundraising efforts. (Early days at SecureDocs prior to spinoff from its umbrella company. Albert Oaten, in the center, reacts to engineering work presented.)
Customers thought the software was difficult to use, expensive, and hated the variable costs. Instead of charging $1 per-page upload fees and tens of thousands of dollars for a 3-month virtual data room subscription, SecureDocs entered the market at a price point that was 80% less.
Rafael Saavedra, CTO, Will Reynolds, CEO, of SecureDocs. Rafael was the engineering lead for GoToMeeting, and Will was an early GoToMeeting sales rep. Relationships are potentially the most valuable long term benefit from doing a startup.
At $2400/year flat-fee for unlimited documents and unlimited users (no per-page upload charges), SecureDocs provided a price point that allowed startups (and large companies) a data room repository to store and update all their due diligence documents so that they eliminate the 2-4 week fire drill for Series A fundraising due diligence to M&A exit.
In addition, by using Securedocs for audits, legal communication, HR document storage, trade secret protection, etc… startups could protect their valuation by preventing information leaks from investors and employees.
Today, SecureDocs Virtual Data Room has many happy customers, including startups (Series A – to mature startup companies like New Relic and Sonos), public companies (small to Fortune 500), investment banks, and law firms, many of whom have switched from the traditional players.
Lesson 2: Don’t be afraid to go after the big players or competition
Everyone works at a startup, including Klaus Schauser, founder of GoToMeeting and Appfolio, and Jon Walker, co Founder of AppFolio, seen here building chairs and tables for the original company behind SecureDocs prior to spinoff.
At both GoToMeeting and SecureDocs, there were over 70 competitors that were bigger, better-known, and with more resources.
Competitive environments are not a bad thing, as it validates a market, but you don’t want to fight a battleship head on with a speed boat. The key is to find a part of the market that plays to the strengths of your speedboat and exposes the weaknesses of the battleship. Focus your limited resources on a segment that competitors don’t service well. If done properly, you increase your chances of winning, even against a bigger competitor.
Customer feedback and ongoing validation is never done. Engineers listen to customers talk about their businesses and how our products can help them achieve their goals .
Market validation done well requires 100’s of interviews, but the benefit is the elimination of many feature “requirements,” reducing development time by months.
In addition, your market validation process should create a ready pool of paying customers when you are done.
Not only can you get to launch faster, you can get to revenue faster, differentiating you significantly from other startups pitching to VC’s.
Lesson 3: Look for False Positives
Unlike a normal sales process, market validation should strive to uncover weaknesses in your hypothesis. In a sales process, if a customer says “yes,” the typical response is “Wahooo!!!”. During market validation for SecureDocs, Albert and team introduced the customer to free solutions like Dropbox and asked them to articulate why SecureDocs would still be worth paying for. They were able to ensure that prospects were buying SecureDocs for logical reasons, not ones based on ignorance, which isn’t a long-term strategy.
Albert Oaten, VP of Market Development for SecureDocs, works on videos and voice over work for umbrella company AppFolio prior to SecureDocs spinofConclusion
1. Sell it before you build it: speak to 100’s of prospects to identify your market segment and product requirements for that segment.
2. You can beat them: The established companies are not bullet-proof so find out if there is a customer segment not well-served by the current players and then validate that market segment.
3. If you build it, will they buy it at a price that covers your cost of customer acquisition? If customers are willing to pay $5 for your product, but the acquisition requires a salesperson for $100K a year, you don’t have a business model.
4. Don’t write code until you know the problem, the market segment, and have customers willing to buy your service when you are done. The reward is faster time to market, and when you are done, you will have paying customers. Asking for funding when you have customers and a revenue stream makes you a much more unique and interesting investment option to VCs.
Don’t forget! Applications for Seedcamp Week London close on August 17th so make sure you apply before the deadline ends.
Albert Oaten, VP of Market Development for SecureDocs, wears a different “hat” doing market development for umbrella company AppFolio prior to SecureDocs spinoff.
2 hours, 92 comments, 100 duck-sized horses and one piece of gold. It could only be a Reddit AMA.
On July 23rd Carlos answered questions about Seedcamp, our investment process, and the startup scene in general yesterday on Reddit in their ‘ask me anything’ section. It was a lot of fun but it also uncovered some interesting points around the startup and investment community and how it is perceived.
Some questions which Carlos answered included
You can read the answers and the full thread here.
Reddit is happy to share their traffic stats for each subreddit, so we can see how people took part. During our AMA there were over 1.3 million page views with uniques per hour peaking during our session.
This article was first presented at Google Campus July 11th 2014 and appears on Netocratic.
Fundraising isn’t easy, even if done well, its fraught with all sorts of ambiguity and frustrations. To that very point, I recently wrote a blog post about the fundraising mindset in order to help you set a tone on approaching the process.
