The Quiet Ones

In 1997 Apple launched a new advertising slogan: Think Different, celebrating the crazy ones like Picasso, Gandhi, Einstein and others. In hindsight this may have been the turning point, as they recovered from being lost and near bankruptcy to become one of the largest and most iconic companies in the world.

In 2010 Derek Sivers gave a great short TED talk, called How To Start A Movement, about the importance of first followers. As somebody who has never really started anything of note, but has been lucky enough to be an early follower a few times now, I was encouraged and inspired.

This is my juxtaposition of the two: Here’s To The Quiet Ones

Please share this, using the hashtag: #QuietOnes

These are the people featured in the video, many of whom are my heroes:

This is the text of the voiceover:

Here’s to the quiet ones.

The co-founders, the assistants, the collaborators.

The round pegs in the round holes.

The ones who see things as they are.

They work behind the scenes, helping the crazy ones with their rough edges.

You can overlook them, disregard them, trivialise or underestimate them.

But as you ignore them they quietly get on and change things.

They push the human race forward.

And while some may see them as the quiet ones,

We see genius.

Because they are the people that know that what matters most is what you achieve,

Not who gets the credit.

Enjoy!

Estimating Tenure

The key number that Dr SaaS needs to calculate in order to diagnose your SaaS business model is average tenure, or, if you prefer, the life expectancy of a new customer when they subscribe to your service.

To calculate the lifetime value of a customer (LTV) you just need to know how much you earn on average from them each month (ARPU), how much it costs you on average to acquire a new customer (CAC), how much it costs you on average to service a new customer (CTS) and how long you can expect them to remain a customer (Tenure). ARPU, CAC and CTS are all easily derived from your financial statements. But, tenure is not so straight forward.

The way this is typically calculated is using the current churn level, which is the rate at which existing customers currently cancel:

Churn = Cancelled Subscriptions / Total Subscribers

For example, if you have 500 subscribers and 12 cancel during the month, then your churn rate is 2.4% per month.

Then:

Tenure = 1 / Churn

For example, if your churn rate is 2.4% then your average tenure using this formula is just under 42 months (or 3.5 years).

This sort of makes sense: if you have 12 cancellations every month then after 42 months all 500 subscribers will have cancelled.

However, in practice this approach often ends up over estimating the actual tenure, as Jason Cohen (aka A Smart Bear) explains in his great blog post on this topic:

“It’s impossible to see ahead to timeframes beyond a few years for a young company and perhaps 4-6 years for a mature one. In those timescales you expect drastic changes in market conditions — a strong new competitor appears or dies, the economy slumps or soars, a disruptive technology changes the landscape, etc.

That in turn will cause material changes in pricing, retention rates, reorganized customer segmentation, usage levels, service levels, and so forth.

Computing expected months with the ad infinitum approach leads you to over-estimate the total revenue you can depend on.”

This skew is especially evident if your churn rate is low as the inverse value increases rapidly at this point:

Alternative Tenure Calculations

So, what to do about this? Jason suggests two alternative approaches – either capping the number of months or using a discount rate.

Tenure = 1 / (Churn + Discount)

This option does product lower estimates of churn when the churn rate is low (and as he points out who cares about what it does if the churn rate is very high, as in that case you likely have much greater problems to deal with than what tenure formula to use!)

Alternative Tenure Calculations

In Dr SaaS we use a third option which gives values somewhere between these two extremes when the churn rate is less than 2%, but lower values when the churn rate is higher.

Tenure = ln(0.5) / ln(1 – Churn)

While this looks complicated, it’s just using the churn rate to work out how many months it takes before half of the new customers in a given cohort have cancelled.

Consider the example above, where tenure is estimated to be 29 months (compared to 42 months for the simple formula):

Month 0: We start with 500 subscribers
Month 1: 500 * 2.4% = 12 cancellations, leaving 488 subscribers
Month 2: 488 * 2.4% = 12 cancellations, leaving 476 subscribers
Month 3: 476 * 2.4% = 11 cancellations, leaving 465 subscribers
Month 4: 465 * 2.4% = 11 cancellations, leaving 454 subscribers

Month 28: 259 * 2.4% = 6 cancellations, leaving 253 subscribers
Month 29: 253 * 2.4% = 6 cancellations, leaving 247 subscribers

At this point, 50% of our original 500 subscribers remain, so we take this as our average tenure.

