44 ways to reduce stress in a startup

My friend had a major site issue and she was up all night fixing it. Fortunately, by the morning, everything was fixed and none of her users noticed. Good times. 

She asked if I have any tips on managing the ups and downs of a startup?

Ah, the things I’ve seen!

I’ve had a lot of time to think about stress. Founders can be comically optimistic when you ask them how things are going. No matter how confident anyone looks on the outside, everyone deals with hair-on-fire problems. Wait until someone is a few beers in and then ask how are things really going?

Fundamentally by building something new, you’re trying to change the status quo, which takes a lot of effort and rarely goes according to plan.

Here are lessons I’ve learned from a lot of burnt hair, wasted time and needless stress.

  1. Nothing should be surprising. Expect that crazy stuff will happen over the entire lifespan of the company. Potential issues: diminishing runway, over/under hiring, site goes down, losing a key customer, competitive pressure, legal issues, team burnout/your burnout, HR issues -- you name it.
  2. Anticipate and plan for as many problems in advance as possible (see #1). There’s an aversion to planning in startups, which just creates more stress. Planning reduces the number of potential issues that will come up. (Your company should never be frantic)
  3. "It's your job to deal with hard problems.” Zach Coelius told me this during a tough moment about 4 years ago and for some reason I found it relaxing. I thought, ah, this is my job. Then, I focused on solving it.
  4. Know that you wouldn't want to be working on anything else.
  5. Eat, sleep and work out. Need to be in marathon mode, not sprint mode, otherwise you won't have energy for the occasional crisis. Same for the entire team.
  6. Be careful of team stress or burnout. Most problems are solvable, but I can tell you the outcome of people working 6 days a week for 12 hours a day. Maybe Elon Musk can pull it off, but I don’t think the majority of companies can. I think that better people, rested, with long term knowledge at a company, working together for years, is better than optimizing for 7 days per week, 12+ hours per day, for 1 year, before they burn out and leave.
  7. Optimize for output, not hours.
  8. Take at least one day off a week. 7 days a week isn’t effective long term.
  9. Visualize an alternative, crappy version of your life often. No job or crappy job, sleeping outside, annoying co-workers, unreasonable boss, no one listens to your ideas, and you can't improve things. Perspective is helpful.
  10. Get at least 1 great, consistent adviser. 2 average advisers ≠ 1 great advisor. They can help problem solve and put things in perspective; plus, contextual advice is 10x standard advice. (Investors and advisors: the crowd, the ringside, and your corner)
  11. Have enough runway and always know how much you’ve got. Make sure you always have > 6 months left. (Don’t be the startup that accidentally runs out of money)
  12. Run financial projections. Flying blind can be stressful - for good reason.
  13. Have a plan and execute on it. Control for the things you can control.
  14. Know that you're getting better. I like to think I do less stupid stuff over time. That’s relaxing.
  15. Hire great people who deal well under stress. Don't get stressed in seemingly stressful situations. Have a history of dealing with hard situations. You realize how amazing these people are during the moment of a crisis when they’re calm, own the issue and quickly problem solve. I have interview questions to filter for these attributes. This is key.
  16. Hire for people that will stick around. (Mark Suster: Never hire job hoppers)
  17. Don’t confuse hoodies for culture fit. Hire for experience, alignment on values and desire to be there.
  18. You're constantly reaching your level of incompetence, which is why startups can be stressful. It's also why you learn a lot. (see #14)
  19. Whenever something crazy happens, say, "good times" and smile.
  20. Talk to other founders.
  21. Read A Guide to the Good Life.
  22. Do what you’re doing for the right reasons. If you’re building a company to flip it asap, it’ll be hard to go through tough periods.
  23. In inflection moments, have a good BATNA.
  24. Avoid personal debt, if possible.
  25. Don’t consider anything closed until it’s signed (and use Hellosign!)  
  26. Don’t consider a round closed until the money is in the bank.
  27. All founders go through this. It’s not just you.
  28. There are net positive investors, net neutral investors and net negative investors - avoid the net negative ones.
  29. Avoid non-standard, uncommon investment terms.
  30. Think twice before building a startup in Minnesota (see The Benefits of Building a Company in the Bay Area). Sorry Minnesota. (I’m from Minnesota, btw!)
  31. Hire HR early. If the team is truly the most important thing, act like it and hire someone dedicated to taking care of the team. We had a full time HR person at 15 people. (NYTimes: Yes, Silicon Valley, Sometimes You Need More Bureaucracy)
  32. Hire people that want to work at your company, rather than people just looking for a job.
  33. Focus on revenue. All other metrics are a proxy for revenue. This one is more controversial, but revenue solves a lot of problems and reduces stress.  (43 lessons growing from $0 to $1+ million in revenue, twice)
  34. Become profitable at least once. Another controversial one. But, I think first time founders don’t always know the tradeoff between free user growth and revenue, so they end up with free users that aren’t valuable. If you become profitable once, you can intentionally move into negative burn, if you want to accelerate growth.
  35. Talk to customers. Building something people don’t want can be stressful.
  36. Create an org chart before hiring. Otherwise the team doesn’t fit together well.
  37. Write investor updates monthly. It keeps you disciplined, deliberate, top of mind for your investors / advisors, allows them to give contextual advice and makes sure the company doesn’t quietly die, which would be stressful. (David Lee: Updating your investors)
  38. Have a livable salary, if possible.
  39. Don’t raise before you’re ready (Setting your angel round up to fail)
  40. Go through a transition checklist every time someone changes roles (covering duties continuing, discontinuing, new manager, title change, etc). Otherwise, people may end up reporting to 2 different people and be confused.
  41. Get a board, but maintain control. More controversial, but I found the board very helpful. Having active observers works too. (Too much funding, not enough action)
  42. Plan for the next stage. Ask investors / advisors / founders what it takes to get there. Better to optimize for what you know you’ll need then get there, not be prepared and too late to fix it. (PandoDaily: The series A Crunch is Happening Now)
  43. Build a culture of feedback. That can help prevent issues from building up, unresolved over long periods of time.
  44. Get a ping pong table :)

