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Customer Development was introduced by entrepreneur Steve Blank in the early 90s. Since its inception, customer development has become core curriculum for startup founders and operators. Customer Development is one of the parts that make up a “lean startup,” an idea introduced by Steve Blank and Eric Ries. As the customer development framework has become a widely used approach in the startup world, we’ve decided how the process can be applied to a key facet of building a startup: investor development. In order to better understand investor development, it is important to understand customer development. As Steve Blank puts it in his book, The Four Steps to the Epiphany, “Broadly speaking, customer development focuses on understanding customer problems and needs, customer validation on developing a sales model that can be replicated, customer creation on creating end-user demand, and company building on transitioning the company from one designed for learning and discovery to a well-oiled machine engineered for execution.” The customer development framework can be broken down into the 4 steps below: Customer Discovery — “The goal of Customer Discovery is just what the name implies: finding out who the customers for your product are and whether the problem you believe you are solving is important to them.” Customer Validation — “Customer Validation is where the rubber meets the road. The goal of this step is to build a repeatable sales road map for the sales and marketing teams that will follow later.” Customer Creation — “Customer Creation builds on the success the company has had in its initial sales. Its goal is to create end-user demand and drive that demand into the company’s sales channel.” Company Building — “Company Building is where the company transitions from its informal, learning and discovery-oriented customer development team into formal departments with VPs of Sales, Marketing and Business Development.” Finding and marketing to new customers is hard. To help with this, it is important to note the four steps are recursive and iterative. As Steve Blank writes, “The nature of finding and discovering a marketing and customers guarantees that you will get it wrong several times. Therefore, unlike the product development model, the Customer Development model assumes that it will take several iterations of each of the four steps until you get it right.” What is Investor Development? As founders and investors often stress, raising venture capital is very much a structured process. And more times than not, a process full of nos and disappointments. Just as the Customer Development model assumes it will take several iterations until you get it right, the same can be said for pitching and closing investors. Elizabeth Yin, founder of the Hustle Fund, says, “an experienced fundraiser knows that the goal in going into your first fundraising meeting is to ask lots of questions and walk away understanding what next steps make sense. You should understand your potential investor’s pain points. Is there something you can solve for a potential investor by having him/her invest in your company? Do you have a solution for those pain points?” Following the core principles of the Customer Development model and Elizabeth’s idea mentioned above, a founder can easily systemize their fundraising process using the four investor development steps below: Investor Discovery — Investor discovery is the process of identifying targeted potential investors and whether your company/product/service can solve your investor’s needs and requirements. Investor Validation — Investor validation is where founders iterate on what they learned in the discovery stage and tailor their pitch and begin targeted outreach and conversation. Validation proves that investors are reacting positively to your company/product/service by investing capital. Capital Creation — Capital creation builds on the success from the first 2 stages and creates a scalable process for the current, and future, fundraises. Checks are being written and demand is being created for follow-on and future investors. Relationship Building — Relationship building is when your fundraising and investor relations process has matured. Formal expectations have been set between you, the founder, and your current and future investors. Note, that this is an iterative process (just like the Customer Development Model). If you believe your company cannot satisfy a potential investor’s requirements, ask questions to understand why and reiterate your solution to solve their investment pain points and requirements. Investor Discovery Investor discovery is the start of your fundraising journey. Before you begin the investor discovery stage it is important to identify who you believe your target investors to be by creating an ideal investor persona and list of targeted investors. The discovery process will happen during your first meeting with a new investor. A first-time founder may be tempted to begin their meeting with a company pitch and paint a picture of why their company is worthy of being venture-backed. However, this should be a time to understand the investor’s needs. Ask plenty of questions and pull together your learnings to tailor your solution and pitch to their needs. As Elizabeth Yin sums it up, “Your job in the first meeting with a potential investor is to ask a lot of questions—a la customer development style—to understand how you might be able to tie your story to their problems and interests. And so your pitch should not be stagnant, and although you may have created a deck before the meeting, it’s important to tie your talking points together as a solution to the problems you learn about in that meeting.” Investor Validation The next step in the process is to validate your solution and scale your process to other investors you’ve identified. As mentioned above, the first meeting with every investor should be about uncovering their pain points and requirements to tailor your pitch for each investor. The same holds true for the validation stage, but with an emphasis on rolling out your learnings and dialing in your pitch as you uncover different strengths of your business and your pitch from each new meeting. By completing both investor discovery and investor validation, you confirm that your company/product/solution is worthy of being venture-backed. These steps verify that your business model is feasible, the market is of interest to investors, establishes your price, and creates the perceived value to the market, and investors. Capital Creation To create capital you need to have proved your company is worth of being venture-backed. By completing investor discovery and investor validation you have likely confirmed your company is ready to be venture-backed. Capital creation is when checks from initial investors are being cashed. By validating the value of your company, a new sense of demand will be created for your company, new opportunities with co-investors and future investors will arise. It is important to note that new opportunities will arise for a future round. However, by taking your learnings from the first discovery and validation, you’ll be to engage these investors for a later fundraise. Relationship Building The final stage is relationship-building. The relationship-building stage is when your investor relations and fundraising processes have matured. You’ll have an established rhythm for communicating and engaging with your current investors as well as an approach for reaching out to prospective investors. Investors are invested in your success as a company and have validated that you are fulfilling a pain point. It is your duty to show that you’re taking their commitment seriously and sharing how you’re deploying their capital and ensuring they can help create value along the journey. All in all, it is vital to create a process that allows you to iterate and improve along the way. At the end of the day you are selling your company to a potential customer (read: investor) and communication is at the center of the relationship. Interested in learning more about investor development? Check out other ideas on our Founders Forward blog here.

One of the most powerful tools at investors’ disposal is equity research reports. Wall Street firms employ some of the sharpest minds in the industry who study companies with publicly traded stocks. These analysts delve into every aspect of the company, from its financial statements to its management team and competitors. Equity research reports provide solid analysis and the opinions of the analysts who follow the companies and their stocks extremely closely. What Is an Equity Research Report? An equity research report is a detailed report written by an analyst at a sell-side firm or independent investment research firm that analyzes the company’s business and finances and gives the analyst’s opinion of the company’s prospects and future stock price. Analysts are experts in the companies’ businesses, finance, and industries they follow. They research a company’s financials, performance, and competitive landscapes. They also create models to predict metrics like future earnings per share, sales, and a target price for the stock. Analysts keep a close eye on every move of the companies they follow and update their equity research reports at least once a quarter after the company issues its quarterly earnings report. If significant material changes occur mid-quarter, the analyst will write an update to their research report in a flash report. An example of an equity research report is a report on Apple written by a sell-side analyst from Argus. This report includes the analyst’s analysis and opinions about the company’s financials and future revenue and earnings predictions. The report also provides the analyst’s target price estimate and rating. Important Components of a Typical Equity Research Report The typical equity research report includes components that dig into the company’s financials, industry landscape, risks, and other vital aspects that can materially affect the company’s future business performance and stock price. Recent Results & Company Announcements Shortly after a company announces its quarterly results, an analyst will issue a new equity research report. This report will include an analysis of the recent quarterly results, including EPS, sales, and various financial metrics like EBITDA and profit margins. When releasing quarterly results, a company often makes announcements in a press release or through a conference call between management and the analyst community. The equity research report will include an analysis of these company announcements. Organizational Overview and Commentary An equity research report typically summarizes the company’s organizational structure. This summary outlines the management structure and the company’s major divisions. If the company makes any significant structural changes, such as appointing a new CEO or shutting down a division, the analyst will discuss the implications of these changes in the equity research report. Valuation Information Perhaps the most impactful part of an equity research report is the valuation analysis provided by the research analyst. The analyst provides an overview of the company’s performance through this analysis. The valuation information included within an equity research report includes margin analysis, EPS and sales estimates, the stock’s target price estimate, and other valuation and financial metrics calculated through a deep dive into the company’s financial statements. Estimates An analyst uses a company’s reported results and their own research into the company’s operations and the industry to calculate various estimates. The most prominent estimate is the EPS estimate, the analyst’s estimate for earnings per share for future quarters and fiscal years. Analysts also calculate forecasts for sales, margins, and other financial metrics. Many equity brokerage reports include a target price estimate, which is a short-term estimate for the stock’s price. An analyst may also issue a rating for the company’s stock, such as buy, sell, or hold. Financial Histories An equity research report typically contains financial data going back several years on both a quarterly and fiscal year basis. The analyst uses this financial data to perform an analysis of the company’s financial health and create projections. While research reports typically do not include complete financial statements, the reports often include important line items, valuation ratios, and financial metrics in tables which the analyst will reference in the commentary. Trends Evaluating trends is a big part of an analyst’s job; equity research reports discuss these trends. The report includes trends like year-over-year and quarter-over-quarter growth rates for metrics such as EPS, sales, and margins. The trend analysis gives an excellent overview of the growth of the company. For example, suppose sales significantly grew year-over-year, but EPS was stagnant. In this case, the company may be facing higher expenses, and the analyst will dive into the financial results and attempt to uncover the cause of the problem. Risks Many equity research reports include a section that describes the risks the company and investors may encounter. These risks may include economic headwinds, an increasingly competitive landscape, and company-specific risks like failed product launches or management changes. In-Depth Industry Research While analysts are experts on the companies they follow, they are also experts on the companies’ industries. Equity research reports include the analyst’s evaluation of the industry trends, the competitive landscape, and how the company’s prospects align with changes within the industry. Buy Side vs. Sell Side: What Role Do Both Sides Play? Buy-side and sell-side firms play different roles in financial markets, and it is vital to understand the role of each. Buy-side firms, such as hedge funds, pension funds and asset managers, have money to invest. They buy stocks and other investments and are fiduciaries of their client’s money. Sell-side firms, such as brokerage houses, sell investments to their clients, including buy-side firms. Sell-side firms employ analysts that write equity research reports. The sell-side firms provide these equity research reports to their buy-side clients. Buy-side firms use these equity research reports to help make investment decisions. Other Types of Research Reports Analysts produce several types of equity research reports. These include initiation of coverage reports, quarterly results reports, flash reports, and sector and industry reports. Initiating Coverage Reports When a sell-side firm begins covering a stock, the first analyst report is called an initiation of coverage report. This report gives the analyst’s first take on a company and its stock. Many investors pay attention to initiation of coverage reports because they provide a fresh perspective on a stock. Quarterly Results Reports After a company reports its earnings, an analyst will issue a new research report incorporating recent results. The analyst discusses the results and what went wrong and right in the last quarter. The analyst will also calculate new financial projections based on the results, company guidance, and management commentary. Related Resource: Portfolio Management: What it is and How Visible Can Help Related Resource: How To Write the Perfect Investor Update (Tips and Templates) Flash Reports Analysts issue flash reports when significant material changes involving the company, or the company’s industry, occur. An analyst may issue a flash report if the company’s CEO resigns, the company initiates a significant stock buyback program, or other major news breaks. In a flash report, the analyst will discuss the relevant news and how it may impact the company and its stock price. Sector Reports Sell-side firms also issue sector reports. The sector reports will dive into trends within the sector, a high-level analysis of the top companies in the sector, and past and future predicted performance of the stocks within the sector. Industry Reports Like sector reports, industry reports discuss the competitive landscape and major players within an industry. An industry is a subset of a sector. For example, the technology sector includes the semiconductor, personal computer, and cloud computing industries. Industry reports focus on a narrower industry rather than a broader sector. Equity Research Report Example Although each sell-side firm has a unique style for presenting analysts’ research in equity research reports, most contain similar types of information. Let’s conclude our discussion of equity research reports by looking at a recent Microsoft report written by Argus analyst Joseph Bonner after the company issued its fourth quarter 2022 results. The report starts with several tables of key statistics, such as financial and valuation ratios and the analyst’s investment thesis. The table also includes the analyst’s rating and target price for the stock. The report continues with the analyst’s investment thesis for Microsoft stock. This thesis briefly explains the analyst’s rationale for his Buy rating on MSFT stock. A section detailing recent developments within the company, which the analyst derives from the company’s earnings report and conference call, is followed by a look at select financial data. An analysis of growth rates for several key metrics like revenue and margins leads to an overview of risks that investors of Microsoft may face. Equity research reports offer investors a great way to harness the power of Wall Street analysts. These analysts live and breathe the companies they follow. Investors can use their expertise to advise them in the investing process.

