Posted by: Dr Churchill | September 8, 2014

7 Things Serial Entrepreneurial CEOs Do to Succeed and the Art of Bicycle Maintenance or how to be the Man

Leaders, CEOs, and Startup founders, doing it RIGHT are few and far in between.

But those doing it right after a few successes are legion.

And that is because it’s much more likely to run a Homerun and built a Great Enterprise — than the first-timers attempts at building a real business.

It’s a bit like bicycling. You fall a lot in the beginning but later you can drive and pedal the wicked contraption, like you are riding a train. Steady like Rubby on Rails. Nothing can derail you…

So it is with riding the business enterprise once You know how to keep on moving on two wheels, without the training wheels that first timers require. Once you get the hang of it. Nothing can push you off the saddle.

And knowing how to ride a business at the helm also gives you a good sense to hold on to the handle bars to steer, but it also teaches you to ride with your knees, and scream at the top of your lungs: Look Ma… no hands.

Something we call flying with the seat of your pants. With practice it gets easier and easier all the time, and it makes perfect sense to follow what the seasoned folks at the helm of new companies are doing. Go ahead and learn from them if you want to ride without training wheels, because if you want to learn how to bicycle you follow a bicyclist and not a theoretical Physicist. Especially avoid an armchair thinker who does not know how to ride a bike…

So follow these serial entrepreneurs because what they all know is that, once you have a good product meeting the market, then the only thing You must do is ride hard.

Maybe even fly, because when the product to market suit fits well, and once you hit Initial Traction, then it’s all part of a simple ride. But you’ve got to keep on moving fast. Keep pedalling hard and you’ll get to go places.

Admittedly, it cannot be explained in simple business terms why when you get the dovetail fit between product and market in alignement, a business is born. Even if it can’t be explained – that is the actual moment of Creation. Same as it cannot be adequately explained in physics terms how the bicycle and the rider stay upright when the bike is in motion, that is the moment of a bicyclist being a bicyclist. You call yourself that only when the bicycle is in motion and you are riding it.

Now as the Business is literally born at the moment of traction between the product meet the market and make happy… or bicycling being the movement when the bike tires hit the road and keep on moving — your responsibility is to get the people to follow you forward. It is right then and with a given ACV, that you have to basically scale everything up — the same way you brought it here and get all the people of the Organization in Positive Alignment for the pursuit of the Common Purpose.

And these serial entrepreneurs, amazingly, know how to do this well. Because they know how to lead and get people to follow them to the promised land. And like all Good Prophets, they also know how to tell the Future.

They know how to the future because they’ve seen the film before. In Startup or mature business or anything in between, the people who have loads of experience can run a Great Game this year, but also know how the game will play out 2-3-5 years down the road. They know that “bicycling” is king in business and it’s all about building recurring revenue. Recurring Revenue and IRR is KING after all, and steady growth is the QUEEN. With huge second-order effects, and deal size increases and steady same financial growth over time, the rewards for getting to that stage are already pretty good.

So here is a list of the top Seven things that serial entrepreneurs, seasoned folks, and serial CEOs, are doing that when combined, lead to success:

1) Committing time, people and capital for 2+ years from the get-go. There are a number of reasons that the Serial Entrepreneurs are raising large amounts of capital early. One is just because they can since today, there is so much capital sloshing around that double dipping is the custom. But there’s a more subtle reason too: Time. We know that if we have a great team, especially a proven one, pointed in the general right direction — we can get customers. Given enough time.

2) Yet we also know that the 0.1 or 1.0 version may not hit it. There’s no WhatsApp social explosion normally unless you are WhatsApp. For most Founders it’s a slow burn to start. So give yourself two to three years because if you only give yourself a year — your odds of success go way, way, way down. You need a 2 years’ burn at a minimum, to get to Initial Traction. Team and capital lined up, one way or another, that are committed for 2+ years on Day 0, is what the seasoned folks look for. But even without that, the Bootstrapping has to be a two year long effort because one year just isn’t long enough to prove you can get to Initial Traction in ninety percent of the startup businesses.

3) Leaning in heavily on customer success. We talked before about hiring one customer success manager for every $1-$2m. That’s the right metric — from a pure business model perspective. But the Seasoned Folks all know about Second Order Revenue, and how critical the success of your early customers are. They get you the case studies, the reference accounts, the thought leadership. So the Seasoned Folks often hire 3+ customer success managers almost on Day 1. As soon as they have any customers they hire success managers. So Go Out and hire them and then just smother them with love. Bring them brownies. Solve every problem. Bring them onboard by experiencing every user personally. Do just everything RIGHT.

