Growth: Points to Ponder
Growth is top of mind for most entrepreneurs. When you’re growing quickly, expenses are often incurred ahead of revenue growth. Hiring, special projects, building a product . . . all these things happen before you see additional revenue from customers. For this and other reasons, a high-growth company may be unprofitable. You’ll often hear unprofitability described as investing in growth, and investors may give such a company an attractive valuation.
Here are a few things I’ve learned about growth over the years:
- Messiness – Chaos reigns when you’re growing rapidly. A company growing at a breakneck pace isn’t a well-oiled machine. I like to think of it as a land grab. When growth slows, hone the efficiency of your processes. But while the opportunity’s in front of you, grab as much land as you can as fast as you can.
- Valuation – If you’ve achieved product–market fit, investors will overlook losses for a high growth rate. One hundred percent or more annually—which means you’re doubling every year—is great. When growth is minimal or negative, the valuation will be affected and investors will ask lots of tough questions.
- Source – Understand what’s driving your growth and double down on it if you can. If you don’t know the origins of your growth, you could inadvertently make decisions that hinder it or be caught off guard when it slows down for reasons you don’t understand and haven’t planned for.
- Alignment – When growth is expected to slow or begins to slow, consider adjusting expenses. If you’re no longer getting an ROI on a spend, reduce the spend or transition the resources to something that could provide a higher ROI.
- Expectations – High-growth companies can be caught in a situation where they’re penalized by investors or the stock market if their growth rate slows even slightly. Managing external expectations can become a critical part of managing growth.
- Channel partners – Growth through channel partners is a fine strategy, but I’m a fan of most of your revenue deriving from a direct relationship with customers. You’ll better understand your customers’ needs and a change in a third party’s priorities won’t be as likely to affect your growth.
All entrepreneurs aim for growth, but we’re not always prepared to manage it. These points are just a few things I’ve learned along the way that I hope will help as you think about growth.
Private versus Public Company Liquidity
Today I had a good chat with a friend about valuations of tech companies. A lot of capital has been raised in Atlanta and the Southeast over the last six months. I’ve read about acquisitions, venture capital rounds, and private equity recapitalizations. Our conversation began with private companies and moved to public companies. Both have seen valuations increase rapidly this year.
One of the points I made was the difference between private and public liquidity. Public company stock shares tend to be very liquid. They can be bought and sold in a matter of minutes. The liquid nature of the stock market means that market capitalization (i.e., valuation) of a company is always—for the most part—known and agreed to by a large pool of people (i.e., the market). The market cap reflects all known information about a company and the macro environment at any given time. A large pool of people reach consensus every day.
Private company ownership usually isn’t as liquid. Most owners can’t decide to sell private company shares and complete the transaction in the next few minutes. It’s more of a process. Parties interested in ownership in the company usually take time to become familiar with the business’s performance and other factors they deem important. Then they agree on a valuation with the owner and a transaction is completed. The business’s performance or the macro environment could change after the transaction, but the valuation of the company is usually pegged at the most recent transaction. And the valuation is usually agreed to by a small number of people.
I don’t have an opinion on the current state of tech valuations. I do think that the difference in the liquidity of private and public tech companies affects their valuations. I view one is a snapshot in time and the other as a daily consensus that incorporates the latest information.
There are lots of other differences between private and public tech companies that I won’t get into. I’m curious to see how valuations of both trend, and I’ll be watching them closely.
What Do Your Customers Want? Find Out with an MVP
Over the last few months I’ve been talking with a founder about a problem I’ve personally experienced. He’s mentioned his solution to this problem many times, and it made me curious. I had some time today and decided to dig in. The founder did a really good job of building an MVP. The product works just well enough to solve the problem—it isn’t completely built out. It requires the user to complete way more steps than is ideal. Despite this and other hurdles, the founder is on to something, and his stats prove it.
He’s been using this MVP to get feedback from customers. He then makes changes based on the feedback. He’s trying to solve the problem in a way that customers see value in. In a matter of months, he’s managed to convince a few hundred customers to pay for his MVP. These are early adopters, of course, but they demonstrate that people see value in the solution he’s created. If his product is improved significantly and some marketing muscle is applied, he could build a massive company.
This founder has done a great job of staying focused on solving his customer’s problem—as opposed to perfecting the solution he thinks they want.
Founders should be careful to not put too much time into over-engineering a solution before putting it in the hands of users. The goal is to solve the customer’s problem in the way the customer wants it solved. The only way to truly know if you’re doing that is to let them test your solution. Once your solution resonates with them, you can spend time perfecting it.