As years go by, I think you just stop being surprised. In a world of unexpected things, even the unexpected isn’t unexpected anymore. Hope these are helpful. Here’s to tranquility (if possible) while building startups!

Feel free to add any tips in the comments.


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Recommended reading:
Sam Altman on Founder Depression.  

The Unexpected Downsides to Running a Lean Team

I met up with a friend a while back who was running a super lean startup team. It was a team of around 10-15 people, working long days, six days a week. He shared some insight into a few problems he was facing at the time due to the team being overwhelmed. I can see the appeal of running at capacity, since staying efficient is key. In the early days at HelloSign we ran really lean, but we were never this lean. As soon as the first employee joined we stopped running so lean because we realized there are very serious costs to being understaffed.

Here are the major downsides you risk by running short staffed and overwhelmed:

1. Anything can disrupt the team

When you have no slack in the organization even the slightest hold up can have major consequences. Let’s say someone gets sick and can’t work for three days. This is a pretty common occurrence, but since everyone else is already working at capacity, there is no one to pick up the extra work. This has a domino effect on the entire organization. It’s very important that there’s some leeway in the organization to account for life’s unforeseen circumstances.  

2. No flex for someone leaving

To expand on my first point, imagine everyone working six days a week at capacity. You’re barely keeping up. Then, imagine if someone leaves the company. There’s not enough bandwidth to absorb the responsibilities of the role. So, with just one less person, everything would fall apart.

3. Bad for morale

You’ll end up losing people to burnout or they’ll end up leaving the company for another role that’s less intense somewhere else. The people that do burnout and stick around will likely be less effective. Burnout is like overdrawing on your credit card — once you’re in the red, it takes a long time just to get back to break even.

4. Long term planning suffers

When all of these burnt-out employees are working at capacity, it can result in not being able to think clearly. Even worse, there’s so much immediacy felt throughout the organization that no one has the breathing room to plan for the long term. Instead, people micro-optimize and only think short term. Without long term planning, the company lacks vision and direction.

5. Missed opportunities

If a great opportunity arises but you don’t have the bandwidth to pursue it, you’re forced to miss out — whether it’s a chance to become a launch partner with a large company, a revenue opportunity or something else. If we ran too lean, we wouldn't have had the bandwidth to develop our API, which has been a huge source of growth. That would have been a missed opportunity.

6. Mental Exhaustion

Ever talk to someone on a Friday night after six consecutive 14 hour workdays? They give you a blank stare and talk like a toddler. It’s just not an effective way to work, nor is it healthy for the employee. This can also lead to employee turnover (see #3).

7. Diminished endurance

Always running at max capacity means people won’t have energy for when you need to push harder. This means a lot of missed opportunities.

8. Slow growth

If everyone is maxed out and you have a chance to grow, you’ll first need to grow the team to meet current needs before meeting growing needs. That can slow you down as a company.


I got dinner with that same friend a few months later. After our initial conversation he grew his team a little more, even though they were strapped for cash. Apparently, it had a huge impact on effectiveness.

While running a lean team has its benefits, it’s important to know the limits. When teams are too lean, the consequences are huge. The good news is that the problem is completely preventable.  If possible, hire every role one month before needed (Hire every position at least one month early). It can mean the difference between success and failure as a startup.


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Originally posted on LinkedIn.

Why Just Being Innovative Isn’t Good Enough

In 2008 a startup called Modista created a great new way to display goods on eCommerce sites. Investors were excited. In 2009, the founders decided to raise and had $600k in commitments from investors.

Before the founders collected the money, Like.com sued them for alleged patent infringement. Patent litigation can cost $1-$2 million. Their investors decided against transferring the money and the company was shut down. Their founders had a vision, but never had a chance to execute it.