6 Effective Ways to Connect With Investors One of the first questions on a startup owner’s mind is how to find investors. Angel investors, grants, venture capital: all of it goes towards making sure that your business can grow and thrive. Finding funding is one of the most pressing concerns for a startup, especially a new company. And it can be difficult to know where to start. How to find investors to start a business will vary depending on the type of business you have, as well as the type of funding you’re looking to procure. You may need to change your strategies depending on your industry, the size of your business, and your business model. There are certain types of funding that are more useful depending on the type of business. Yet regardless of the type of business you have, there are specific things that your business will need to do to ready itself to procure investors. To find investors, you’ll need to have a clear and concise business plan, in addition to current financials. Your financial statements will need to be accurate and timely, as you have to show that your company is stable. Related Resource: 6 Helpful Networking Tips for Connecting With Investors Related Resource: How to Find Venture Capital to Fund Your Startup: 5 Methods Learn more about finding the right investors for your business below: 1) Use a Powerful Online Platform When searching for investors the best place to start is with the resources that are immediately available to you. Thankfully for startup founders, there is countless platforms, lists, and databases full of active startup investors. At Visible, we offer a free investor database, Visible Connect, with the data and information founders need to build out their fundraising pipeline. Give it a try here. Related Resource: How To Find Private Investors For Startups 2) Get Your Startup at a Networking Event After you’ve done some preliminary research, it is time to hit the ground running and get in front of the investors that you believe are the best fit for your business. One of the most common ways to find investors is by attending a networking event. Startup networking events have become very common and can be found in most major cities. Related Resource: Investor Relationship Management 101: How to Manage Your Startups Interactions with Investors Related Resource: 7 of the Best Online Communities for Investors 3) Reach Out to Friends and Family Members If you’ve determined that venture capital or particular investors might not be best for your business you can turn to friends and family (or angel investors). Approaching friends and family can be a delicate situation and needs to be treated thoughtfully. Learn more about raising capital from friends and family in our guide below: Related Resource: 7 Tips for Raising a Friends & Family Round 4) Network Online Using Social Media Startup investors are notorious for their use of Twitter and other social media platforms. Social media, especially Twitter, can be a powerful tool for a founder looking to find an introduction to an investor. If you find an investor you have on your target list is a frequent Twitter user, don’t be afraid to Tweet at them or reach out via direct message. 5) Utilize a Crowdfunding Platform As the startup space continues to grow so do the funding options available to startup funders. Over the past decade, crowdfunding has taken the funding world by storm. While it is not for every business, crowdfunding can be a valuable tool. Learn more about raising crowdfunding below: Related Resource: How to Raise Crowdfunding with Cheryl Campos of Republic 6) Apply for an Incubator Program As put by the team at Investopedia, “An incubator firm is an organization engaged in the business of fostering early-stage companies through the different developmental phases until the companies have sufficient financial, human, and physical resources to function on their own.” Incubators can be a valuable tool for startups looking to work through the early phases of building their business and model. Oftentimes, this comes with a built-in network of startup investors and opportunities to pitch them for future investment. How to Find Angel Investors How do you find angel investors? They may be closer than you think. Angel investors are usually your very first investors, and many of them come from your family and friends. An angel investor is simply an individual who has money to invest: they invest it directly through you. Often, angel investors are available even when you can’t get venture capital or a traditional bank loan. Angel investors have numerous advantages. They are less likely to have strict requirements. They are more likely to loan you affordable money — either at low interest rates, or for a small share in your business. While traditional investors often require that you have a proven business model and financial statements to match, angel investors simply need to believe in your business. When courting investors from family and friends, you’re working with those who already know you best. These are individuals who know that you’re trustworthy, that you are confident and capable, and that you have a solid business idea on your hands. Rather than having to prove yourself through business proposals and raw numbers, you can instead bank on their familiarity with yourself as an entrepreneur. If there are no prospective investors in your immediate family or friend group, you can begin networking with those you know. By letting the people you’re close to know that you’re in need of funding, you may be able to connect with a friend-of-a-friend or a more distant family member. This is an opportunity not only for you but for them. If you truly believe in your business, then you know that you’ll be able to pay the money back and more. And an angel investor doesn’t necessarily need to be someone you know. There are networks of angel investors online who are specifically looking for opportunities, though they may be more difficult to court than someone you have a prior existing relationship with. An angel investors network will connect you to a broad spectrum of investors, often who specialize in different types of business. If you cannot find angel investors, you may need to instead turn to venture capital or a bank. But this is going to take a lot more work. You may need to fund your business yourself until you can prove that it has revenue-generating potential, or you may need to grow slowly as you prove yourself capable of dealing with conventional credit lines and debt. Angel investors are by far the easiest way to aggressively grow your business, and they should be courted whenever possible. But because it relies upon knowing someone who has the cash to invest — or at least finding someone through someone you know — it can be a challenge. Related Resource: How To Write the Perfect Investor Update (Tips and Templates) How to Find Small Business Grants If you’re unable to find an angel investor, a small business grant may be a better solution. Small business grants are grants awarded to small business owners in specific locations, industries, or of particular demographics. These grants are intended to encourage the health of small businesses: a successful small business is often foundational to a local economy’s strength. Most small business grants have fairly specific restrictions. There are grants for rural businesses, technology-focused businesses, and innovative businesses. A business must often write a grant proposal which outlines why the business needs the grant, why they are worthy of the grant, and what they will do with the grant money. This is very much like a proposal for a loan. However, as long as the small business meets the terms of the grants, it doesn’t need to pay the grant money back: the grant money is gifted to the business to help it grow. Grant proposal writing is a fairly niche specialization, so many businesses (especially startups) may want to hire a grant writer to complete their proposal. There’s no limit to the number of grants a business can apply for; small business owners may want to apply for as many as they feel qualified for. Connect With More Investors With Visible Connecting with the right investors is crucial to funding success. In order to better help with your fundraise, we’ve got you covered. Related Resource: A Step-By-Step Guide for Building Your Investor Pipeline Find the right investors for your business with our investor database, Visible Connect. Add them directly to your fundraising pipelines in Visible, share your pitch deck, and send investor Updates along the way. Give Visible a free try for 14 days here.

You do a lot of work for your investors. Regular updates keep your board abreast of the latest company developments and current performance metrics. Monthly or quarterly meetings keep you accountable to their questions and concerns. You’re expected to answer their inquiries in a timely and satisfying manner. All of that accountability is wonderful, but it should also work both ways. One of the most valuable aspects of your investor updates is the opportunity it provides founders to make targeted asks of their VCs. After all, you chose these folks on the strength of their experience, capital and network. Accessing those resources with a focused request can be one of the best ways to improve your business. But inevitably, some investors will be better than others when it comes to tapping into their networks and assisting their founders. It’s not a bad idea to let them know where they stand and provide a nudge for improvement. Ranking investors can be an intimidating idea, but when done right can provide a useful way for founders to spur increased engagement from their investors and better illustrate their additional needs from the board. To handle it in the most tactful manner, focus less on creating a zero-sum, Game of Thrones-style battle between investors for the top spot and instead provide up-to-date developments on how investors have made a specific impact on the business. To succeed in doing so, you need to show contributions in several categories – a nice mix of hard metrics like # of intros alongside less qualitative items like offering good product advice. Here’s what I recommend: Ranking Your Investors by Hard metrics Nothing quite beats delivering clean data to convince your VCs of their value or their need to do more. A regular report on these three critical categories can encourage greater participation using nothing other than the facts. Referral revenue – Investors help drive deals. It isn’t a terrible idea to tie revenue directly to each investor or firm and be transparent with the entire board of this growth metric. Your board is likely comprised of a competitive group. Developing a referral revenue leaderboard won’t be the only way you’ll assess contributions, but just putting these numbers down on a one-sheeter could be a great way to fire up VCs to go out and hunt deals for your business. Capital – If you need follow-on funding from your board, you’re going to be asked to deliver data and provide a convincing argument for the initiatives that need cash to scale. Once you’ve completed their requests, it isn’t a terrible decision to start compiling a report that details the contributions of each investor as well and share these dollar figures. You’ll want the help of your current board to assist you in your raises. Detail who matters most. Investor referrals – In addition to follow-on funding from their own pockets, you want your investors to help facilitate venture deals with investor referrals. If members of your board make warm introductions that later lead to signed checks, track that money like a sales lead so an investor’s value isn’t solely tied to the size of their bank. Also, providing examples of referrals that have worked well can be an exciting talking point to inspire other investors to make additional introductions to close your rounds quickly. Human Resources Beyond the easy-to-quantify metrics, there are two core contributions investors can make to attract and retain talent. Here is how to leverage transparency in order to improve their commitment. Employee referrals – Money and deals will keep your startup afloat, but in the long-run, you need top talent to beat the competition. As you build out your leadership team, your investors should be your best recruiters. Their referrals can cut down on the time it takes for you to hire and ensure quality candidates will make the most of your time. The value of one’s networks can be easily shown by identifying for the group who is doing the best to fill the ranks. If a board referral leads to a hire, detail this in your investor’s contributions during your regular update. Employee training – Your investors’ responsibility for human resources doesn’t stop at employee referrals. “Traditionally, VCs and platform teams have helped their portfolio companies attract the best talent by providing recruiting and hiring support,” Maria Palma of RRE Ventures writes. “But recently, some VCs have also started to help their companies on the development and retention front. Many are now offering ongoing training, coaching, and proactive solutions to address the common leadership and management challenges that occur frequently as startups scale.” In order to encourage these contributions, you might both quantify the time they invest in these efforts and outline the specific areas where they’ve filled a need. This informs your entire board of what’s going on with investor-assisted retention efforts and builds a template for employee support in the future. A concise update to encourage contribution Compiling these data points and informal efforts into a single slide or one-sheeter underlines its importance to your work, shows that you value their endeavors, and doesn’t unnecessarily embarrass anyone. After all, you may have a few in the group that have fallen short recently but will be motivated to catch up and make moves soon. A concise overview can be both constructive and respectful. It’s a good jumping-off point to ask for more. It also doesn’t waste their time. As for your own records, you might take a more blunt approach. It will be helpful to regularly review these data points and actually assign a numerical rank to each investor. That way, as you begin to scale and the stakes increase on investor relations, you never lose focus on who has objectively mattered most to the business.

