Tag: hiring

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Retaining your Best Talent (Part 2)

spark, keeping the spark alive

This is an addendum to the blogpost I wrote back in April of this year. Catalyzed by something Seth Godin recently shared. Which led me down a rabbit hole, and eventually to this sequel.

Seth Godin shared some fascinating perspective recently. “Turnover is a good thing when we are doing human work, not a bad thing. And what I would do if I was running a real company is I would say the first thing you’ve got to do on your first day is update your LinkedIn page and keep it up to date. And we’re going to have a resume job finding seminar every two weeks here. I don’t want you to stay here because you can’t get a better job. I want you to stay here because the conditions we’ve created, the work we are doing is worth you staying here for. And then I would listen.

“If I’m not creating the conditions where the people who I need to be dancing with want to stay, I have to change the conditions, not curse the people who are leaving.”

Which reminds me of a great Jerry Colonna dictum, “How am I complicit in creating the conditions I say I don’t want?” While the line is meant to be applied to an individual’s own awareness of how their environment is partly a product of their own design, it is equally as powerful in organizational design. Have you created an environment that lends itself to turnover? Is that by intention or lack thereof?

While I’m not urging founders to be less disciplined with their burn rate, Precursor’s Charles Hudson found one interesting piece of data recently. He wrote, “You cannot save your way to success. Our portfolio companies that graduated from pre-seed to seed typically spent more per month than those that failed to graduate. This result was consistent with what I’ve observed; the companies finding product-market fit spend more to keep up with growth and customer demand.”

While the above may be true when you graduate from the pre-seed to the seed, by the time you get to the A, it’s about securing great talent.

But let’s say your star talent has left (meaning that they passed the equivalent of Netflix’s Keeper test or any of these other culture tests). The one thing you DO have to be wary of is the morale of those who stay. Has your team members leaving broken the morale of the company? How fast can you get the team to bounce back?

To set some context, Frank Slootman defines winning as breaking the competitors’ will to fight. “In a world of software, you break the enemy’s will to fight when you are hiring their people because they have given up. They’d rather be with you than they are with the other company, because it’s too hard and too painful and they’re not making any money. So, ‘I’m going to join the winner instead of stick with delusion.'” And in Bezos’ words, “when the last person with good judgment gives up,” your team’s will has been broken.

Each team member leaving has a non-zero chance of creating this snowball effect. As the founder, maintaining culture and momentum is important. As Bob Iger once said, “[The] most important measures of success for a CEO [are] internal satisfaction, investor relations and consumer support.” In my experience, the first of the three is often far less obvious to first-time founders than the latter two.

So how does one maintain internal satisfaction?

The truth is there’s no one right answer. So, instead, I’ll share some tactics I’ve seen work well.

  • The last day for someone should be on Friday. It gives teammates the weekend to unwind and doesn’t affect their work ethic in the weekdays immediately after.
  • Set up 1:1 time with all their direct reports and who they reported to (if the latter person isn’t you) within the week after that person’s last day. While the obvious next steps may be to figure out the new chain of command and reporting structure, the first conversation you have with them should be about how they’re feeling and not about company goals. And have an honest, unfiltered conversation here. Which also means you need to share how you’re feeling as well. Don’t sugarcoat anything. Smart people see through lies very easily.
  • Offer each direct report to that person a mentor. Either internally in the company or externally. For the latter, there is immense value in helping your team member grow and getting an advisor or someone in your network you respect to get more involved in the company through monthly/quarterly mentorship.

As always, hope you find this helpful.

Photo by Ian Schneider on Unsplash

Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!

The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.

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How to Retain Talent When You Don’t Have the Cash

lightning in a bottle, spark, hold, light, jar

Earlier this week, I grabbed coffee with a founder. Let’s call him “Elijah.” He recently lost a key exec he’d been working with for two years to their incumbent competitor. The competitor’s offer happened to be too good to turn down. Triple the exec’s salary. As that exec had a family to feed and children’s education that didn’t come cheap, he made the hard decision to leave. Needless to say, Elijah was devastated. And he asked,

“David, what should I have done?”