Unplug and Give Thanks
Tomorrow is Thanksgiving, a holiday that’s special to me. When I decided to quit corporate America and start a company, I broke the news to my parents over a Thanksgiving holiday. In the early years, the holiday was an opportunity for me to make progress on big projects. Eventually, though, it dawned on me what a terrible way of doing things that was, and I began enjoying the day with people I loved.
Unplugging was something I struggled with for a long time. I was worried about failing, so work issues were always racing through my mind. I eventually realized there weren’t many weekdays when I could mentally disconnect and learned to set work aside when they came around. Thanksgiving was definitely one of those days. I also found it to be a great time to reflect and give thanks for everything that had gone right that year.
Have a great Thanksgiving and enjoy your downtime with people you care about!
What I Least Expected to Gain
I was talking with an early entrepreneur, who asked a great question. “What’s the most meaningful thing you gained from your journey that you least expected?” Now, I admit . . . I was totally stumped. I needed time to answer. I wanted to think about it so I could give an authentic response. Toward the end of our conversation, it came to me: friends who understand me and experienced the struggle too.
Being an entrepreneur is hard. You’re trying to do the impossible with limited resources. You’re pushing yourself and your team to the limit. It’s not something that most people understand or can relate to. I had a great support system of friends and family before I founded my company. I was able to talk with them about most things in my life. But when I became a founder, that changed. I was experiencing things they hadn’t and that they couldn’t relate to. After a while, I steered conversations with them away from work. My company was an outsized part of my life, so I found myself on an island without anyone to talk to who could relate.
I eventually connected with other entrepreneurs at a similar stage and this changed. All of a sudden, I could talk to people who got it. They were problem solvers facing the same challenges I was, and they had crazy visions that others in their life couldn’t understand. Over the years, those peers became wonderful friends. The friendship dynamics are hard to explain, but because we supported each other during some of our toughest times, the bonds are tight.
When I decided to start my company, I wanted it to be a success and I wanted to enjoy everything that came with it. I achieved success, but the thing that stands out more than that are the friendships I formed with other entrepreneurs. We come from different backgrounds, but we bonded over our shared desire to solve tough problems by building amazing companies. Companies can be bought and sold, but true friendships like these are invaluable.
If you’re looking to do something great (even if it’s not entrepreneurship), consider connecting with others who are traveling a similar road. No matter how great your accomplishments, the friendships you’ll build along the way will be priceless.
Vision Is Your Compass during Tough Times
Vision is a popular topic in startup communities. But what is vision? How do you know if you have it? In my opinion, your vision is where you plan to go. I think of it as defining your future destination. You know you have a vision when you can describe it and others easily “get it” and can imagine the destination. They get excited about it and all the possibilities that come with it.
Trying to do something great is hard. You’ll get told no. You’ll hear that your idea is stupid. You may even be laughed at. At times you’ll face a seemingly never-ending barrage of hurdles, and some days nothing will go right. These are the days when vision matters the most. Without a vision, you may give into the pain and pick an easier path to a destination that looks like success. But if you know where you want to be and have conviction, your vision will help you navigate tough times. That clear vision helps you choose not the easy path but the path that aligns with where you want to be. That vision is what motivates your team to travel that difficult path with you. That vision is your compass and your confidence when the chips are stacked against you. When times are good, you may get away with not having a vision. But when times are hard, not having a vision can be the kiss of death.
If you’re trying to do something great, consider taking the time to develop your vision. It can be the difference between success and failure!
Flawless-Startup-Execution-during-a-Pandemic Award: Verzuz
Last week, I watched my first Verzuz battle. This is a live-streamed event where two artists or producers compete by playing various songs from their catalog. It’s part battle, part concert, part live stream. It started in March as an impromptu five-hour live Instagram battle between famous producers Timberland and Swiss Beatz. Twenty-two thousand people tuned in. It’s since morphed into a sponsored event, and millions tune in to see an epic musical battle. Apple Music and Twitter are now involved via a formal partnership.
Last week’s battle was between two Atlanta rap icons, Jeezy and Gucci Mane. I live in Atlanta and I’m a huge hip-hop fan, so I was eager to see it. I didn’t know what to expect since it was my first. It blew my mind! The two rappers performed their songs on stage in a back-and-forth battle that was well-thought-out and sequenced like a concert. But the songs were chosen in real time as the event unfolded. Each rapper would pick his next song on the basis of what the other had just performed. The result was an energetic event that was the pandemic version of a live concert. It was great.
During the show, I happened to notice that 1.6 million people were on Instagram, live, watching it. My jaw dropped when I saw that figure. It’s reported that Instagram live viewers peaked at 1.8 million and 5.5 million accessed the event over all streaming platforms, including Apple TV. Those numbers are insane.
