GrubHubMike

Opportunity vs Focus

2011-09-14T12:18:04-05:00

Much has been said about the importance of staying focused in a business. This has been one of the elements of success at GrubHub. But I’ve always been a little bit uncomfortable with explaining this concept to colleagues. Occasionally, someone will propose a great concept of a flanking product at our business with solid metrics and unit case analysis. Often my response to the idea is “well, sounds good, but isn’t in our sweet spot”. Yet it feels intellectually dishonest to dismiss a potential cash cow on a weak philosophical position. On the other hand, we can’t evaluate every single idea, so where is the balance?

Guilty until proven Innocent

Every new business concept is by default seen as a distraction… until the case exists to overturn that bias. There are lots of data points supporting the principle of focus: learned journals, sage advice, personal experience. These things consistently reinforce the idea that less is more. Tangential ideas are distractions rather than opportunities.

In practical terms this means that at some point an idea must be dismissed because it smells of distractions. Even before the concept is fully understood and examined, it must be discarded. Such a waste…. Some other startup will probably make a killing on it, but we can’t divert the resources. Stick it on a post-it and move on.

Explore the closest idea that is still NOT in scope

For every business there is are ideas that is so close and so tempting that it doesn’t seem distracting, but brilliantly accretive. This idea has a siren song… tempting us to abandon the principles of focus and steady execution. Words like opportunity cost, synergy, accretive, outside the box, and aggressive taunt us to take the risk and make the concept a core piece of the business.

So what makes the cut, and what doesn’t? Where is the line? The best way to find that line is to thoroughly explore the closest idea that doesn’t cut the mustard. I’m talking about identifying a real opportunity, that is so close to the current business that it would take only minimal effort to attain, but is just a hair’s breadth too distracting to embrace. This exercise brings into clear focus the critical line between focus and distraction. It gives us a ruebrick by which to judge new concepts as being sufficiently relevant to explore.

Execution over Innovation

When I was 6 years old my grandfather said to me “I had the idea for rear windshield wipers before anybody… if I had just done something with it, I’d be a rich man” A lot of people have this concept that the path to riches is an idea. However the path to success is execution, not ingenuity.

Simplicity is necessary for excellent execution. Excellent execution is necessary for bringing a product to market. The flash of insight that starts the ball rolling is the critical big bang, but that same insight adds complexity, which is anathema to excellent execution.

How does an entrepreneur embrace the execution of bringing a new concept to life, but reject the temptation to endlessly add features and new product lines. Frankly, most don’t. This mix of expansive creativity and restrictive focus are in direct opposition, and therefore rare to find.

A counterbalance is nice

My business partner Matt often holds the opposing view to me on this. He tends to lean towards opportunity and expansion where I naturally fit into focus and execution. The tension is helpful because it leads to spirited debate on a case by case basis.

It also leads to a lot of eye rolling on both sides as we both present our respective positions, which both of us have made and heard ad nasuem.

(Over)compensating with equity

2011-03-01T14:44:18-06:00

I've been asked recently about how to compensate non founder employees at the beginning of a venture. But there is a lot of confusion on whether to make everybody involved on day 1 a founder. Most folks agree there is an upper limit on the ideal number of founders. So taking that for granted, how do you motivate non founders with equity before you have cash?

The usual method is to just give them a big chunk of equity But that can get real hairy because you don't always know how to differentiate quality people vs total hacks. So don't "give" equity to anyone. Everyone should earn equity over time. If you grant it all up front and then find out somebody is a lazy bum the company gets bogged down by a cap table with dead weight.

A more sophisticated approach is to use some kind of vesting mechanism. Over the last few years I've come up with the following idea. I don't really have any legal background, so unless you get a good startup lawyer to look at it, consider this a handshake deal.

Give each non-founder an above market hourly equivalent rate. Say $90 per hour for a software developer. Agree that the amount will be paid out at a future date in equity. That future date could be either a funding round or a number of months at a pre-determined valuation. For practical and motivational reasons, it would be even better to compensate cash & equity 20%/80% .

An Example

Agree to $90/hour with Bill to be paid in 20% cash 80% equity. The equity portion will be granted in fully vested stock when the first of a)a funding occurs or b)at $1,000,000 valuation in 18 months.

In case A where Bill works 200 hours and a funding occurs at a $3Million post valuation in 6 months Bill would get:$90 * 200 * .2 = $3600 in cash over the course of the 6 months$90 * 200 * .8 = $14,400 in equity which equals 0.48% equity at $3MM valuation in fully vested stock on the date of the close. Presumably at this point you and Bill will work out a long term employment agreement with additional cash and options. Employees who are with the company before the first funding should get a generous option package going forward.

