startup thoughts

People often advise raising more than you think you need. Years ago, we raised double what we intended and it had a hugely positive impact on the company. (Investors and advisors: the crowd, the ringside, and your corner)

• Raises a lot of money (3+ years of runway)
• Doesn’t focus on revenue and / or engagement
• Hires haphazardly
• Doesn’t have a board or external pressure [1]
• Doesn’t run projections (Don’t be the startup that accidentally runs out of money)
• Doesn’t execute on a plan or build deliberately

Stephen Levy recently wrote about a team of YC alumni, Google and others to help fix HealthCare.gov. They've made a huge impact. 

Over the last couple of weeks I've been talking to Todd Park and Jennifer Pahlka, White House CTO, and Deputy CTO respectively, about putting together a team to help address the technical issues around the Veteran's Administration, I'm sure you've read the news about how people have been dying waiting for treatment. Program would look a lot like the healthcare.gov rescue. I was trying to see if I could take 3-4 months off from Greylock to work on it, but it's just not possible right now. There are a couple things I would ask the group to try and help.

1. They need a talent leader who can help bring 20 or so folks, mix of professional services, design, engineering, data scientists and SREs. They'd also be working with companies like Facebook & Google who are looking at donating developer time to. Person should be pretty senior and be able to identify the right ICs and leaders.

2. Helping the come up with the 20 people who will actually be doing the work. Positions are paid, but they're in the 100-150 range, so the right person will probably already have made some money and want to work on something meaningful.

Happy to talk to anyone who's interested in learning more. Dan 

“I refuse to join a club that would have me for a member” - Groucho Marx

HelloSign had a big spike in support needs awhile back. The growth was great, but at the time, we didn’t have enough support people to meet that growth. Since we’re committed to closing out every ticket each day, the support team worked long hours to meet demand.  [1]

1. The team will be more effective

When people are at capacity, they can’t think of efficiencies and improvements. They can only solve issues on a case by case basis, instead of having the space and time to think holistically. Holistic thinking, not working until exhaustion, is what produces efficiency.

2. People stay at the company longer

Many of the resumes we see have people staying at companies a transient 1-2 years. Many of them were overwhelmed at their previous positions (see Your company should never be frantic). Finding the right people to join your company is a huge effort. Having a consistent group of people solving an important problem over a long period of time is what produces great companies, not a revolving door of burnt out people.

3. Team morale will be better

If a startup is doing well, it will hit capacity often. Startups are built for growth (see Startups = Growth). Growth creates issues, which is why people join startups - it’s fun and challenging. That doesn’t mean you accept all growth issues. It means it’s important to solve as many growth issues in advance that are under your control. That way, the team can more easily handle capacity moments when they come.

4. Customers will be happier

Imagine: you build a product, spend money on growth and when new customers email you -  their first interaction with a person at your company is a negative one. The team doesn’t have time to properly think through a customer question or replies several days later. Phenomenal, expedient support is a startup’s major advantage - an advantage that should never be ceded to competitors. We have an incredible team, but even the most dedicated people can only do so much over long periods of time.

I remember showing HelloSign to a family member. He barely took a look before getting distracted and walking away. Of all people, you’d imagine that family would be the easiest sell. Yet, working on a company comes with a lot of rejection, whether it’s apathy, passing on an investment, or a user not signing up (The rejection book). I see a lot of founders resent these people. 

I’ve grown to think of rejection differently: I collect my naysayers.  For some reason, I love these people. The bigger the group, the more I’m energized to prove them wrong.

I treat them well, stay in touch and often become friends (Treat investors well when fundraising). Over the years, some of them have even become investors or signed up as HelloSign users. My favorite naysayers are the ones that articulate why they don't believe. They take the time to call or write an email with their feedback. I often learn the most from these people. Then, if we raise, they’re often the first we talk to. 

I remember hearing about a company with an extremely charismatic CEO. The company wasn't doing well, but he was a compelling individual. He'd give a talk and the team couldn't help but believe in the vision. Investors believed too. Everyone got a jolt of energy. 

A few years ago, I met a founder with only two months of runway left. In two months, his company would shut down because he didn’t have any cash to support it. He wanted to discuss whether he should start fundraising for his second round. That’s some scary shit. We should have had that talk when he had 6 months of runway left.

• You don’t know how much runway you have left (i.e., you could run out of money in 1 month, 3 months or 9 months. Your startup death day is unclear)
• You know your runway, have less than 6 months of cash and you’re not executing a plan to fix the situation.  

When you have less than 6 months of cash in the bank, what do you do? The options are pretty simple:

1. Get profitable (increase revenue, decrease burn or do both)
   
2. Raise more money
   
3. Get acquired
   
4. Get blindsided when you run out of money because you didn’t have enough time to execute on 1, 2, or 3.
   

I remember meeting up with a new founder who was stressed about the fundraising process. Fundraising can certainly feel stressful, but I realized that most of the issues could have been solved by asking the right questions. When you’re less confused about the process, it makes the process more predictable.