I initially thought it was rhetorical. It seemed that way. But he paused, looked at me, and waited.

So I responded.

My response

I’ll preface by saying that the advice I shared with him was a collection of insights I learned from mentors over the years — some a lot more recently than others. I don’t hold all the keys to the castle. And every situation is, well, situational. So the last thing I wanted was for the founder to take my advice as the word of god (nor anyone reading this blogpost now). Merely a tool in the toolkit. At times, useful. Other times, just something that acts as décor in the shed.

“Elijah, it’s probably too late for that exec… for now. He’s made his decision and walked. That said, I think there are two things to be aware of here:

  1. The fact you didn’t know about this until it happened, and
  2. The decision itself.”

Pre-empting the ultimatum

For the former, here’s how I think about pre-empting your team’s career inflections.

  1. In their first week, have everyone put together their personal manifesto. What is their 6 month goal? 1 year? 5 years? 10 years? Lifetime goal? What motivates them? How do they like to give and receive feedback? Of course, it’s helpful to share your own first, so they have a reference point. Don’t expect anything you’re not willing to share first. So, naturally, this requires a level of transparency, and more importantly, vulnerability.
  2. Then within the first two weeks, you and their direct manager should review their manifesto with them for at least 30 minutes live. Really get to know them. Taking a page out of Steven Rosenblatt’s book, what drives them? What haven’t they achieved that they want to achieve? How do they do their best work? When do they feel the most motivated? Why did they want to work here? Why are they excited to do so? How does working at your company fit in their broader goal?
  3. Then every quarter, allow every team member one day of mindfulness away from their work to revisit their manifesto. I usually recommend a Friday. What’s changed? What’s stayed the same? Does their current role still fit in their broader goal? If not, why not?
  4. The week after, take time to sync again and be incredibly candid.

Of course, the above is easier to do if you have a company of less than 50. At some point, when your company scales past that, it’s at least helpful to do it with your direct reports and their direct reports.

Helping with the decision

For the latter, you can’t stop a river. Even if you build a dam, the flow will always find a way around. You can’t change what motivates someone else. But you can help them channel it. The best thing you can do is equip that person with the tools to make a decision they will not regret, and wish them the best.

I like to sit people down and first help them figure out why they’re considering a new role. People often conflate the three traits of a job — compensation, scope, and title — together when making a career move. But in truth, they’re similar, but all a bit different. And I want people to know that just because they’re getting paid more doesn’t necessarily mean an increase in responsibility. Just because they’re getting a new title doesn’t mean that they’ll get more money. Then I have them stack rank the three traits. From most to least important.

If they still rank compensation first, that’s fine. Maybe they’re saving to buy a new house or to pay for their child’s higher education. And there’s nothing you nor I can do there. But if it’s one of the other two that come out on top, there’s room to create a new position or set of responsibilities where the individual feels empowered. And if it’s not at your company, they’ll be equipped to think through it at their next company. If they don’t have one lined up yet, help them through your network find one that’ll fit the criteria.

The wonderful irony

The funny thing about helping people achieve their dreams — sometimes that’s actively helping them leave your company — is that the karma usually comes back in one way or another. In this case, and I’ve seen it and experienced it before, even if you lose this person at this time and place, they’ll remember the help you gave them. To which, one day, when they have an all-star friend looking for their next opportunity, they will think of you.

There’s a saying I love. ‘The best compliment an investor can get is to get deal flow from someone they passed on.’ And here, the best compliment you can get is to get talent from someone who left your team.

In closing

Shake Shack’s Danny Meyer recently said something that echoes this notion. While he uses the word “volunteering,” he defines “volunteering” as:

“I basically, to this day, treat all of our employees as if they are volunteers, which not in the real sense. You’re going to get paid. But if you’re working for me, it means you’re probably good enough to have gotten another 25 job offers at least. And so, as far as I’m concerned, you’re volunteering to share your gifts with us.”

He goes on to say, “I didn’t have any way to motivate them with money. I couldn’t give them a raise, couldn’t dock them their pay. So I learned such a crucial lesson, which is that, if someone’s volunteering, the only way to motivate them is to have a higher purpose.”