In case B where Bill works 600 hours and no funding occurs in 18 months$90 * 600 * .2 = $10,800 in cash over the course of the 18 months$90 * 600 * .8 = $43,200 in equity which equals 4.32% equity at 1MM valuation in fully vested stock on 18 month anniversary. The larger equity percentage in this case is commensurate with the larger risk and timeframe involved in the 2nd scenario.

Equity ain't for everybody

Equity should be reserved for those folks who will continue to provide future value. After sending this analysis to a buddy, I got this response: If you issue Bob equity what is your response when he says, "I'm doing all this grunt work for you, I'd like to participate in the strategic vision of the company, and you're taking that away from me. I'm a highly skilled and dependable and you'd be paying a lot of cash to find someone reliable in NY to do what I'm doing."

My response: The short answer to your question is you've got the wrong person doing grunt work. Why would you have a richly compensated highly strategic MBA doing that for you? My college roomate helped me pick up menus when I went out to SF, and he never got anything in return...though I try to take him out to dinner whenever I'm in SF nowadays. If you don't have cash, you can do consulting at an hourly rate and use the arbitrage between that consulting rate and the 5 or 6 craigslisters doing grunt work with no equity at all.

So what about Founders?

I remember being in rowing in college on an 8 man team. It totally sucked. The worst part is that you were either frustrated because half the team was worse than you, or you were frustrated because you were struggling to keep up all the time.

A fact of startup life is that some folks pull more weight than others. In extreme cases this leads to a group of founders turning on one of their brethren and excommunicating them. The process does not generally evoke images of flowers and happy thoughts. So why not take the model above and adopt it for founders. Issue some stock for every week of work for each of the founders. If somebody flakes out and goes to Costa Rica for a month, they aren't earning equity. The biases the ownership of the business towards those folks that continue to provide the most value over time

GrubHub closes an $11 million round, and we learned something

2010-11-12T09:01:02-06:00

GrubHub recently closed an $11 million funding round. Check out our official post here. This is the third VC financing we’ve gone through, but it was the first time I’ve done the Sand Hill road show. The process of seeking investment is incredibly valuable for a growing business. It forces the executive team to take a step back and evaluate their business, progress and future plans. Then you take those things and expose them to the scrutiny of very intelligent, engaged and motivated skeptics. It's the best consulting money can't buy! During the course of talking to some of the sharpest minds in Silicon Valley, Chicago and Boston, a number of themes came up repeatedly:

Mobile is the future king

The growth in the late 90s and early 00s in web adoption is happening in a compressed 2-3 year time scale right now. If you’ve got an investment pitch that doesn’t mention mobile before the 4th slide, you’ll walk away empty handed. This goes both ways; investors that showed no interest in mobile were filtered out of the process very quickly.

One of the strong indicators for GrubHub is that our mobile traffic will go from 0% to 10% of our order volume in 9 months. That’s $7 million in takeout orders placed on iPhone, Android and HTML5 mobile browsers from NOTHING in 9 months!

Another strong indicator for mobile is that repeat purchase use occasions are higher on a mobile phone than on a consumer facing website. This makes sense intuitively: there are more opportunities to transact on a phone because it is always in your pocket. The investors we spoke to backed up this intuition with anecdotal evidence. Unfortunately, I don’t have sufficient sample set of actual data across multiple industries to support this. But hey, it passes the gut check, so I’ll play along!

Know your cohort analysis

Every single investor. Every one. They all asked us to see our cohort analysis. By investor number 3, we had figured out not to say “what’s a cohort analysis?” By investor number 4 it had become a slide in our pitch. Thanks to our great marketing analysts. So what is a cohort analysis?

Basically, take all the people who engaged in your website (or mobile app!) in a given month. Then look how they behave in the next month as a group, and then the next month, etc. You’ll end up with a graph that shows how engaged a group of people stays over time. For strong businesses, this starts out high, drops dramatically over the first 1-3 months and then stays steady for a very long time. Think 2-5 years, which is an eternity for a startup.

The cohort analysis shows several actionable things. First, it is a legitimate mechanism for estimating lifetime value of a customer. Second, it shows the impact of product decisions over time and suppresses the impact of initial marketing. Third it shows the impact of long term engagement tactics (such as loyalty programs and remarketing) Check out Fred Wilson’s post. Lightspeed ventures also has a more how-to article.

