Category Archives: Tips

How 3 peace-time founders are laying the foundation to transition to a war-time role

I have been at 3 board meetings this week. It is very apparent to me that we are in an environment where money is easily available to both the best and not so good performers. There are exceptional cases when the awful performer is also getting funded, but I want to avoid judging performance at the earliest stages.

Ben Horowitz popularized the term Peacetime CEO and Wartime CEO’s. We are at a really good peacetime – so the tactics for hiring, fund raising and customer acquisition are different than those when the market will turn – and it will. I cant predict when that will happen, and wont even know when it will start to turn.

I wanted to highlight the change in compensation strategy that’s being used by 3 companies who are preparing for when money gets more constrained, hiring is easier and customers are more cautious about their spending.

Most of the companies I know are moving from 60/20/20 split of base salary, performance bonus (based on individual goals) and stock options to

50/40/10 for marginal performers and

for the superstars, the compensation is 70/10/20.

The superstars have a total compensation that’s greater than the marginal performers.

PeaceTime CEO and WarTime CEO

PeaceTime CEO and WarTime CEO

What is being optimized is the bonus – for the marginal performers a lot more is being paid out on bonus – variable pay based on performance.

The logic behind the thinking is that the key players should not be poached – hence they are given a higher base than they would get outside, and are to be kept for the longer term – hence the incentive on the stock, whereas the marginal performers do not care about options that much.

Who are the marginal employees? Most of them are putting the “6 months, course at a coding academy” folks in the marginal employee pool. Not sure that’s correct, but that’s the approach being taken right now.

What do you do with all the advice you get as an #entrepreneur?

I had the opportunity to meet about 20+ entrepreneurs at the Plug and Play Tech Center, an accelerator and coworking space in Sunnyvale. This cohort was 2 sets of companies in the IoT (Internet of Things) space. Companies ranged from those in wearables, healthcare, connected car and home automation spaces. There were none in the industrial or commercial IoT area.

The startups were trying to get a sense for the changed funding landscape for startups and how to manage the new set of investors they had to deal with. Many in the connected car space were also talking to “strategic investors” such as the automakers themselves to get a sense for their interest to fund startups.

There was a question that one of the startups asked, which was they were adviced by a mentor who was a venture capitalist that “If we get funding from a strategic investor, then it will be viewed as toxic (sic) since we have to build to their needs”.

I am not sure of the context of that discussion, neither do I know about that investor’s background or intent, but this seems like poor advice at the outset. With more context and analysis I might learn more, but at the first glance, this is poorly construed.

I have written about conflicting advice for startups before and also a framework for entrepreneurs on how to take advice.

I think the best way to deal with experts who provide advice professionally is to resist the temptation to dismiss it rightaway or the desire to take it at face value and implement it rightaway.

Surprisingly I have found that most entrepreneurs actually “forget” the advice and seek out to experiment and find their own answer. That’s goodness, but it begs the question, how do you remember to seek what you learned?

So the problem as most people realize is that (like with storing and sharing good things at home) the problem is not storing, it is retrieving.

How can you recall the right advice when you need it?

Some decisions we make are fairly quick and provide us with very little time to process. Most decisions we make as entrepreneurs take require a longer lead time than a day.

The best way I have found to recall information an advice is to ask it again in context, instead of trying to remember what was said before and assume no judgement or bias before asking for a framework to think about the decision.

That way it gives you the ability to recall in context.

This surprising tactic means you should ignore all the advice you get and filter most of it as entertainment.

Which, if you are an entrepreneur is a much needed distraction.

The 5 most important questions to ask before you price your SaaS product

Over the last few weeks I had a chance to review 89 of the companies to understand their free to paid conversion and also a chance to talk to 13 companies. What I learned was that time spent on the pricing page was a key indicator of conversion and you can A/B test your pricing page for colors, position of your highest and lowest prices, number of plans showed, feature listing and your call to action. The names of your pricing plan also has a significant signalling effect on your customer’s perception of your product. I believe the future of SaaS pricing will move from pay-per-usage to pay-for-outcomes.