If you have a vision for why your company should exist and how it can change the world, it's worth thinking about how to protect it. The business world isn't run by fun, innovative, well-meaning entrepreneurs. It's run by people who protect their bottom line. Innovating isn't always sufficient. Raising money or making money is one way to increase your hit points to make sure you have enough time to execute on your vision.

I think lean companies don't always realize the risks of being small. There are protections that companies gain by being big, which aren't afforded to the small. Big companies like Apple and Google can spend years in patent litigation without impacting their bottom line. Small companies can't play that game.

Here are some things to think about when you decide to stay small:

Fighting a monopoly is difficult. Some have their interests tied to government legislation. Taxi drivers in San Francisco filed a class action lawsuit against Uber. Uber has also faced legal challenges in New York, Chicago and elsewhere. Instead of shutting down the company, the company was able to afford the lawyers to fight back and even change legislation. Uber is projecting $26 billion in revenue in 2016.

When you have money, you can operate negative margins in order to prioritize growth. PayPal spent $20 for each new signup. At one point, they were losing millions of dollars per month. If you were a new, less capitalized company in the payments space it would be extremely difficult to compete with them. PayPal was ultimately acquired for $1.5 billion.

Patents were intended to protect independent investors, but they often have the opposite effect. Many patents have been granted to non-unique technology. It can cost $1-$2m and two years to reach some kind of outcome. Modista was small and folded. Hipmunk was 'big,' having raised $15m, and sued their patent troll.

Big companies sometimes think they can get away with treating small companies badly because they don't think small companies can afford to fight back. Best Buy violated an NDA and stole a partner's technology. The startup wasn't able to use that revenue to scale their business, so they had to sell. The founders had a vision. I'm sure they would have preferred to execute on it.

When I think of these examples, I realize the importance of raising more than you need, growing revenue and moving faster than you would have otherwise. Whether intentional or not, I think the founders that survive are those who know how to protect their vision; they make sure they have enough capital on hand to deal with the inevitable problems.


Related reading:

Ben Horowitz has a great post on the fat startup.

Warren Buffet talks a lot about investing in  "economic castles protected by unbreachable 'moats.'"

Jessica Livingston wrote a great piece on things that can prevent your startup from succeeding. She talks about a tunnel of monsters along the way that try to prevent you from succeeding.

Your Job As a Founder Is to Create Believers

Before we launched HelloSign, I remember showing HelloFax to a family member. This person was normally supportive, but he took a glance and walked away. He wasn't the only one. A lot of people wouldn't even look.

I was the only believer.

Belief is the most important component for a startup. Most companies are born and die with one believer. Maybe they had zero believers, since even the founders didn't truly believe.

Great companies have many believers. Dropbox has over 100 million believers. Google has 1 billion believers.

When you start a company, you only have one believer: you.  

Your job as a founder is to create believers.

You have to believe.

When a friend pitches me a startup idea, I recently started asking, “do you really want to work on this?” I learned that it doesn't make sense to dissect the idea first. It's belief that will keep the company alive and create other believers.

The Airbnb founders maxed out their credit cards, then sold cereal to stay afloat. For 999 days they didn't see traction. But, they believed.

You need customers that believe.

Customers invest time and money — their most precious resource — into your product. They need to believe that you'll add value to their lives.

Evernote ran out of money. They had a customer that believed so much, he invested and saved the company from bankruptcy. He believed.

The press has to believe.

What separates the companies that get press and the ones that don't? The press believe in the former more than the latter. It's that simple.

The press loved Twitter. They believed in it before I did, before most people did. The press believed and made me believe.

Investors have to believe.

To compensate for losses, the potential return on each investment has to be high. You need to have the potential to become a billion dollar company.

YC often talks about how Dropbox wasn’t the top pick for a lot of investors, but they found a few that believed.

The team has to believe.

The people you want to work with can work anywhere they want. Great developers, marketers, salespeople and other talent look for something worth building.

Pandora ran out of money in 2001. Their 50+ person team deferred $1.5 million in salaries. For two years. They believed.

Your partners have to believe.

Business development can grow your company to a massive scale. You need to show that you can add value to their users, that you'll be around for a year. They need need assurances before sending thousands or millions of customers your way.

Bill Gates licensed software to IBM before he owned it. This became a company making partnership. IBM believed that Microsoft would add value to their users.


This all goes back to the beginning, when you are the only believer. You don't have any customers, the press won't write about you, investors won't talk to you, employees don't apply and partners don't know you exist.

Your job as a founder is to create believers.

Worried There’s a Bubble? Grow Revenue.

There’s always talk that we’re in a tech bubble. I heard about it when we raised our first round. Then, heard it again when we raised our second round.

It’s never easy to know if we’re in a bubble — if we were, all of those people writing about it should be shorting tech stocks. The bubble writers would be the richest people in the industry. I’d love to read an article like this: 1) We’re in a bubble and 2) I’m shorting tech stock.

Since not everyone wants to short stock there’s a less dramatic way to hedge against a bubble.

Grow revenue.