You can see how this looks on the graph:

Alternative Tenure Calculations

If you want to try this out with your own subscriber numbers, check out Dr SaaS:

http://drsaas.md

What do you think?

How are you currently calculating tenure? How does it change your results if you use this formula instead?

We’re interested to hear any suggestions.

Dr SaaS Demo

I want to walk through an example of getting a diagnosis for Dr SaaS, to show how easily you can do this for your SaaS business, and what sort of analysis you can expect to get out of it.

To get some numbers to use for this, I’m using the Demo Company which is available in Xero (if you’d like to play along at home, log into Xero and look at the bottom of your My Xero page for a link to your own copy of the Demo Company).

For the purposes of this demo I’ve changed two of the accounts to better match the sort of expenses you might have in a small SaaS business: “Subscriptions” is now “Staff Costs” and “Rent” is now “Hosting”, otherwise the data is straight out of the box.

Step 0: Getting Started

Visit http://drsaas.md and click the big orange button on the homepage:

step0a

Enter your name and email address, and you’re underway:

step0b

Enter your company name and select the period you wish to analyse. In this case I’m going to use the details for the last quarter ending Sept ’14:

step0c

Step 1: Revenue

This step collects details about subscribers and revenue, and calculates growth, churn and average revenue values.

We will need to make up the subscriber numbers, as there are no details about this in Xero. When you’re doing this yourself, you can get your subscriber numbers from your customer database or billing system.

Firstly, enter the number of subscribers you have at the end of the period. This should include both free and paid subscribers, if you have both. We will say 598 subscribers at 30 Sept.

Secondly, enter the number of new subscriber you acquired during the period. This should count every new subscriber who joined during this time, even if they have already cancelled. We will say 186 new subscribers between 1 July and 30 Sept.

Thirdly, enter the number of cancellations during the period. We will say 98 cancellations between 1 July and 30 Sept.

At this point we already have our first metrics calculated, showing the growth rate, churn rate and average tenure:

step1a

Finally, enter the amount of revenue received during the period. To get this you need to open Xero and run the Profit & Loss report:

step1b

The revenue number is shown at the top. If you have other revenue you should only count recurring revenue from subscribers at this stage (other revenue will be entered separately in Step 3 below).

In our example, there are sales of $13,733 showing in the P&L, so we enter that value here.

This then calculates the fourth metric on this page, the ARPU or average revenue per user. This is the amount you earn on average from each subscriber each month:

step1c

Already we have some useful information – the growth rate is 4.91% per month, which is okay, but churn is 6.41% which is very high and means that on average each new subscriber only sticks around for just under 10.5 months, on average we earn $8.05 per subscriber per month, which doesn’t leave a lot to play with.

Step 2: Profit

This step collects details about how much we spend acquiring and servicing subscribers, and calculates our cost of acquisition, cost to serve and also profit margin.

Before you can complete these inputs you need to split the various costs showing on the P&L report into three categories:

  1. Acquisition costs – i.e. all sales and marketing costs, commissions, discounts and related staff costs.
  2. Service costs – i.e. all support and hosting costs, payment processing and related staff costs.
  3. Operating costs – i.e. everything else! (note: we will enter these costs in Step 3 below)

In our example, we will treat “Advertising”, “Entertainment” and “Printing & Stationary” as acquisition costs, and “Hosting” and “Telephone & Internet” as service costs. We will also split the “Staff Costs” into thirds and say one third of this amount is spent on acquisition and one third on servicing subscribers. It can help to get out your highlighter at this point, to keep track of which expenses you have entered:

step2a

Those add up to $2209 and $1531 respectively, so we enter those values here:

step2b

You can see from the bubbles at the bottom that we’re currently spending $11.88 to acquire each new customer and 90c per month to service them, which leaves a profit margin of 74%, which isn’t bad. But, again, the problematic value which is highlighted is the cost of churn, which is the effective amount spent each month to overcome churn – i.e. we currently spend 9.45% of all of the revenue we earn each month to acquire new subscribers to replace those subscribers who churned.

