Granularity and Consistency of Startup Metrics

Tim Berry has a great post on Why I Hate Those Huge Market Numbers tells us that he doesn’t like to see business plans with multi-billion market numbers used as the basis for projections.  It’s the old – 5% of massive market gives us a big number.  I agree completely:

If it makes you feel better to give me that number in passing, okay, go ahead, but don’t put any emphasis on it. Instead, give me the details on how you’re going to make your sales, and to whom, on the first day, the first quarter, and the first year. Give me granularity.

If you’re a Web-based startup, for example, show me how many unique visitors you think you can get in the beginning, and what you’re using for an estimated conversion rate (buyers to browsers). Show me how much each unique visitor is going to cost you in search engine optimization and pay-per-click search engine expense.

Great stuff!  And it’s surprising how few startup founders think in those terms. 

And it becomes really important to have that granularity really fast. 

I’ve talked before about initial conversations with founders and the questions I’m likely going to ask Startup Software Development – Do Your Homework Before You Develop Anything.  Part of those questions are around Startup Metrics.

This aligns with understanding the the core business model:

• Get Users (= Acquisition, Referral)
• Drive Usage (= Activation, Retention)
• Make Money (= Monetize) (and Lifetime Value is a good one)

Of course, that’s a big part of what the investor wants as well.

And you definitely should have ideas around important proof points for the business.  What hurdles do we need to hit for that next round of investment?

Good founders will have ideas about all of these at a fine grain.  And it will be a consistent picture provided both to the team (CTO, COO) and to investors.  We all are signing up for the same thing.

But the bottom line is that Tim won’t invest and I have a hard time executing when you describe the objective as 5% of a massive market.  Ack!  Give me granularity as well!

Don’t Subtract - Restart to Find the Minimum Viable Product

Steve Blank wrote a great post recently entitled Perfection By Subtraction – The Minimum Feature Set where he explains the real goals around defining a minimum viable product:

Founders act like the “minimum” part is the goal.  Or worse, that every potential customer should want it.  In the real world not every customer is going to get overly excited about your minimum feature set.  Only a special subset of customers will and what gets them breathing heavy is the long-term vision for your product.

The reality is that the minimum feature set is 1) a tactic to reduce wasted engineering hours (code left on the floor) and 2) to get the product in the hands of early visionary customers as soon as possible.

You’re selling the vision and delivering the minimum feature set to visionaries not everyone.

I’m a big believer in delivering a minimal product out of the gate, although minimum gets defined differently in lots of cases.  In some cases, part of the definition of minimum is going after technical risk as much as you are going after market risk which is often the focus of lean startups.

But what inspired me to write this post was his title “Perfection by Subtraction.”  My experience has been that it’s often hard to get founders to “subtract” from their product definition.

Here’s what I mean… You start with some list of product features and functions.  As you try to peel away any particular feature, there’s a good argument given you absolutely need that to make this into a viable product.  Often, it’s the related nature of the features.

We have to have X or Y won’t work and Y is critical.

Sometimes, it’s more emotional attachment than practical reality.  It’s hard to give up on something that is part of your vision.  REALLY hard for some founders.  But often it’s just that the current list is viewed as an MVP already and giving up any part of it seems to break the vision.  I’ve been in lots of these discussions and have found myself starting to agree with the founders defense of their definition of MVP.

So  … rather than “perfection by subtraction”, I’d highly recommend Do a Restart.  Go to a blank page.  And try to define a new minimal vision where you have removed everything.  Then only add something that is absolutely critical.  Challenge the group to find the most minimalist definition.  But it absolutely must start from a blank page.  And it’s critical that you mentally and physically (electronically) throw away the current vision and feature list.  It’s a barrier.

Often when you look at the same feature list after this exercise you wonder how you could have ever been arguing for all of that extra stuff. 

Well, truth be told, some founders won’t ever leave anything behind and you just have to go build that.

But again – Don’t Subtract – Restart.

Startup Technology Advisor

In my post, Technology Roles in Startups, I described some of the different ways I engage with startup companies such as CTO Founder, CTO, Part-Time CTO, Acting CTO, Consultant, Advisor and Advisory Board Member. The last two categories are quite variable on their own and there’s quite a bit to those kinds of engagements as they often are not as well defined. I thought it was worth capturing a bit more about Advisory Roles, Advisory Boards and particularly Technology-Oriented Advisors – who are often thought of a bit different when it comes to those roles.