Of course, there’s more than one way to make a team member feel like they are valued and that they value their work here. Another way is to give your prospective team member a “love bomb”, as Pulley’s Yin Wu calls it.

Now I’m not saying that if Elijah did all the above, he’s guaranteed to retain the exec. Who knows? He might have. Might not. For a man with a family and financial needs, it’s a hard ask. But at the minimum, this career move wouldn’t have blind-sided him. And better, he could’ve supported that exec in making that career move.

Just like with your product, your goal with your team is also to catch lightning in a bottle. How do you attract the best talent to work with you? And then, once you are able to, how do you keep them?

With the latter, a big part of it is showing you care.

Photo by Diego PH on Unsplash

Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!

The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.

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Why You Should Hire For Expertise, Not Experience

looking forward, sailing

I recently read Fable‘s Padmasree Warrior‘s breakdown of leadership lessons. Prior to Fable, she held executive positions at Motorola, Cisco, and NIO and currently serves on Microsoft and Spotify’s board. Out of all the insights she shared, I couldn’t help but reach out on one intriguing point she brought up: “Hire for expertise, not experience.”

Expertise ≠ Experience

Before reading the blogpost on her, I had never thought of expertise and experience as two separate wheelhouses of knowledge. While there is definitely some overlap, as Holly Liu, founder of Kabam, says:

Expertise and experience are similar, but not the same. It is to no surprise most people often conflate the two, myself included. Experience is a record of past events. Expertise is your ability to leverage experience to positively influence the outcome of future events.

I’m reminded of something Henry Ford once said. “If I had asked people what they wanted, they would have said faster horses.” Experience would have dictated faster horses. Expertise would have dictated why we once chose horses over other modes of transportation. And the framework to think about transportation in the next century.

Hiring for expertise

When I asked Padma, “What kinds of questions do you ask potential hires to measure on expertise rather than experience?”

She responded: “I usually as ‘if X happened what would you do?’ ‘If there is nothing here… how would you start a product?'”

I followed up with a David classic: “If I can be completely selfish one more time, and I understand if you don’t have the time, for the question, ‘if there is nothing here, how would you start a product?’ or similar ones, what differentiates between a good answer and a great answer?”

Padma added: “If someone says ‘I did this at such and such’ – wrong answer. I look for ‘I would start with … then do… then grow’.”

Everyone’s guilty of a bit of revisionist’s history when looking in hindsight. It’s in our DNA. We are the only species that create narratives from seemingly disparate data points. After talking with multiple recruiters, executives, and CEOs on the topic, I realized there is often a tendency for people connect their past achievements together and sound like they knew exactly what they were doing all along. But in foresight, that often isn’t true. There’s a lot of guesswork and uncertainty when looking through the windshield, compared to images that often seem closer in the rearview mirror.

To follow up on Padma’s thoughts, I had to ask my former professor, Janet Brady, the former Head of Marketing and Head of Human Resources for Clorox, about hiring for expertise. “I’m a big fan of situational interviewing, where I ask ‘What would you do if…?’ In the process, I am looking for (a) how would this come up, and (b) how would they approach the problem. It’s easy to make the puzzle pieces fit and make up narratives in the past, but much harder when given a situation to deal with on the spot.”

As with any matter, things are not as binary as they first seem to be. She concedes that there is validity in asking about experience as well. But the context around experience is often more insightful than the experience itself. Brady shared, “You never do something alone. If you see a turtle on top of a fence post, you don’t know how it got there, but you know it had help.” How many people were on your team? What was your role on the team? What problems did you run into? And how did you deal with those problems?

But one of her interview questions in particular stood above the crowd for me. “What did you do in this role that no one else in this role has done?” While past achievements aren’t always predictors of future progress, in this case, what you’re looking for aren’t anecdotes but general themes in life, specifically, the ability to question the status quo and act on it.

