You don’t ask a school kid “how much money you are making”. If you did, that would guide them to skip school and get the odd job they are qualified for without education. And that would be the end of their development – they would be stuck with that for the rest of their lives.
What people normally do is ask about how kids are doing at school and what new did you learn today. If they keep learning every day, by the time they are adults they are ready to be working and then “how much you are making” will be a reasonable question to ask.
For grown up companies, revenue growth, EBITDA, quick ratio etc KPIs the traditional (and dominant) business literature (not to mention former corporate executives) is full of, are perfectly valid metrics. But what about companies who are still at school, i.e. startups?
By definition, a startup enters uncharted territories and its job is to do exploration so that it can draw a map. The success criteria for exploration is – learning. Finding the answers to the unknown.
The results of learning do not translate to revenue, profit, growth etc then and there. So what happens if success is measured as revenue growth, profit etc? You get what you measure. Startups skip learning and are trying to get the odd jobs they can, to get the instant results. Forgetting what their reason to exist is. Eventually, this may result in premature scaling – the #1 reason startups die. Pretending to be an adult when one is not.
In startup world everything is extremely context dependant. The context being your position on the learning curve – the “Startup J Curve”. Like a kid growing from child to adulthood, a startup is growing from a set of hypothesis to real business. How its success is measured should reflect their place on that journey. A conceptual illustration of that below.
As you get what you measure, knowing what is the measurement that matters at each stage on the way is crucial. You should understand what is the indicator that guides you best given where you are and where you want to go next. You first need to validate that your plan works before you start tracking your performance against it.
“You
can never fully convince someone he is wrong, only reality can” - Nassim
Nicholas Taleb
The
iconoclast authors words ring eerily true for most of us, who never seem to
realise our own mortality in the face of an ever increasing amount of stress
and workload.
Despite
light warnings and hints from (some) of my own investors regarding my pace and
lack of recovery, I simply frowned and replied that I could take the heat. In
my mind, only losers burnt out.
I
kept flying towards the sun with the confidence of Icarus, fully convinced of
my own invincibility. Until I was not.
Hemingway’s
quote of how to end up in bankruptcy rang familiar. My personal demise had
occurred “gradually, then suddenly.”
When
burnout strikes, the warning signs can be subtle. For my part it was higher
blood pressure and sleeping problems. The day it finally hit me, changed my
life forever.
Since
that fateful day in May 2017 when I experienced severe pain in my lower abdomen
and back combined with a crippling anxiety I have left my company and spent
almost 1,5 years in recovery. The total time in pain and anxiety has been
around 2,5 years.
Is
it possible to take pre-emptive measures?
As
stated quite bleakly in the beginning of this article it is difficult, mostly
because of many founders’ strong belief in their own invincibility. For most,
reality will wake them up.
However,
I strongly believe that it is not necessary to repress feelings of passion and
drive in order to stay away from burnout, but rather build “cushioning” around
everyday life. Even small things will aggregate to great benefits over time.
So
what are the things one can do to build a robust defence to stress and
passionate drive?
1.
Meditation - a practice of meditation has so many benefits it is almost
incredible this is not recommended to all founders. It is one of the most
powerful stress reducers while at the same time bringing much clarity to
thinking. Stay in bed every morning for a 5-20 min meditation before doing
anything else. Give your body a pleasant wake up.
2.
Do not bring your mobile to your bedroom - the mobile phone is one of the worst
things that has entered our lives in terms of sleep, if not the worst. The
stress of notifications, mail and blue light is a great destroyer of
restorative sleep. Leave your mobile outside and never let it in. If you are
concerned with waking up, buy a regular alarm clock.
3.
Focus on good sleep. According to Matthew Walker (author of the brilliant book
Why we sleep, get it now) sleep is so powerful it is actually remarkable how
living organisms ever woke up. It is the greatest superpower we humans can
have. It’s effects on health are just ridiculous.
So,
if you want to head straight to a burnout, please avoid the tips above,
otherwise, take care of yourself. This will leave your investors, clients,
wife, girlfriend, dog, cat and above all yourself, much much much
happier.