The Importance of Your Quick Ratio Some investors refer to the quick ratio as a company’s acid test. Basically, the quick ratio indicates a company’s short-term liquidity and ability to pay current bills. The nickname and the quick ratio’s ability to demonstrate how well a company can operate in the near future should give you an idea of its importance. You can easily calculate your quick ratio by adding up cash, short-term investments, immediate receivables, and cash equivalents. For the quick ratio, consider assets that you could transform into cash without losing value within 90 days. Then you divide this number by your current liabilities. You can see this calculation’s formula below: Cash + Short-Term Investments + Current Receivables + Cash Equivalents / Current Liabilities For example, you might have $12,000 in cash and $8,000 in receivables. If you have $20,000 in debt, you would divide $20,000 by $20,000 to get a quick ratio of one. What's a Good Quick Ratio? If you have at least enough cash to meet your short-term obligations, that’s considered a positive sign for a new company. In other words, a good quick ratio would be at least one. A number over one might be even better, but any number less than one demonstrates that you could have to struggle to pay your immediate bills. On the other hand, too high of a value may mean that a company isn’t using their short-term assets to fund growth as well as they could. SaaS Quick Ratio Alternatively, there is a SaaS Quick Ratio. A SaaS Quick Ratio is similar to the standard quick ratio above but gives a SaaS company an overview of how efficiently their company can grow. The higher the SaaS quick ratio, the more efficiently a company can grow. In short, the formula divides any new MRR by any lost MRR. An example of a SaaS quick ratio can be found below: SaaS Quick Ratio= (New MRR + Expansion MRR)/(Churned MRR + Contraction MRR) While a higher new MRR growth rate can help fuel a good quick ratio, the best-in-class SaaS companies often have a lower churn rate which allow for a significantly higher quick ratio. With a lower churn rate, companies will have a much more reliable source for predicting future revenue and growth. Your Quick Ratio in Visible Tracking your quick ratio in Visible in incredibly easy thanks to our formula builder. To get started you’ll want to make sure you have all of your revenue metrics in Visible. We suggest creating a user provided metric or connecting Google Sheets, HubSpot, Salesforce, or ChartMogul to get started. From here, you’ll be able to create the quick ratio formula (as shown above) in the formula builder. Once the quick ratio formula is created in Visible it will automatically update as your data sources refresh. We suggest sharing your quick ratio with management and executives so they have a quick view of how the company is performing and growing. Generally, we do not see founders share their quick ratio with their investors and rather share the underlying metrics. Current Ratio The current ratio refers to a number that indicates how well companies can pay bills that might crop up over the next year. To calculate the current ratio, you simply divide current assets by current liabilities like this: Current Assets / Current Liabilities If you company has $100,000 in current assets and $100,000 of debt, your current ratio would equal one. What is a Good Current Ratio? A good current ratio may need interpretation in light of averages for a specific industry or business. As with the quick ratio, a value of at least one indicates that a company has at least as many assets as liabilities. Some companies may consider using excess assets more productively as well. For instance, you can count inventory as an asset; however, you bring in revenue when you move inventory. Quick Ratio Vs. Current Ratio Quick ratio and current ratio sound similar but mean different things. To make sure you understand the difference, browse these comparisons of quick vs. current ratio: Quick ratio: This formula only uses short-term debt and liquid assets that you can turn into cash within 120 days. Current ratio: In contrast, the formula for the current ratio uses all assets and liabilities. To understand the difference between the quick and current ratio, consider a simple example of a company with $100,000 in current liabilities: Cash and cash equivalents: $10,000 Short-term marketable securities: $20,000 Accounts receivable: $50,000 Inventory: $112,000 Prepaid expense: $8,000 You get a current ratio of 2 by dividing total assets of $200,000 by liabilities of $100,000. In contrast, you would have a quick ratio of .8 when you divide $80,000 by $100,000. This difference between the numbers could mean that you should consider freeing up a bit more liquidity for short-term obligations. Again, you have to interpret the metrics in light of the unique situation. That’s why you might include prepaid expenses in your current ratio. You can weigh prepaid expenses against your current liabilities; however, you might not include them in the quick ratio. For instance, you may have to purchase plane tickets for travel. In one sense, those could count as an asset, but they may not be easy to convert back into cash to satisfy an obligation. Liquidity Ratios Sometimes people use liquidity ratio to mean the same thing as the quick ratio. They may also refer to the quick ratio as the quick liquidity ratio. In a broader sense, liquidity ratios refer to various metrics that help investors and owners understand how well companies can meet their current debt obligations. Related Resource: From IPOs to M&A: Navigating the Different Types of Liquidity Events Besides the quick and current ratio, liquidity ratios could also include the operating cash flow ratio. You simply calculate this number by dividing liabilities by cash flow, but you don’t take other assets that you can quickly convert into cash into account. That means that this number will probably be a little lower than your quick ratio calculation. This number tells you how well a company can meet their obligations with the cash they have on hand and without having to collect receipts or liquidate cash equivalents or short-term investments. Why are Liquidity Ratios Important? Quick, current, and all liquidity ratios are important. Obviously, companies need to pay their typical operating expenses. They may also need funds for unexpected expenses and to take advantage of growth opportunities. All of these metrics give investors a quick way to judge the solvency of a company. That’s why they’re the kind of numbers that investors want to see. In addition, they are helpful guides for company owners and managers. Related resource: Dry Powder: What is it, Types of Dry Powder, Impact it has in Trading

For first-time founders and leaders of early-stage startups, determining compensation for the CEO and early employees can be tough. On the one hand, you need to hire the best talent, retain them, and incentivize their performance to have the right team in place to grow. As a founder and/or CEO, you also want to pay yourself enough to get by and prevent money from being an unnecessary distraction. On the other hand, you need to keep cash in the bank and appease your investors and board members that you’re extending responsible offers. How do you determine what’s best? The right approach won’t include a one-size-fits-all answer for every business. However, successful founders do tend to establish consistent tactics early on and lean on research to find their solution. It includes understanding the competitive compensation you can afford, the value of your business, and the sum total of benefits available to you and your employees. Here are some of the best practices and advice on approaching your boards with proposed plans once you’ve determined the right way forward. Average Startup CEO Salary in 2021 In the Kruze Consulting report on 2021 CEO salaries, the team surveyed over 250 startup leaders and found salaries have slightly increased. While they initially dipped at the start of COVID, the average CEO salary is now hovering around $146,000 a year. The salary varies by company stage and industry — learn more below: Startup CEO Salary breakdown by Industry One of the places to start when evaluating your CEO salary is by evaluating the benchmarks and peers in your industry. As you can see below, the average salary of a seed-stage startup CEO varies depending on the industry. The following data is from the Kruze Consulting 2021 Startup CEO Salary Report: Biotech – This has remained fairly consistent year to year as the space is more mature. Ecommerce – Ecommerce companies can be started and built with individuals and smaller teams leading to a smaller salary Fintech – A hot space in VC leading to more companies being funded with more money. Hardware – A more mature space leading to a higher salary. SaaS – Similar to fintech, a hot space in VC leading to more companies being funded with more money.  While the industry certainly has an impact on a CEO’s salary — the stage and capital raised seem to have the largest impact on a startup CEO’s salary Startup CEO Salary breakdown by funding stage Using the same report, Kruze Consulting 2021 Startup CEO Salary Report, as above you can see that the capital raised greatly impacts a startup CEO’s salary. Presumably, as a startup raises more capital they are growing as a company. This means that the CEO likely deserves a higher salary as they continue to bring in the new revenue and grow their bottom line. For example, if a company has gone on to raise their series A that is a testament to the companies growth and should be reflected on the CEO’s salary. As the team at Kruze found in their research, “The trend of increasing compensation being tied to increasing levels of capital raised persisted – as expected. Seed stage salaries – for companies that have raised less than $2 million in total funding – seem to be still recovering from the COVID crisis, and the overall pay there is down from $120,000 in 2019. However, at all other levels pay is more or less flat to up quite a bit.” $0-$2M (Avg) – Companies that have yet to prove product-market fit so likely as a lesser salary $2M-$5M (Avg) – Similar to $0-$2M this range has yet to give investors and board members the full confidence of a large exit $5M-$10M (Avg) – On the path to a larger exit and team warranting a larger salary. $10M+ (Avg) – Likely companies with a solidified model and likelihood of a large exit. Related Reading: The Understandable Guide to Startup Funding Stages How to Determine a Startup CEO Salary Startup CEO Salary Calculator Once you understand the benchmarks and industry trends, it is time to determine what your annual salary should be as a CEO. While there are quite a few factors that go into determining your salary we find the following to be most important. Certainly, there are a few other factors that will go into a startup founder’s salary as well. For example, if a founder is headquartered in Silicon Valley their cost of living is higher and likely requires a higher salary. How much money is in the bank? This is an especially important question to answer when you’re trying to hire your first employees. You have to be able to afford the talent you’re recruiting without cutting your financial runway unnecessarily fast for some quick-to-compete cash package. If the CEO is also a founder, it will be much easier to manage their annual salary because the value of their compensation package will likely lean much heavier toward equity than cash. But bringing in non-founders takes actual dollars and requires confronting these tough questions: how much money do we have? How long will this last us? How does a cash package for X employees change this? What’s your current valuation? Next, it’s time to determine what your business is worth so the value of equity can be established. For venture-backed companies, you can find this answer through an official 409A process or less formally (as Fred Wilson proposed in 2010) by using the valuation of your last financing round or the most recent offer you received to purchase your business. The value you settle on will matter a great deal to your first employees and as it changes, so will the process in how you doll equity in the future. What’s the competitive salary for this position and experience? The reality is most venture-backed startup CEOs typically make somewhere between $75,000-250,000. This has long been an acceptable salary range depending on the cost of living adjustments and the value of the business, and as long as the fledgling business isn’t truly desperate for cash. As noted in Business Insider here, Seth Levine’s observation on CEO salary in 2012 still holds true compared to the 2019 Kruze salary report data above: early on companies that have raised $500,000 or less cap out at $75,000, companies that have raised $1 million or less pay between $75,000-$125,000, companies that have raised between $1-$2.5 million pay closer to $125,000. The greater the fundraising numbers are from there, the more likely the CEO pay range climbs closer to $250,000. How to Determine Startup employees Salary Determining how to properly compensate employees at a startup is also a tricky task. As we wrote about in our post, “How to Fairly Split Startup Equity with Founders,” startup employees are generally looking for something more than a salary — transparency, collaboration, ownership, responsibility, etc. Oftentimes a startup can’t offer the salary an established Fortune 500 company may be able to offer but they can offer equity and intangibles that an employee can’t find elsewhere. With that being said — a salary is what ultimately can be the factor that determines if an ideal candidate will jump ship to join your company. How much common stock will you issue an employee? Your employees have options for where they work. Many of those options will offer greater short-term rewards, while you are likely to offer below market value in cash compensation. But early employees will be attracted to your business in part because of the long-term payoff. “When someone works for less salary than they deserve (meaning: what they could make elsewhere), I think of that as a cash investment they’re making in your company,” Jason Cohen writes. That comes in the form of common stock. Paul Graham has put together some valuable formulas for determining the equity of your first few dozen employees based on the expected value they bring to your business. That said, it’s unlikely in most cases for non-founders to receive more than 5% of the business (bringing on a CTO can be the one common example of exceeding this mark). Previously Brad Feld has argued that a founder CEO will be in the 5-20% range, a founder CTO in the 2-10% range, other co-founders between 3-7% and non-founder early employees between 0.5-5%. Market value for equity is dynamic though and the necessary points to attract an individual employee can vary. Related Resource: How to Fairly Split Startup Equity with Founders Are you issuing stock options or restricted stock to your first employees? In their helpful guide on employee equity, Gusto evaluates the decision to issue stock options, the chance to buy stock at a certain price, and restricted options, the right to buy stock under specified restrictions. The distinction between the two may impact early employee decisions on how they personally value their stock. You will want your boards input on this process early on. Related Reading: Employee Stock Options Guide for Startups What motivates your early hires? Now comes the really hard part. “For your first key hires, three, five, maybe as much as ten, you will probably not be able to use any kind of formula,” Fred Wilson writes. “Getting someone to join your dream before it is much of anything is an art not a science.” You’ve got a package in mind that includes a salary you can afford and an equity stake that makes the offer competitive if your company grows as expected. But you’re hiring unusual people to take this ride with you and understanding the package that will satisfy their ambition will also likely require rounds of negotiations and probing questions from you about their true motivations. Are your investors on board? Much like a competitive package for an employee, a CEO’s compensation and equity stake will require negotiations – this time with your investors. Having the above questions answered will help. Staying within a competitive range is needed to appease your current board and attract new investors (for example Peter Thiel has publicly stated he passes on any startup saying it’s CEO more than $150,000). As a CEO, you also want to examine your own motivations in a negotiation, especially if you are attempting to increase your salary or equity stake. “When two sides in a negotiation can’t come to a deal, it’s often because the two sides don’t have a clear enough view of what each other’s alternatives are if they can’t agree,” Tim Jackson writes. You don’t want to walk away from a tough negotiation having damaged your relationship with investors on your own compensation or shown irresponsibility when proposing packages for early employees. A well-researched proposal that clearly assesses your company’s current financials, demonstrates the expected impact fairly compensating an early employee or CEO will have and honors your commitment to delivering the return they expect on their investment will get you to reach mutually agreeable terms. Transparency and preparation are key. Related Reading: Private Equity vs Venture Capital: Critical Differences Startup CEO Salary FAQ To sum up the common traits that go into determining your salary as a CEO, check out the common FAQs and takeaways below: How much should a startup founder CEO pay themselves? In 2021, the average CEO salary was $147,000. At the end of the day, it is entirely dependant on the business, industry, and lifecycle. How does funding impact startup CEO salary? The later the stage a company is, the higher their salary is. As a company matures and grows, so does the salary of the CEO. How does your industry impact startup CEO salary? Industries and different verticals can lead to varying salaries. Markets that are receiving more funding and exiting at higher clips generally warrant a higher salary. How much equity do startup CEOs get? This is entirely dependent on the funding and financial instruments a company decides to use. Someone that has funded their own company and taken no outside financing might own 100% of the company. On the flipside, a founder that has raised multiple rounds of venture capital might only own a small % of their company.