Step 3: Runway

This final step collects the remaining details about expenses, and also how much cash is available to cover these expenses, to calculate a burn rate, breakeven target and cash runway.

Firstly, we enter the details of other revenue and other expenses not already included above:

step3a

From this we can see that the calculated breakeven target is 118. This shows how many subscribers are required in order to cover all of the operating costs and other costs, given the current business model. In our example, this is good news as we already have more subscribers than this.

However, we have not yet considered the other costs which are not included in the P&L, such as capital expenses, capital raising costs, and tax as well as foreign exchange movements. To get these we will need to look at the Cash Summary report in Xero, which shows that during the period we spend $1652 on computer equipment, so we enter that here.

Finally, we need to look at the cash on hand in the Balance Sheet report in Xero.

In our example, the bank account has $16,666 at 30 Sept:

step3b

At this point we get the calculated burn rate and runway. In our example the burn is negative, so the runway is effectively infinite, but assuming you’re not yet making a profit these values will show how much cash you burn each month and how many months you have left assuming current burn rates.

Step 4: Diagnosis

That’s it. We’re done!

The final page shows the summary diagnosis:

step4a

This graph can be a bit confusing at first, but is actually simple. It shows the lifetime value per subscriber.

The green revenue bar, on the left, shows the total amount of revenue you can expect to earn from a new subscriber on average. In our example, this is $84.29. The value is based on the average tenure of a new subscriber (derived from churn rates) and the average revenue per subscriber.

The two red bars in the middle show the cost to acquire and cost to serve, again over the lifetime of the subscriber. In our example these are $11.88 and $9.40 respectively.

The bar on the right shows the remaining gross profit – i.e. revenue less costs. If you have a profitable business model then this bar will be green, as in the example above. Otherwise this will be red, meaning you are effectively losing money on every new subscriber!

Below this is a brief description of your unit economics. This will be customised to the values you have entered:

step4b

The second part of the diagnosis highlights specific metrics which are relevant to your situation. In our example, it shows the gross profit value of $63.02 and growth rate of 4.91%, which are both positive, and also highlights the high churn rate of 6.41%. Again, the metrics that are displayed are different for each company, depending on the values that have been entered and the things you should be focussing on.

From this page you can choose to save the diagnosis, which allows you to share details with others on your team, enter multiple months to keep track of the full history, and setup a goal for one of your metrics that needs focus. You can also enter values for multiple businesses and switch between them easily – great for people like me who spread their time across multiple companies.

Please, try it out for yourself now: http://drsaas.md

We’d love to hear how you get on.

Enjoy!

 

Magic Dust

Realising that nobody else knows the secret formula for your venture is an important and valuable thing to learn.

Sadly, I don’t have any magic dust that I can sprinkle on any given start-up to make it successful. Nor does any potential advisor, mentor or investor, even if they promise otherwise. Not even if they have worked on something successful in the past – indeed, this often seems to create a bias, where we incorrectly assume the things we did will also be relevant to your situation.

To have any chance of contributing much of value, I would need to dig-in for a long period of time, and really get to know you and your business, and to understand your current circumstances and constraints.

This will take longer than one coffee meeting (but, thank you for the invitation).

If you think you need some help with the thing you’re starting, but don’t even know what that is, look for somebody who knows you, believes in what you’re doing and is prepared to work with you for years to make it happen. And, before you even ask them, make sure that’s true for you too.

Or, if you think there is something specific I can do to help you, please ask.

Track Record

Early-stage investment is a dark art.

Very few investors are forthcoming about their results, and so there is a lot of misunderstanding about what is “normal”.

The common belief seems to be that you just need to invest in ten companies and one of them will be a winner. I actually don’t think those sort of results are typical. My observation is that most investors have a selection bias which skews their returns significantly in one direction or another.