4) When you are more upmarket, or at least, hitting higher ACVs, the other thing most Seasoned Folks are doing is looking to provide more value and higher ACVs. As appealing as freemium and small business models can seem from the sidelines — it’s just mathematically harder. You can get to $10m ARR pretty quickly in chunks of $100k ACV deals. You only need 100 customers then, to hit Initial Scale. But at $5 a month? Man … it’s tough. The Seasoned Folks want to go from Initial Traction ($1-$1.5m ARR) to Initial Scale ($10m+) faster. So they aim for more value, representing more of a solution, and thus, higher ACVs. if you can build a $100m self-service business without the need for a sales team, a client success team, webinars, getting on planes, and all that — go for it. One con is that these businesses often are tougher to gain a longer-term competitive advantage in unless there is a network effect (e.g., DropBox). And competition thus ends up being even fiercer. But from a business model perspective, why invest in sales, demand gen, and all that if you don’t have to? Why not just build a wonderful product and let them all sign up on their own? Let me just share one semi-obvious piece of math and learning. No matter how hard I tried to drive up self-service as a % of our revenue, the laws of this math and gravity held it back to a minority of our revenue. Just as it is at many others as well that started as simple self-service models. Here’s the thing. If your product is 100% individual-focused, and you add just enough features to sell to a Team, to tilt just slightly upmarket — you can grow your revenue, at least a segment of your revenue, by 20-30x.

5) Forgetting about optionality. As first-time founders, optionality can seem very important. I don’t want to raise too much, or I can’t sell for $X. I don’t want to commit to too senior a hire until I’m clear it’s going to work. Cash-flow positive as an end-goal even if it sacrifices growth. There’s something to be said about optionality. I get it. I did it, sort of. But I wouldn’t worry about optionality again. Neither do any of the Seasoned Folks. Not just because you’ve already put a few bucks in the bank. But because it can hold you back. It weighs you down. You end up under-investing, not just in monetary capital, but human capital, systems, and hiring ahead as well. More on why all the great hires are accretive, please read bellow.

6) Hiring more seasoned VPs and managers. First time CEOs often like to hire up-and-comers. The scrappy kid who really wants that VP title. The one that really only managed a few folks before (if any), but has gumption. Drive. And great domain expertise in his last job. The thing is, the Seasoned Folks know it’s all a playbook. And experience really helps you run it faster and better. It’s not that Seasoned Folks hire Mr. Dashboards in the early days. They don’t. But they hire hands-on but battle-tested executives who will roll up their sleeves. They’re not afraid to pay more, hire higher, and hire more seasoned executives. Because they know if they get a great one, it pays off. This may not work for you. But it works for the Seasoned Folks. So just think about it before you hire a VP Sales who’s never really hired a great team before. Because it’s 50x better when they have done so successfully before. Yet in most start-ups, it seems like the majority of first VP Sales fail. Don’t even make it 12 months. And totally screw things up as they fail. And this is really, really painful. It’s much worse than a bad VP Marketing hire. Because with a bad VP Sales you can lose so much momentum, and create so much internal confusion, that this one bad hire can really cripple you as you try to get from Initial Traction to Initial Scale.