Many companies raise enough money for 18-24 months of runway. If capital becomes unavailable for two years, all of those companies will likely get wiped out. If you have enough revenue, you won’t be one of those companies.

Revenue means that you can weather a storm. Capital markets dry up during market corrections. In 2008, even amazing companies couldn't get capital. But, if you had capital from revenue, there was amazing talent available to hire, ad campaigns you could cheaply buy, plenty of inexpensive office space and cheap Aeron chairs on craigslist.

Revenue means that your customers are your investors. You don’t need the capital markets — your customers are the capital markets. You add value to your customer's lives, so they give you money.

Revenue means that your company is going to look really good to investors in a capital downturn because you’re one of the few companies that looks like you’ll weather the storm. Ironically, the companies that need the money the most will be the least attractive to investors.

It’s certainly possible that we’re in a bubble now — I wouldn’t know. If I did, I’d be shorting tech stocks and writing articles about how to tell the future. But, if you’re just slightly concerned funding won’t be around like this in the near future, grow revenue. At least you can get a head start. If you’re looking for tips on how to start growing revenue immediately, here’s a post I put together: 43 lessons growing from $0 to $1+ million in revenue, twice.

Good luck!

Why you should raise more than you need

Guest post. Originally posted on The Next Web

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When we went out and raised the first time (four years ago), we hit our fundraising goal. We had additional investor interest and almost closed the round. Instead, our advisor pushed us to keep going and we raised two times that amount. The second time we raised, we took on three times our target.

It took our advisor serious effort to convince us the first time around (Investors and advisors: the crowd, the ringside, and your corner). We were worried about dilution and thought we had more than enough money to grow. Plus, like many founders, I wanted to get back to work since fundraising is a full time job.

Not only do I not regret raising that extra money, I’m insanely happy we did. The extra capital funded the development of HelloSign (after HelloFax) and got us to cash flow positive. If we hadn’t raised, I would have had to go pitch investors during one of our most important inflection moments, when we were building and launching HelloSign.

shutterstock_152507459

I continue to see founders stop raising when they still have investor interest and momentum. I’m not talking about tens of millions of dollars, but the difference between $500K and $1M or $2M. It’s the kind of difference that gives you another try when your first hypothesis doesn’t work out or allows you to scale your company during a financial crisis.

Here are some reasons to raise more than you think you need:

1. Your startup is generally a binary outcome – success or failure

Within reason, dilution doesn’t matter as much as just succeeding. Having enough time to solve the problem you need to solve is the most important. Everything else is secondary.

2. Think of the money in terms of how much it can increase the value of your company

If $1M dilutes you by 10 percent, can you add another 10 percent or more value? If yes, then raising is a no brainer. (Paul Graham: The Equity Equation)

3. Chalk up $500K to a pivot, the discovery process, being a first time founder or making dumb decisions

Fully loaded (monthly salary, insurance, office space, office cleaning, gear, snacks, and more), some of our investors say you should estimate each employee costing $10K-$20K per month. I thought that was BS, until we looked at the cost of office space and the tons of other expenses.

Regardless, at the lowest end of the spectrum consider this: 10 people, on zero revenue, spending five months working on the wrong thing, will cost you at least $500K. So whatever you calculate as what you need, build in another $500K.

4. If your company does well, growth capital doesn’t hurt (and hugely helps)

If you’re killing it, you now have extra fuel to put in the fire. You can take advantage of a game time opportunity, rather than needing to immediately raise more capital, which takes time. Plus, you may be in a financial crisis and not be able to raise growth capital even when you’ve built out the metrics proving that additional money would have an immediate ROI.

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5. If your company doesn’t do well, you have time to fix it

If you’re in the middle of a pivot or still searching for the right users, extra money means extra time to fix things.

6. Even $1M on zero revenue doesn’t last long

Eighteen months goes faster than you’d imagine. If you’re raising for the first time, $500K or $1M seems like a mind-blowing amount of money. Then you calculate salaries, insurance (health, office, E&O, D&O), office space, legal fees, nice Apple cinema displays and other expenses you’ve never considered — on zero revenue. You may wake up one day to realize you’re out of money and your company has failed (Don’t be the startup that accidentally runs out of money).

7. You can acquire users with longer payback periods

If you have a profitable campaign with a six month payback period but not enough money to invest and wait for that money to come back, you’d have to shut down profitable campaigns. That’d be frustrating, since you’d literally have a profitable campaign on hand, but wouldn’t be able to take advantage of it. This is similar to number four.

For example, Box has the opportunity to invest in a really long pay back period since they raised a huge round and can afford the impact it has on cash flow. (These Numbers Show That Box CEO Aaron Levie Is A Genius)

8. The economy is like your crazy uncle — you never know what it will do next

In 2008 funding dried up. That was it. The financial markets took a dive. It was a bad time for many companies trying to raise. It was a time when investors with sterling reputations decided not to wire the money, even after committing. It was a time of huge uncertainty and a really bad time to raise.