Timberland and Swiss Beatz are on to something huge. In my opinion, they followed the startup playbook perfectly. They noticed a problem (no live performances). They created a quick and nasty MVP (an Instagram live session). They found product–market fit and scaled their solution with partnerships and sponsorships. All in a matter of a few months. They’ve essentially created an opportunity for millions of people to attend a live concert series from their couch. Something tells me Verzuz’s success will force the music industry to rethink live concerts and have a big impact on how we experience live music!
The Southeast’s Awareness Problem
Today I had a great conversation with someone from my hometown of Baton Rouge, Louisiana. I believe there are some first-rate tech entrepreneurs back home who could go far with the right help. This person made me aware of a fund in Baton Rouge that was created to invest in early-stage tech companies. One of its portfolio companies is now publicly traded on the stock market. (An early-stage company achieving an IPO is a huge achievement.)
Today highlighted to me that there’s an awareness problem. It’s difficult for aspiring entrepreneurs to be connected with helpful resources if they don’t know about them. I was excited to learn of this organization in my hometown, but I couldn’t help but wonder why I’d never heard of it before. Since I hadn’t, I’m sure there are entrepreneurs who also haven’t heard of it because they lack the relationships that would have made the connection for them. To be fair, this problem is common in lots of ecosystem, not just Baton Rouge. I see it in Atlanta all the time. Lack of awareness and relationship gaps are high hurdles that can slow entrepreneurs’ progress.
I’m looking forward to getting to know more about the startup scene in Baton Rouge and a variety of other cities in the Southeast. I’m confident that there are brilliant entrepreneurs with interesting ideas who just need a few doors opened for them. I hope I can be the person who does that for some of them!
To Achieve Goals, Reflect on What Matters and Measure Your Progress
At the end of each year, I think about what’s important to me that I want to focus on during the next year. I usually come up with a short list of three or four things—some personal and some professional. For each one, I identify the metric that will help me gauge how I’m doing and what success looks like (i.e., a target value for the metric). For example, I wanted to be more intentional about personal relationships in 2020, so I tracked how many activities I initiated with friends and family each month. My goal was five.
I don’t do this in isolation. I do it with a group of entrepreneurs so we can hold each other accountable. We track our goals in a central place and discuss our progress every month. If someone isn’t moving in the right direction in a particular area, we dig into the reasons for that.
When I set my targets in December, I’m nowhere close to achieving them. And I usually have no idea how I’ll reach them. I just know they represent what’s important to me and that I want to improve in that area. I know it won’t be easy, but I’m committed to figuring out how to move the needle through the year.
Today I reviewed my October metrics with my group and looked back over 2020. I had set a few stretch targets that I wasn’t confident about achieving. I was pleased to realize that I’ve achieved each stretch goal, even those that seemed unattainable. I thought about why and came up with a few reasons:
- Cadence – The regular rhythm of revisiting and discussing goals every month keeps them top of mind.
- Accountability – I don’t want to be the slacker in my peer group. Especially concerning goals I set for myself! I push harder so I don’t embarrass myself.
- Motivation – Taking time to pinpoint what’s important is key for me. When I identify the right things, it feels natural to work at improving them.
- Short list – I measure four things, max. I don’t think I’d be able to focus on more than that.
- Balance – Including personal and professional things helps me feel like the progress I’m making is balanced. It’s too easy to do well in one area to the detriment of the other.
It’s rewarding to monitor my progress throughout the year and the positive effects it’s had. I’m looking forward to settling on what’s important to me for 2021 during the holidays.
What about you? What do you want to work on in 2021? How will you measure your progress?
$100K Investment from Outlander and Women Who Code Atlanta Supports Female Founders
Outlander Labs and Women Who Code Atlanta held a virtual pitch competition today. It was an opportunity for innovative women-led startups in the Southeast to compete for a $100K investment. Lots of great applicants were whittled down to the following six finalists:
- Boddle Learning – An interactive and adaptive math game that helps kids learn in a fun way
- BRIDGE – A mobile app that allows consumers to discover local businesses via video
- CaseCTRL – A surgery coordination platform that simplifies the logistics of surgery planning and improves the patient experience through AI and predictive analytics
- Eyegage – A mobile app that quickly and accurately determines drug and alcohol levels by using computer vision to analyze characteristics of the eye
- SoleVenture – An all-in-one back office and HR platform for freelancers
- Trado – A platform that uses machine learning to voice-record stories and turn them into books delivered to your door.
I enjoyed hearing from some great founders who I’m sure will go on to do amazing things. I’m looking forward to tracking each of these companies.
I’m happy to announce that Eyegage was the winner! All the companies made outstanding pitches and I’m sure the judges had a tough time picking a winner. Congrats to Eyegage and all the other founders for building interesting companies.