Having recently done a round of investor conversations post techstars, I wasn’t surprised at most of the questions asked, but I was surprised by the questions that weren’t asked.
The questions that were not surprising were questions of distribution and revenue, financial models, growth of monthly recurring revenue and burn rate. Our answers with these were more speculative than anyone would have liked. We are still working on optimization and tiering of our offering, all to reduce friction – conceptual (quick get), technical (easy on, easy integration) and pricing (obvious, with a ramp up).
We don’t yet have the answers, we have a platform on which we can learn the answers.
Right now, we have the maximum size of our product deployed and working, with significant revenues, and then a few test cases with smaller feature sets, less revenue and more support costs (compared to revenue) than we would like for various reasons. The work to reduce friction – to experiment across sizes of companies and verticals and find the sweet spot – is complex. This, to me, is the actual work of building a business – solving hard problems.
But complexity is out of fashion.
It’s led by b2c companies (what business model?) and froth in the market about “consumerification” of the enterprise and how “freemium” is a hack enabling avoidance of executive level sales. It sounds nice: just apply b2c thinking and get quick scaling b2b revenue. Yes, lucky bullseyes happen in both consumer and enterprise, but it’s rare in consumer to nail it out of the gates and nearly impossible to resonate so deeply across the many stakeholder levels required for enterprise. “Just be like Yammer!” As if Yammer didn’t have 100 sales and support people, wasn’t hiring a bunch more, and their CEO wasn’t claiming that their new differentiation is an “enterprise mindset” with a bunch of complex features like single sign on, data export, and directory integration.
In many investor conversations the questions were some version of “What’s the answer?” A guess would come forward and some debate would ensue. Even if everyone at the table did agree on “the answer” it hardly spells success. “Pivot” is a cliche for a reason. Investor meeting consensus doesn’t always persuade the market.
Investors have been around, they are aware of the stages of entrepreneurship and know that “answers” given in the early stages are likely wrong. Experienced investors of course know that confident and optimistic forward looking answers are probably a good indicator of lack of information, but yet they still often ask for answers instead of asking about the learning process.
The questions that I think should be asked more often are:
“How will you know when you are wrong?”
“What will you do to learn the answers you don’t know?“
“What are the actual experiments you will run, assuming you don’t know everything?”
“How will you prioritize the various experiments you could run? In what order will you tackle the unknowns?”
“How will you minimize technology waste as you pivot?”
The answers can’t just be lean startup buzzwords like customer development. The ability to design, instrument, and execute these learning exercises strikes me as far more important than the ability to serve up glib early stage answers. And it’s not a cold science, the entrepreneur has to hire, manage, and potentially fire actual people along the way. Holding on to the team, and one’s own mental health, while driving aggressively is extremely challenging.
The goals for our business, economically, are easy to define – we want CAC payback in less than a year and low churn and scalable distribution. For any business, getting agreement on a few goals should be easy.
It’s selecting the tactics to get to those metrics as quickly as possible and executing that is the hard stuff. That’s the key question for the entrepreneur. Do they know how to do that?