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The difference in a few days separated those who could raise and those would couldn’t, despite any company merits. It would have been nice to to have cash on hand to weather that kind of storm. Being unable to raise at these moments can kill your company and it often does. Never experienced a financial crisis? Talk to the founders that raised in 2008.

9. Your next raise is going to be harder

Each time you attempt to raise another round things get more difficult because the expectations increase and the valuation of your company is also supposed to increase.

One of the most jarring cut offs is between angel rounds and A rounds (The Series A crunch is hitting now. Have we even noticed?). Angel rounds are about the vision. The following rounds are about your numbers. Vision is significantly easier than having the numbers.

The only thing that matters between the angel round and VC round is having enough runway (capital) to make sure you get your numbers. Raising without the numbers is extremely difficult.

10. Lots of small angel rounds are distracting and demoralizing

Fundraising is highly distracting and fundraising every few months is even more distracting. I’ve seen companies in the middle stages where they’re not quite at the A round stage, but continually raising smaller amounts like $200K or $500K only to have to raise that amount again.

There are better ways to spend your time like running your company and making sure you hit your numbers for the next round. Constant fundraising may prevent you from hitting your numbers in the first place.

Just as important, having to continually raise can actually make it more difficult to raise altogether. It’s like a self fulfilling prophecy. If it looks like your company is having a hard time raising because of the repeated effort, it sends the signal that your company isn’t worth the investment. The more it looks like you’re struggling to raise, the harder it will be to raise.

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11. Consolidation of legal costs

It costs a lot of money to raise. You may spend up to $30K or more on legal costs. That’s pretty painful, but it’s less painful when consolidated into one bigger round versus multiple smaller rounds.

12. With one caveat

Don’t be these founders: Too much funding, not enough action

Just like our advisor made the case to raise more, I’ve made the same arguments to founders. I usually just get a polite nod. We did the same polite nod, but we have an unusually insistent advisor, which is exactly what we needed. So, this is me being unusually insistent as well. Raise more than you think you need.

Read Next: 43 lessons growing from $0 to $1+ million in revenue, twice

Image credit: Shutterstock

Jack of all trades, but master of one

I’ve interviewed a lot of jacks of all trades, masters of none. The problem is, they can’t do the one thing we need done really well, so we always pass. I’m starting to realize that we’re looking for the Jack (or Jane) of all trades, but master of one. They have at least one function that they focus on and absolutely kick ass at. 

At a startup, employees perform a lot of functions. I think that people oftentimes confuse an employee like that as a jack of all trades, master of none. But in reality, when we hire someone we’re looking for the best candidate for a specific role. In a scenario where both candidates are good at hustling, we’ll always take someone who’s specifically very good at marketing, for example, over someone who’s okay at a lot of things, but not great at any one given thing.

It’s important to ask yourself these questions:

“Who’s going to be the best at growing your userbase? An average marketer or the best marketer you can find?”

“ Who’s going to be part of a marketing team you’re building long term, someone who loves marketing or someone who just likes it?”

“Who’s going to build you the best possible product? A product manager who just dabbles in product, along with everything else, or someone who absolutely loves and kicks ass at it?”

If I were thinking about my career in the startup world, I’d think about the one area in which I could be the best. Would I be a great marketer or a great product person or something else? Then, I’d do the everything I could to be the best at that role. Whenever we interview someone who’s jumped from product, to marketing, to something else, we’re not sure how to think of how they’d fit in our company long term. At a certain point, the Jane of all trades need to focus on something, and when that happens, will she be the best person for that role? Just like most things, focus is really important. If I were getting started in the tech world, I'd think about where I could truly excel and focus on that. 

Great books

Going into a long weekend, I thought I'd share some of the books I've enjoyed reading recently. 

Let me know in the comments if there's anything you'd recommend!

Business / tech books
Zero to One: Notes on Startups, or How to Build the Future

The Score Takes Care of Itself: My Philosophy of Leadership

The 7 Habits of Highly Effective People

High Output Management

The Five Dysfunctions of a Team: A Leadership Fable

Good to Great: Why Some Companies Make the Leap...And Others Don't

Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future 

Lean In: Women, Work, and the Will to Lead 

The Hard Thing About Hard Things: Building a Business When There Are No Easy Answers





Other books




43 lessons growing from $0 to $1+ million in revenue, twice

Guest post. Originally posted on The Next Web

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I realized the other day that we’ve grown from $0 to $1 million with two separate products (HelloSign and HelloFax). This happened a long time ago, but I was recently reflecting on the lessons.

I found a lot of growth truisms to be false. We’ve learned a lot. Some lessons were painfully won, which is why I may sound strongly opinionated about them. They also may be slanted towards B2B products, but I wouldn’t discount them if you’re not in that space.

Here are our lessons:

1. Charge for your product as soon as possible. Really.

Every founder I talk to has a good reason for not charging for their product and it’s usually a bad reason. I remember office hours with Paul Graham. We explained that we were focusing on product now, but would focus on revenue later. He was confused, that somehow we saw a tradeoff between focusing on product and focusing on growth. Building product should equal growing revenue. People show they value your product by paying for it.