Superior customer service is a great strategy (and Zappos hasn’t filed a patent)

“We’re going to be differentiated by giving great customer service just like Zappo’s” That is pretty much a losing strategy. However, “We’re going to be differentiated by giving our own style of great customer service” is a winning strategy. Customer service is our central strategy now, and we expect to improve it over time. We did hear some folks say “Zappos already did that”. Well, so did Nordstrom, and about 100 other fantastic companies since about 1825. It’s still a good strategy. Few companies do it well.

We have been and will continue to be successful because we take care of our customers. Hungry people want to make sure they have great choices and they get fed. So, leave all the analysis and business speak on the side for a moment and go with some olde-timey advice: Take care of your customers first. Everything else will work itself out.

SEM is not a long term competitive advantage

SEM is hard. Doing it well is a crucial part of any businesses tactics. Having said that, it isn’t long term defensible simply because your competitors can potentially also hire a great SEM team. Furthermore, there is always the chance that your competitors just have more money. Zynga does this. They crush everybody with SEM and facebook ads and don’t leave an inch for competitors.

Digging deeper, we got a lot of anecdotal evidence that users who discover a website from SEM exhibit the worst loyalty among all acquisition channels. Say what! That doesn’t even make any sense! Why would people who click on the right side of Google have less loyalty over time? Well, honestly, I don’t know. Four investors said it, so there is probably some element of truth to this.

SEO is getting harder

First, SEO is getting harder because there are proportionally more companies focused on this over time. There are just more people doing aggressive and intelligent things competing for the same eyeballs every year. Compounding this problem is that the search algorithms change at a pretty quick pace. This puts the natural advantage for SEO to the newest and most innovative companies and biases away from companies that are entering the growth stage of their business.

Second, organic search Google results are taking up less and less of the page. In most searches, the first web result is actually below the fold now. Several things have replaced it. The “7 pack” local search and search results personalization have been putting pressure on the location of organic results for some time now. The introduction of Google places just compounds the issue.

Lean Startup Economics

2010-10-01T12:42:45-05:00

Creating a startup is best done by jumping in with both feet. Building a minimal product and finding customers early in the process is a great way to create a company from scratch. The idea of WRITING A BUSINESS PLAN is such a daunting task that most reasonable people aren’t going to go tackle it head on.

But there is an alternative, take it out one piece at a time. The central piece of the business plan is the financial model. The central piece of the financial model is the unit model: a fancy term for the expenses and revenues associated with producing and selling a single item.

Here are four steps for building a unit economics model in parallel with starting the business. This makes the model a living document rather than a dusty academic exercise. So, here are the four steps:

Step 1: ?
Step 2: Make $1
Step 3: Make $2
Step 4: Make $1,000,000

Fortunately, these steps are inherently in order of decreasing difficulty. I’ll get to step 1 last.

Step 2: Make $1

Make a product. Go sell it. Don't wait till it is perfect. It won't get perfect until you've tried to sell it, so that's a waste of time anyway! It’s a long journey from the idea to the first $1. This involves solving a real problem well enough that somebody will pay for it. As soon as you sell something, you've got customers. And once you've got customers, you have the most valuable data available about how to make your product better.

Try to quantify how much it costs to make that product, market it, and close the sale. The dominant factor in building and selling this first product is the founder’s time. So, to build a reasonable model, put a dollar amount on that time. Not only is it the dominant factor, founder’s time is also the scarcest resource. The business only gets 90 hours of it every week, and can’t manufacture more. Now you’ve got a unit model!

Step 3: Make $2

There is a catch here. This second dollar comes from a repeat customer. To get a customer to repeat, the product you sell needs to be of such high value that they couldn’t go without it. The odds of hitting this mark on your first product are very low. Refinement over time to improves a product to this level, rather than a single shot in the dark.

Now, update your unit model. Instead of having revenue for a sale of a product, include the lifetime value of a single customer. Include all of the incremental cost to provide that product a 2nd time. Also, figure out how much it cost to get that customer to repeat purchase. Here is a hint, it should be about 10% of the original cost.

A word of caution at this point: If you don’t have the possibility of repeat customers in your business, just stop right now, the business isn’t very good.

Step 4: Make $1,000,000

Now that you’ve got customers and a product that they can’t live without, figure out how to sell many customers and produce many products and collect lots of dollars. At some point around this time frame get a business license. This becomes an operations and scaling issue, and there are great people who love doing this who can help grow the business. Don’t try to do it yourself.