This is a guest blog post by Erika Rykun. Erika is a content strategist and producer who believes the power of networking and quality writing. She’s an avid reader, writer, and runner. Chances are, as you stand at the beginning of your startup journey, you’re not thinking about all the stuff everyone keeps telling you is essential to protect your new biz from a number of potential issues. After all, dotting all those “i”s and crossing all those “t”s is not exactly the most riveting of your initial concerns. But what if I tell you that about 90% of all startups fail? And one of the most popular reasons for failure is incompetence and failure to pay attention to particular aspects of your startup. As with any business, there are certain things you need to do and know to protect the future of your startup. For example, there are certain legal documents you need to have in place for your new venture. One way to get into the right mindset? Treat your startup today like the successful business you envision it becoming. With that in mind, here are six things you should be thinking about now to protect your startup. 1. You Don’t Have to Go It Alone Even if you’re doing everything all on your own at the start, you’ve got a great business idea and, chances are, your business will grow. So while you’re wearing your solopreneur hat in the beginning, plan on doing business now the way you expect to be doing business in the future. Whether a corporation or an LLC is the right business structure for your startup — or perhaps a partnership is the perfect way to go — be proactive and lay the foundation for your startup by registering the right business structure for your new company. It will save you many headaches down the road. 2. Secure Your Team With the Right Contracts It’s not just boring HR stuff: Having the right contracts in place for each of your team players, whether major or minor, will help ensure that everyone knows their roles and responsibilities. And that’s the kind of thing that’s important for any business’s success. While employment contracts are a priority for your permanent staff, if your team members include independent contractors or consultants, remember that it’s important to get those relationships down in writing, too. 3. Keep Your Trade Secrets Secret Most startups have their share of trade secrets, so, if there’s information about your business that you want to stay confidential, lock those secrets down with a nondisclosure agreement, or NDA. And be careful to look at every relationship your startup has, to see where an NDA might be appropriate. For example, while you’ve probably already thought about getting your independent contractors to sign a confidentiality agreement or NDA, if your business plan contains confidential information, a business plan nondisclosure agreement may be a necessary part of your legal toolkit. 4. Protect Your Intellectual Property Assets Whether your startup revolves around an important invention, unique software code or an emphasis on the brand you’re building, it’s important to protect your intellectual property assets now, rather than later. So, register that copyright, apply for that patent or trademark your brand name. While the potential pirating or infringement of your intellectual property is likely not high on your priority list right now, having the proper protection for these assets now makes battling any future infringement that much easier. Related Resource: A Complete Guide on Founders Agreements 5. Get Insured When you’re first starting out, business insurance premiums can feel like an unnecessary drain on your cash flow. After all, you’ve got a barely there client list. Wouldn’t it be better to wait until you actually have the volume of sales to justify the premiums? Well, no. Liability insurance, for example, can play an important role at any point in your startup’s journey to success, because a risk is a risk, no matter where you are in that journey. And, in many cases, your sole customer is just as likely to get into an accident as your 8,922nd customer. It’s probably not going to be an issue, of course, but having the right business insurance in place gives you the peace of mind that comes with knowing you’re covered for the worst. 6. Know When You Need an Expert’s Help No one wants to pay expert advisers’ fees, but sometimes you need to have the knowledge and experience that an expert can bring to the table. Whether it’s enlisting the services of an attorney to help you draft a particularly complicated agreement, or talking with a CPA to help you structure your business in the most tax-efficient way, it’s always a good idea to prioritize hiring an expert when you need one. You’re at the start of what could turn out to be a beautiful, successful journey. Secure that potential future today by being proactive and treating your fledgling startup like the successful business you know it will be. Related Resources: How to Write a Business Plan For Your Startup

What is Stakeholder Management? Does your startup have a comprehensive stakeholder management plan? Investors, team members, and core decision-makers: these are the critical stakeholders within your business, and these are the people who will influence your company’s success. Stakeholder management is the process by which you communicate with and engage your company’s stakeholders, prioritizing them by importance and ensuring that all stakeholders feel valued. Through stakeholder management, you can acquire better business outcomes, while also developing long-lasting relationships. When you manage stakeholder engagement, you increase the likelihood of raising follow-on funding from your investors, as well as accessing their knowledge, network, experiences, and resources. Stakeholder relationship management leads naturally to stronger relationships between investors, team members, and key decision-makers. Stakeholder management includes: Identifying and prioritizing key stakeholders. Getting to know stakeholders and their preferred communication methods. Interacting with and relating to stakeholders based on their own goals. Determining how much influence a stakeholder has on core business operations. Beginning to influence and engage with the stakeholder, with the goal of improving the relationship. Every stakeholder is different and may have different interests when interacting with and engaging with your business. To properly manage stakeholders, you need to be able to address their concerns — showing them that you understand their personal metrics of success, and taking responsibility for any issues as they arise. Building trust is important. Stakeholders are still human, and it’s important to develop a variety of soft skills when managing them. In addition to providing them with the information that they need to make critical decisions, you also must be willing to work with them and help manage their emotions. A stakeholder analysis cannot forget the fact that stakeholders are independent actors, and they may not always be perfect actors: they may not make decisions purely based on statistics or logic. Rather, stakeholders may be worried about the company’s performance and metrics or may be anxious about new moves that the company is about to make. Managing these fears is a key part of stakeholder management. And, of course, each individual stakeholder will have a different level of influence on the company’s actions. Sometimes, the most difficult to reach stakeholders may have the least amount of influence, and consequently, the management process may be more about reducing disruption. Stakeholder relationship management is a complex skill, which needs to be developed over time. It’s a part of being a successful entrepreneur and running a successful startup and will build relationships that can carry over from business to business as an entrepreneur moves on. Stakeholder Management Strategy Let’s break down a classic stakeholder management strategy. Creating a relationship between investors and team members takes some time — and communication. A classic stakeholder management approach is broken into stages of assessment, communication management, and persistent engagement. These stages can be augmented through the use of stakeholder management tools. Once stakeholders have been prioritized and analyzed, they need to be communicated with and engaged. There are a number of strategies for improving upon stakeholder engagement: Regular stakeholder meetings. These meetings provide an open dialogue, to address any of their concerns or their ideas for the future. Stakeholder meetings are often effective ways to discuss issues quickly, rather than going back-and-forth in written media. Consistent financial reporting. Financial reports give stakeholders a feeling of being connected to the business, and assure them that they understand how the business is doing and the direction that the business is moving in. Many investors or team members may have key insights regarding the financial reports they’ve seen, and may be able to help the business with these insights. Scheduled Updates Newsletters can be prepared for all stakeholders at once, updating them in a single sweep regarding the current initiatives of the business. This is a fast, effective, and easy way to keep all stakeholders on the same page. Timely communications. When investors and team members have questions, they need to be answered quickly. The more involved the investors are in day-to-day operations, the more likely they are to provide accurate direction. Stakeholders want to be involved in the business. They want to feel as though their time is valued, as though they are being notified of major events, and that they are being consulted when applicable. Investors and team members can be kept on the same page through regular communications, such as meetings and newsletters. This allows the business to present the information that it needs to present in an organized fashion. During these communications, investors should be treated as partners rather than a source of capital. They should be engaged as colleagues and peers, and their contributions should be acknowledged. Stakeholders have responsibilities to the company, just as the company has responsibilities to them. Too often, companies only loop their stakeholders in when the company is experiencing a disruption. This stage is too late for true involvement and engagement. Instead, stakeholders should be involved from beginning to end, as their resources may be critical to developing and stabilizing the business. When managing stakeholders, it’s important not to get too wrapped up in the idea of “management.” Managing your stakeholders is about managing your relationship to your stakeholders, not managing the stakeholders themselves. If you are too rigid in developing your relationships, you may find that your stakeholders begin to resent their role in the process. Stakeholder Analysis Before you begin truly engaging your stakeholders, you need to go through the process of stakeholder analysis. A stakeholder analysis investigates the role that investors and team members will play within the business, including how involved they wish to be in the business, and whether they have a significant amount of influence on the organization’s initiatives. When performing a stakeholder analysis, use the following stakeholder analysis template: How interested are they in the company’s success? How much do they personally have riding upon it? What are they motivated by, when they are engaged with the business? What information are they most interested in? How do they feel about the business? What is their disposition to you, the business owner? If they are not positively inclined, why? What would make them support the business more? What resources do they have at their disposal, that they could use to help the business? What opposition could they possibly present, when considering business strategies? When these questions are answered, you’ll have a better idea of how to prioritize and classify your investors and team members. Of course, every stakeholder is unique, and consequently the methods used to interact with them will need to be tailored to them. It is often a business owner’s role to develop personal relationships with these stakeholders, learning more about what drives them, and learning more about what they desire. Apart from the above stakeholder analysis example, stakeholder analysis tools can be used to identify the amount of each stakeholder’s engagement, while also facilitating communication between the business and key interested parties. Stakeholder Matrix To make it easier to manage your stakeholders, you can develop a stakeholder matrix. You can do this manually or using stakeholder management software; either way, you’ll have a better depiction of how your investors and team members fit into your stakeholder management model. There are multiple types of stakeholder matrix, one of the most popular being the power interest matrix. In the power interest matrix, stakeholders will be classified as follows: Powerful, interested stakeholders. These are stakeholders that have a direct interest in the success of a business, as well as a significant amount of influence on how the business is able to develop. These stakeholders must be managed closely and continually communicated with. Powerful, uninterested stakeholders. These are stakeholders who are disinterested in the business, such as an investor who has invested in many other projects. However, they still have a lot of influence and control over the business. These individuals need to be kept satisfied, identifying their core success metrics and pursuing them. Non-powerful, interested stakeholders. These are stakeholders who have a direct interest in the success of a business, but have very little control over how the business develops. These individuals need to be kept informed. Non-powerful, uninterested stakeholders. These are stakeholders who have neither any real interest in the business or engagement with the business, such as lower-level team members. These individuals must be monitored. But this isn’t the only stakeholder management matrix. There’s also a stakeholder analysis matrix, stakeholder engagement assessment matrix, and other unique matrixes that may be developed for a specific company. Hiring a Manager What if you have enough investors and team members that you can’t handle the management process on your own? It’s always possible to outsource your stakeholder management to a project manager. Consider the following project manager interview questions, when looking for a project manager to take on these responsibilities: Which project management skills do you believe will most apply to your role within our business? What is your communication and leadership style? How do you approach fostering new relationships? How do you interact with difficult personalities? Do you have an example of a time when you needed to manage a difficult team member or investor? What position on your project manager CV do you think is most relevant to the role being offered here? Why? A project manager isn’t going to develop the type of in-depth, long-lasting relationship with your team members and investors as you will. However, they will be able to take on the day-to-day communications, financial reporting, and general engagement. This frees you up to focus on developing and building out your business.