7) Hire large, because it turns out, once you hit just $2m in ARR, and maybe even much earlier — every great hire will be accretive. Will make you more money than you pay them in cash. I guarantee it, in fact. Let me explain the math. Let’s assume you are at $2m ARR, to make the math simple: You hire a Great VP of Sales, and it’s an accretive hire proven in 90-120 Days. For say $300k OTE. A great VP of Sales, within one year, can easily close 20-50% more business than you would have without him or her. Even just 20%, the bottom end of the range … is $400,000 in additional revenue ($2m x 20%). You hire a Great VP of Marketing, and it’s Accretive within 90-180 Days. Let’s say you’re at $2m ARR again, growing 80% YoY. And you don’t have a great VP of Marketing yet. Well, make that hire, and you really don’t think you can get another 20-30% improvement from your existing lead flow? By properly communicating and marketing to them? By doing better webinars, better city tours, better whatever? Of course she or he can. Another 20% is again … an additional $400,000 in revenue. Even just a 10% improvement in your lead-to-revenue performance, even just another 10% in true qualified leads … will more than pay for the hire. Every Great Sales Rep is Accretive at $2m in ARR. In Just 2 Sales Cycles. Even just at $1.5m-$2m, there’s enough momentum in the business, enough repeatability, that a great rep can really have an almost instant impact. Take his or her leads, and make 20%-30% more out of them than a mid-pack or mediocre rep (and maybe more. The best reps often can yield 50-100% more than the mid-packers from a given set of leads). So that incremental Great Rep takes his or her say 500 leads a year, and instead of turning them into $350,000 like the last guy … she turns them into $500,000. Again, more than pays for herself. And fast. And that’s just first year ACV. Every Great Engineer is Accretive at $2m in ARR. In Just One Full Release Cycle. You think engineers are cost centers, at least from a financial model perspective? Not if you are selling into the enterprise. What you’ll learn is that if you can get one more Needed-it-to-Close-the-Big-Deal feature every 3-6 months … that great engineer will pay for herself. You need to lose a few five or six figure deals to a feature gap to get this, to see it. But once you do, it will become crystal clear. If you just had that one extra great engineer, you would have closed Google. More than pays for herself, again. Great Customer Success Managers Can Be Accretive Managing Just $800k-$1m in Existing ARR Within 9-12 Months. A lot of mature Startup Web and Communications companies use the metric of ~$2m in ARR per customer success rep. But if you get a great team — you can hire a lot more aggressively than that. A mediocre CSM might say retain 100% of your mid-market revenue on a net-of-churn basis. But a great one might, by really creating true customer success, with upgrades, can get that same customer base to renew at 110-120% of last year’s ACV. That incremental 10% … pays for the CSM right there (10% of $1m = $100k). And that’s just one year’s worth of ACV. If that customer lasts 3-5 years, and you see Second Order revenue from it … the ROI will be very, very high. Even with a great CSM managing as little as $800k in ACV, he or she can be very accretive. A great one. Picking Up the Phone Can Be Accretive in 90 Days. It’s even true in customer support. No one picks up the phone. It’s too expensive. They want to do email tickets. Which customers hate, 9 times out of 10. They want someone to answer the da*n phone. Imagine you save just 10 customers over the course of a year at a $4k ACV by picking up the phone. That’s less than one saved customer a month. And voila! — you’ve more than paid for an extra customer support rep right there. I didn’t figure this out until $4m in ARR. Once we got there, I saw all of this. I told every manager to hire everyone they wanted. No headcount limits. No budgets. Only so long as they were truly Great. And hence, accretive. Because I waited until $4m in ARR, with hindsight, I wasted a lot of time from $1.5m to $4m in ARR. Because we should have just hired every single employee that was Great, no matter if it seemed expensive on paper. Of Course this only works if you have 12+ months in cash. Because these accretive employees need time to close their deals, build their features, launch their campaigns. So don’t make all these hires if you have < 9 months of cash in the bank and are too worried about money. And this only works if the hires are truly great. That extra rep, if she or he is mediocre, is mid-pack … may play a role in your org. But she’ll just be taking leads from another theoretical or existing hire, she won’t be increasing revenue per lead. The mediocre, incremental rep or engineer or CSM isn’t accretive. But at $2m ARR, maybe even $1.5m ARR or even less if you have a repeatable process … everyone great is accretive. If you meet one — hire him or her. That day. And just pay market. Don’t quibble over salary for the great ones. Because it doesn’t matter really, what you pay — if he or she is a profit center.

I know if you’re a First Time CEO you can’t do all of this. But I just bring it up to challenge your thinking. To try to go even bigger. Harder. Is your biggest customer paying you $50k ACV? Ask for $100k next time. Trust me. You can probably get it. Worried you can’t compete with some brand name company for a great hire? If you have great metrics, you probably can. Open the kimono. Share. See where that takes you.

At the end of the day, us Seasoned Folks know it’s all about three things beyond the product: A) Time — allowing yourself enough time to get to Initial Traction. B) Getting from Initial Traction to Initial Scale as fast as possible. C) And then, putting the right team in place to leverage the momentum as you hit Initial Scale.

And then you are barrelling down the road …

Look Ma.. no hands.

We are off to the Races.

Yours,
Pano

PS:

That’s the high-level Riding Game. And the playbook for Business Success. And remember that the serial entrepreneurs or the great, experienced business Leaders know most of the plays by heart.

So run as many proven plays as you can in your company — but run the ones that are already proven.

And then: “Run Forest Run…”

Leave innovation for the product side.


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