Echoing Brady’s questions on problems a hire has faced, what might be more interesting is what didn’t work out in the past. The scar tissue someone’s accumulated over the years. Marco Zappacosta of Thumbtack loves the question: “What’s your biggest professional regret?”. And he elaborates, “I’m under no illusions that I’m hiring perfect people, but I want to make sure I’m hiring people who are self-aware of being imperfect.”

Put into practice

SaaStr’s Jason Lemkin shared a great example in his blogpost. How the expertise of VPs of Marketing differ depending on what stage of a company’s maturity they earned their stripes. A corporate marketer’s experience might translate poorly to running marketing at a startup. Equally so, a seed-stage startup marketer’s job might carry much less significance in a Fortune 500 role.

Corporates focus on corporate marketing and brand marketing. A form of marketing that’s “all about protecting and reinforcing the brand once you are way past scale.” It’s less about getting your brand recognized since customers have already heard of your brand. It’s about getting potential customers over the activation energy required before making a buying decision. As Jason puts it, “the brand creates so many leads and customers all on its own.”

Startups, on the other hand, are all about demand generation. In other words, generating leads. It’s a numbers game. Spend X dollars to get Y leads, that generate five times of $X of revenue. The equivalent of an LTV-to-CAC ratio of 5x. At the same time, he notes that “brand marketing is very expensive in the early days – and frustratingly, generates zero leads.”

Someone with Z years of marketing experience might have a lot of scar tissue, but might not be able to solve the marketing problem for your startup. Demand gen folks can’t hide anywhere if they don’t get results, but corporate marketing folks can hide behind a brand. Focus on finding the expertise you need rather than the years of experience that might look sexy on a resume or on a pitch deck. As always they’re not mutually exclusive, but it’s important to know the difference.

Who knows? Maybe the next generation of lead gen is all about Twitter presence and memes, as a16z’s Andrew Chen recently tweeted.

Taking a step back

On a bigger picture, the process of sales and marketing is a form of free education for a customer base. The better you can get your users to understand what you’re building, the more likely they will buy. Memes are just another medium of analogy and education. Better yet, of storytelling.

The better you can weave together seemingly disparate data points to create a compelling narrative without confounding extraneous variables, the greater your level of expertise. As Packy McCormick, one of my favorite writers, wrote on an a16z blogpost on expertise, “We live in a world where expertise can be justly claimed by anyone who can continue to prove it. Synthesis and storytelling are the keys to navigating that world. In a world with so much information available and fewer unquestioned experts, the ability to let large amounts of information wash over you, figure out where to dive deep, pull out the most compelling bits, and tie them all together is key.”

In closing

Hiring great talent across all levels breaks down to less of how many years of experience, but more so how you can leverage those experiences to understand and use unique and seemingly disparate data points going forward. Fall forward; don’t fall backward. An expert hire might not have all the answers to your problems, but will have built stress-tested mental models that’ll help in finding the answers for the questions you have.

Back when I was at SkyDeck, Caroline taught me that great entrepreneurs follow the “scientific method of entrepreneurship.” If I were to analogize her idea to expertise, an expert is a champion of the “scientific method of application.”

Of all the experts I’ve met – a title which is often one that society has deemed rather than being self-prescribed – they’ve almost always had an answer or multiple to a certain question. What proof would it take for you to change your mind?

Photo by Markos Mant on Unsplash

Thank you Janet for looking over early drafts.

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Four Signs of Startup Founders Prioritizing Growth Too Soon

scale, too soon, founders, startup growth metrics

Humans are one of the most awe-inspiring creatures that have ever graced this planet. Even though we don’t have the sharpest claws or toughest skins nor can we innately survive -50 degrees Fahrenheit, we’ve crafted tools and environments to help us survive in brutal nature. But arguably, our greatest trait is that we’re capable of writing huge epics that transcend our individual abilities and contributions. And share these narratives to inspire not only ourselves but the fellow humans around us.

A member of the our proud race, founders are no different. They are some of the greatest forecasters out there. To use Garry Tan’s Babe Ruth analogy, founders have the potential of hitting a home run in the direction they point. They build worlds, universes, myths and realities that define the future. They live in the future using the tools of today. In fact, there’s a term for it. First used by Bud Tribble in 1981 to describe Steve Jobs’ aura when building the Macintosh – the reality distortion field.