Here are some questions I found helpful to ask when meeting investors:

1. What kind of companies do you invest in? 

If the investor focuses on biotech, it's unlikely she'll invest in your SaaS company. If you get a pass, you'll now know that it had nothing to do with you. 

2. Who else have you invested in? 

If she hasn't invested before, she may not be well suited to the ups and downs of startups.  The stress may make them want to become extremely involved; instead of being helpful, the investor may be harmful. There are few things I avoid more than having the wrong people permanently involved in the company.

3. How much do you normally invest? Is there a range? 

It helps you mentally map out your round. If everyone invests $10,000, it’ll take a long time to fill your $1m round. This also helps you determine if you are talking to enough investors.

If there is a range, you can always the take smaller amount if there is not enough room left in your round. 

4. How does your decision process work? 

If you understand the process, it’s less likely to feel like a jarring experience, since the investor will be doing what she said she would do. Even if she deviates, you will still know the general path. 

Angel investors often decide on the spot or will want to sleep on it. For VCs, it depends on the firm. Seed investments can be fast and often close in one meeting. Larger rounds are slower and often involve multiple partners. 

5. How much time do you spend with your portfolio companies?

It's helpful to know their expected involvement in advance, to see if an investor will be in the crowd, the ringside, or your corner.

You want to be careful of people who could distract you without adding value. 

6. How many boards are you on? (for VCs) 

This is important to know, because if the investor is currently sitting on a lot of boards, she may not be able to invest a lot of time in your company or may be unlikely to make an investment at all. It’s not necessarily a deal breaker, but just good to know.

7. Now that you know more about what we're doing, are there any other investors I should be talking to?

The investor might provide an intro or might not. Regardless, some great investors keep a low profile. Just knowing a name helps, since you can ask for an intro from someone else. 

I hear about investors or advisers as either 'helpful' or 'unhelpful'. I think that misses the nuance of the kind of people you need involved.

To get the support you need, it’s important to be deliberate about how you pull together this key group of people; the right individuals can have a significant impact on your outcome of your company.

Here are the categories, as I see them:

1. There's the crowd. These people will invest in your round. Some of them are incredibly accomplished people and it's an honor to have them involved. But, aside from the investor updates, you'll rarely stay in touch. That's completely normal; they might have even said they would be busy before they made the investment. Every financing round has investors that won't be very involved.

2. There's the ringside. These people have been in the game before. They have expertise - whether in user acquisition, product, sales or something else. They are helpful and you can reach out to them on a case by case basis. But, you don't want to ask too much or too often. They are busy people and not completely up to date on the nuance of what you're doing.

3. There are those in your corner. You can call them up a dozen times during your financing rounds. They reply to a Saturday night email in five minutes to talk about a time sensitive deal. They are up to date on where you are as a company; there is no background ramp up when you talk to them. That means they'll know what you've tried, what worked and what hasn't - so they can give up to date advice.

If it's not immediately obvious who's in your corner, it means you don't have someone there. Not every investor or adviser can be in your corner. That’s not even something you’d necessarily want; not everyone would fit.

A few years ago, I remember a late night, debating an investment offer. If we took it, it would close the round, but we had another offer coming in soon. Do we risk losing the first offer and wait for the second offer? I emailed our adviser and got an immediate reply. We talked it over and decided on an approach. We ended up raising twice as much money. That money allowed us to build HelloSign. He was in our corner. 

A few years ago, I remember talking to someone on the team and saying that we had to grow faster; the status quo wasn’t working. He mentioned that to another person on the team. When I ran into that second person on the bus, he was really stressed. I inadvertently created stress about a problem, but didn't communicate a solution. Everyone could feel it, even though I only talked to one person. In retrospect, I was setting us up for frantic effort; we were about to approach the problem in an unstructured, un-prioritized way. That’s no way to solve a problem.

I've seen companies with determined effort and companies with frantic effort. There’s a huge difference.

Frantic effort is when you have so much to do, you are not sure why you're doing it or why it’s better than other things you could potentially do. You haven't taken the time to prioritize. Instead of focusing, you jump from one thing to the next, like you're chasing a trail of shiny objects. It's a nervous energy that starts at the top of the company and works it's way down. People are confused about the right path, so their solution is to just work more and harder toward goals and for reasons that are hard to articulate. The team works hard without understanding, reflection or vision. It's scary to be part of a frantic company. It's also exhausting and demoralizing.

Determined effort is when you know what you're doing and why you're doing it. You know exactly what you are building and its trade-offs. Even the things that you're not sure of are calculated bets. Everything you do produces more data towards the vision of the company. If you notice something isn’t working and need to change paths, it’s a conscious change. Determined effort doesn’t mean you’re locked in - it just means you make decisions with purpose and not out of anxiety.

Ironically, determined effort and frantic effort can take the exact same amount of time and effort, but not produce the same results. Determined effort lasts longer, is more focused, is less prone to burnout.

How do I know when someone has been at a frantic company? You can see it in their eyes when you interview them. They have the glossy, unfocused look that we all associate with burn out. There's also a kind of discontent about how their effort has been used. That company used up all their willpower going in many directions that no one fully understood.