The most frequent question I get asked about SaaS companies is how to think about pricing for the product. Here are some constructs to think about and 7 questions to ask before you come up with a pricing model or a price for your product.

1. Understanding your customers current solution and options and their “cost per unit of activity” is the most important thing you should do first. For e.g. if you sell a Sales force automation solution, the customer might be using an Excel spreadsheet to track their sales because they dont have too many opportunities. So in their minds the “cost per unit” is zero, since they have already “paid” for Excel.

2. SaaS pricing is a marketing function not finance or operations. If the team that determines the value of your offering to the customer is another them, then it is their responsibility. The reason for this is that value of your product determines how much you can charge, not what customers are willing to pay. Value cannot be determined as a absolute, only relative. Which is why you have to compare it to their current solution.

3. At the early stages (less than 50-100 customers) optimize for more customers and quicker sales cycles not for profit. To get data and buying patterns you need enough data and a meaningful sample size. When you go beyond the early customers, it is time to optimize for LTV and CAC.

Here are the top 7 questions to ask before you come up with a pricing model for your SaaS product.

1. What are the current options for your customer?

Find out how are they solving the problem your product addresses currently and how much does it cost them to do that.

2. What are the different segments of your customers?

Find out if there are different problems your product can solve and the value associated with those problems. That would be the best indicator of

3. What is your goal from your pricing?

It is not always obvious to say that your goal is to get the “most money” or to be the most expensive product. Some companies want to be the 80% functionality at 20% of the cost option. Determine your pricing goal – profitability (after customer acquisition costs), value creation, marketshare, etc.

4. What is your cost of customer acquisition?

For most parts, your cost of development tends to be fixed (if you hire 3 people, you have to pay their salaries regardless of how many features the ship), but the cost of customer acquisition tends to be a variable. So if your costs dont take CAC into account, you will have a model that wont be profitable.

5. What is your sales model?

Linking Sales and Pricing for SaaS

Linking Sales and Pricing for SaaS

I usually use the price and complexity of sales / marketing on two axes to understand the sales strategy for a SaaS company.

If you are a company with a lower price point and low complexity of sales, you will have to rely on customers to try and buy (freemium) the product on their own and work on obtaining customers at a low cost.

If you are a very complex product or have a complex sales process and your product costs a lot, you will have to hire a field sales team to help you sell.

If however, your product is priced high and your complexity is low then you will build an inside (phone) sales team.

If you have a high complexity product and sales model and low price, your company will die.

Use this model to determine where you want to be and price the product appropriately.

How to name your SaaS pricing plans? A primer from 89 examples

There are over 7500 SaaS companies according to angel List. Over the last few weeks I had a chance to review 89 of the companies to understand their free to paid conversion and also a chance to talk to 13 companies. What I learned was that time spent on the pricing page was a key indicator of conversion and you can A/B test your pricing page for colors, position of your highest and lowest prices, number of plans showed, feature listing and your call to action.

I did notice that of the 89 companies, 82 of them gave their pricing plans “names”. Each plan had a name so their customers could associate the name with the plan. Most (over 80%) used standard and conventional names but it was interesting to see the spread. Here is the data from 89 companies and 251 plans.

Names of SaaS Pricing Plans

Names of SaaS Pricing Plans

The most important points you want to take away are the following:

1. Even though SMB and SOHO (Small Office, Home Office) users are the first few to sign up for a SaaS service, 3 of the top 5 names were named Enterprise and Business and Large. I would imagine this has to do more with the inside out naming (the plan is large or enterprise, not the company buying it).

2. The plans named “Small or equivalent” were largely in the bottom quartile of the distribution. Even though over 70% of companies had 3 plans, only 35% of them named the smallest plan as “Startup”, “Starter” or “Lite”. The most common starting plan was named “Standard”.

3. Of the 20% of companies that used “custom” names like Boutique, Tyrannosaurs, or Garden named all their plans uniquely. The surprising element of the companies that used custom names was that most of them had images to convey the “size” of the plan.

There were some other surprising things I learned as well in my discussions.