Tomi Kaukinen - Keynote speaker, serial entrepreneur, burnout survivor - Licence to Fail (www.licenceto.fail)
What your to-do-list consists of, and what your metrics for measuring progress should be, depend greatly on the stage (see article on stages) you are at. If you spend energy on a task that should not be on your priorities, it is counterproductive. It can be even lethal. No matter how good or hard working you are.
Very few
activities done in startups are inherently wrong. They might be exactly right –
for someone in a specific situation. But are they right for you, right now is
the question.
A common
example of this is premature scaling -
the #1 cause of startup death. The activities being performed can be exactly
the right ones – for someone who is ready to scale. But if you are not, you may
commit a suicide as a result.
A related topic is, what should be the key indicators of your progress. If you are in PMF stage trying to measure Customer Love, think what is a good proxy for that? You get what you measure, so picking the right indicators for each stage is important.
Identify the stage where you are at and what should be on your to do list accordingly
Identify the right indicator to measure your progress towards your next milestone
Shortage of time is your biggest obstacle - spend it wisely
Time is the biggest shortage startup has. So you need to spend your time doing right things at right time - otherwise you hours will be wasted on doing something that could have been done on later date.
One of the lessons I learned while entrepreneur was: You can spend your time doing things right (corporation) or right things (startup) !
You have a
plan, you execute but the results (such as sales) are not there. What’s the
problem? Bad salesguy, so fire him and hire a new one instead? Or could the
problem be a more fundamental one: is your plan wrong, or more precisely, the
assumptions your plan is based on are wrong?
Result =
plan x execution. It’s not always obvious which one is wrong. Both could be.
But for startups struggling with sales, the biggest issue is typically not
about sales execution (it might be suboptimal, but not the root cause). It is
likely to be a product/market fit issue. Or even more fundamental,
problem/solution fit issue. If there is no real opportunity, not even the best
salesguy can get a deal.
In most cases, rather than rotate through a number of salespersons, you should go back to your basic assumptions about the market, customers, their needs and expected behaviour. You probably have missed something. Learn from your experiments, adjust and then try again.
Corporate way of thinking: We carefully prepare a plan. Then we implement it precisely. The results will be as stated in the plan. Failure is due to bad execution.
Startup way of thinking: My plan is not really a plan, it’s just a sum of my hypothesis. For sure it will be wrong but I don’t know where and how. I need to run lots of structured experiments to test my hypothesis. When I have validated my assumptions, I may have a plan that is worth something. Failure is due to not running enough different “tests” with customers.
Many
startups behave like corporates in this regard, assuming their plan will work –
just throw in money and people and voila. No. Be very aware that until you have
validated your assumptions you do not have a plan. Then you can not be
implementing a plan (read: scaling), all you can do is run experiments.
The result
of an experiment is to increase your knowledge – does this work, Yes/No. The
job of a startup is to run experiments. A good startup learns a lot while
spending very little effort and money. A bad startup spends a lot and doesn’t
learn much.
Cost efficiency of your learning should be a key
objective while in the experimental phase (=all phases before scaling, by which
time you should have a validated plan you can just implement). Cost efficiency
of running your operation should be your key objective once at the scaling phase.
Most modern literature refers to just OKRs (https://www.perdoo.com/the-ultimate-okr-guide/) but I prefer adding Goals to it as well – as Microsoft did back in the 90´s. You need to have defined a clear Goal first before Objectives makes sense. Anyway, the operational stuff is captured in the OKRs (without the G) so no need to split hair on semantics, both work.
The power of the OKR driven operation is explained well in (https://www.amazon.com/Measure-What-Matters-Google-Foundation/dp/0525536221). If you google “measure what matters” you find a lot of material, Youtube videos etc to give you a crash course. Though the examples in the book are very big companies, the method works well for startups as well. Actually they may be even more critical for a startup, as “what matters” is dependant on the stage of the J Curve you are at. As you make progress, “what matters” should change. The thing to drive your everyday activity is the Key Result. The name is a bit misleading, it should rather be “Key Activity”, but this is the standard term so we stick with it.
There are
no strict rules for that as the whole PMF concept is somewhat abstract and
vague. But there are (semi)objective ways to assess it. What exactly works is
depending on the context so you need to identify the relevant criteria for your
case. However at the end it boils down
to this (by Eric Ries)
“If you have to ask if you have found it, you
haven’t.”