Actually, if you look back, advisory boards came from being Technical Advisory Boards where the advisors were primarily professors, researchers, experienced practitioners where the startup had a high degree of technical complexity and needed a brain trust. Now, most often technical advisors are part of a broader advisory board. I take on these roles periodically, but before any startup engages me or anyone else as a technology advisor there are some other considerations.

In Why assemble an advisory board?, Chase Norlin talks about the normal reasons that Founders / CEOs form advisor boards for early stage companies:

• Recognized industry thought leaders add immediate validation and credibility to the venture at a stage when there is typically none;
• Advisors can open doors, make introductions, and assist with strategy and business planning;
• Advisors add value in making introductions to sources of capital, or serving as a due diligence reference during fundraising;
• Advisors know people and people know advisors, it’s that simple. The more third parties talking about your venture the better.

My experience as and with Technology Advisors is that their networks are very different and may or may not match with the introductions you want. This relates to the distinction that Alexander Muse raises in Advisory Board Compensation for your Startup between what he calls normal advisors and super advisors. Before engaging a Technology Advisor for the purpose of accessing their network – make sure it’s the right network.

Dharmesh Shah captures the role of advisors more simply in Startups and Advisory Board Members:

First, lets summarize the two most likely reasons you would put someone on your advisory board (one or both of the following apply):

1. Advisory Value: The person you are inviting has experience and knowledge and can act as an advisor to your startup.
2. Brand Value: The person you are inviting has “brand” and credibility. By placing them on your advisor board, you are hoping that some of that credibility will rub-off on your startup.

For Technology Advisors, I would add that there’s an implied value that they help check off the box that says – this can be done technically. During investor or third party partner due diligence, it is sometimes really valuable to have someone who has credentials and personal presence who can make technical questions go away. Of course, that means that the person needs to be engaged deeply enough that they feel comfortable saying it can be done.

Mark Suster - Should Your Startup Have an Advisory Board? who is often the contrarian, talks about some key issues that he and other CEOs often encounter with advisory boards which are good cautions.

1. Not enough time.

2. Not enough wisdom.

3. Too much effort.

4. Expensive.

One of the suggestions Mark makes is to get investment from advisors. That’s something I’m not going to do. My investment is my time.

Other good articles to read on setting up Advisory Boards:

• The Importance of Advisory Boards for Startup CEOs

• Critical Considerations for a Startup Advisory Board

• Everything you ever wanted to know about advisors, Part 1

• Everything you ever wanted to know about advisors, Part 2

One of the points that almost all of these posts make is that most advisory board members are not doing this primarily for the compensation or to get rich at the end of the day. Because of that, you also need to understand what the motivation is for any potential advisory board member.

Again, it’s really important as a founder to be clear with your prospective Technology Advisor (Advisory Board Member) to be clear about what you want/expect from them. And don’t confuse having a CTO with getting an Technology Advisor. There are a bunch of specific responsibilities that I described in Technology Roles in Startups that an Advisor will not be able to get into in any depth.

Technology Roles in Startups

I’ve worked with 30+ early-stage companies in all sorts of capacities (and spoken to many, many more), so I thought it might be worthwhile trying to classify the various ways that I’ve engaged in different technology roles in startups.

Background

This post partly really came about as a result of a great conversation yesterday with David Croslin a former CTO at HP who recently conducted an interesting experiment.  He posted on several social networking sites the following message:

If you know of a startup company that could benefit from the knowledge, experience, professional network and reputation of a globally recognized technology and innovation leader.

I am looking for one or two startups that I can work with on their road to success as a virtual C-level officer, board member, advisor or other relationship.

Later he posted about his experience in Challenges of Startups.  The short story is that he received 400+ responses and goes through how he categorized/vetted the responses:

• 300 Didn’t Fit – Outside expertise/interest, pushing for immediate funding assistance, too many ideas (not focused), looking for sales agents.
• 20 Required NDA to continue – a nonstarter
• 50 Couldn’t sell him
• 15 Couldn’t explain why they wanted him involved

In our conversation together, David and I spent a fair bit of time discussing the fact that a lot of people really didn’t know what he could do for them.  This is actually fairly common and I think it’s a bit challenging in that the technology roles (from technology advisor to CTO) in a startup vary widely.  Actually, David’s taking even broader roles than I generally do as he’s CEO for at least one startup. 