2. Revenue tells you what features to focus on

Charging is a powerful indicator that you’re building something people want. If you’re not charging, you’re likely spending money (development time = money) building features your users don’t really want. People who pay you have opinions about what to build next. Making them happy will lead to more people like them paying you (with this caveat: Don’t build a Galapagos product)

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3. Focus on the right customer

YC and Paul Buchheit often say find one user and make her happy. I’d amend that. Find one user in a big market that has the highest LTV, lowest churn, and focus on making her happy. Otherwise, you may be boiling the ocean.

4. ‘You have a distribution problem, not a product problem.’

After one board meeting, our investor said, ‘you have a distribution problem, not a product problem.’ It’s a lot easier to change your message and re-focus on a different target market than completely changing your product. Do that before pivoting or rebuilding your product.

5. “Cheaper and better” doesn’t necessarily lead to higher conversions

Cheaper and better is another truism I found mostly false. Customers often doubt a product is better, because it’s cheaper. Strange, I know. I remember one of the Wufoo founders explaining the notion of being more expensive and better. Plus, if you charge more, you can invest more in product and truly make it better.

In fact, I met one CEO who deliberately priced his product higher than his competitors, just to get them to ask, ‘why’. Then, he’d pitch why his service was better than the competitors. When we split tested our pricing, just being cheaper didn’t lead to higher conversions.

Maybe there’s some scenarios where cheaper and better could make sense, but I think this truism needs to be questioned and perhaps the default truism should be reversed: be more expensive and better.

6. Being too cheap or free can lead to less growth

A woman walks by a branch of US electron

It turns out that distributing to businesses takes money and effort. They don’t just show up. Since we had cheaper plans, we couldn’t afford to reach out to more customers. But, with more expensive plans and a higher LTV, we can spend significantly more to acquire customers.

Being ‘cheaper’ and ‘better’ really just makes it so you can access less people.

7. There isn’t a strong correlation between beautiful design and success (in the early days)

Let me preface this by saying, we love design. I’m a huge fan of design and we’re making a big investment now. I think it’ll help us get to the next level.

I remember meeting with Garry Tan, who is an incredible designer. He mentioned that he hasn’t seen a strong correlation between good design and success of startup companies. So, if you have to choose, pick great user experience, then add great design later.

Conversely, focusing on pixel perfection in the early days may even prevent you from getting the revenue you need.

8. Free plans often make business leads feel uncomfortable

A huge customer wanted to use us for thousands of seats. Instead of being excited by our free plans, they just got confused. We lost them. That was painful. Not paying means that you may not be around forever. Paying money for software signals that they can depend on you for this really important function in the future.

Startups underprice all the time. As a business, we signed up for a $15 / month tool. I would have paid $100 / month for the value it provided. I had an unusual moment, where instead of getting excited about how inexpensive it was, I got nervous about using a key piece of software for only 15 dollars per month.

9. Don’t listen (too much) to your users on pricing

Innovate on your product, not the pricing. We’ve tried all types of innovative pricing models, often driven by our user-base, which have resulted in a lot of custom development. Ironically, when we switched back to industry standard pricing, the plans performed significantly better.

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10. $5 / month is too cheap

If you’re a business tool and charge $5 / month, you’re likely leaving a lot of money on the table. Justin Kan said that we were running a charity. He was right. We doubled our prices. See #9.

11. Split test pricing early and often

Two years after launching, we doubled our pricing without an impact on churn or conversion. Since we grandfathered all of those users, we have two years of paid plans that could have been paying us $10 / month versus $5 / month. If we had done this split test earlier, we would have effectively doubled our revenue.

To visualize the impact, imagine a company with 1,000 paid customers:

$5 / month = $5,000 MRR (monthly recurring revenue) and $60,000 in ARR (annual recurring revenue).

$10 / month  = $10,000 MRR and $120,000 in ARR

That could be the difference between succeeding and failing as a company.

12. Try to be profitable, at least once

I often meet with founders who tell me that they’re working on free user growth. I’m going to say something controversial: with rare, rare exceptions, you should never just focus on free user growth at the expense of revenue unless you’ve previously been profitable or run a profitable company. I don’t think most new founders know how to make the optimal tradeoff between free and paid user growth.

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I remember having office hours with Emmett Shear. I explained that we were focusing on user growth, at the expense of revenue growth. He asked if our company would be harmed by focusing on revenue for six months? From that moment on, we started one of the biggest revenue ramps we’ve ever had.

If you’re not convinced, you should read this amazing article by Mark Suster on revenue.

13. Your number of paid plans will gets messy, and that’s ok

I remember being reluctant to split test pricing plans, since it’d produce more paid plans to support. Then, we did it. Sure, it’s extra work to support them, but it’s well worth it to double your revenue.

14. Prosumers have higher churn

Yep, and the difference is dramatic.