1. In naming plans, understanding the end customer’s billing and invoicing was key. Most customers got an email invoice (a few sent PDF invoices) and they would either file them or expense those invoices (if < $50) or would send the invoices to an accounting team.

Ensuring that the “accounting” team did not ask any questions was the consistent mention among 3 of the startups with custom names for plans.

2. Naming the plans to support your payment gateway is also critical. Getting too cute with names means the payment gateway will support a higher refund request that were marginal.

3. Many of the companies had to setup standard names so their marketing and product management teams could do better analytics and research on the backend, consistent with their reporting. Surprisingly, if the names were “standard” the companies found it easier to have a conversation to understand conversion rates, pricing options and changes with their finance teams, design teams and other outsourced companies as well.

When do you know that it is time to fold your #startup?

Honestly you never will know. There is always a “what if”.

There are many times during your startup journey, when you get a sense that things are not worth it. When your cofounder leaves. When your customer bails. When you cannot articulate success.

The simplest situation is when you run out of money.

The biggest challenge is knowing when way before your run out of money if something’s not working out quite right.

You get a nagging feeling that the same time and energy you have can be spent on other things to get a better return – whether it is on the next startup or another job.

The constraints that most entrepreneurs face tend to be masked by their bravado.

I hypothesize that the only time you know when it is time to shutdown and move on is when you no longer have a desire for the end state.

When you lose your passion.

That’s it.

If you still have the desire for the space you are in, and the problem you have chosen to solve, then overcoming all other odds is easier, because you still believe there is a wrong to be righted.

Most founders, though dont realize they have lost the desire for the space or the problem until much later. They are taught that persistence is the key to success, so the slog through the early warning signals.

How do you find out if you have lost passion for the space, earlier?

“Going through the motions” is one way to find out.

“Not getting excited to get up and go at it” is another way.

“Inability to acknowledge the small wins” is a third.

I can list many more.

The next part of the question is how do you know if this is “temporary loss of passion” or “permanent lack of desire” for your startup.

It is a permanent problem when your opportunity cost of doing something else is more than your current situation.

A framework for how to take advice – for #entrepreneurs

There is no shortage of advice or number of advisers and the time you are given advice as an entrepreneur.

It can be overwhelming for an entrepreneur, especially when they hear from conflicting advice from trusted sources.

The 3 most important factors that should go into the decision making process for taking advice is a) Who should you take advice from b) What advice should you take and c) When should you seek that advice.

There are 2 kinds of people you take advice from – those you consider as “experts” in the field and those who have “experience” with the specific problem you set are seeking the advice from. Everyone else is rather a big waste of time. So, if you are an entrepreneur and seek advice from someone at a much larger company on what you should do with your product direction, when they are not an expert in the field, then be prepared to be given useless advice. Well, you asked for it so there.

Expertise is easy to ascertain since, it has a factual basis. If someone is a certified legal professional, then they know the aspect of law they practice. They won’t necessarily be the best at litigation or immigration if they are a corporate attorney, but they would be the best at company legalese.

Experience is best couched with situational awareness. If the person giving the advice is smart, they will tell you the specific conditions, background and environment that the course of action worked. From that, you can at least determine if it might work for you in your specific situation.

The worst people to take advice from are those that pattern match. In my experience, most investors, general practitioners and enthusiasts understand a situation by talking to many people and offering their generic opinion couched as “experience”.

If you seek advice from those whose experiences don’t match your current situation, then you will get suboptimal advice. People who are confident may tell you they don’t know, but it is more likely you will get opinions from 3rd party reading couched as experience.

You need actually both expertise and experiential advice for most situations, which is why understanding the contours of the problem will help you explain it to the person you are seeking advice from.

What you need advice on falls into 2 buckets as well. Easy questions and hard questions. Easy questions have a binary outcome. These are fairly rare. Most difficult questions tend to have a range of answers, with complicated if-then-else statements around the answer.

Easy questions are those that can be answered by experts alone. Can you hire someone from your ex-employer is fairly easy to answer if you look at your exit interview or contract and have a legal person review it.