For the financial model, this means understanding headcount numbers and benefits, attrition rates for customers, conversion rates on the product, etc, etc. The best way to figure out how to build a financial model is to look for investment. They will tear up your crappy documents again and again. Think of this as free consulting.

Step 1: Quit your job

All those other steps are at worst an academic exercise and at best a hobby until you quit your job. A lot of stuff has been written about making great entrepreneurs, but one element that comes up repeatedly is hunger. I take this literally, not metaphorically. Make the sale, or eat ramen noodles. Great motivational stuff, ramen noodles.

This makes the financial model real too. Don’t think of the hourly rate for the founder’s time as a theoretical concept. Actually pay it. This also puts a time limit on everything. The business bank account and the personal bank account are in a race to hit zero. The only thing that helps either one is sales.

This post in video

Here is a video of me giving a talk on this same subject to Chicago's Lean Startup Circle

This post in alternate video

This is also a pretty close approximation of the talk too. But a lot funnier. Big Props to Edward Domain of flyovergeeks for pointing this out in his post

A Practical Guide to Writing Your First Business Plan

2010-06-28T10:16:37-05:00

So you want to start a business. You’ve heard that you should have a business plan. You’ve got a vague idea that you should get started on that sometime. That vague idea has been sitting in the corner getting grumpy as you’ve neglected it. And now the idea is a mean looking little monster with big pointy teeth. The best way to get that sucker is to take a step by step approach that breaks down this big “MAKE A BUSINESS PLAN” task into a bunch of smaller pieces.

Before we jump into the nitty gritty of how to write this plan, let’s define what we are looking for in the end. The audience for the business plan is you. The value of the plan is primarily to focus the efforts of the entrepreneur. As an added bonus, it is a tool to attract investment. Generally a plan includes:

Strategic Section

Simple definition of a problem and the businesses unique solution (the elevator pitch)
Definition of the client base for the business
Analysis of the completion and the business’ differentiation
Management team of the business

Execution Section

Brief marketing plan
Brief sales plan

Financial Appendix

Spreadsheet with the financial projections for the next few years
Clear description of all assumptions made in the financial projection

Step 1: What’s the point?

Answer this question for yourself: What type of business do I want this to be and in what timeframe. A few examples might be:

I’d like this business to generate $5,000 a month after 5 years with about 20 hours a week of ongoing effort
I’d like to start a business and build it over 15 years to support myself and 5-10 employees
I’d like to create a high risk, high reward startup venture with venture backing and sell it for a bajillion dollars.

Generally those first 2 businesses are referred to as lifestyle businesses. They start and then continue for a long period under the same ownership. The third is a typical venture business. Generally these are characterized by a drive towards “exit.” There are lots of other types as well; yours might not fall into these categories.

Step 2: What’s the business?

Write down a few quick sentences about each of the following:

Define the problem. Describe the solution
Describe the demographic of the client base.
Who is the competition? Competition is: “the place where my clients are currently spending money.” Competition is not: “The businesses that are most similar to mine”
How am I different from the competition?

Take some time to brainstorm about all of this stuff and how the business is going to serve the needs of clients. Be creative.

Now, take a hard look at your ideas and ruthlessly cut them all out except the one key shining idea that defines this business. The essence of strategy is choosing what not to do.

Step 3: Describe a single client experience.

This is known as the “unit case”. It is the experience of typical client once the business is up and going. Think about how the client found out about the business. What were they thinking as they considered purchasing. How did they purchase? What was their method of payment? What communication did they receive from the business? When and how were the services and products delivered? How did the transaction or relationship end? Can the client repeat the purchase? Can they refer other potential clients?

Resist the temptation to think about 100 clients right away. Stick with just this one person. A lot of stuff naturally falls out of the answers to these questions: a marketing plan, a sales plan, the assumptions behind the financial model.

Step 4: Build a unit model

Take all the answers to the questions above and build out a financial model for the single client. The real key to this exercise is getting a list of all your assumptions. These assumptions are dollar amounts and you need to start thinking in terms of the cost and revenue associated with different activities around a client.

The spreadsheet has three sections: assumptions, revenue and expenses. The assumptions section should be completely separate and easily editable. The revenue and expense sections should primarily be formulas that reference the assumptions section. This gets the analytical side of the model down on paper, and lets you do a gut check: does this business make money for a single client? If not, don't try to make it up with volume! At the end of the model, you must be able to list each of these assumptions:

The cost of acquiring one client
The lifetime revenue value of the client
The cost of materials, goods and time required to service the client
The collection timeframe for the client paying for services
The amount of time it takes to recoup the cost of a client in revenue
A dollar value associated with management’s time, or a salary for the management team.
The referral rate of a happy client
The repeat purchase rate and timeframe of a happy client

Step 5: Take a breath. Walk away.

