9 secrets for startup success

good morning Lisbon it's a great pleasure to be here I have a really fun topic to talk to you about today I think many of you will know the book Lean Startup which I think was one of the most helpful startup books in getting us to understand the importance of product Market fit but one of the things that I think is unfortunate about that book is that it would lead you to believe that as soon as you found product Market fit you're ready to hit the gas and start scaling your startup and that will work

fine in the business to Consumer space but if you're doing a B2B startup uh what you typically find is that it doesn't work and if you start scaling sales you actually don't get very much results from it and you run into a lot of problems around burning a lot of cash very quickly and the reason for that I believe is that there is an important missing step and I call that step the search for a repeatable scalable and profitable growth model and that's what we want to talk about today and give you that broken down

into a series of stages here so a great question that I like to have front and center in every board meeting that I go to is a great way for us to maybe start getting introduced to this topic and that question I believe every one of you should be very focused on because it's crucial for your survival is when will we run out of cash and will we be in a position to raise Capital when we do run out of cash will we have hit the right Milestones needed for a successful fund raise so to

bring that to the four I like to see this slide in every board deck which shows when you will run out of cash and then it's useful to remember that you're you're going to need three months before that to start fundraising so that's the time when you need to have hit the milestone for a successful fund raise now once Founders realize that they they have so little time many of them start to realize that this they thought they had a lot of time after they raised so much Capital but it's nothing like the time they

thought and so they have a real Race Against Time and the only way to win that race is to have very extreme focus in your business and Real Alignment across every department so how do you focus your team what should you align them on well I think since survival is important we can focus everybody around this Milestone that is needed to successfully close your next round so one of you uh some of you might have seen the the concept that your startup valuation simply increases as a matter of how long you've been in business so

maybe you raised your last round 12 months ago should your startup valuation have increased automatically because it was 12 months ago well the answer is no it only increases when you hit certain milestones and the Milestones is really about how you drisk the elements in your business and so startup value changes as you drisk key things and the very first thing to key risk drisk is getting through the the founding phase of testing your hypothesis who are you going to sell to and what are you going to build and sell to them and will they

want to buy that once you've just done that you then want to actually prove that you've got a product that works and that the customers love once you've done that you move on to showing that somebody's actually going to be willing to pay for that and then at that next stage will many people pay for that each of these steps these Milestones unlocks higher valuations as it's a drisking of your business for you and let me show you the remaining steps here which are required so once we've shown that many people will pay we now

need to prove that we can take an ordinary salesperson not a Founder who's treated in a very special way by the customer and have them successfully able to sell and once we've done that we then want to be able to show that we can scale how many salespeople we're using increase the rate at which we're growing without running into problems and then what we've seen is that many times as you start to scale you run into customer churn problems so you have to go back and fix can you scale without excessively churning customers and keep

every customer happy and then lastly we're going to show the importance of profitability because that's really key for how you create value in your company um so it's a a stage of proving that you can grow and also at the same time head towards a profitable Milestone so these Milestones are what I'm going to talk about today these are the the secrets to success if you like that are on my talk here so what's very interesting about these Milestones is that not only do they change the value of your startup but they also change the

focus and the business motion the things that you do in your startup as you go from one of these stages to the next stage so what you're going to hear me talking about today is the concept of how important it is to recognize where you are and to stay and complete that stage and I'm going to give you exit criteria that tell you when you're ready to move on to the next stage and it's important not to move forward before you've done that I have made so many mistakes in my life as an entrepreneur that

I'm trying to help you avoid by helping with this particular advice here so these um uh moments here lead to what I call subphases and let me quickly walk you through the subphases in product Market fit the subphase the first one would be testing your hypothesis and then proving the value by proving that it actually works and then proving that you can get somebody to actually purchase one version of your product and this is well covered so I'm not going to go into this area but what is less well covered is this area and this

is where I will spend my time so here we want to start off by figuring out a repeatable way to sell our product and I'll spend a lot of time on that for you once we've done that this will typically be done by the founders we then need to prove that non-founders can repeat that same motion that was working for the founders and then we want to try to make it scale and then we need to fix customer success and then make it profitable so once you've done that you enter the great phase where you're

ready to hit the gas and start scaling and accelerating and there are other phases after this like when should you expand into nationally when should you add additional products but I'm not going to cover those CU they're for a much further stage on so what's cool here is that when you do finish these nine stages and get to repeatable scalable and profitable growth your company valuation is going to start to accelerate at a very rapid rate and you might ask the reason well why is that the case well the answer is that I chose these

three words very very carefully so repeatable tells me that you you know how to repeat this thing that you're doing scalable tells me that you know how to make it grow as much as you want to and profitable tells me that it's a very good thing to do because we make money every time we do it so the cool thing is if you are repeatable scalable and profitable that implies that you actually have a you've created a cash generating machine in your business where you can put in $1 and get back several more dollars a