Some things
to monitor/measure that are indicators of PMF (more precisely, the “customer
love” or “market pull” part of PMF):
A
widely used measure is provided by Sean Ellis, who coined the term Growth
Hacking. He states you’ve reached Product/Market-Fit when at least 40% of the
respondents answer the question “How disappointed would you be if this
product no longer existed tomorrow?” with “Very Disappointed”.
Is
Word of Mouth happening? Are your customers telling about you to 3rd
parties, with no involvement from you, which results in winning new business?
Do
you get inbound leads that you can not track back to your own activity?
Are
customers trying to buy before you even tried to sell?
Are
your sales cycles getting shorter?
Do
customer requests generate so much workload that you have no time to pursue
your own development ideas?
Our own
formulation of a litmus test to determine whether there might be PMF:
Provide
evidence of 3 separate measured tests of your customer behaviour that
demonstrate your product/service is significantly (=order of magnitude) better
than the existing solution.
“Product Market Fit is when customers sell for you”.
“Glimmers of false
hope is not the same as customers wanting to rip it out of your hands. Product
Market fit feels like a landmine going off.” Peter Reinhardt
“The number one problem I’ve seen for startups,
is they don’t actually have product/market fit when they think they do.”Alex Schultz
“80% of SaaS companies never make product market
fit.” Peter Reinhardt
“Startups need 2–3 times longer to validate their market than most founders expect. This underestimation creates the pressure to scale prematurely.” (Startup Genome Study)
“You are able to articulate your different problem/solution fit(s) in detail”.
Before you can achieve product/market fit, you need to understand and be able to articulate your problem/solution fit(s) in detail - not in “generic” level or in generic terms (https://gorillacapital.fi/problem-solution-fit/).
A startup
is like a newborn baby. The development of a baby always follows a certain
sequence: learn to eat, get the digestion system going, then crawling, walking,
talking, running, reading, writing etc. The first close to 20 years of a human
life are spent on just learning the skills needed to be a real, adult human
being. And it always happens in a certain sequence.
You don’t
expect a 2 year old to be able to run a marathon, nor a 2nd grader
to apply for a university.
Startups do
follow a similar kind of a development. But that is poorly understood (or
accepted), resulting in “2nd graders trying to get into a
University, with the help of a rich dad” – in startup parlance known as
“premature scaling” (usually fuelled by foie gras funding).
Human
babies and startups alike should focus on developing skills that kids of their
age are meant to. Even Wunderkinds who have special skills and are faster
learners than most have to follow the same sequence, they may just advance
faster.
“The Startup J Curve” by Howard Love defines a 6
stage development process a startup has to go through, in sequence, to make it
to the finish line. A brief summary of the stages can be found here
Every startup should identify their place on that curve, and understand what should and SHOULDNOT be on their priority agenda while at that stage. And when are they ready to move to the next stage.
One way to
look at the stages is as a startup Founder to do list:
Provide evidence that there is a real business opportunity with real problem worth to solve. (problem/solution fit)
Provide evidence that a) you can build a product that does the job (product) b) you can find a market segment that loves your product (market). (product/market fit)
Provide evidence that you can build meaningful business. (business model)
Provide evidence that your business is scalable. (ready to scale)
You should
move to the next item on the list only when you have ticked the previous off.
And expect to do a lot of iterations – one step forward, half a step back.
Sometimes all the way back to square 1.
You must
have a product that does the job – i.e. you must have found product/market fit
(see a separate article on product/market fit).
You must
have a business model that works – i.e. you have unit economics that produce a
positive result, so that for every cycle the engine of your business turns you
earn money, rather than lose it. Only then does it make sense to rev up the
engine. (see a separate article on Business Model)
Some acid
test type of questions to verify you really are ready to focus on just scaling
your business:
You
can make your business cashflow positive within the next 3 months
At
least 1 of the 5 biggest customer deals have been completed successfully
without any involvement of any of the founders.
You
must have at least two non-founder team members generating more annual revenue
than their all-in cost is to the company.
You
must have at least one non-founder team member who is bringing in more revenue
than the customer-facing founder.
The
Founder can switch her email off for 2 weeks and it causes no dent in revenue