Hard questions typically will give you multiple choices, not just two. Should I raise money is an easy question to answer if you are running out of cash, but the harder question of who to raise money from and how much to raise are harder questions that can run the gamut based on your situation.

Finally, when you seek advice is also fairly binary. You can either seek advice when you need it, or way before you encounter your specific situation. Seeking it after is just a waste of time – it reaffirms your position and makes your feel nice, or it will make you regret the decision since the advice you get is contrary to the decision you already took.

If you seek advice just when you need it, prepare to be rushed and expect to miss out on key details that tend to be nuances and shades of grey. For example, trying to decide what type of company (C corp or S corp) you should incorporate is best done when you don’t need it done yesterday. It will give you time to think about the options if you learn about the options way before you need them and keep the notes handy.

Seeking advice way before you need it is useful in situations when the impact is longer term. When the decision to be made cannot be reversed very easily (for example who you want as a cofounder), you are better off getting advice on the type of cofounder you need.

The biggest challenge is always the conflicting nature of the advice. What do you do when two people, both of who you trust, offer very different advice or in fact the exact opposite advice.

The relative scale of their expertise and experience does not count, so most people go with what they feel “more comfortable” with. Or they get more opinions and do a “vote count”. Either way it tends to be sub-optimal only in hindsight.

The power of the “to dont” list and why you should keep one

I tend to get distracted easily. I have the shiny new object syndrome disease. I tend to take time to understand what made me master a task or a skill and so I tend to make a lot of mistakes.

Which is why I have a tool in my box called the “To Dont” list. It is not my idea or a new one, but I have benefited from it a lot.

It is a list I keep of things I am not going to do.

I have a list of 3 things I want to do each week and 1 thing I want to get done daily.

I have close to 45 items on my To Dont list. Examples – writing a book, learning Mandarin, learning awesome photography skills.

Every startup CEO and entrepreneur needs a To Dont list actually. Why?

1. Limited resources. When you are small you dont have an army of direct reports who can each own an initiative and “run with it”. If you, as the CEO, are not spending time managing projects and helping remove obstacles for people, you are not getting further ahead. I know a CEO who keeps blaming all the people she hired on her team for “not stepping up” to take responsibility for the top 3 items that the company must achieve. All along while she is working on priorities outside the core priorities she identified for the team.

2. Limited energy. If you are not spending time on your top 3 priorities for the day / week / month / quarter, and dreaming, eating, sleeping, brainstorming and executing those priorities, then your energy and brain power is being consumed by 100 other “shiny” non priorities. It tends to be the “death by a thousand cuts” problem where 7 to 9 things take up your time, and before you know it, it has been over 4-8 weeks and you have not made any progress towards the top 3 things you need to achieve as a company to get to the next milestone.

3. Limited time. If you work 10 hours a day, god bless you. If you work 15 hours a day, you are fooling yourself into believing that you are “working and productive”. I dont know the exact capacity and stamina that different people have for work, but everyone needs some time to rest their brain, their body and their mind. If, for example, you believe you should spend 8 hours on your top 3 priorities and only 2 hours a day on your bottom 7 priorities, I still would question your ability to focus.

The main reason is that it is not time alone that you are spending – you are spending your energy, which is another thing you have in limited supply.

I know that Google has said you have the 20% time where you can work on things that you enjoy doing, outside your core priorities, but you are not Google.

You are a startup, with very limited resources and time.

If you want to work for 12 hours, daily, by all means do so.

Just make sure that your top 3 priorities get the all of your attention – until they are completed.

There are some tasks that you might believe “you cant make progress” on, until there’s something else that happens outside your control.

Bring more things back into your control by spending time and energy on alternative paths.

For example, if you believe the “customer” will take 1 month to get approvals in place for you to get the POC ready, try to get another customer on board, or work the org chart of the customer to get other approvals in place. Dont spend time trying to talk to a new integration partner since that’s not on your priority list.

That should belong on your to-dont list, until it is important enough to belong on your To Do list.

The To dont list should be as sacred as your to do list. Put everything in there that catches your attention until it is worthy enough to make it to your to do list.