The only way for prosumers to potentially work is if they have an extremely high frequency activity with your product – something they do so often, they see so much value, that they pay, like Evernote or Dropbox. Plus, there really needs to be a massive number of people that could use your software. However, that type of mass market prosumer software is few and far between.

15. The Dropbox referral page is amazing for Dropbox, but does it work for you?

Dropbox has an amazing referral page, where users can perform actions, like inviting friends, in exchange for free storage. It’s been a big source of growth for them and I’ve seen a lot of other companies try it. Of all of the companies I’ve met, I’ve never heard of it becoming a meaningful source of growth.

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16. “I don’t use it enough” or “It’s too expensive” means they’re the wrong customer

Some founders react to this feedback by lowering their prices. That’s typically the wrong thing to do. If someone doesn’t use a product often, she’ll always complain about the price, because she won’t see the value in it.

That just means she’s the wrong customer. Instead, find people that use your software often or fix a bigger pain point. See #3.

17. Startups will probably be your first users and complain the most about pricing

Be careful about listening to them, otherwise you may start developing your product or pricing in unnatural ways, which have nothing to do with the real market. We’ve done that and regretted it.

18. Free users make the most noise, but pay the least

We certainly give the best support possible to our free users, but we take their feature requests with a grain of salt. If you listen too closely, you may take your product in suboptimal directions. Build features for the people that pay you.

19. Month on Month (MoM) growth is key

I can’t emphasize this enough. This is what separates lifestyle businesses and startups (PG: Startups = Growth). Build 20 percent+ MoM growth and you could be the next Dropbox.

20. It takes years to stack revenue

Even with high growth, revenue takes time to grow. Average IPO is 7-13 years. It takes time to stack paid plans every year. But, if you have high MoM growth and minimize churn over time, revenue adds up.

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Image credit: Pando

21. Eventually, you need marketing and sales

The danger of the product CEO is that when you love product, every solution is a product solution. Dropbox is one of the very, very, very few companies where this worked out – a group of MIT grads sitting in a room, building great product and viral loops.

However, in the more common world, word of mouth only gets you so far. Marketing, Sales and BD are what make companies grow. Great product just makes it easier.

I met with someone who buys startup companies at low prices that are running out of money. He then implements very standard tactics to make them grow revenue. None of these things are rocket science. These companies then turn into revenue machines. His impact is immediate and mind-blowing.

It’s unfortunate that the founders missed the chance to drive it themselves. Founders will often wait for a natural lift in growth and will keep changing their product until it gets there – even when changing the product no longer make sense.

22. Small variances in churn can have a massive impact on revenue growth over time

This is the best graph on churn I’ve seen. Small differences in churn has an exponential impact on your MRR over time. See below.

Unless you get control of churn, your growth will eventually stop, since churn will cancel out any new upgrades. It’ll become more and more difficult to replace churned users over time.

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Image credit: dskok

23. Annual plans are amazing. Implement them ASAP.

You offer your users a discount for the year and in exchange, you get approximately 10 months worth of revenue right away (depending on how you discount), rather than one month of revenue each month. That can easily make the difference between being cash flow positive and burning money. It can also reduce churn and many of your customers prefer them. Win, win. Plus, when those renewals hit after one year, your revenue takes a big jump. If I were you, I’d implement annual plans ASAP.

24. Engagement is a leading indicator for revenue

Engagement is flat, but revenue growth steady? That probably won’t last. There’s only so much you can do before paid upgrades decrease.

25. Focus on a limited number of metrics

As much as I love metrics, focus your attention on just a few. I’d pick one revenue growth metric, one churn metric and one engagement metric to start. Then, grow your metrics dashboard over time. When you do, implement this one.

We started out with a metrics setup that was really complex and all we got was a lot of wasted time and an important lesson.

26. For fundraising, revenue growth slides are more powerful than free user growth slides

Monitor

This may be controversial, but I completely pulled our free user growth slide from our deck and stuck it in the addendum. Investors were way more receptive to our pitch. Free user growth is just a proxy for future revenue. So, if you have revenue, just show that instead.

27. Hone in on ‘deal breaker features’, not feature requests

There’s something powerful about someone saying they won’t sign up unless you have X feature or canceling because you don’t do Y. Anyone can have a feature request. Few people will vote with their feet.

Building those deal breaker features will produce more revenue.

28. Always know your runway

I still meet with founders getting blindsided when they realize they’re almost out of money (Don’t be the startup that accidentally runs out of money). Knowing your runway allows you to make smart decisions about revenue and fundraising, early. Just knowing when you’ll run out of money is healthy, since it guides your daily decisions on revenue.

29. Your free users are for marketing

I remember an experienced CEO explaining to me that free users are just one part of the funnel. She thinks of supporting those free users as part of the marketing budget. They spread the word. They become engaged and upgrade later. But, think of them in that context.

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30. Growth is not magic and it isn’t a black box

It’s something companies do or don’t. They do it well or don’t. There are tried and true tactics out there.