Either way, I thought it might be helpful to others to consider my own experience to date.

My first early-stage investment post Trade Me was Xero, in March 2007. It was a relatively easy decision, as I was also joining the team ahead of the IPO later that year. With the benefit of hindsight, I probably should have stopped after that, and I could now claim a 100% hit rate!

Instead, in the seven years since then I’ve made fifteen further direct investments. I’ve also made follow-on investments in six of these.

In total I have invested just over $4m so far.

This is the list in chronological order 1:

Sonar6 is the only real exit to date, after they were acquired by Cornerstone On Demand in April 2012. As an investor in their later rounds, that represented a ~2x return for me.

Four are sold or confirmed dead (in a couple of those cases there were very small amounts returned to investors, but only cents on the dollar so more of a gesture than something that should be considered a return) and one other is missing presumed dead, so 31% by count or circa 16% by value invested have resulted in a loss of the money I invested. That compares favourably with the 40% figure that Fred Wilson has written about although, as he says, that’s maybe just a signal that I’m not taking enough risks.

Thankfully, I’ve invested larger amounts in the companies which have been successful thus far. This is partly good luck and partly, I think, a function of the approach I take – typically investing a small amount at a reasonable valuation initially and then more later, once the company has proven they can execute and start to scale and as a result have significantly reduced the risk.

Xero is clearly the biggest success on that list at this point. The small portion I’ve sold has repaid my initial investment several times over, and the majority that I retain is worth more than all of the others combined, even after the recent share price correction. I remain very long and patient.

I’m also very optimistic about Vend and Timely, which take a large chunk of my time today. I am chairman at Vend and a director at Timely.

Atomic, Revert and Respondly are three recent investments, so far too soon to tell, but I’m very excited to be working with all of them too.

And, the jury is out on a few of the others – I’m hopeful there may be a couple more winners in that list too.

Overall, the portfolio doesn’t owe me anything at this point.

On top of that I’ve also gained some useful scars from the early failures. This is what I mean when I say get started and be prepared to suck for a bit. I suspect that is actually the only option, if this is something you’d like to be good at.

Some of the biggest lessons, so far:

I’ve learned it’s better to invest in the best companies, not the most companies. As the list gets longer I feel less and less inclined to do more and more.

I’ve learned that investing passively from the sidelines doesn’t provide much personal satisfaction, even if it goes well for the company, so my recent investments have been in ventures where there is an opportunity to get involved in some capacity in addition to investing cash 2. The downside with this approach is that time is finite. At the moment I have my hands full to overflowing with the things I’m already invested in and working on, so I’m focussed on those rather than looking to add anything new into the mix (and, as I have to constantly remind myself, focus means saying no or, aspirationally, having an assistant to say no on your behalf).

I’ve learned that you can achieve a lot more if you’re not worried all the time about who gets the credit, but if you take that approach you have to assume that you won’t get the credit and be comfortable with that.

I’ve learned that as a potential investor aimless networking, coffee meetings and events are a black hole, and you can spend all your time there, but it doesn’t really help you to find the best investments or contribute much of value to the companies you’re already working with.

Time will tell how this goes.

It will be interesting to look back at this list in another seven years and see whether the companies that I think are the possible winners now actually worked out that way, or if there were any surprises. And, who knows if there will be more names to add to the list which at the moment are nothing more than an idea.

I continue to make it up as I go. No doubt there are many more lessons to come.

Perhaps this post will prompt other local early-stage investors to talk more openly about their own results and experiences too. If so, please add a link in the comments below.


 

Notes:

  1. There are a few things excluded from this list, where my investment was a token amount. I have excluded the projects I’ve worked on with the team at Southgate Labs, such as Triage. They are not material to the calculation because my investment there has been predominantly time rather than cash. I’m also a small investor in the latest Movac fund, however it would be generous to count any of their investments as mine in this context so they are also excluded.
  2. In practical terms this means spending a day or so each month working with the founders on whatever they need help with, and being available in between those times via video or email to answer questions or be a sounding board – usually for things like strategy, planning, finance, legal and recruitment (or the opposite!) Ironically, these days, less and less of my time is spent on product or software development, even though being good at that was what earned me the right to be in this position in the first place, although I’ve typically invested in ventures where those skills are well represented in the team already.