Activities

As I went through my 30+ different startup experiences and tried to classify them a bit more, I realized this is very messy stuff.  Each situation is just a bit different.  It depends on the business, people, technologies, etc.  So while I’m trying to make sense of this, it’s somewhat hopeless.

That said, I think it starts with what a laundry list of different kinds of needed technology activities and what the current team can reasonably accomplish.  And a big factor is how big is the Founder Developer Gap.  Unfortunately for a lot of founders, it’s hard to know the gap.  There’s a funny phenomenon where often the best sounding technical people are often the worst developers.  So, you can easily get sold that there’s little to no Gap.

Some of the activities that are likely part of the mix where there might be need:

• Review and provide input on business plans
• Costs and time estimation
• Product prioritization
• Options analysis
• Systems analysis and design
• Technical risk analysis
• Technical research and evaluation
• Systems for accounting and reporting
• Metrics (see startup metrics)
• Security
• Integration
• Scalability
• Social media integration plans (ex. see When to Use Facebook Connect – Twitter Oauth – Google Friend Connect for Authentication?)
• Development plans and resourcing, in-house, outsource, off-shore
• Other development and operational plans and resourcing
• Interviewing resources
• Coaching or managing developers or others
• Discussions with key partners or customers
• Technical innovations, protection, patents
• Networking and Introductions

It’s worthwhile to think through some of the specifics of what gaps exist among the current team and hence where you might want to augment the team.

Forms

Augmenting the team can take various forms:

• Consulting – defining how to attack particular issues, possibly directly planning
• Coaching – advising on how to approach particular issues
• Manage – lead members
• Execute – take on specific activities

Again, this is fairly fuzzy, but it comes down to having mutual expectations.

Labels and Structure

One of the more interesting questions is what this ends up being called and how it gets structured.

• CTO Founder – Direct responsibility for technical direction and development, sometimes operations, implies greater authority on product and company direction and higher equity position.
• CTO or Part-Time CTO – Direct responsibility for technical direction and bridging the gap to development
• Acting CTO – Direct responsibility but expected limited duration, often bridging to a full-time CTO

All of the above CTO titled roles imply direct responsibility to execute and manage aspects of the startup.  However, I’m always doing this part-time.  That means that it will be structured as some number of hours per week, month, etc.   It’s up to collective team to manage how this gets allocated.  That’s the same thing that everyone does, but they are playing with a larger bucket of hours.  Some weeks might end up being pretty much full-time on a single startup (e.g., important planning meetings or partner meetings).  But it generally works out well in the end.

Other labels:

• Consultant – Take bits and pieces, possibly coach
• Advisor / Advisory Board Member – Often a periodic responsibility and some ad hoc activities.  I’m going to talk to this in a future post in more detail.

The consultant role can either be a specific set of tasks for a limited duration or a set of hours over a given timeframe.  It generally is done to pick off specific needed activities.

I would suggest if you are thinking about what you really need for your startup in terms of technology, you also take a look at: Startup CTO or Lead Developer.

I would love to hear questions on this – and I’m expecting to come back and modify this as I have experiences that fit outside of this or as I figure out better ways to classify / clarify technology roles.

Pricing Customer Acquisition Sunk Costs and More - Ten Recent Great Startup Posts

Here are some recent great posts that I’ve come across that generally fall in the intersection of startups and CTOs.  Enjoy.

1. Startup Killer: the Cost of Customer Acquisition | For Entrepreneurs, February 2, 2010

   Looks at the critical equation around customer acquisition cost vs. customer lifetime value similar to what I discussed in Startup Metrics but in more depth.  Great stuff.  Of course, one of the best ideas around this is to have Negative Customer Acquisition Costs.  They have a related post: Designing startup metrics to drive successful behavior | For Entrepreneurs, but I think that looking at my Startup Metrics post provides a bit broader set of metrics to consider.  And while I’m at it, a great post by Steve Blank No Accounting For Startups looking at early stage score keeping.

2. HTML5 video markup, compatibility and playback- Niall Kennedy's Weblog, February 8, 2010

   The emerging HTML 5 specification lifts video playback out of the generic element and into specialized handlers. Explicit markup for audio and video places elevates moving pictures to a similar native rendering capacity as markup we are used to but with more fine-grained details about underlying formats and compression available before loading. This post looks at the implementation details of HTML 5 video.