Before going any further, take a week and leave the thing alone. Take some time to reflect on the plan, but don’t edit it. Take your dog for a walk. Enjoy time with friends. Talk about the plan, but don’t edit it. This process is creative, and therefore takes time. The end goal is a well considered plan, not just a paper document.

Step 6: Build a 50,000 foot view

Now that you understand the unit model, build a full scale model. Take the assumptions you had before, scale it to the number of clients over time that meet your goals. This is largely a spreadsheet exercise where you are balancing three things: the amount of initial working capital, the time resources of the founding team, and the assumptions in the unit model.

You’ll find that small changes to certain assumptions have huge impacts on the overall revenue and cost dollars. Don’t worry, this is typical. The value of this part of the process is that you become accustomed to adjusting the financial model of the plan as base assumptions change. Since the assumptions never survive their first encounter with real clients, this is a very important skill to develop.

You’ll have a final salary number for the management team. Or you’ll have a dollar profit after 5 years. Barring that, you’ll have some important metric that sums up the point of the whole thing. Check that number against your expectations. Is it right on? No? Consider changing aspects of your strategy that might result in different economics.

Step 7: Expose the plan to scrutiny

Shop the plan around to different people who can look at it critically and constructively. This constructive criticism is essential data for improving your business. Evolve the plan considering this data in your decisions. Use the data in your decisions, but don’t let it dominate your strategy.

Keep in mind that a good plan generates lots of resistance. An engaged adviser will poke holes in assumptions, argue against strategy, and suggest additional revenue models. A poor plan will exhibit blank stares and lots of compliments. Be gracious in receiving all of this stuff. It doesn’t help to argue with somebody to you are blue in the face, but instead drive towards getting the essential reasons behind criticism(or lack thereof).

Step 8: Rinse and Repeat
This business plan is a living document. Make sure to refer to it every few months. You may find that your strategy has diverged significantly from the original plan. Has this happened intentionally? If not, is the divergence a good thing anyway? What impact do the changes have on the economics of the model?
A Final Note
A lot of folks will give you advice. Some of it will be solicited, most of it won't. As the business plan matures, this advice will be less novel than it was at first. You don't necessarily need to act on every piece of advice you get. But you do need to listen graciously. In the final analysis, you'll know your business plan is solid when you get lots of engagement and criticism, but you confidently know that your ideas are accurate and why your detractors are incorrect.
Thanks
Thanks to Cindy Kuzma for help editing this essay.

Top 6 boneheaded misconceptions of first time entrepreneurs

2010-06-15T11:05:23-05:00

I’ve had some pretty boneheaded ideas since I started grubhub.com. As I’ve shepherded my idea to a hobby and then to a real business I’ve had the fortune of being able to recognize some of those mistakes. Actually, I’ve had the fortune of being surrounded by folks who can point out misconceptions and who have been upfront with me. This process of learning from bumbling mistakes investors like to call seasoning.
I have noticed that some of these ideas have come up repeatedly. Many of the other entrepreneurs and would-be CEOs I’ve met have struggled with these same ideas.

1. I have no competition
When I first thought about competition, I had a mental image of a rival gladiator. Somebody out to get me. This foe will stop at nothing to steal customers that should rightly be mine. They will woo investors with false tales of better products and superior talent. Jerks.
Back in reality, I couldn’t think of any individual companies that fit this description. Sure there were a few others out there, but the pool of customers we were selling to was large enough that it didn’t seem like we had any friction.

This is entirely the wrong view of competition. Superficial competition is “the other companies that do something similar to me.” Real competition is “the companies that earn dollars from customers that they might spend on our product.”

2. I’m going to succeed because I’m smarter than my competition
So now that I have identified my competition…how am I going to get clients to give me their cash instead of those other blockheads. Because I am smarter!

Wrong. Entrepreneurs are like drivers, every single one of them thinks they are better than average. The meat of most businesses doesn’t take huge mental power. Usually things like vision, organization, patience, discipline and humility are the factors that drive success.

I’d put my bets on folks who pursue the question “What are we best in the world at?”. In Good to Great author Jim Collins points this out as one of the critical factors for competitive defensibility.