Fine Words

All That Glitters


Tweet storms are fun, but I do miss blog posts. :-)

The Dark Net

NZVIF have released their latest Young Company Finance report. The report includes a list of all of the companies that raised new capital so far in 2014. It is an appallingly incomplete list. These are the companies that I know of they have missed:

I’m sure there are many others. Please add a comment to this post if you can give me more names. If you add up the amount raised by just those I’ve listed it comes to more than the $23m that is reported, meaning they miscalculate the amount of investment by at least half. No wonder officials are convinced there is a shortage of capital. They are overlooking all of the best companies who typically don’t need to resort to angel networks to raise money. This was the report on Stuff this morning: Angels give tech start-ups a good shot.

Investment in young companies by Dragons’ Den style investors topped $50 million in the year to June, according to a report by the New Zealand Venture Investment Fund (NZVIF) and the Angel Association.

Angels and Dragons, y’all. Apparently when it comes to young companies calling yourself simply an investor isn’t sexy enough. Just a thought, but maybe we should make it more about the companies and less about the investors.

UPDATED: added a few more companies and some links to media stories about these capital raises – in most cases this information is already in the public domain.

Say Something!

Dilbert - Honesty 3

The best sign I have that a company I’ve invested in is dead, or near death, is the silence.

This is why I encourage all of the founders I work with to send regular and detailed updates to all of their investors at least once per quarter, ideally once per month.

Even if you don’t have investors yet, the process of taking a step back and asking yourself what’s going well, what’s not going well, and what you could do differently is hugely valuable.

It doesn’t have to be complex.

In the simplest case just start by sending out basic financial details: how many new customers you have, how much cash you earned in the last month and how much cash you spent in the last month and how much cash you have left in the bank.

Then, later, as you grow, include some commentary about your current constraints – i.e. why aren’t you growing faster?, an update on your team – new hires?, open roles?, how you’re feeling about the culture?, and maybe point to some of your key numbers – how much are you spending to acquire each new customer? how much does it cost to support each customer each month? how many customers cancel (or “churn”) each month?

For bonus points, ask other people in the team to contribute a short paragraph about their area – e.g. the product/engineering teams might want to list the things they’ve recently released and the things they are working on next; the customer support team might like to highlight their Net Promotor Score; the sales and marketing team might want to talk about recent promotions they’ve run and the effects of those.

It shouldn’t take long as these are all details you should have at your fingertips anyway (and if not, then you have bigger problems than not keeping shareholders informed!)

Make sure you talk about both the good stuff and the bad stuff. Investors are smart enough to realise that startups are not a smooth curve up and to the right, and will appreciate the honesty. More than likely they will want to try and help you solve the problems, when you’re up-front about them, rather than stressing about the fact that there are problems.

The real payback on doing this will come when the time comes to raise more investment in the future. There is nothing worse for an investor than an email from out of the blue asking for more money. If you’ve taken the time to keep everybody informed of the progress then you’ll spend much less time telling them where you’ve been, so you can focus on where you want to go next, and you’ll likely find them much more enthusiastic about continuing to be part of it.

So, even when you think you have nothing interesting to say, say something.

It could make all the difference.

Quick Tap

It’s 75 minutes into the match. The score is 15-all. The team hasn’t been playing that well, truth be told.

Awarded a kickable penalty, Aaron Cruden (25 – currently starting first-five, but really second choice behind Dan Carter who is currently on sabbatical) along with Beauden Barrett (23 – up-and-coming, but on the night a replacement fullback) and Victor Vito (27, another reserve, back for his first game after last year being told he wasn’t up to the standard expected of an All Black) together spot an opportunity and decide, without even consulting Richie McCaw (33 – the captain on the field), to instead take the quick tap and go. It leads, a few minutes later, to the match winning try.