What is Startup Culture? Every business has a culture. An offshoot of Silicon Valley culture, startup culture prizes ownership, transparency, growth, and ownership. Startups are about disruption and revolution: they’re about changing the way a market currently solves a problem. A strong culture informs employees of what is expected of them, courts the best and most motivated employees, and builds the foundation for a long-term, successful enterprise. Traditional Startup Culture In recent years, successful startup cultures have experienced an evolution. Rather than being singularly mindful and driven, such as the early days of Apple, they are now embracing failure and work-life balance. Employees have begun to reject the traditional tenets of startup culture, which often had employees working long hours and numerous days in pursuit of perfection. Instead, startup cultures are now taking notes from giants like Google, encouraging both innovation and failure, and allowing employees to experiment. Modern startups have many employee-based amenities and ensure that their employees are inspired and motivated. At the same time, startups use their culture to make sure that their employees remain engaged and invested, and that their employees are continually working to produce ideas and technology. Relationships Startup cultures encompass the company’s relationship not only with their employees, but also their vendors, customers, and even products and services. A startup is often seen as a cutting-edge, maverick company: a company that is willing to try out unique and risky propositions for the greater good. In terms of customer care and product development, startup culture may be customized to suit the business. Not all startups are alike, and not all startups buy into the traditional ideas of Silicon Valley culture. Instead, startups tailor their culture to their mission statement and their values, and they make it clear what their business is about. This is one reason why mission statements and values statements have become an important component of the modern business. A company’s culture may evolve over time, but what is most important is that a company understand its culture in-depth, and enforces its culture at all times. A strong company culture is what ties the company’s employees together, creating the company’s brand and identity, and driving the company onward toward success even as it scales upwards. A company with a weak culture will have uncertain employees who may not necessarily know what is expected of them. There are many examples of different company cultures that a business can pattern itself against, but ultimately the company’s culture is often going to be informed by its higher-level executives and employees. Why Culture is so Important to Startups Culture is incredibly important to startups. Oftentimes startups don’t have the resources and capital to compete with larger corporations to attract top talent. With that said, it is important to offer intangibles (and equity) to attract top talent. In addition to being able to attract top talent, establishing a strong culture from the early days will help build in all aspects of building your business as you continue to grow and hire. Hiring As we mentioned, establishing a strong startup culture is a surefire way to compete for top talent. Early stage startups generally can’t compete with pure salary compensation but can offer intangible benefits that can sway an individual to join your organization. To learn more about how to hire for you startup, check out our guide here. Outside of hiring new employees, culture is incredibly important in other aspects of your business as well. Retention Generally speaking, it is more cost effective to retain an employee than hire a new one. Startups usually do not have the resources (or time) to recruit and train a new employee. With that said retention is vital to success. An easy way to make sure companies retain their top talent is by offering a culture that gives them the intangible benefits they want. No longer are the days of ping pong tables and sparkling water. Happiness Going hand-in-hand with retention is the ability to keep employees happy. If employees are being given the intangibles they want and believe in what they are working towards chances are they will be happy. And a happy employee is someone that will stick around and only strengthen your company culture further. Buy in A strong culture will create buy in from individuals across the organization. As most startup leaders know, building a startup is full of ups and downs. Having buy in from the earliest employees is essential during the downs to keep everyone motivated and focused on the vision. Who Owns Culture Building at Startups When growing your headcount at a startup, everyone plays a role in building the startup culture. Oftentimes the top sets the tone and leaders across the organization help implement and build the culture. Founder(s) and CEO Generally a startup begins with a small headcount of founding members and leaders. They are usually the subject experts or most qualified in their respective department. It is on these founders and leaders to set the tone for the culture of the entire organization. As startups begin or continue to hire it is vital that the leaders lead by example. For example, if you want a culture of transparency and open communication then it is important that the leaders and founders practice transparency and open communication. As the team at First Round Review puts it, “Companies tend to reflect everything about them [founders]— their personality, strengths, weaknesses. So when you start defining culture in an intentional way, first look at yourselves. If you’re not a founder, look at your CEO and the people who were there at the very beginning.” The First Round team goes on to say, “If a founder is competitive, the company will be more aggressive and competitive. If they are analytical and data-driven, the company will tend to make metrics-based decisions. On the other hand, if a founder deliberates too long over decisions, their startup may have a hard time moving as fast as it should. If a founder is a designer, the way the company builds products will likely be led by design.” Human Resources Usually when a startup has less than 10 employees the culture can be fairly rudimentary. It may be based off of how the founders/leaders work and have a few core ideas. Once a startup gets to the point where they can hire a HR leader or team, culture may be elevated to a new level. An HR leader can come in and dissect what is or is not working about the current culture and put the playbook in place to hire individuals that fit the culture. As the team at BambooHR puts it, “One of the roles of HR in a startup is to make sure the company lives up to its values by hiring people that align with the company’s vision.” Leaders As we previously alluded to the leaders of each business department are the role models for culture. Once you grow your headcount to a point where founders are no longer working with every individual, it is on the leaders and managers to practice the values and be the role model for those working on their team. Startup culture generally starts at the top. Even if a startup’s vision and values are not written on paper, the earliest team members are likely practicing them day in and day out. Learn how you can formalize your startup culture below. 5 Steps to Build A Desirable Startup Culture As we mentioned previously, a startup culture usually starts with the founders and what they bring to the table when a company starts. As the team at First Round wrote, “80% of your company’s culture will be defined by its core leaders.” Questions for Leaders While it can feel burdensome to take the time to formalize your culture in the early days, there are a few easy steps you can make to get things headed in the right direction. As we mentioned earlier, if a founder wants a culture of transparency they have to practice it themselves. In the early days, there are things that founders are implementing and practicing if they realize it or not. As a founder, you can ask yourself questions and it will give you a basic outlook of your “culture” (or how you work as a leader). Ask yourself things like: What am I good at? What are my weaknesses? How do I work? What characteristics do I look for in co-workers? What qualities do I dislike about co-workers? etc. Once you answer these questions, your culture will start to take shape. Common characteristics will start to appear and you will have the basis for your “company culture.” Define the Vision Statement Once you are ready to start formalizing the questions above you can start with the vision. As the team at HubSpot describes it, “A vision statement describes where the company aspires to be upon achieving its mission. This statement reveals the “where” of a business.” This is the overarching goal of where you want your business to end up. While it should revel “where” you want to take the business it also plays into “why” you exist. In a slightly varying definition, the team at Matter describes a vision statement as, “A vision statement explains why a company exists at a high-level. It is aspirational, inspirational, motivational, future-looking and coincides with the founder’s vision for a better world. The very word, “vision” has everything to do with seeing; and vision statements have everything to do with how the founder sees the company evolving and impacting the world.” Define the Mission Statement If the vision statement is where you want to go, the mission statement is how you will get there. As the team at Entrepreneur defines it, “Every successful startup has a clear goal or vision as to what they want to accomplish. While cynics would say that the ultimate mission of any business is making money, the most successful startups generally have a larger sense of purpose. And the best way to express that aspiration is with a well-written mission statement that establishes your company’s core values and highlight its goals, no matter what niche you might be working in.” A mission statement is your roadmap for achieving your vision. This is at the core of a startup’s culture and should be looked to often as you set goals and product roadmaps for the future. Define the Core Values At the end of the day, core values are the DNA of your startup culture. They act as a guiding principles for you how you and your team work. As the team at Wired writes, ” Choose values that are actionable and resonate with your company. If you identify your startup culture with values related to being bold but you know that isn’t important to your success or appropriate for your business, perhaps you should take a closer look at what makes your company tick. Values aren’t something that you have to put in writing for public display, that style isn’t for every startup. However, values should be something that most people can relate to and routinely act upon.” Values should be the acting principles of how your team works. If you think back to the original questions a founder should ask themselves, the values and principles will likely be clear. As you continue to bring on new employees look back at your values to see if they’re still being practiced. Practice What You Preach No matter what you put down on paper if you are not practicing what you preach a culture will cease to exist. For a startup culture to last, it is vital that the leaders are practicing the values and working towards the mission and vision each and everyday. If times get tough and the leaders abandon the company culture, chances are everyone else in the organization will as well. Remember what the First Round team said in the fact that, “80% of your company’s culture will be defined by its core leaders.” If you practice what you preach, building culture throughout your organization will come naturally. How to Maintain Culture While Growing Writing your mission, vision, and values is a small part of the battle. In order to best build a startup culture you need to actively maintain it and make sure it is being practiced across the organization. Here are a few ways to make sure you are maintaining culture while growing your headcount. Hire for Culture When bringing on new employees it is important to test if they are a cultural fit. If you have your values written, it should be fairly easy to test if an employee is a fit for your team. You can have multiple team members interview candidates to get their read on a potential candidates fit as well. Make it clear during the interview process what your company values and what mission and vision you are working towards. This should set the tone and expectations for if they do join your team. Tweak & Re-evaluate Even if you do a great job hiring for culture, chances are your company culture will continue to evolve. It is natural! Take the time to look back at your culture every few months and just see if things are changing. Don’t feel like it is something you need to update immediately but keep tabs on to discuss with your team and leaders. Survey A surefire way to see if your building and maintaining your culture is by surveying your team members. Something as simple as a prompt to measure their happiness level at work can do the trick. If something feels off or you are getting negative feedback about the culture — it may be time to make some changes and see what you can be doing differently. At the end of the day, it is up to the leaders to set the tone for the company culture. If they continue to practice what they preach and hire for culture, maintaining culture should be easier across the board. 5 Great Company Culture Examples It’s not always easy to intuit what a company culture is. Taking a look at some company culture examples can help, both in terms of what to do and what not to do. Here are some company culture examples to consider: Lyft vs. Uber Culture Early on in development, Uber established a problematic company culture, with team culture activities that often involved alcohol. Uber experienced numerous complaints and scandals during its growth, due to this problematic company culture. By contrast, Lyft was able to establish a company culture of responsibility and safety. It experienced far fewer complaints and scandals, and garnered a better reputation in the industry. Of course, in terms of market share, Uber eclipsed Lyft. But it has experienced significant and lasting damage to its reputation over time. Company culture isn’t everything to a business, but it is a lot. Neither Uber nor Lyft have been able to achieve profitability within their market. When considering office culture ideas, looking at cultural goals examples can help. Many companies pattern themselves after the companies that they find most successful and inspiring. Consider these examples of company culture statements, from the largest companies in the world: Google’s Ten Things We Know to be True This outline’s Google’s philosophy: customers first, do one thing well, and don’t be evil. Google has long-believed in serving the customer before everything else, as well as focusing on a singular thing at a time. Apple’s Vision Statement Apple is committed to bringing “the best user experience to its customers through its innovative hardware, software, and services.” Apple sees itself as being a world leader in technology, bringing customers the best user experience possible. Microsoft’s Corporate Mission Microsoft seeks “to empower every person and every organization on the planet to achieve more.” In recent years, Microsoft has been focusing on behind-the-scenes technologies such as their Azure Services, as well as collaborative and communicative products like Office 365 and MS Teams. As you can see, these cultural statements are brief and impactful. While the actual mission statement, company culture, and guidelines may be more in-depth, the company culture needs to be able to be explained in a simple, succinct way. Of course, these are also some of the largest companies in the world. But they all started out as startups, and their cultures have remained largely unchanged since then. Google started out with the mission of “don’t be evil.” Apple started out providing useful technology with superb interfaces. Similarly, Microsoft has always been user-focused when developing its products. It’s often said that an expert or a professional is an individual who is able to explain complex concepts in simple terms. Similarly, a business that really knows its identity will be able to describe its identity within a single sentence. This single sentence should resonate strongly with both employees and customers. Being able to simplify a company culture is critical, because a company culture has to be simple in order to be followed. An overly convoluted or complex company culture will be impossible to maintain for any business, and will lead to more confusion than is necessary. Amazon’s Culture And then there are the companies that have a more traditional corporate culture. As an example, many have stated that they are dissatisfied with Amazon’s corporate culture in recent years, which puts a performance-driven environment first. Amazon’s culture emphasizes an “outstanding, continuously-improving customer experience,” which has reportedly led to burn out and fatigue in many of its employees. An emphasis on “relentless focus” has led Amazon to be successful, but also the target of a number of high profile labor complaints. What's it like Working for a Startup? Working for a startup is often a cross between passion and a calling. People work in startups not to make the most money, but rather to be a part of something that they feel really matters. Working for a startup salary is often demanding and requires an employee to wear many hats, but there’s the hope that an employee may get in on the ground floor of something special: the next Google or Microsoft. What Talent Wants Consequently, an employee wants to feel as though they are valued, and they want flexibility and perks. Well, employees do value things like a ping pong table and snacks in the office, it can often be boiled down to 4 things that modern talent wants in the workplace: ownership, transparency, growth, and collaboration. Ownership There are two types of ownership for a startup employee, the type that shows up on a cap table and the type that stems from having an opportunity to lead new projects, products, and processes within a company. Transparency Employees want to know how their business is performing and how they will impact the business. At the end of the day they are asking themselves — Are the executives of the company being open and honest about the prospects of the business as well as our current performance? Does the company have systems in place to communicate that performance and give every team and person insight into how their contribution is affecting the growth of the business? Growth Let’s face it, no matter how amazing the culture at your company is, people often take jobs because of what it will mean for them personally. That means everyone that joins your company is doing so because they feel it is the best thing for them to be doing right now so that they can continue on the career path they have visualized for themselves. The difficulty is keeping people engaged enough to continue feeling this way. Collaboration The desire among companies to remain lean along with the uncertainty of what may transpire each week within an emerging business has given rise to the full-stack operator. People with a diverse skill-set (and, again, intellectual curiosity) will quickly form opinions on how the company outside of their specific role is being run and will want to make a contribution. Startups necessarily must be more flexible than traditional companies because they are already asking so much of their employees. A startup is going to ask their employees to work for them far beyond the traditional work week, while also continuously giving their all. Most startups are fairly lean on funding, and consequently they need to be able to reward solid performance in creative ways. Many startups use things such as corporate catering, health plans, on-site childcare, and other quality of life benefits to keep their most talented staff. But it has to be understood that those who are interested in working for startups do know that they’re going to be working for less: they need to believe in the business itself. As long as they believe that the business is going to be successful, disruptive, and innovative, they are likely to remain onboard. Much of this has to do with the culture. Why Should Someone Pick Your Company? Most people who work for a startup have already considered the working for a startup pros and cons. Ultimately, there are two major reasons people decide to work for a startup: The soft benefits are fantastic. The future opportunities are great. An employee may forego a significant salary if they feel that the startup’s soft benefits compensate for the loss of income. If an employee needs flexible time, so they can spend time with their children, or if an employee likes to go on lengthy vacations but still gets their work done, a startup may be the right environment for them. But one of the major benefits of working for a startup relates to future opportunity. Employees often want to buy into a business: they want shares of the business, or they want to be able to have upward mobility within the business. In the tech center, many employees come from businesses that paid them well, but there was no light at the end of the tunnel. And many employees really want to feel like they’re making a difference in the world. They want to feel as though the work they do is appreciated and matters. Working for a startup vs big company means that the big company funding isn’t there, but that the startup can be more flexible in terms of the employee’s own goals and desires. A startup can court better talent by providing opportunities for growth, working around the needs of the employees, and putting an emphasis on quality of life.