3. My time is free.
I started my business as a web developer. So, I was able to write the website without hiring any help. Eventually I started selling, and keeping books and invoicing, being a lawyer and breaking kneecaps for collections (I live in Chicago, that’s how we do things.) I was probably putting in about 90 hours a week. Whenever something else needed doing, I’d just work harder and longer. No cost!

The cost isn’t in dollars, it is in opportunity. The essential question is “If I do X, what other thing Y will I not be able to do?” This leads very quickly to listing and prioritizing. One can’t determine the most important opportunity unless they can identify the non important tasks comprehensively. A list and prioritization of the top 10 todo items is extremely hard because it requires 9 hard choices.

Because it is so hard to get a comprehensive prioritization of tasks in a startup company, I usually ask a few short cut questions. If my time cost me $500 per hour, would I be doing this task? Can I get that hour back in profit?

4. Keep it secret, keep it safe
There is a pervasive fear in the entrepreneur’s mind that their concept is about to be stolen. This is especially in the idea stage, but it can be present in relatively mature growth stage companies. If the concept is good and the management team is worth its salt, relying on competitive differentiation is a much more stable policy than secrecy.

Furthermore, Ideas get better when they are exposed to scrutiny; especially if it comes from potential customers. They may not know what they want, but they will recognize it when they see it. So, it takes an excessive amount of trial and error to get products just right. That can’t be done in an air of secrecy.

In the rare case where an idea would be ruined by exposure, I’d sprint for the nearest exit. What are the odds that an inexperienced (or a veteran) entrepreneur is going to get the marketing, execution, sales and finance right for rapid adoption necessary once the cat is out of the bag?

5. Time is running out
It’s the wild west, and we gotta win the land grab! I’d like to say that I’ve conquered this fallacy, but it comes up repeatedly. Every time that a new opportunity is discussed, this need for speed subtly worms into the conversation. The premise is that once you get a customer you’ll keep them.

But the premise is false. Customer loyalty isn’t earned by speed, but by quality. First doesn’t win. Best wins. Companies that are able to create superior products that are tailored to their customers needs are more successful. They are built to grow for the long term instead of being a flash in the pan.

6. We just figured out the silver bullet
It seems like there are a lot of hot internet startups that went from zero to hero overnight. The superficial appearance is that they were plugging along in the basement for 6 months, and then figured out how to make their product explode and bam, they cornered the market, sold the company, and retired.

In recent years, these explosions have come about from viral awareness. A person tells five friends and then they tell five friends, etc. Add some fancy words in there like “tipping point” and “critical mass” and “influencers” and suddenly it seems more like sociological science instead of voodoo magic.

I often field the question, “How are you going to make this viral” I have a hard time answering the question nowadays because I don’t agree with the premise that viral is something worth chasing. Einstein didn’t say “The most powerful force in the universe is viral marketing.” Einstein said “The most powerful force in the universe is compound interest”

Figure out a business, any business, that grows profit annually at some acceptable percentage. Risk and reward come into play in determining that percentage. In the long run, compounding growth always has higher returns than a single step change.

Marketing Competency Matrix

2010-06-06T12:33:12-05:00

This matrix was created while to put some thought behind what makes a great VP of Marketing. It was inspired by this programmer's competency matrix
There are many different types of Marketing folks for different stage companies. This chart is based on my experience at stable, yet early stage internet startup.

Each level implies mastery of the level before. For example, creating a national brand from scratch is useless if one has no understanding about the importance of a unified brand.

Level 0
Level 1
Level 2
Level 3
Brand Creation
No understanding of brand. Entirely Transactional thinking. Brand is defined by consumer reactions
Understanding of creating unified brand to govern an entire marketing plan.
Able to use effective branding to change consumer behavior
Has created a national brand from scratch.
Market Segmentation
Throw it at the wall. See what sticks.
Able to direct the acquisition and mining of consumer data internally and in the market at large. Able to create actionable initiatives around available data.
Understanding of psychographics, demographics and behavior patterns.
Understanding of consumer profiling. Able tospeculate,measure and refine about consumers objectively.
Distribution Channels
Dude in a gorilla suit
Understands SEO/SEM CPM Display Advertising, Print, Broadcast, Outdoor, Affiliate Marketing, PR, Social Media
High initiative in seeking out new opportunities balanced with long term dedication to what works. Strong negotiating skills with advertising vendors
Understanding of measurement of individual channels. Thinks strategically about cost of acquisition and long term value of a customer.Dedication to focused efforts.
Team Management
If you could go ahead and come in on Sunday… that’d be great.
Understands the importance of good hiring techniques, conflict management and scheduling. Able to identify and release ineffective employees.
Prizes competency in coworkers.Dedication to publicly acknowledging colleagues.Constantly evaluates tension between primary responsibility and delegation.
Creates a culture of teamwork.Always desiring to understand before being understood.Humble yet confident.
Resource Management
Do it all. Now.
Effectively creates and refines estimates of resources needed to implement a marketing initiative.
Understands the importance of prioritization. Able to say no based on resource constraints.
Good “sunk cost” thinking.Habitually able to decide between staying the course and changing tack.