few years later so it makes a great investment tool and this is what growth investors really look for and love and that changes again the who you're talking to and the kind of valuations you'll see there so the number one mistake we see with this is that people try to force progress board members uh investors advisors all want to have things happening quickly so you try to force progress by jumping ahead before you complete the current phase so common variations of that I've made this mistake myself is you build the product before you talk to

enough customers and then you get out and discover well that was a mistake cuz we've built the wrong thing or we need to build other things yeah or a very common one is hiring salespeople before the founders have proven that they know how to sell the product and so there's no playbook for them to work with at all all and they're not going to be effective for you another one is scaling the sales process before you've proven that it's actually a repeatable process and another one is scaling sales before you fix the churn problem so

you're really just creating a leaky bucket and expanding that and that's not a smart thing to do and all of these you'll find will burn your cash and shorten the runway that you have available to you so one of the other lessons we've learned with this is that it's not at all predictable how long it will take you to find product Market fit or how long it will take you to find a repeatable and scalable sales process so that leads me to a very important other step here which is to strongly advise you to keep

your cash burn very low while you are in the search for both product Market fit and finding a repeatable and scalable sell sales process cuz you have no idea how long it will take despite what your business plan says ignore that and remember that it's not predictable here however once you do find the scalable process here it's time to turn the switch on and start scaling the business and it turns out that actually that switch in mentality is such a drastic switch that many Founders get it wrong and I remember the very funny HubSpot board

meeting that we had when we told the management team that they were ready to hit the scaling button I needed to start hiring two salespeople every month and they really sat there and said well are you really sure about this we've been trying to save money we've been trying to save money and they took them a while to get used to the idea that no this this is a big switch when you hit this point here so many fail to make that jump there appropriately so what you have here is a nine-step model and I'm

going to walk through these in a little bit more detail as with as much time as I have here and the key thing is to use these steps to prioritize what actions you're doing and avoid jumping ahead so let's jump into this uh this thing here that the the idea of a repeatable and scalable growth model the key sign that you're getting there is that you have growing bookings on a quarter to quarter basis and I do not mean revenue or your ARR annual recurring Revenue I mean bookings and so in the SAS World bookings

is your net new ARR and it turns out that if you don't have growing bookings you will still have growth in your business if you're in a recurring rate Revenue business but it will be a flat kind of growth and what we're really looking for is exponential growth which shows that you really know how to step up the rate at which you're growing uh by increasing bookings there so when you start working on this you won't have a clear path of how to sell but by the end of this process what you will have is

a very well understood path that you can apply and teach to other people to to keep you growing and what we're trying to learn as we figure out this path is things like which target market should we be selling to who in the organization do we call on what message do we use what pain and specific use case are we addressing what's our sales motion what pricing do we use what new product features do we have so these are all parts of this journey to getting a well-defined path there and you might be asking yourselves

a question well where do I start with this well I think where we have to start is the step first step of trying to make it repeatable just focus on repeatability here and in order to do that we have to come up with a sales motion for taking people that are strangers and converting them into customers and if we're in a recurring Revenue business it's super important that we make them successful and turn them into promoters so we can get the benefit of recurring Revenue so we have to design a funnel and a funnel works

by taking our uh strangers and converting them into uh visitors to our website then converting them into leads then closing those into customers and then then delighting our customers and turning them into promoters and that requires us to come up with four funnel stages here a top of funnel design a middle of funnel design a sales stage and a customer success stage to go through that and our ideal sales Staffing is really important at this stage here the key mistake I see is that people don't realize it's the founders who have to be doing the

selling work because only the founders have the ability to deal with the feedback that's coming in from these early customer calls and recognize the patterns and the changes that they have to make to the business to get to fix that however what you can do is add in what I call a Pathfinder Trailblazer salesperson and this is a special kind of a salesperson ordinary salespeople follow a Playbook and really want them to follow that Playbook and not invent outside of it because by the end of this process you will spent a lot of money developing

your playbook so you don't want them varying from it a Pathfinder Trail as a salesperson helps you define that Playbook they help you answer these questions that we talked about earlier on about who to call on what message what pricing Etc so once you've hir that team I recommend kicking up an initial lead Source most often we see people firing up search engine marketing maybe using an agency to start a lead flow going and we've learned something really interesting here which is that typically you need at least 50 real buyer conversations to have hit the

point where you can start to see patterns emerge about which segments are the best segments to sell to and which use cases to go for and here's one of the hardest steps that I see Founders struggling with the whole time you need to pick a single target market this is really tough because you may have lots of places where you can make money but you cannot when you have small resources in your product team build product for multiple different use cases so you have to find and focus on a single one and you also need

to find a single use case inside of that Target Market as well because the business messaging and the business products needed are different per use case and here's a a comment from Brian Halligan as a board member we were very frustrated with um HubSpot they had two Founders there one founder loved the very small business the other one loved the midsize business and we could not get them to focus in on a single one of them until about two years later so Brian hallagan wrote that in the early days of HubSpot we couldn't decide which