Running a Board of Directors Meeting For most businesses, a Board of Directors meeting must be held at least once a year — however, some businesses may choose to schedule them more frequently. A Board of Directors meeting is an excellent opportunity to make sure that key stakeholders are on the same page. During a Board of Directors meeting, stakeholders will be updated regarding the status and finances of the business, as well as offered presentations regarding the company’s future. Perhaps most importantly, stakeholders will be allowed to vote on future strategies and directions. For startups, a board meeting is an data and people. In a board meeting, the right people are exposed to the right data. Profit-and-loss reports, general ledger sheets, and other financial documents are presented to key stakeholders, and these key stakeholders are able to synthesize this information into important insights. Further, board meetings provide a pathway through which key stakeholders are able to discuss the company’s performance. There’s a reason why board meetings are required: because they are essential to a healthy business. Startups often experience more volatile changes than other companies, and may face unique challenges. Consequently, startups may want to have more frequent board meetings, and may find that their board meetings are even more useful than they are in traditional, established companies. Even in preparing for a board meeting, a startup will be able to explore its performance and its challenges, locating and assessing its risks. However, challenges can arise when the principles of a startup don’t have the time to prepare for a board meeting, or feel as though they aren’t certain what’s expected of them. As many startups are loose and informal, a board meeting may provide an unnatural level of formality. Startup founders may need to research board meetings further if they want to run a successful one. Board Meeting Rules How are board meetings run? What are the board meeting rules? Board meetings are 5% the meeting itself and 95% preparation. Before the board meeting occurs, you will need to prepare all of your documents and presentations in advance. You’ll need to determine exactly what you want to talk about during the meeting, as well as establishing what your goals are for that meeting. Ideally, your business has already been tracking its KPIs, metrics, and financial data. After the board meeting is scheduled, and before it starts, you should consider the current state of the business. What are its largest risks and challenges? What items are of the largest strategic importance? Before your board meeting begins, you should: Have completed and compiled the meeting minutes from the previous board meeting (hopefully well in advance). Most board meeting rules of order will have reading the prior meeting minutes first. Prepare financial reports, analysis, and other documents for the board members to review. Board meeting protocol generally suggests that these be reviewed early on, though they will also be sent to the board members in advance. Identify the company’s greatest risks, assets, and challenges, especially those that are most pressing. Create strategies that you would like the board to weigh in on, whether they approve or disapprove. Define clear goals that you want to achieve by the end of the board meeting. Once you have these things in place, it’s time to create an agenda. Your board meeting agenda is comprised of the topics that will be discussed, in order. It’s intended to keep everyone at the board meeting on the same page, as well as to ensure that nothing is missed. Many boards don’t have the best time management, and can potentially spend all of their time on a single issue, when multiple issues need to be discussed. Your agenda should be sent to all the board members directly, before the meeting occurs, so they themselves have time to prepare for the meeting. While it’s just a general outline of the meeting to come, it should still give them enough information that they’ll be able to form some thoughts, opinions, and ideas. A board meeting is a collaborative process, and your goal is to facilitate thought. To that end, your startup should be focused on presenting board members with the information that they need, as well as the challenges that are ahead. As mentioned, each board meeting and each company is different, and startup culture tends to vary significantly. Some startups may have looser and more frequent board meetings, while others may have infrequent, formal meetings. Some have strict board meeting rules of conduct, others don’t. Over time, you’ll discover what a normal “board meeting” for your startup looks like. Board Meeting Agenda What does the actual board meeting look like? How much time should be allotted for different things, and how do you go about voting for specific agenda items? Your board meeting agenda will provide a significant amount of guidance at this stage, but a traditional board meeting will look like this: Review the meeting minutes from the prior meeting. Discuss the company’s financial documents. Address any challenges and risks the company is facing. Host any presentations, regarding the status of the business. Discuss forward-facing strategies for the business. Vote on key decisions regarding the company’s direction. Raise and discuss any additional motions. The agenda should be paced properly, so that everything on the agenda can be covered within the time that has been allotted for the meeting. You will need to take control of the meeting, keeping an eye on the clock, and making sure that the board meeting doesn’t get bogged down. Understandably, the voting aspect of board meetings is often one of the most important. As key stakeholders do have a say in the future of the business, the vote will represent the actions that the business is allowed to take moving forward. Most of the board meeting will be leading up to these votes. The financial statements, challenge statements, presentations, and strategies should all be offering potential solutions to these board members. These board members will then vote on these solutions. Board meeting voting procedure is generally as follows: A motion is put to the table and discussed. Affirmative and negative votes are given. The affirmative and negative votes are tallied. This is for pre-scheduled votes. For non-pre-scheduled votes (new motions), a motion will generally be raised by a board member. From there, it must be seconded by another board member, at which time it will then be put to the table and discussed. Adhering to board meeting voting protocol is often necessary for two reasons: it ensures that votes occur expediently, while also making sure that the vote (and accompanying discussion) remains clear and civil. Often, board meetings may involve votes on topics that the board members consider quite passionately. Robert's Rules of Order Robert’s Rules are an excellent way to maintain order and decorum throughout a board meeting. A board meeting, by necessity, has to be orderly. Even in the most informal of startups, it must at least be clear what is being discussed and what the results were of that discussion. Robert’s Rules of Order can be applied to virtually any type of meeting, with a board meeting being one of the most likely to benefit. It is focused both on conducting meetings generally and also making decisions as a group. Here’s a simple Robert’s Rules one pager: Under Robert’s Rules of Order voting is done through motions, which must be seconded, and when these motions are seconded, they are then voted upon. A motion is defined as an intent to do something. In a board meeting, any planned strategy or decision would be considered to be a motion. Under Robert Rules of Order motions and voting are done with a single speaker at a time: there is no cross-talk, leading to an atmosphere more conducive to progress. Under Robert Rules of Order voting procedures, debates often precede votes, so that board members can discuss votes in full, and each board member can be allowed to share their opinion. In general, a “quorum” is required for most meetings. A quorum is a minimum number of members that the board meeting requires to be considered a full board meeting. Under Robert’s Rules of Order, meeting members have the following rights: to attend meetings, make motions, speak in debate, and to vote. These rights can be applied easily to board meetings. Depending on the way that Robert’s Rules of Order are applied, votes may be required to be unanimous, two-thirds, previous notice, or majority. Robert’s Rules of Order for small boards can be used as a method of structuring board meetings, giving insight into the decision-making process for groups, as well as the most important factors to emphasize. In general, Robert’s Rules place an emphasis on ensuring that an agenda is designed and kept, that everyone has space to talk and discuss, and that discussion is kept orderly and clear.

QuickBooks Chart of Accounts & More Getting your key metrics, custom financials and business data out of QuickBooks Online just got a whole lot easier. Our product team (special thanks to Eugene) just released a stellar improvement to our existing QuickBooks integration. Our improved integration will pull data from your Profit & Loss Statement, Balance Sheet and Statement of Cash Flows. We will sync any headers, sub-headers and specific accounts that are unique to your business. Once connected, the headers will unfurl and you’ll be able to customize which metrics you’d like to pull in along with the headers themselves. If you’re already using our QuickBooks integration, simply edit your current connection and we’ll display all of the new metrics that you can sync. For new users, just connect to QuickBooks as a new integration. We find that most customers love using our formula builder and variance reporting to mash up their QuickBooks data alongside forecasts, budgets, and data from other sources. We hope you love our new QuickBooks functionality. If you have any questions, make sure to contact us or check out our knowledge base for any support-related items. Up & to the right, Mike & The Visible Team

The importance of executing on the product side of the business has long been a primary focus for countless successful founders and notable startup advisers. So it may come as little surprise that one of the fastest growing trends in SaaS is a renewed focus on product—this time as the primary engine for growth. What is product-led growth? Our friends at OpenView have been leading the charge in championing product-led growth as a go-to-market strategy. As defined in this helpful presentation, PLG occurs in “instances when product usage serves as the primary driver of user acquisition, expansion, and retention.” Growth becomes tied to the value of your company’s product. Like most great startup trends, PLG has its massive success stories that have inspired its wider adoption. The rapid growth of Slack, Calendly and Dropbox have all been at least partially attributed to a product-led strategy to scale. In each case, a product has been offered that is easy-to-use, easy-to-share, and immediately valuable – so much so that it drives user acquisition at remarkable rates, slashes customer acquisition costs (CAC), and surges customer lifetime value (CLV). One of the most valuable upsides of a successful PLG strategy is the overwhelming strong unit economics that can accompany the user growth. As OpenView often discusses, PLG often impacts every aspect of a SaaS business. Product Led Growth Impact on Product Considering PLG is based off of a company’s ability to distribute their product there is obviously a huge impact on the product. Everyone and every department in your business needs to have an intense focus on product. “It’s about product being the core DNA of your company,” Hiten Shah writes. “So much so that the default mode for solving problems—including growth challenges—is to figure out how to use the product to address whatever issue is at hand.” So what exactly does this mean for your product? It needs to be simple and focused. You need to deeply understand your user pain points, strip out any unnecessary features, and have a product that delivers value in a quick and efficient manner. This is to enable other core tenants of product-led growth; freemium, self serve, product qualified leads, etc. Product Led Growth Impact on Marketing Product-led growth also has a major impact on your marketing efforts. In order to best leverage a PLG strategy, your product needs to act as its own marketing channel. The product needs to be inherently viral and allow for easy adaptation for other users. The user experience should be the core of what a PLG marketing team does. The marketing team needs to be able to onboard new users, create a stellar experience, and use product data to improve marketing communication and nurturing later in the process. As the team at User Pilot writes, “Typically, this means that your product model includes a freemium or offers a free trial. This is a disruptive, bottom-up sales model…where employees of an organization can choose what products they want to use instead of being forced to use certain tools by IT or operations departments in a traditional top-down approach.” Product Led Growth Impact on Sales With an intense focus on product across a product led growth organization the way the sales team works and sells the product will also change. In the past, most software sales teams embraced a top down approach. A sales representative or account executive would find an executive (or executives) at an organization and do their best to sell a set number of seats for the organization. The traditional B2B sales funnel oftentimes looks like this: With a product led growth strategy, sales teams almost act more like a customer success and inbound sales representative. For example, let’s assume a PLG company uses a free trial. The product and UI/UX need to be able to show the trialing user value as soon as possible. PLG sales goal here is to unlock and show the product’s value to the user on trial. Whereas a top-down approach would have required a sales member to tell a new user about the value now they are directly showing the value of the product. As the team at ChartMogul put it, “The ultimate goal of PLG sales is to motivate your users to use your product, unleash the value as soon as possible, and convert your users to power-users.” Product Led Growth Impact on Pricing Product led growth has a drastic impact on the pricing of a product. PLG allows companies to land and expand their customer base. This often means a free or reduced price plan that scales with a company as they add usage, seats, etc. The 2 most common pricing strategies that have come out of PLG are freemium and free trials. https://website-staging.visible.vc/wp-content/uploads/2019/05/mike-on-plg.mp4 Freemium Pricing As Investopedia defines it, “Under a freemium model, a business gives away a service at no cost to the consumer as a way to establish the foundation for future transactions. By offering basic-level services for free, companies build relationships with customers, eventually offering them advanced services, add-ons, enhanced storage or usage limits, or an ad-free user experience for an extra cost.” The team at OpenView Labs goes on to explain a freemium model further by stating, “A freemium product, by contrast, gives users access to a limited set of features, functionalities, and use cases indefinitely and without charge. There is no time limit, but parts of the product remain off-limits to free users.” This generally works best for a company that has a lower customer acquisition cost and a longer lifetime value (AKA a product led growth company). A freemium strategy opens up the top of funnel for a PLG company. This means that there may be more users coming into the product to give it a try but this generally means users are less likely to get activated (use the product) and may cause issues later in the sales and marketing funnel. Running parallel, and just as popular, is the free trial model. Free Trial Another common pricing and acquisition model is the free trial. As the team at OpenView Labs explains it, “Free trials typically allow users to experience a complete or nearly complete product for a limited time. This means granting free users access to all features, functionality, and use cases for the duration of their trial.” This means that there may be more friction at the top of the funnel. A