Yet, we humans are all prone to anxiety. A story nonetheless. Simply, one we tell ourselves of the future that restricts our present self’s ability to operate effectively. Anxiety comes in many shapes and sizes. For founders, one of said anxieties is attempting and worrying about the future without addressing the reality today. In the early days, it’s attempting scale before achieving product-market fit (PMF). Building a skyscraper without surveying the land – land that may be quicksand or concrete.

Here are four signs – some may not be as intuitive as the others:

The snapshot

  1. Your code architecture looks beautiful.
  2. You’re onboarding expensive experienced talent.
  3. Your cultural values lag behind the talent you hire (plan to hire).
  4. You’re bundling the market before you unbundle the needs.
Continue reading “Four Signs of Startup Founders Prioritizing Growth Too Soon”
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A Startup Hiring Philosophy

There’s a saying in venture that: “A-players hire A-players; B-players hire C-players.” Your ability to grow a business is often closely correlated with your ability to attract and acquire talent. But what does it mean to attract and hire world-class talent? Especially for functions you, as a founder, yourself may not be an expert in.

“A-players hire A-players;
B-players hire C-players.”

How does a first-time founder how to vet a seasoned sales executive? Or on the flip side, how does a non-technical founder learn to differentiate a good AI engineer from a great AI engineer?

While even the best founders, leaders, and managers make hiring mistakes, hopefully this post can act as a reference point as to what to look for. And while I have yet to master the craft, I’ll borrow 5 lessons from some of the best that has served as a guiding principle for me and for some of the founders I’ve worked with.

5 Lessons from 4 of the Greatest

  1. Hire passion; train skill.
  2. Desire/obsession > passion.
    • And, the ephemeral nature of passion.
  3. Hire VPs who can hire.
  4. Attract and hire intentionally.
    • On building trust.
    • On scaling yourself.
  5. To hire your best complements, ask people in your network 2 questions.
    • Who to ask? And what’s next?
Continue reading “A Startup Hiring Philosophy”
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On Scale – Lessons on Culture, Hiring, Operating, and Growth

flower, scale

One of my favorite thought exercises to do when I meet with founders who have reached the A- and B-stages (or beyond) is:

“What will his/her company look like if he/she is no longer there?”

The Preface

While the question looks like one that’s designed to replace the founder(s), my intention is everything but that. Rather, I ask myself that because I want to put perspective as to how the founder(s) have empowered their team to do more than they could independently. Where the collective whole is greater than the sum of its parts. Have the founders built something that is greater than themselves? And is each team member self-motivated to pursue the mission and vision?

It reminds me of the story of a NASA janitor’s reply when President Kennedy asked: “Hi, I’m Jack Kennedy. What are you doing?”

“Well, Mr. President,” the janitor responded, “I’m helping put a man on the moon.”

From the astronaut who was to go into space to the janitor cleaning the halls of NASAs space center, each and every one had the same fulfilling purpose that they were doing something greater than themselves.

And if the CEO is able to do that, their potential to inspire even more and build a greater company is in sight. Can he/she scale him/herself? And in doing so, scale the company past product-market fit (PMF)?

For the purpose of this post, I’ll take scale from a culture, hiring, operating, and product perspective, though there are much more than just the above when it comes to scale. Answering the questions, as a founder:

  • How do you expand your audience?
  • How do you build a team to do so?
  • And, how do you scale yourself?

And to do so, I’ll borrow the insights of 10 people who have more miles on their odometer than I do.

While many of these lessons are applicable even in the later stages of growth, I want to preface that these insights are largely for founders just starting to scale. When you’ve just gone from zero to one, and are now beginning to look towards infinity.