Target Persona to go after we argued about it for years by not deciding our marketing team had to serve multiple personas our product team had to serve multiple personas our services team had to create multiple offerings but once we finally focused on one Persona everyone could focus on attracting and delighting that person so it was a a critical unlock at HubSpot that allowed us to make progress there and that will result in you coming up with something called an ICP an ideal cust customer profile that tells you who you're targeting which makes it much easier

for marketing to go after that type of person plus you'll also know who not to Target for the negative characteristics and that makes it super easy now to Define your messaging and here we see another common fault that I've made and we all have made I think as product people we love our product so we want to talk about our product and our product's features it turns out the customers don't care about your product so this is the best quote to illustrate that people don't want to buy a quarter inch drill they want a quarter

inch hole so we need to think about the hole that means the customer's problem and the customer's business benefit and change our messaging so that it talks about that not about our drill and that's a an interesting step that is often a challenge for founding teams to go through so once we have that we should look at how do we exit from this phase here so the the criteria for this is that you've been able to successfully sell to multiple customers and those customers are actually happy and getting the business benefit that you promised that

they would get and you've done this using a repeatable motion so you know how to generate leads and what to do with each lead what the conversation looks like who you call on what price you charge things like that and you think you're now ready to teach that to another salesperson so one of the commonest mistakes that we see here is that people har ordinary salespeople and try to get them to execute this first phase and it doesn't work at all so next we do want to hire some ordinary salespeople because we're now ready to

do that and we want to prove that non-founders can actually execute the same motion that we just went through here and so we will hire to very standard sales reps is my recommendation at this stage and change the way things are working now here the founder has to change their role instead of going out and selling they become people who are in charge of hiring to fire these salese and then managing and onboarding and training and coaching these sales reps to get them to be productive and building the sales tools that they might need to

help them be productive there and your exit criteria is that you've got one salesperson at least hopefully both of them fully productive and selling comfortably and repeatably using that motion that you came up with that and your customers are still happy as a result of the the product that they bought from you so common mistake here is that the founders get so frustrated when they watch this poor sales rep bungling the sales call that they jump in and take sales over again that's a mistake you're trying to actually get out of the process and prove

that you can actually make ordinary people successful at scaling so then what we do is start scaling that and we do that typically I think by hiring people in pairs because there's a risk always that one person may not be successful so you hire another two people get them successful hire another two people and get them successful and that leads me to the question to to ask you which is how do we drive bookings well it turns out that when you use salespeople there is a limit to how many customers each salesperson can interact with

so there's a kind of a step function that restricts how fast your bookings can grow and that's how many salespeople you have so the math that defines your bookings here is how many salespeople you have multiplied by the productivity per rep and that if we look at each of these in turn one of the most common mistakes I see companies make is they fail to hire enough salespeople at this stage and normally as Founders you're very comfortable when you don't hire on time because hey you're saving some money but this turns out to be the

one case where you cannot afford to be late with your hiring and this leads me to one of the big discoveries I made about two or three years ago which is in order to be successful these days you have to become really great at recruiting so I have this blog post recruiting is the third crucial startup skill and you need to bring recruiting inhouse to become successful at it and that will allow you also to address the second variable which is productivity per rep because it turns out that that is driven very strongly by the

quality of sales rep you're able to attract and if you don't have great recruiting you will have problems with that but also the importance of hiring these people is not alone you must then put the energy and effort into onboarding and training them after you've brought them onto the into this the company for you well it turns out that it's no good to hire sales reps if you don't have enough leads to feed them so one of the problems that you have to crack at the scalable phase here is how do you create scalable lead

sources and what we've seen is typically lead sources tend to um top out so you have to keep searching for additional lead sources the one that doesn't top out is inbound marketing but the problem with inbound marketing is it's a very slow ramp in the early days so you probably want to start that in the early days but keep expanding over time and that leads me to the fact that when you're going through this phage here your Staffing will add some additional people so you're going to have some recruiting people people to do customer success

to keep your customers happy and also you're going to want to have um people in the marketing place that can can can work on scaling your lead sources for you so I guess they have have somehow or another jumped my slides to the point where I can no longer see them which may possibly mean that I've gone beyond my time limit but is anybody able to help me get my slides back up okay without the slides let me talk about the the second phases here so the last thing I want to mention is that as

you start scaling we typically see all right we are we're out of time but thank you very much indeed for listening it was a pleasure talking to you