user inevitably knows that they will have to pay down the road and this may detract them from wanting to give your product a try. However, this means that when a user starts a free trial there is intent behind their decision and they are likely more qualified. The main pro of a free trial method is the sense of urgency it creates. By having a “shot clock” on their trial time a user will inevitably have to make a decision to use the product. Why is product led growth becoming so important? OpenView Labs has coined product leg growth as “SaaS 2.0” and for very good reason. With recent failures of cash intensive/burning business there has been more focus than ever before on building a sustainable and profitable business. One of the most efficient ways to build a profitable business? You guessed it — product led growth. In addition to the lean business becoming more attractive to venture capitalists and the public markets the ways people buy software is changing as well. In the past, software was traditionally a top-down purchase. A leader or executive at a company found a piece of software they liked, implemented it across their team or organization, and expected everyone to use it. Fast forward to today and more companies are embracing a bottoms-up approach. As the team at Origin Ventures wrote, “As an influx of capital has increased competition amongst B2B SaaS companies, bottoms-up sales has become the low-cost, scalable method that provides a quick way for SaaS companies to engage users quickly. By selling directly to ground-floor product users (rather than executive teams), bottoms-up works best when the software is inexpensive or free to start, doesn’t need to be tailored to each customer, and has clear value propositions for small groups of employees.” Benefits of a product led growth strategy A product led growth strategy offers countless benefits. Lower Acquisition Costs One of the most attractive benefits of a PLG strategy is the decreased customer acquisition costs. While it is assuming that you’ll need to invest more in product development the cost of acquiring new customers will continue to lower. This is because the product should do the heavy lifting for your business. By having a product that offers a free trial or freemium experience the top of your funnel will flourish and the product should enable users to upgrade and scale in turn lowering acquisition costs. Upsells & Expansion PLG enables your pricing and contract sizes to scale with your companies. While a set of users may be using a freemium version or are on a free trial, PLG should allow companies to slowly upgrade their plans. In turn this generates more upsell revenue and reduces the likelihood of churn as the price is created to scale and grow with a given customer and business. Better User Experience Ultimately a PLG strategy is a better experience for the end user. First off, in order to properly execute a PLG strategy the product needs to be best-in-class which is already a bonus for a user. On top of that the onboarding, resources, and UI/UX are built to be easy-to-understand and require minimal setup and intervention from a sales or customer success representative. How to become a product led growth company In order to become a product led growth company you need to have an extreme focus and buy in from everyone in the organization. While the benefits are clear there are a few things a SaaS company needs to do before they can fully embrace being a PLG company. Customer Empathy First order of business to become a product led growth company is to deeply understand your customer and the job they are trying to accomplish. A great product is best informed by deeply understanding your customers. You also need to have empathy when it comes to how a customer buys your product. On one hand you may have customers that enjoy speaking to someone when making a decision. On the other hand you may have customers that want to be left along and make a buying decision on their own. Both customers in this instance are correct. It is a PLG companies duty to be able to empathize with and sell to both customer sets. Great Product It probably goes without saying that a PLG company needs a great product. If your product is clunky and requires a hands on setup it is probably not a great option for PLG. If it is intuitive and easy to get started a PLG strategy may sound like a better idea. It is the namesake of the strategy so having your product dialed in a 100% must. Intuitive Onboarding In part of having a great product is having great onboarding. If users are coming to your product via free trial or a freemium experience they need to be able to get setup and understand the product on their own. There is likely an overlap of the product doing the work, resources to help, and a customer success team to help accomplish this. It is imperative that the product is easy to get started. For a freemium experience, it will not scale well to have customer success or support team members helping users in the product. The goal is to allow users uncover the value on their own. Company Culture & Team Focus If you’ve built a great product, chances are your culture—knowingly or not—is centered around putting the product first. As Liz Cain of OpenView puts it, “You live to serve your customer, to make a product that delights and excites… You don’t want your company aligned around a boiler room, ‘always be closing’ sales culture.” While product-led growth might not be for every business, there are learnings that can translate across all businesses. Key product led growth metrics you must know Product Qualified Leads When a potential customer is already using a version of your product—whether that be a trial participant or user in a freemium model—they can qualify as a PQL. With a PQL, the customer has hit a designated trigger that lets the sales team know they are ready for a follow up call. As Christopher O’Donnell notes, by using the product to educate the customer first, you’ve given your sales team a huge advantage. “If we flip the traditional model 180 degrees and start instead with product adoption, we find ourselves selling the product to folks who understand the offering and are potentially already happy with it, before they even pay,” O’Donnell writes. PQLs rely on the product selling itself. With this approach, you’re providing the best possible introduction to demonstrate how the product can be a long-term solution. That’s an easy process to replicate too. “[PQLs] are scalable because they require no human touch and they are high-quality leads,” Tomasz Tunguz writes. “When the sales team calls PQLs, customers typically convert at about 25 to 30%.” If you have a freemium offering of your product, you can gain the benefits of the potential velocity of incoming leads while also earning the financial rewards of an inside sales price point. Furthermore, a focus on PQLs can improve your product roadmap as well. Tunguz notes that PQLs actually serve as a management tool as well because the focus on customer action gets everyone onboard with revenue as the key performance indicator. are a “Typically, the product and engineering teams don’t have goals tied to revenue which bisects a team into revenue generating components (sales and marketing) and cost centers (eng and product).” That can create a lack of effectiveness when it comes to creating a product that sells itself and providing the best ammo for a sales team to finish the job if needed. Of course, your product and engineering teams will have longer-term features that will not be revenue significant in the short-run. However, a mix of both can help get everyone on the same page and quickly end potential arguments. That’s a great addition to any company culture. “PQLs provide a rigorous framework for prioritizing development,” Tunguz writes. “Each feature can be benchmarked to determine the net impact to PQL which is ultimately funnel optimization.” Churn Churn is important in every SaaS business but especially important in a product led growth business. As we wrote in our SaaS Metrics Guide, there are 2 core types of churn that a PLG/SaaS business need to track: “Customer churn rate: This simply refers to customers lost within specific time periods. Hopefully, you can also enhance these SaaS metrics with information about why the churn rate may have either spiked or declined under various circumstances. Revenue churn rate: A SaaS business model may include various prices, based upon the number of unique accounts or levels of features or services. Hopefully, customers upgrade over time; however, if they’re not, SaaS companies should find out why.” Keeping your churn low will not only allow for efficient growth but allow for a greater customer lifetime value so you can bump customer acquisition costs when needed. Customer Lifetime Value Another metric to keep tabs on when evaluating a PLG strategy is customer lifetime value. Simply put, customer lifetime value is the estimated amount that a customer will bring in over the course of their relationship with your business. As we wrote in our SaaS Metrics Guide: “You can estimate the lifetime value of your customers by following these steps: Estimate your customer lifetime rate with this formula: 1/average churn rate. With an average churn rate of one percent, for example, your CLR would be 100. Divide monthly revenue by the number of customers to calculate your average revenue per account, or ARPA. For example, 100 customers and a monthly revenue of $100,000 would work out to an ARPA of $1,000. Finally, calculate the customer lifetime value, or CLV, by multiplying the ARPA by the CLR. In the example above, your CLV would be 1,000 X 100 = $100,000. You can use the CLV to help you estimate the lifetime value of each customer. Companies can also use this handy metric to illustrate their value to investors.” A PLG company should allow for a higher customer lifetime value as the model and pricing is built to scale with a business. For example, a company bringing in $0 in revenue should be paying $0 for their subscription. As they continue to grow their revenue so will their contract size. In theory this should decrease the likelihood of them churning and increase their likelihood of staying on board and increasing their contract/lifetime value. Time to value One of the key aspects to selling a PLG subscription is the amount of time it takes a new user to get to value. If you can measure and continue to improve your time to value, the likelihood of a new customer closing or an existing customer upgrading their plan will greatly increase. Users have essentially limitless options in today’s SaaS world and need to be able to quickly evaluate and make a decision on your product. If a long setup or manual work is required you’ll likely lose the attention of a new user and they will look elsewhere. The team at OpenView labs shares how HubSpot uses TTV with their website grader: “Trials are good to do, but trials are often too long. At HubSpot we had a tool called Website Grader… Its entire existence was about creating time to value. It’s free. You put in a URL – your site or your competitor’s – and we analyze the site using our marketing methodology.“ Upsells/Expansion As we mentioned earlier the likelihood of a customer upselling or expanding their account is a major plus of product led growth. As we described in our Monthly Recurring Revenue Guide, “Expansion monthly recurring revenue is MRR from gained from existing customers when they upgrade their subscriptions” Because users will have the option of a free trial or freemium plan the ability for them to quickly upgrade plans is very likely. While it may only be small jumps from plan-to-plan in you enable a customer to achieve their job, they will continue to upgrade plans as their team and business continues to scale. Examples of businesses with a product led growth strategy While there are countless businesses that run a product led growth strategy, the three below are some of our favorites. Slack Slack is one of our all time favorite examples of product led growth at Visible. Slack has had a freemium plan since day 1 and has become the poster child of freemium. Slack pricing is built to scale with usage and a user’s growth. WIth the Slack PLG strategy, new users get to use the full Slack product for free up until they hit 10,000 messages. This means that once you’ve hit the limit, you fully understand the value of Slack and probably can’t function as a business without it. Tools like Slackbot and their suite of integrations make onboarding and getting setup on Slack easier than ever. The pricing as Slack is built to grow with a business as well. With per seat pricing of around $7/mo it is often times a no-brainer to add on more licenses when needed. Dropbox Another one of our favorite examples of a proper product leg growth strategy is from Dropbox. Dropbox fully supports the bottoms up approach and has mastered it on their march to over $1B in revenue. The Dropbox product is remarkably easy to use. It has a very friendly and simple UI that makes usage an ease. Oftentimes it is considered the best tool for sharing files. On top of that it is inherently viral. There are shared files that make other people intrigued by Dropbox and may sign up for their own use. They also have a powerful referral program that gives free data to new users and the referring user. Dropbox has truly nailed the bottoms up approach and have been a SaaS case study for companies looking to embrace a product led growth strategy. What’s a good product-led growth strategy? In his review of Blake Bartlett’s PLG talk at SaaStr 2017, Drew Beechler outlines the five traits of PLG success: virality, easy sign-up, quick to demonstrate value, slow to hit users with paywalls, and “a focus on making all customers successful across the sales-to-support continuum.” A successful PLG strategy gets your product in the hands of your customers as fast as possible and starts solving their problems right away. “Growth in [PLG] companies has a significant viral component.” Jon Falker of GLIDR writes, “Users can get unique value from the product or service right away and can benefit from helping to attract other new users.” This is why freemium models are remarkably effective in a PLG environment. By providing the user with a valuable experience upfront, you can inspire more frequent use, greater shareability, and focus on the premium aspects of your product that will drive purchasing decisions and ultimately retain these customers. Is product-led growth the right strategy for your company? Your company’s unique financial, growth, and talent considerations will need to be assessed before you can determine the right investment to make into a PLG strategy. As the OpenView PLG Market Map shows, this strategy continues to be adopted across the globe and among an increasingly wide swath of product categories. Still in order to succeed at the five traits of strong PLG companies listed above, you actually have to be a business positioned to offer these benefits. If a freemium model isn’t on the table at the moment or if your product doesn’t currently offer clear network effects, a more gradual approach to achieving PLG success may be the right course of action. For instance, as Shah notes, a company might hire or retain sales talent to attract large customers early on while product-led growth continues to develop at scale. A focus on product can occur simultaneously in an organization that still needs to execute more traditional SaaS sales to achieve a healthy growth rate. On the marketing side, a gradual approach to PLG may include an increased focus on conversion rates on core landing pages to drive faster user acquisition across all customer types. But even in a more incremental approach to PLG, you will refocus your entire team on what matters most. “Everyone in the company should be focused on growth. Everyone should be responsible for revenue,” Shah writes. “Exactly what this looks like will vary from company to company based on which teams have the most say on what ends up getting built and shipped.” Successful PLG companies develop cross-functional teams, demonstrate effective information sharing within their organization, and attach greater significance to shared KPIs to accomplish to inspire a greater focus on growth and accountability to revenue. To learn more about product led growth and best practices for growing and scaling your company, check out the Visible Weekly. Curated resources and insights delivered every Thursday.