Founder Competency Matrix

2010-06-06T12:31:16-05:00

This matrix was created while to put some thought behind what makes a great entrepreneurial founder. It was inspired by this programmer's competency matrix
There are many different types of entrepreneurs for different stage companies. This chart is useful to me in trying to raise my own game at stable, yet early stage internet startup. I hope to continually improve towards level 3 on this chart over the coming years.

Each level implies mastery of the level before. For example, creating a common mission statement would be useless without understanding the needs of employees, shareholders and customers.

Level 0
Level 1
Level 2
Level 3
Vision/Mission
The Tail wags the dog.
Understands the importance of focus and manages the tension between innovation vs stability.
Understands the needs of:
- Employees
- Shareholders
- Customers

Shepherds the creation a common mission for the company to rally behind.
Team Management
If you could go ahead and come in on Sunday… that’d be great.
Understands the importance of good hiring techniques, conflict management and scheduling. Able to identify and release ineffective employees.
Constantly evaluates tension between primary responsibility and delegation.
Always desiring to understand before being understood.

Surrounded by people of extreme competency. Not threatened.
Fund Raising
$$ solves all problems.
Charismatic and engaging. Able to identify and close investment sources.
Identifies quality investors by:
- Strategic thinking
- Executive hiring
- M&A opportunities
- Fund lifecycle

Able to say no to the wrong deal.
Board/Investor Relations
It’s my company.
Go away.
Board meetings stay focused. Useful conversations around material topics.
Manages the tension between constructive board input vs management drive and focus.
Channels board energy to help the company’s initiatives.
Resource Management
Balance sheets don’t balance.
Understands how to create/interpret P&L, Balance Sheet and statement of cash flows.
Adapts company income and expenses by manipulating business activities in a prioritized way.
Manages remaining capital runway to macroeconomic conditions to optimize the fundraising environment
Learning/Adaptability
I’ve got it all figured out.
I make this stuff up as I go along.
Learns from multiple sources:
- Academic
- Mentors
- Empirical Data
Challenges assumptions and objectively changes decisions in appropriate situations.

A Quick Interview

2010-02-02T09:19:21-06:00

A student sent me some interview questions for his entrepreneurship class. I only had about 5 minutes to shoot off some answers. So, this is what popped off the top of my mind:
What ignited the spark in you to start a new business venture or to make significant changes in an existing business? How did the idea for your business come about?
-There was a push and a pull. The push:I didn’t want to work for somebody else anymore. The pull:I saw that no service existed to show hungry people all the restaurants that deliver to them.

What three pieces of advice would you give to college students who want to become entrepreneurs?
-The most important step to get started is to accept the risk of failure.
-Pick one thing. Do it well.
-Figure out how to generate revenue immediately

How do you generate new ideas?
-The creative problem solver naturally discovers solutions to problems. Therefore, the best way to get new ideas is to put oneself in a situation to observer real life business problems.

What is your greatest fear, and how do you manage fear?
-Commit to not acting on fear, but on possibilities. Maximize upside first. Minimize downside second

How do you define success?
-Success is a continuum and journey, not a destination. A successful journey is characterized by the continual maturation and evolution of my projects and myself.

What do you feel is the major difference between entrepreneurs and those who work for someone else?
-The ability to accept the risk of failure

What sacrifices have you had to make to be a successful entrepreneur?
-Stability

Where you see yourself and your business in 10 years? 20 years?
-I will be working on opportunities nos 2-4. This particular business will have taken a life of its own.

What is your favorite aspect of being an entrepreneur?
-The satisfaction of setting my own goals and measuring my success against them.

Do you believe there is some sort of pattern or formula to becoming a successful entrepreneur?
-Identify opportunity. Act to engage that opportunity. Measure. Rinse and Repeat.