I see a lot of almost desperate innovating when it comes to growth. Sure, keep looking for the hacks and viral loops. Maybe you’ll come up with your own equivalent of the Dropbox referral page. But, while you’re doing that, there are a ton of sources of growth that are tried and true over the years. You just have to build those channels: BD, PPC, SEO, channel partners, PR, content, API evangelism, viral and more.

31. Business development can do wonders for revenue, if done right

We learned a lot of business development (BD) lessons, some of them were painful. There are a lot of pitfalls when it comes to doing BD when you’re a startup. But, it can (and has) become a huge source of growth. Here are some of the lessons I talked about at a talk at 500startups.

32. Doing paid advertising can improve your entire funnel

There’s nothing like paying money for advertising to make your entire funnel more disciplined. We changed our onboarding, emails, and pricing, all to make our campaigns profitable. The paid ads were only a minuscule part of our growth. But, the rest of the product hugely benefited from those optimizations.

33. Product market fit

Product market fit = entire team (product, bd, marketing, engineer) focused on one market & killing it, in a predictable way. That’s the end goal.

34. Do post mortems on every release

It’s humbling when you make a big investment on a feature, only to have no one use it or pay for it. Do this once and it completely changes how you think of every feature you build.

35. Customer development != growth

Do customer development to focus on the right users. But, don’t get stuck in customer development / research cycles. Customer development is important, but should have a completely different place in your mind as growth. I see lots of companies stuck in customer development cycles, but as a consequence, these companies might never focus on distribution.

36. All word of mouth growth makes some investors nervous

Word of mouth is nice, but it’s not predictable. You need predictable growth.
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37. If you build it, they won’t just come

I’ve seen companies go under, waiting for the users to come. They never came.

38. It’s less stressful when you generate revenue

Startups can be stressful. A lot of people have written about founder depression – it’s a real thing. Sam talks about how founders have a lot of weight on their shoulders. Having revenue can significantly ease that weight.

39. Put together a hypothetical pricing page with a spreadsheet and how it’d look when you fill it out with features

That spreadsheet will help guide product development, since everything is connected to revenue. Put higher value features on the higher plans.

40. Customers don’t price shop as much as you think

Our price, in relation to our competitors, doesn’t come up often. Sometimes we’re more expensive, yet we might still win the deal. So, don’t become too obsessed with your competitor’s prices. Just optimize for your users.

41. If you’re only winning on price, rethink the value you add

Unless you’re Amazon, a price war can be brutal. Instead of being cheaper, think about how to differentiate.

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42. Consumers and businesses behave differently when it comes to money

As a company, we pay a huge amount of money for software and don’t flinch, but in my personal life, I’m still on a free Spotify account. Many founders don’t have real work experience before starting a company, myself included. Without being in a work environment, it’s hard for a founder can imagine how much companies pay for software, which leads to underpricing their product.

43. If you’re a SaaS product, read this post over and over again

This is easily the best SaaS analytics post I’ve read

Revenue isn’t a bad thing. Want to know what we do with revenue? We support a team of terrific people that help us build and support this product. Every day we make the product better, because we have revenue. The more revenue you have, the better you can make your product for your customers.

For some reason, the mental default for founders is that their product should be free – and charging needs to be justified. The inverse should be true – the mental default should be that your product should be paid and being free should be justified.

In fact, most pricing truisms should be reversed. Statements like “cheaper and better” should need to be justified, instead of spoken and accepted as truth.

Today is a good day to grow revenue! No reason to wait. I find it weird that I meet with founders and have to convince them that growing revenue is important. Then, runway decreases, they can’t raise, the game is over and everyone acts surprised. (Don’t be the startup that accidentally runs out of money)

In fact, if you this figured out, you may get to the mythical, ‘infinite runway’. Then, if you want, you can turn on the spigot and operate at a loss in exchange for revenue growth. That’s the moment increasing your burn rate for growth makes sense, but rarely before.

Focus on specifics when interviewing

Years ago, I was interviewing a marketing candidate. I asked general questions about how she could meet certain growth goals and she talked about the marketing campaigns she would put in place for us, like SEO, social, PPC and more. 

After the meeting, I thought over whether she'd be a good fit. I realized that I had absolutely no idea how well she'd perform. The things I learned were too generic and nebulous to evaluate.

Anyone can suggest SEO, PPC, PR or any of a dozen other marketing strategies. Plus, it turns out that if you ask if someone can do something, 95% of the time they’ll say yes, which is very unhelpful in assessing a candidate.

Now I focus the vast majority of every interview asking about what people have done, rather than what they could do. What’s the best campaign you’ve launched? Was it successful? What metrics did you track? Did you make any mistakes? If so, what were they? What was your biggest management challenge? Then, I do a deep dive into each of these areas and try to understand what they did and how they interacted with others. I found that the great candidates really enjoy these deep dives, since it gives them an opportunity to really show their skill set and experience.

These answers will tell you how the candidates operate in real life. As soon as I started focusing on their past details, I got a better sense of who they were as a candidate and whether they’d be a great fit.