In his seminal 1964 book Managing for Results, business management guru Peter Drucker remarked that the success of a business is increasingly dependent on a company’s ability to effectively utilize talented people. Over the years, he spoke of a structural change from manager-controlled businesses to more decentralized structures and a paradigm shift from treating people as a cost center to viewing them as a resource. Peter Drucker believed in empowering employees through ownership, transparency in the workplace, growth, and collaboration. These ideas have stood the test of time and have become a vital proponent of startup culture. On Knowledge Workers: Even if employed full-time by the organization, fewer and fewer people are “subordinates”–even in fairly low-level jobs. Increasingly, they are “knowledge workers”. And knowledge workers are not subordinates; they are “associates”. – Drucker, Management Challenges of the 21st Century On Managing People: “You have to learn to manage in situations where you don’t have command authority, where you are neither controlled nor controlling. That is the fundamental change. Management textbooks still talk mainly about managing subordinates. But you no longer evaluate an executive in terms of how many people report to him or her. That standard doesn’t mean as much as the complexity of the job, the information it uses and generates, and the different kinds of relationships needed to do the work.” – Drucker, HRB: The Post-Capitalist Executive This contrarian insight, cultivated in the age of the rise of grey flannel suit Corporate America, proved prescient, as today’s employees want (or simply have the leverage to demand) more than just a paycheck from their employers. To attempt to wrap up his decades of writing and thinking into one paragraph, his philosophy on hiring, organizing, and managing people is thus: As the success of business ventures become more and more dependent on attracting and retaining talented people, competition for high quality “knowledge workers” increases. Companies who focus on measuring what actually matters and empowering team members through ownership, transparency, growth, and collaboration have a competitive advantage. When it comes to startup culture, the characteristics mentioned above, ownership, transparency in the workplace, growth, and collaboration, can be used to attract talent. Ownership There are two types of ownership for a startup employee, the type that shows up on a cap table and the type that stems from having an opportunity to lead new projects, products, and processes within a company. To compete in a competitive hiring market, fair compensation and an openness to talking about what that compensation looks like under different scenarios is table stakes. Everyone you offer equity compensation to should know how, for example, dilution or a down round will impact how much their options may be worth. Even if you are hiring people with some cap table savvy, sending them something like this or this can be helpful…again, this is table stakes. Where smart companies gain a competitive advantage is by working to maximize the second type of ownership for every team member. This is done by embracing autonomy. The actions taken early in a company’s life have an outsize impact on what it will become in the future and the people you hire early will be the ones taking those actions. If you aren’t focusing on growing the value of what could be called operational ownership, you limit the long-term value of everyone’s equity ownership. “Knowledge workers have to manage themselves. They have to have autonomy.” – Drucker How employees think about ownership: Is it clear how much of the company I own and what will happen to my ownership under different scenarios? Am I in a position where I am challenged to take ownership of new processes and initiatives, even if I am simply an individual contributor with no direct management responsibilities Do I have a stake in the company that goes beyond what shows up on the cap table? Transparency in the Workplace In a recent guest post on the Visible blog, Wagepoint’s Leena Rao asked whether “radical transparency” is the way forward for startup marketing. While many companies have taken to the idea of transparency in the workplace with regards to their operations and metrics, it remains a difficult balance to maintain. Sharing everything is great in theory but won’t it be distracting for people? And what happens if we have a bad stretch as a company? In reality, there is not a once size fits all answer to how startups should tackle transparency in the workplace. In spite of efforts to standardize how metrics in the private markets are tracked, dictating exactly what metrics and information each company should share (and with who) is a completely different beast. The key takeaway for executives looking to make transparency a part of their business is to remain consistent with what is shared and how it is shared. This helps build trust through predictability. How employees think about transparency in the workplace: Are the executives of the company being open and honest about the prospects of the business as well as our current performance? Does the company have systems in place to communicate that performance and give every team and person insight into how their contribution is affecting the growth of the business? Related resource: 9 Signs It’s Time To Hire in a Startup Growth Let’s face it, no matter how amazing the culture at your company is, people often take jobs because of what it will mean for them personally. That means everyone that joins your company is doing so because they feel it is the best thing for them to be doing right now so that they can continue on the career path they have visualized for themselves. The difficulty is keeping people engaged enough to continue feeling this way. Working to understand what someone is looking for out of the position and over the long term before they come on board is one way to make sure you are setting a relationship up well for the long term. Training and development is another, often neglected, investment that companies can make…and it doesn’t have to involve expensive, comprehensive programs and teachers (read: consultants). If you are bringing intellectually curious people into your company (you shouldn’t be hiring people who aren’t), they will want to take control of their own professional growth and development, you just need to help provide the tools. This can be as simple as a $20/month Kindle allowance or Treehouse membership or a couple of days to attend a conference on their preferred programming language or design discipline. How employees think about growth: Is the company growing the way that it should be and am I contributing to that growth? Is being at this company in this position helping me grow my career? Collaboration The desire among companies to remain lean along with the uncertainty of what may transpire each week within an emerging business has given rise to the full-stack operator. People with a diverse skill-set (and, again, intellectual curiosity) will quickly form opinions on how the company outside of their specific role is being run and will want to make a contribution. Your first inclination may be to look at this as a meddlesome distraction full of meetings that start 10 minutes late and end with no actionable next steps. In fact, it can be just the opposite if executed properly. No matter how great tools like Slack or Trello are at keeping everyone in touch and on the same page, they haven’t (yet) replaced the impact a well thought out discussion can can have on the direction of your business. These discussions make it easier to get to the bottom of what work is most important for everyone at your company to be focusing on each day. That is why, even when it becomes more and more difficult to bring everyone together physically, things like show-and-tells, scheduled team catchups, and 1:1’s can be so impactful for a business that moves quickly. How employees think about collaboration: Do the different teams or functional groups in the company work well together? Am I getting the opportunity to work on different projects and learn from people with different skillsets than my own? Building a startup culture centered around ownership, transparency in the workplace, growth, and collaboration can be an easy way to attract top talent. Want the top content for building a strong startup culture delivered to your inbox every Thursday? Be sure to sign up for our Founders Forward Newsletter here.

Last week, we hosted a webinar on how to raise a Series A. In it, Zylo CEO & Co-Founder Eric Christopher and I shared tactics and advice on how to make sure your Series A raise is a successful one. If you made it, thanks! We had a great turnout of engaged audience members. If you weren’t able to make it, you can check out the recording below: Today, I want to share three key takeaways from the webinar, in the hopes that they might help you raise your next funding round. How to know if you’re ready to raise? Series A readiness is a difficult thing to pin down. So much depends on your specific situation: the industry you’re in, the product you’ve built, your business model. A good breakdown of specific numbers you should be hitting can be found here, but even that list isn’t universal. As a general rule, though, you’ll know you’re probably ready to raise your Series A when you have these three things: an engine, healthy metrics, and a compelling story to tell. “An engine” refers to a predictable engine for acquisition. Acquisition of what, exactly, will depend on your company; it could be users, customers, revenue, etc. The important thing is, do you have a predictable way to acquire more? Healthy metrics refers to three general patterns: accelerated growth, low churn, and efficient acquisition. If your metrics demonstrate all three of these things, you’ll be very attractive to potential investors. The third item is this: can you tell a compelling story? This is potentially the most important item of the three. Every investor wants to invest in a good story. If you can effectively communicate what you’ve done so far, then paint a clear picture of what the future will look like if you keep succeeding, you’re likely to have success with your raise. If an investor likes the sound of that future and they believe you can make it happen, they’ll invest. Before you raise, commitment is key If you think your company is ready to raise a Series A, the first thing you have to do is prepare yourself. You have a lot of hard work ahead of you. A Series A raise takes, on average, about 5.5 months to complete. That’s a lot of time where your focus will be outside of the day-to-day of your business. You’re also going to face a lot of rejection—the most common answer after pitching an investor, after all, is “no.” A CEO/Founder who is undertaking a Series A round needs to be fully prepared to do so—committed to seeing it through, confident in their pitch, and always working with a specific goal in mind. Before diving into your Series A raise, you need to make sure you’re prepared for what it means. Don’t forget about your current investors Your current investors can be absolutely essential in closing your Series A round—whether they participate in the round or not. If your current investors choose not to follow on—for whatever reason—they can still be a huge help to you as you raise your round. They can provide everything from pitch feedback to warm introductions to other investors who might be a better fit. These are just three takeaways from our webinar on raising your Series A round, but there’s plenty more content where that came from. Check out the recording below:

Lessons From the 2018 Amazon Letter to Shareholders Since his original 1997 shareholder letter, Jeff Bezos’ shareholder letters have become known as valuable resources that could feel right at home as material for an MBA course. The 2018 letter to shareholders is not different. Jeff drops loads of knowledge on customer obsession, intuition, curiosity, and the power of wandering. Innovation has always been a core part of Amazon’s rapid growth. It’s almost as if Joseph Schumpeter was writing about Amazon in his economic theory of creative destruction. Schumpeter strongly believed that capitalism was fueled by innovation and the entrepreneurs who are willing to innovate. Creative destruction can be defined as, “a process in which new technologies, new kinds of products, new methods of production and new means of distribution make old ones obsolete, forcing existing companies to quickly adapt to a new environment or fail.” Going back to Jeff Bezos’ original shareholder letter, he claims it will always be “day 1” at Amazon. The idea of “day 1” is that Amazon will always act as a startup, always be an innovator, and will always avoid creative destruction. Not only is Jeff a perfect example of Schumpeter’s entrepreneur who will innovate, so, it seems, are his employees. As Bezos’ puts it in his 2018 shareholder letter: “From very early on in Amazon’s life, we knew we wanted to create a culture of builders – people who are curious, explorers. They like to invent. Even when they’re experts, they are “fresh” with a beginner’s mind. They see the way we do things as just the way we do things now. A builder’s mentality helps us approach big, hard-to-solve opportunities with a humble conviction that success can come through iteration: invent, launch, reinvent, relaunch, start over, rinse, repeat, again and again. They know the path to success is anything but straight.” On their march to a $1T market cap, Amazon has hired talent that matches the description above and put an unbelievable emphasis on their customer base. If Amazon continues to deliver great value to their customers, they will continue to innovate. Intuition, curiosity, and wandering come together to uncover outsized discoveries that can radically change a product or market. Following and executing a plan is the most efficient way to build a business but if you truly want to innovate there has to be a keen desire to wander and test your intuitions. While listening to customers fuels much of Amazon’s growth curiosity and intuition has been at the center of some of their biggest decisions. The story of AWS is a great example: “The biggest needle movers will be things that customers don’t know to ask for. We must invent on their behalf. We have to tap into our own inner imagination about what’s possible…No one asked for AWS. No one. Turns out the world was in fact ready and hungry for an offering like AWS but didn’t know it. We had a hunch, followed our curiosity, took the necessary financial risks, and began building – reworking, experimenting, and iterating countless times as we proceeded.” This simple, yet powerful, idea can be a lesson for all companies. Of course, it is vital to the life of your business to diligently listen to your customer base and deliver what they want, it is also important to listen to the market as a whole and your internal talent. By trusting your intuition and the talent around you, you can take a chance to “invent on their behalf.” While not every company has $40B cash to lean on, implementing a culture of builders and wanderers can help your company innovate and continue to spur rapid growth.