That said, there are things you can do to make it go better than others and things you can do to make it go worse… and in the spirit of the ‘Tonight Show’s’ top ten list, below are my top ten things that will likely cause a fundraising fail situation.
Avoid them and learn from your mistakes and you will increase your likelihood of success.
Yes, being over the top and dropping ‘f bombs’ might get you attention, but is it the right attention? Is it focusing the attention on what your message or just you? Also, what about a boring slide deck? Or a a deck that is missing product shots? Do these represent you well? What if you say your product is simple, but then your deck is really over complicated.. does that sound right?
Fundraising requires research. Find out if your potential investors are even interested in your sector.. have they invested in your competitor? What amount do they typically invest in? Going to someone that is a late stage investor when you are raising a little bit of money is like putting in a minimum order of 10 pizzas when you can only eat one.
When presenting or speaking about your customer, do you show a mastery about their issues? Do you understand what makes them tick and why your solution is the one that will likely best serve their needs? Do you also understand how to reach them? Where do they shop? What media do they consume?
It is always tempting to create something that is useful to you, but is the solution you’ve created really a necessity or just a nice-to-have? Demonstrating a real pain, usually through some form ofcustomer validation, is crucial in making a convincing argument for your startup.
One of the things you can do to quickly show that you don’t have a full grasp of your market is byshowing a much larger segment than the one you operate in. For example, I’ve seen pitches where an iOS app that is for sports tracking, mentions all mobile users worldwide as their market size… when actually, its more like mobile-sports-tracking-enthusiasts, which is a sub-segment of that bigger pie.
This one is easy. If you think you don’t have competitors, then you probably haven’t researched hard enough. Rarely are there ideas that no one has thought about, but secondly and perhaps more importantly, sometimes there are substitutes which are ‘good enough’ which you need to be aware of and show how your solution overcomes the momentum that those existing solutions already have.
If you’re going fundraising and you don’t know how much money you need, how long it will take you, to achieve what, and how you will spend it… well, then don’t fault investors if they aren’t impressed with your request for investment.
Your team is 99% the reason why your company succeeds, and the idea is probably like 1% (I’m guessing on the numbers, but this guess feels right). If you skim through the ‘why’ of why your team is the right one for this investment, then you’ll likely miss an opportunity to impress an investor. I recently wrote a blog post about how to best think through your team slide here. Also, if you want to learn about how an investor evaluates your team, read this one.
Toxic rounds that precede the round you are raising for can really negatively affect your fundraising plan. Read about why here. In general, try and make sure that you take investments that don’t jeopardize your future ability to raise follow-on funds.
Lastly, the best thing you can do for yourself is get an introduction to investors that you want to meet. Introductions are great ways to have immediate validation. Here are some other ideas on how to reach out to other investors.
– Bonus – Not learning from your mistakes
Learn from your mistakes. You will make many, and that’s OK, so long as you don’t beat yourself up, understand what went wrong, and then iterate on it. In the words of Einstein – “Insanity is doing the same thing over and over and expecting different results.”
Below is the slide deck that I used to present at Google Campus’s Fundraising Day.
This article originally appeared on Netocratic on July 2nd 2014.
When an investor considers your company for investment at the earliest stages, who you are is so much more important than your idea. Your team is such a crucial part of your company’s success, and yet many teams omit their team slide or bludgeon it because they don’t feel they have anything interesting to add other than team photos and a job-title.
What’s worse is when pitching, founders usually just point to the team slide, and say something like – here is our team, we have lots of rockstars or something generic like that. And that’s it…
Wow.. way to undersell who you are!
Let’s look at what the major selling points of a team slide should be:
Basically, does your team know anything about what you are doing. If you are a healthcare company, do you have a healthcare background? If you are making something for the financial industry, have any of your team members worked there? What companies have your team worked in that can validate you? If you’ve worked at Google before, for example, it would be worthwhile to put that company logo up on your team slide because the image of the brand would speak faster to your audience, than any number of words you could say in the same time frame.
Are you effectively complete or incomplete as a team? Is your team mostly business people but lacking the technical capabilities to deliver or is your team well rounded and able to execute? If your company industry requires an amazing specialist, do you have that specialist? By the way, do not assume that it is a bad thing to admit you are looking to hire for specific functions you don’t currently have in an early stage startup, it shows maturity and your team’s self-awareness, although you don’t have to state it as part of your pitch (just saying, in case it is asked as a question).
What is your company like? Is it a fun place to work in or is the tone more serious? What ‘titles’ do people have? How many of your team are outward facing and how many inward facing? These details are all items that an investor can pick up on based on your team slide.
In terms of where your team slide should be… there is not hard and fast rule, but I’ve found that if you are building something born out of a personal experience at your prior job or of interest.. it makes for a decent early slide to explain the background to your story/pitch. If you are building something that isn’t part of your background story, then where the slide sits is more about flow. Focus on telling a good story that is complemented by your team slide rather than the other way around.