3. My experiments in lean pricing- Venture Hacks, February 16, 2010

   Ash Maurya, a lean entrepreneur who runs a bootstrapped startup called CloudFire, discusses pricing issues for first versions (Minimum Viable Product – MVP).   This relates to another great post Freemium Founders: Start Charging for Things Today! where Tony Wright suggests charging right now.  This is tough stuff to get right and my recent experience in a startup where we charged out of the gate and then wonder the effects of other pricing makes me appreciate Ash’s perspective.

4. Sunk Costs: An invisible, pervasive peril- A Smart Bear: Startups and Marketing for Geeks, February 15, 2010

   I literally had this conversation yesterday with a startup.  Jason looks at the issues around "sunk cost."  The emotions around sunk costs run deep.  Good stuff from Jason.

5. Do I Need a Co-Founder: The 90/50 Rule of Startup Founders- FairSoftware's Blog, February 1, 2010
   Another post that relates to my recent post on CTO Founders and Cofounders.

6. StartupList — a new way to reach angels- Venture Hacks, February 3, 2010

   AngelList is a curated list of angel investors, representing $80M going into early-stage startups this year . They now have a cool new way to get intros to these angels: StartupList . It’s a weekly email we send to AngelList, with 3 high-quality startups who want intros.

7. Death By Revenue Plan- Steve Blank, February 16, 2010

   Steve talks about the problem created when you start to manage according to your Revenue Plan.

8. How Unique Is A Unique Visitor?- A VC : Venture Capital and Technology, February 18, 2010

   Great post from Fred Wilson that questions a common metric – unique visitors.

9. Why Venture Capitalists Avoid Innovation: They Like Making Money- OnStartups, February 18, 2010

   Andy Singleton, the founder of Assemba, talks about innovation and VC with an interesting perspective.

10. Seed funding best practices- StartupCFO, February 11, 2010

    Good post looking at seed funding which often doesn’t get quite as much attention.

CTO Founders / Cofounders

I just got done reading a post by Roger Ehrenberg Advice for CTO Founders: Don't Let Business Kill the Business where he suggests that CTO Founders should not move too early in finding a business cofounder:

Too often, however, I have found CTO / Founders paired with business people who not only don't add value, but frequently detract from the value of the business. And from my perspective as an engaged seed stage venture investor, this makes them unfundable. This is not only sad but incredibly frustrating, because it is so easy to see how a great technology can be developed and commercialized if only - if only the CTO hadn't been impulsive and insecure and brought on a business partner too early in the game.

…

So why do inexperienced (as entrepreneurs), ultra-skilled CTOs fall into the trap of engaging a business partner too early? Fear? Lack of confidence? Camaraderie? Perhaps all of the above.

Knowing a lot of CTO founders, I can tell you that Roger is fairly accurate in his assessment of the desire of CTOs to find the right cofounder to be the business side.  And it’s not just inexperienced CTOs.  And I would add to his list that part of it might be time available to help product definition, pursue market opportunities, early sales, raise funds, etc.

Mark Suster has similar advice in Hiring at a Startup? Know Thy Weaknesses is:

I recommend that you start a company by yourself and own 100% of it.  Once it’s set up I recommend bringing in a co-founder and giving them 10-30% of the company depending upon when you bring them in.  I advocate treating them like a co-founder in every way except when they join and how much equity they get.

Mark Suster defines founder vs. cofounder a bit more in Most Common Early Start-up Mistakes.

It’s interesting to read this as it seems to go against a bit of what you read out there such as Venture Hacks - How to pick a co-founder and TechCrunch - Finding Your Co-Founders.  I wonder if this is a shift?

I’m not sure that the good, rational reasons for waiting on finding cofounders is going to overcome the emotions of wanting a cofounder.

Part-Time Startup CTO?

I love blog conversations.  Based on my posts Startup CTO or Developer and Acting CTO, Chris O’Meara wrote an interesting post Startup CTO: Could It Work?

Chris starts with a description of the person that pretty much every startup is looking for:

Their primary characteristics are deep technical skills and a hacker mentality. They tend to have the knack for architecture. They tend to be capable planners when it comes to issues like performance and security. They tend to have the programming background to lead competent people by example and dig in and prove it where necessary. They tend to know where to find good help in terms of employees and consultants. They tend to know the operations side of a software business well enough to be the one overseeing deploys, crafting the infrastructure plans, and monitoring the health of the product. They tend to be plugged in to tech news sources to be aware of trends and understand how those trends could impact the business. They tend to understand the product management side of the product well enough to guide the technology in a complementary way.