The TL;DR

  1. Build a (controversial) shocking culture.
  2. Hire intentionally.
  3. Retaining talent requires trust.
  4. Build and follow an operating philosophy.
    • Create, hold, and share excitement.
    • Align calendars.
  5. Upgrade adjacent users as your next beachhead.
  6. Capture adoption by changing only 1 variable per user segment.
Continue reading “On Scale – Lessons on Culture, Hiring, Operating, and Growth”
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#unfiltered #13 The Unlikely Marriage of Cuisine and Team-Building – Flavor Maps, Food Pairings and Bridgings, and How it Relates to Systems Thinking

broccoli, flavor mad science, recipes, team building tips

I met a founder (let’s call him Stan) recently who was about to close on his first big executive hire into a team less than 10 strong. Naturally, I asked what the rest of his team thought of that person. Stan replied, “I haven’t asked them yet.”

So, I subsequently followed up, “Were they able to meet him?”

“He’s been by our office, and I’m sure he’s had the chance to chat with them already.”

When he said that, two things stuck out to me:

  1. Stan’s use of “I’m sure…” implied neither that he was sure nor that he took care to verify.
  2. He seemed to have skipped a fundamental step in building a team. And by transitive property, how it would define his team’s culture.

The Culinary Parallel

Synonymously, a day later, my friend asked me, “How do you come up with your ideas for flavor mad science?”

You’re probably here thinking: “What the hell does this have to do with team-building and culture?” But bear with me here. I swear there’s a parallel.

Although, like all of my ideas and insights, I can’t say any of my flavor experiments are truly original, I always start off at the drawing board with flavor maps. And, you guessed it! Not even the concept of flavor maps is original. A few years ago, an amazing chef taught me this very trick of how he concepts new recipes every season at his critically acclaimed restaurant.

So, what’s a flavor map?

The idea of a flavor map is to start with a core ingredient – the star of your dish. And then slowly add other flavors and elements onto your diagram one by one. The catch is that every new flavor you add has to pair well with every single other flavor on that diagram.

Two flavor maps where I used green tea as the (co-)core ingredient.

Personally, I just try to think of a dish that I enjoyed, or know many other people enjoy, as the basis for a drawing a line between a pair. The reason I do so is that many generations of experts before me have already done the legwork to make these flavors work. And I’m just iterating off of their discoveries.

The more scientific approach is through flavor networks – specifically food-pairing and food-bridging. In summary, food-pairings are when you combine two ingredients with the same flavor molecules, like cheese/bacon or asparagus/butter. The most bizarre one in a 2011 Harvard study is probably blue cheese/chocolate, which share 73 flavors. On the other hand, food-bridging is when you take two ingredients that don’t share any flavors, like apricots/whiskey, and bridge them with an ingredient that shares commonalities with both, like tomatoes.

Yong-yeol Ahn and his colleagues explore the nuances of flavors and recipes in their 2011 research, which you can find here. But if you want the abridged summary, there’s a great one on Frontiers. Yet, as one of the co-owners of a critically-acclaimed molecular gastronomic restaurant told me not too long ago, take the research with a grain of salt. Food science is still extremely nascent and lacks consistent data points, especially across cultures.

Looping Back

Just like a complete flavor map has all of its ingredients working in cohesion with one another, a strong team needs to hold the same level of trust and respect. I’m not advocating that you need to agree with everyone on your team. In fact, disagreement on warranted grounds is better. But to be a well-oiled machine, a team can only be agile if you reduce the unnecessary friction that may exist now or arise in the future.

Although it is important that every team member can ‘food-pair’ with every other member, what I believe is more important is to have a fair mitigation system to ‘food-bridge’ all current and future disagreements. A system to resolve disputes and to prioritize tasks at hand. To have not only trust in each other, but also in the system design.

The cherry on top

Of course, I don’t know if Stan just forgot to set up times for his team to meet with the potential hire between his various tasks of running a business. Or if he had something he wanted to hide from his team. Regardless, his decision, or I guess, lack thereof to do so, would be detrimental to the delicate string of trust that connected his team to him.