So next time you are doing a presentation in front of investors… ask yourself, are you doing your team slide justice?
Originally posted on Netocratic.com By Carlos Eduardo Espinal
Fundraising is not easy. It is one of the most frustrating and time draining activities you as a founder will have to do as part of your company’s growth strategy. Unless you are really lucky and investors come to you, it will likely involve taking many meetings with investors of all kinds, both good and bad before you ultimately succeed in finding someone who believes in you.
You will likely meet many types of investors along the process of fundraising, including:
…And then… there is the one investor who ultimately believes in you and backs you. That’s all it takes. Just one.
The earlier the stage your company is in, the more that successful fundraising is about personal human connections and story telling. At the early stages of your business, as much as some investors will want to know your projected numbers (revenues, traction, etc), because there is so little to go on, it will always come back to your inherent abilities and vision as a founder. As such, fundraising meetings are mostly the way that founders can assess investors for value-add to their startup, but also for investors to see if they can work with the founders and to see how they think. Because of this mutual assessment by both founders and investors during fundraising meetings, an analogy that people use frequently to describe the fundraising process is that of dating. As funny as it may seem, I do think the comparison works well…
For example, in dating (as with fundraising):
Therefore, the fundraising mindset is really about four core things:
As you will likely never know where, when and how you will meet your future investor… as you go through this process, just remind yourself: Good news, Bad news – you never know…
Identifying milestones for your company’s development is beneficial for an early stage startup for many reasons: the first is that planning milestones allow you to focus what you will be working on, secondly the process of identifying and planning them make you question when and in what order you and your team should try and execute something, and lastly, from a fundraising perspective (something I cover in more detail in my blog post on milestones) milestones are useful to tie together what you need to accomplish with how much money it will take to get there, and fundraise accordingly.
On this post, however, I’d like to address a very important concept that should be considered during this process of outlining and planning milestones. I call it, “keeping milestone optionality”.
The principle is very simple… even though you plan your company’s future growth and associated cash needs, you can’t lose sight of the fact that you’re a nimble startup.. not a large corporate that has to report to analysts and public market shareholders. Your nimbleness is your strength. A startup’s growth plan isn’t linear, it’s more like a series of zig zags. As such, whilst it is useful to forecast your milestones so that you have a plan, and understand your cash needs, it is also useful to look at that plan with one eye, while the other eye looks out for actions which might be more beneficial to your company than what you had originally envisaged or agreed with existing shareholders.
On my post on 7 reasons for founders to avoid tranched investments I spoke about how a future tranche (a glorified milestone, if you will) could have a negative impact by dictating what a company should do, even if midway through its execution it turns out that it was a bad idea for the company to have that goal. For example, imagine if your plan had in place a monetization strategy (and associated revenue stream) kicking off in month 6 of your operations. Month 6 comes along and well, uptake is poor and your revenues are not coming in as expected. You have some chats with your customers and you find out that actually, the value they are getting from your product is mostly around the emerging network effect of your product, and because the network is still small, your early monetization is stifling the value they are getting because the barrier for new users to sign up is still high, and thus those that would be likely to pay are reluctant to pay.
Well, if you (or your investors) held you strictly to your original plan for the sake of ‘keeping to the plan’, you’d kill your company quite quickly, but by staying nimble and adapting your milestones to what you think should be the new direction, you might actually be better off than you would have been before. Naturally, this optionality comes at a cost, as your original plan will have changed and thus your cash burn will change and your goals (KPIs) will change as well… and that’s ok as long as you are aware how.
Good early stage investors (particularly those that invest in pre product-market fit companies) know that this kind of change mid-way through their funding is a possibility and they should be backing you in your ability to make these difficult calls even if it means a deviation from the plan they invested in. However, you should be mindful that there are many investors out there, that for some reason, still believe highly in the adherence to a stated plan. If you can, avoid taking money from them. At the very early stages in a company’s development, particularly during the pre product-market fit phase, investors should invest in you for your ability to adapt to changing and evolving circumstances, and not in your ability to predict the future 18 months in advance and stick to the plan when it clearly isn’t working.
Of course, this isn’t a recommendation to throw out all forms of planning, it still helps to create a milestone plan based around your hypothesis of growth (and relevant KPIs), cash needs, for you can’t be changing strategies every month and you need to keep an eye on cash burn. At the same time, however, you should constantly monitor whether there is another milestone optionality play coming up. If you do find, however, that you are constantly questioning your original hypothesis for growth, perhaps there is a bigger problem you are facing, but by keeping an eye open for milestone optionality events, you might fare better than if you exert uber discipline to a rigid plan that was built before you learned many new things.
In conclusion, as a founder, plan for the future, identify key milestones to grow towards, but always keep milestone optionality, particularly in pre product-market fit companies.
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