This is what Richie had to say afterwards:

“You’ve got to back the guys to have a crack. If they’re always looking to me they’ll never take an opportunity. I was ready to point at the posts but he thought better of it, and it paid off.”

And, the coach, Steve Hansen (55, for consistency):

“It was one of those games where someone had to take it by the scruff of the neck.”

We can only speculate about what might have been said all around if that decision hadn’t lead to a try and the match had ended a draw, or a loss. As it was the headline was “All Blacks lucky against inspired England” (really, that was luck?)

There is a massive organisation that exists to support the All Blacks – the NZRU board, CEO and high performance staff, the All Blacks selectors, coaching and management teams, including specialist coaches, media liaison, medical support staff etc, not to mention the many stakeholders (including all of us as fans).

But, I’m fascinated by how accountability and responsibility is delegated down to the youngest and least experienced, and the culture that is created within the team as a result. We would consider it remarkable for a 25 year old team member or 33 year old executive to be making big decisions in a large company, where the leaders tend to be much older and tenured. But, in the All Blacks, by the time you’re over 30 you’re as experienced as they get, and certainly considered old enough to handle the pressure of making decisions in the moment on the field.

How about In the organisation where you work? Do your junior staff have the freedom to respond to opportunities when they spot them? Or, do they do as they are told until they’ve done their time?

Reality Distortion Field

I found this fantastic rant by Dave Grohl, of Nirvana and Foo Fighters, describing his documentary Sound City:

“This movie wasn’t made for cynical middle-aged music critics, it was made for my daughter, or for the teenager down the street who’s trying to figure out how to start a band. When I think about kids watching a TV show like American Idol or The Voice, then they think, ‘Oh, OK, that’s how you become a musician, you stand in line for eight fucking hours with 800 people at a convention center and then you sing your heart out for someone and then they tell you it’s not fucking good enough.’ Can you imagine? It’s destroying the next generation of musicians! Musicians should go to a yard sale and buy an old fucking drum set and get in their garage and just suck. And get their friends to come in and they’ll suck, too. And then they’ll fucking start playing and they’ll have the best time they’ve ever had in their lives and then all of a sudden they’ll become Nirvana. Because that’s exactly what happened with Nirvana. Just a bunch of guys that had some shitty old instruments and they got together and started playing some noisy-ass shit, and they became the biggest band in the world. That can happen again! You don’t need a fucking computer or the Internet or The Voice or American Idol.”
Rock n Roll Jedi, Delta Sky Mag

I wonder if people in other vocations feel the same about how reality television distorts their experience?

Do chefs love MasterChef? Do property developers love The Block or Property Ladder? Do people who work with troubled kids love Super Nanny? Do architects love Grand Designs? Does anybody love The Beauty & The Geek?

I doubt it.

Because if you substitute musicians for start-up founders, what Dave Grohl described is exactly how I feel about Dragons Den and the like.

All of these shows are entertainment, which is fine. No harm, no foul. Very little reality, despite the name. Except that it seems that many people often fail to make that distinction.

Despite all of the evidence to the contrary, people do believe that entering a talent show is the path to a career as a singer, and they keep lining up every time there is a call for auditions. These train wreck shows seemingly have no problem finding folks who think that inviting cameras in to film their wedding planning or their house build or their blind date with a stranger is a normal and constructive thing, without appreciating that the only possible winner from that equation is the person selling advertising around the eventual show when it screens. Even the viewer, as entertained as they might be at the time, is a loser by any reasonable measure of opportunity cost.

It is, to use Dave Grohl’s patter, fucking nuts!

And, it makes me sad and angry to see it happening more and more in my industry.

A contrived start-up experience has as much in common with a real start-up as being a contestant in Survivor has with living unassisted in the Amazon for three weeks.

But, there is a large and growing group of people who think that the only way to a successful start-up is via an accelerator program, where they get locked in a room for twelve weeks, inundated by mentors, pressured into customer discovery and product pivots and whatever else is the buzzword de jour, taught to pitch and then pushed on stage to pimp their pre-pubescent start-up to a room full of investors. And then… who knows what?