To his and every other founders’ credit, there are often matters that seem obvious to an observer, but less so, when one has skin in the game – some degree of emotional attachment. And the deeper one is in the weeds, the harder it may be to follow rational behavior. Loosely analogized to the boiling frog problem. That said, some actions are excusable. These can often be caught by either a mentor or a close friend/family member. But there are a handful that aren’t. The same can be said on a macroscopic perspective as well. Between friendships. Lovers. Coworkers. You name it.

And, luckily for Stan, this falls under the former.

Top Photo by Hessam Hojati on Unsplash

#unfiltered is a series where I share my raw thoughts and unfiltered commentary about anything and everything. It’s not designed to go down smoothly like the best cup of cappuccino you’ve ever had (although here‘s where I found mine), more like the lonely coffee bean still struggling to find its identity (which also may one day find its way into a more thesis-driven blogpost). Who knows? The possibilities are endless.

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Brand as a Moat

startup brand, moat, defense, defensibility
Photo by Keith Johnston on Unsplash

What is the underlying notion that makes this product work?

It’s the question that almost every investor, especially early-stage startup investor, tries to answer when they’re entertaining potential investments. Some close cousins include:

  • What social, economic, or political trend is enabling this technology/business to work?
  • Why will people want to continue using this product? Consciously? Subconsciously? How much will they regret not being able to use this product?
  • Why is this idea crazy good, and not just crazy?
  • Is there a predictable road to traction? Product-market fit? $1M ARR? etc.
  • Is this a scalable business?

Needless to say, when I chat with founders, their business’s defensibility often comes up. Every business – small or large – needs to be defensible. Grandma’s cookies are just that good ’cause of that ‘secret’ brown butter element. Or Sally’s lemonade stand sells better than her neighbor’s down the street since she can keep her drinks cool for longer. Just like every good medieval castle has a moat, possibly filled with alligators, every good business has to have that one (or many) unfair advantage, as they call it in B-school. Not that I ever went, but I’ve heard from friends and professors who have. And this is even more true if you want to build a scalable business.

Those who have gone generally claim that their moat is their experience at X Fortune 500 company. Those who have a technical background often claim that their moat is their IP – patents owned and pending. Neither are wrong. And frankly, there are a multitude of factors that come into play when arguing for a business’s defensibility. And most of the times, it’s a permutation of the above and more. But the purpose of this post is to focus on an often discounted notion of brand as a moat. Both the company brand and the personal brand.

Disclaimer:

I should mention that before you even consider your business’s defensibility, and subsequently, brand, first, make a damn good product. I’ve seen too many founders take that leap of faith before they even have a product. They pitch the dream of them making a better world – the company vision – before they even figure out the first steps they need to take to get there.

The only ‘exception’ to this rule, at least from a fundraising and pre-PMF perspective, is if you have an amazingly robust personal brand. Though that may help with early traction, it won’t be enough to sustain a scalable business in the long run.

The startup brand

Your startup’s brand is a collective composed of the:

  • Company mission,
  • Company vision,
  • Internal culture,
  • And, the openness and responsiveness of the team.

The vision is that ultimate dream. The mission is what you’ll do now to get to that dream. Back in college, someone I really respect put it to me like this:

“The vision is the Sun. The mission is that ladder up. You can’t get to the Sun without building a ladder. If you only stare at it, you’ll eventually blind yourself. And if you just build a ladder, or else you might up on Mars instead, poorly equipped to survive there.”

Culture is something that you can set at the beginning, but know it’ll be an evolving beast with every new hire and every new incident. What you let happen defines the new culture. Although I share my thoughts in a post earlier this year, Ben Horowitz puts it into a much better perspective in his book, What You Do is Who You Are: How to Create your Business Culture. Quite a story-filled read, especially when you’re looking for something to do at home now.

And, the above three culminates into how your team acts.

  • Do your current customers/users feel like their concerns are either addressed or at least, valued?
  • Do they feel they are a valued member of your community?
  • What is your customer satisfaction rate? NPS score?
  • How do you prioritize and act on customer feedback?
  • Are your users engaged? How do you reengage them, if they become inactive?
  • For apps, what are they saying on the App Store/Play Store?
  • And, how are new customers hearing about your product? What do they hear? What are their explicit and implicit assumptions when using your product?