I think that's the person you need. Common sense says you'd do your best to hire or otherwise permanently engage that lead developer. If you think that's person you need, the question becomes "what else do you expect a CTO to contribute?"

Of course, that’s a rare combination.  It’s especially rare to find individuals who are going to be strong in a) business, b) operations, c) sourcing/managing talent, d) development.  When you start the description with deep technical skills and a hacker mentality, that’s almost inversely related to the others.  Still, you can get lucky and find someone strong in several of these areas.  You also can build a team that has complementary interests and skill sets which is more common.  But often that first individual is the real challenge.  And in my experience, it’s pretty rare to get someone with interest and skills in all of the above.

Even with this almost mythical person is there a possible Founder Developer Gap?  Chris says:

Surely there are some business and technology strategy problems you're going to need help with that your lead developer can't help you answer.

I tend to agree, and often I feel like it’s a matter of interest, focus and experience rather than talent.  If you’ve found that rock star person being described by Chris, they are off the charts in terms of intelligence.  They can likely close a lot of the Founder Developer Gap.  But, I’ve seen a lot of cases where a rock star lead developer didn’t close the gap because they didn’t think to ask the questions, they didn’t have experience with the questions, and it wasn’t their focus.  They were hired to build stuff.

Chris then tells us:

In thinking about this problem I asked around a fair amount and couldn't find any solid answers to the question "where have you seen someone in the role of CTO for a startup do a great job?"  My colleagues and I interact with startups a fair amount because we're consultants. Many of us have done freelance work in the past, often for startups. We each pointed to key technical leaders that drove the development and operations parts of the businesses. A few had the title CTO but they all fit the technical rock star and hacker profile.

The main thought that gives me pause is that of earned authority. It's about leading by example. Depending on how much face time the consulting CTO has with the team, it could be extremely difficult for a consulting CTO to effect change. The consultant's advice would have to be filtered through the leaders in the trenches. Yourself and your lead dev, along with your other key leaders like product and sales managers, would need to listen, internalize and execute the strategy. I doubt a consulting CTO would have the privilege and honor of earning your team's respect directly. That generally comes from running the business together.

I think the two points go closely together.  Chris is pointing to a gap that can exist between business-oriented CTOs and development teams.  It’s much like the Founder Developer Gap, but down a level.  I’ve seen lots of cases of this.  A CTO that focuses only on business questions, but who doesn’t have a technical understanding so that the development team lacks respect and questions them.  This can definitely be a disaster.  Anyone hiring a CTO needs to know that the person is still technical.  But that doesn’t necessarily mean hands-on developer technical. 

That may be where Chris and I differ.  Can a CTO who is not ready to get their hands dirty in code help guide a technical team?  The answer is yes and it happens all the time.  I’m surprised that Chris couldn’t find examples of it.  I would guess that half of the CTOs in the LA CTO Forum fit that and are A players.   They know what the developers are doing.  They can help guide and navigate key technical questions.  But they are not going to jump in and code, even though they probably could.

The other aspect of what Chris raises is whether a part time CTO is going to have any real impact.  And certainly there are all sorts of ways for a part time CTO to be engaged.  In fact, it often changes as a startup goes through phases.  There will be key points when decisions need to be made and a deeper engagement is needed.  Then there will be hardcore development periods when the developers need to be heads down and the CTO is less important except possibly to avoid distractions for the team. 

Chris is right to question the amount of face time the CTO has with the team.  There are engagements where the CTO is primarily a consultant to the Founder/CEO and is providing advice/guidance, but doesn’t directly engage.  However, the most valuable engagements are when the CTO takes responsibility and engages.  They should jointly own the results of the development team with the team and the lead developer(s).  And certainly the CTO needs to have/earn the team’s respect.  But I’m surprised that Chris “doubts” that would happen.  Sure it can.  And it can be a function of the development team.  And, if you are bringing in the CTO because of a pre-existing Founder Developer Gap, then the challenges are bigger than when you had a CTO from the start.  Still, great CTO/lead developer working relationships happen all the time.  Maybe I’m missing Chris’ point on this.

One closing thought … Having been personally brought into a LOT of startups with all sorts of leads, developers, CTOs, CxOs, boards, etc., I can say that each one is going to be different.  The challenges, gaps, process problems, etc. are going to be different.  The motivations, skills of the people are different.  A good CTO (full-time or part-time) will be able to navigate that.