9 tools for growing a startup from 1 to 50 employees

2010-01-19T13:19:38-06:00

Here is a roundup of 9 tools for growing a company from 1 to 50 employees:

Tool #1: Revenue. Apparently there are business models that are proponents of not making money right away, but I don't get them. Cash allows an entrepreneur to hire people and resources to get things done. At first it is all about increasing velocity on the sales -> product -> sales cycle. Successfully executing that cycle then requires supporting activities... billing,finance,IT infrastructure, etc
Tool #2: Options and Environment. Finding and motivating employee #2 can be very challenging. Options help (though less so in the midwest). The right person for this role will be very interested in equity. The right option plan will provide long term incentive when cash is hard to come by. More importantly, the startup environment will be very attractive to the right person. Meeting in coffee shops, lots of responsibility, and flexibility in direction should inspire rather than frighten early employees.

Tool #3.Throw away the partnership documents. Get a handshake you can trust. I swear we spent 100 hours arguing over the minutiae of our partnership document. This was largely based on several people I knew who had been screwed by their partners. The lesson to be learned is *not* about getting a long contract. In the end, you just need to pick the right partner. Because, if they want to screw you over, they'll find a way regardless of what papers have been signed.

Tool #4. Don't hire just good people, hire good startup people. A good startup employee has a few key attributes. Look for people that have a lot of adaptability. They take initiative. They are good with ambiguity and change. Look for these kinds of things in the interview process. Give a preference to candidates that follow up and ask (the right) questions.

Tool #5. Hire deliberately. Never, ever, ever hire the wrong person because of pressure to fill a role quickly. It is always, without exception, under every case imaginable better to wait on the right person than to rush into a bad decision on hiring. In the end, your company is only as strong as its people.

Tool #6 Rock Band. Ain't nothing like playing some classic rock and drinkin' a PBR to bring a group of people together. Sure, sure, we got a little carried away. In fact, we are still waiting for some other group to put up a decent challenge to our rock band supremacy. You can all go pound salt. We rock.

Tool #7 the monthly board/employee meeting. Using content that is as similar as possible, make sure that the board of directors and every employee at the company is informed. Each person knows the strategic plan of the business. Each person knows the historical performance of the business. Each person knows the projected growth of the business.

Tool#8: The bimonthly management team meeting. This is a meeting where I invite smart people to call bullshit on me. Actually, that only happens sometimes. Mostly, we just meet and talk about the priorities and work flow of the upcoming month. Doing this twice a month provides continuity and clarity. Its amazing how often the statement... "I thought we all agreed on this last month" comes up. Sure, we all agreed, but not on the same details. This regular meeting eliminates misconceptions and aligns expectations. "Muy Bueno" as they say in France.

Tool #9: Patience. Be slow to make judgments. Deliberate in actions. Patient in execution. These things are critical. Employees are trying their hardest to accomplish their goals. Trust them. Give them time.

	Level 0	Level 1	Level 2	Level 3
Brand Creation	No understanding of brand. Entirely Transactional thinking. Brand is defined by consumer reactions	Understanding of creating unified brand to govern an entire marketing plan.	Able to use effective branding to change consumer behavior	Has created a national brand from scratch.
Market Segmentation	Throw it at the wall. See what sticks.	Able to direct the acquisition and mining of consumer data internally and in the market at large. Able to create actionable initiatives around available data.	Understanding of psychographics, demographics and behavior patterns.	Understanding of consumer profiling. Able tospeculate,measure and refine about consumers objectively.
Distribution Channels	Dude in a gorilla suit	Understands SEO/SEM CPM Display Advertising, Print, Broadcast, Outdoor, Affiliate Marketing, PR, Social Media	High initiative in seeking out new opportunities balanced with long term dedication to what works. Strong negotiating skills with advertising vendors	Understanding of measurement of individual channels. Thinks strategically about cost of acquisition and long term value of a customer.Dedication to focused efforts.
Team Management	If you could go ahead and come in on Sunday… that’d be great.	Understands the importance of good hiring techniques, conflict management and scheduling. Able to identify and release ineffective employees.	Prizes competency in coworkers.Dedication to publicly acknowledging colleagues.Constantly evaluates tension between primary responsibility and delegation.	Creates a culture of teamwork.Always desiring to understand before being understood.Humble yet confident.
Resource Management	Do it all. Now.	Effectively creates and refines estimates of resources needed to implement a marketing initiative.	Understands the importance of prioritization. Able to say no based on resource constraints.	Good “sunk cost” thinking.Habitually able to decide between staying the course and changing tack.