Why it Matters

Together the 4 elements answer the fundamental questions:

  1. Why would a potentially great customer want to use your product?
  2. Why would a potentially great hire want to join your company?

In the past few months, many VCs have been shifting their investment focus from consumer and towards enterprise/SaaS. There’s the argument that consumers are (1) more expensive to acquire (increasing CAC; the average number of apps a person downloads a day is zero), and (2) harder to retain. (For a more in-depth explanation, I would recommend you to check out the “Consumer App Conundrum” section here.) Aka, it’s more competitive than ever in the consumer markets. When we get closer to perfect competition over a saturated market seeking attention, having a great product just isn’t enough anymore. When some of the most active and vocal consumers happen to be people on the younger spectrum (millennials and Gen Zs), to fight for their attention, you need a brand that resonates with them on causes they care about – whether it’s diversity or climate change or another social cause.

We see this notion affecting two other verticals: the public sector and enterprise.

  • The privatization of X (let X be education, healthcare, transportation, etc. for all that were empirically public sector functions)
  • The consumerization of enterprise

For the purpose of this piece, let’s look at the consumerization of enterprise. What does that mean? Before enterprise sales worked from a top-down approach. A founder of an enterprise/SaaS startup pitches to a senior executive at a Fortune 500 (or similar) company. And the executive makes the call and the budget allocation towards their team’s usage of said product.

Now, many startups/companies, like Slack, Trello, Lever, and Soapbox, are taking the bottom-up approach, garnering brand loyalty among the people who will be/are using the product itself. And I predict that’ll be so in the near future for Superhuman, the fastest email client, and Woven, my favorite calendar app, as well. After all, progress happens at the most junior level. If you take it in relation to a tech startup of 200 in its growth phase, the founders or executives can make a plan and set deadlines. But if your most junior developer isn’t working on it, the whole business halts to a stop. All this makes me quite bullish on products in the low-code/no-code space, as well as in towards the future of work.

Moreover, this has led enterprise products to be heavily personalized, constantly updating, and has paved the way to multi-modal business models (i.e. subscription and pay-per-use). All this maximizes user satisfaction, which in turn affects their productivity, and transitively, the business flow.

Although the job market looks wildly different now than it did 3 months ago, when I assume the average founder is looking for cash preservation over growth, you still should be cognizant about the latter going forward.

Your Personal Brand

Your personal brand as a founder, or just as a professional, really matters. If you are a founder or thinking about becoming one, start building a public voice. Get people excited about you and what you’re all about.

Why?

Personal brands are extremely scalable and have built-in virality. You put one post out. Some percent of your followers engage with your content by liking or commenting. Then either by social media’s algorithms or by their innate excitement, they’ll share your content with their friends. Subsequently, new folks discover you and your content. And this becomes a virtuous loop, or network effects, as we call it, that helps get you scalable traction. This is why celebrities, like Dr. Dre and Maisie Williams, and their ventures garner quite a bit of traction among consumers and among investors. This is also why influencer marketing has been so bullish over the past few years.

At some point in your company’s lifespan, your personal brand will become the company brand. And that’ll become either shining beacon or the downfall of your company. More than just the followers you have on social media and in public, you are judged by everyone constantly on your aptitude and behaviors. How open, conscientious, agreeable, extroverted, and neurotic are you? (Yes, I took the 5 traits from the Big 5/OCEAN test.) Each and more have an impact on your personal brand. If we look at the culture behind Facebook, we see how large of an imprint Zuckerberg has on it. For Apple, Jobs.

In closing

The best thing about brands as a moat is that it’s effectively free! But both take years of work in building. As someone on the investing side, I love stellar brands. And it’s one of the elements of a business I weigh heavily on for its potentiality in network effects, summarized in the “Why you?” component of my NTY investment thesis (why Now, why This, why You).

Hmmmm, now thinking about it, personal brand may be the biggest reason I’ve been changing my handwashing habits in the past week… after watching Gordon Ramsay, Alton Brown, and Conan O’Brien‘s tutorials on it.

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