This is just Startup Theatre: a scripted experience that has very little in common with the things that successful startups in the wild fill their days with, in my experience. The only thing missing is the film crew, although surely that can’t be far away.

The latest “season” of Lightning Lab had their demo day in Wellington last week.

This is how I saw it promoted on Twitter:

UPDATED: removed the link to this tweet, which has now been deleted. :-/

Seriously? Did it rain? Were folk hustled?

The people who are advising founders to approach investors in this way are naive and wrong. Be aware that you’re creating a significant selection bias by doing this, because smart investors do not want to be hustled and won’t be tricked into investing in your dinguses.

Likewise, if you think this is the best way to access people who you would otherwise struggle to connect with, you’re massively underestimating how easy it is to reach smart investors in a small place like New Zealand (or a large place like San Francisco, for that matter) if you have something compelling to pitch them. But you do have to get the train in front of the tender. Otherwise you’re not really a founder.

(I keep talking about smart investors, but I realise I haven’t ever explained what I mean by this. It’s possibly a subject for a future post, but for now I’ll define it simply as those who typically contribute more value than they capture, both in terms of dollars and, more importantly, in terms of advice and support.)

So far the results from these sort of programs locally are pretty skinny. But, we only need to do this a few more times before one of these companies becomes Dropbox or Airbnb. That’s how the maths works, right?

In fact, we believe in accelerators so much that we now have a government grant programme designed to accelerate accelerators. That’s four derivatives, if my calculus is correct!

(The questions I would ask those that approve this sort of funding are: a) how will you measure the impact you have on the companies who benefit from this investment?; and b) what is the control group?)

Please, don’t hold your breath.

You may reasonably ask: if this is so wrong, why is it increasingly common and popular?

I think the explanation is simply that doing a start-up is hard. And more than likely a complete waste of time and effort. So we’re all attracted to this sort of reality television approach because we think it might be an easier route, or increase the likelihood of a successful outcome.

But, I think the short cut we hope to find in this approach is a mirage.

I tried to opt-out of this debate a while back, as I figured there was little chance that I would convince anybody who believed otherwise, and there was no shortage of better things to put my time and energy into. I still believe that. But, I’ve realised I never explained the alternative.

I think Dave Grohl has the answer: You have to enjoy the walk.

If you’re a would-be founder, don’t be impatient. Realise that the person promising you a short cut is probably trying to sell you something. Rather, find some friends to work with, and understand that for quite a while you’re going to suck. But suck in the knowledge that you’ll look back later and realise how much you enjoyed sucking, or more accurately how much you enjoyed sucking slightly less each day. Accept that it’s better to suck in relative obscurity. Don’t be tempted too soon by the glare of the spotlight. Tell your story to everybody who will listen, and if you have something that’s actually compelling word will spread. And know that after taking a few small steps forward each day you’ll look back and be staggered by how far you’ve come.

If you are a would-be investor, don’t be lazy and sit back expecting good ventures to come to you. New early-stage investors often fall into the trap of thinking their job is to pick which companies to invest in, but the smart investors realise that the best companies select their shareholders, rather than taking any money they can get. So, get out there and find the people working on interesting things and roll up your sleeves and help them out in whatever way you can. There is a huge dark net of start-ups, beyond the prominent few that make all the noise. Pick one or two, validate that they are willing to take guidance, and prove that you can contribute more than just cash. And then, when the time comes, there is a better chance they will choose to talk to you.

Of course, doing all of these things still provides no guarantee. Not every group of friends playing grunge in their garage in the 90s became Nirvana. Sorry I don’t have a better bridge to sell you. But, since you’ve read this far, I assume you’ve decided it’s all worth it, despite the odds.

What are ya?

I’m Chair of the Board of Directors at Vend.

In some ways, this is a role I stumbled into.

I was one of the original investors, back when Vend was just Vaughan. We would spend a day a month and go deep on the business model and strategy. It evolved into a “proper” board after we raised more money and we added Miki to be an independent third voice in those meetings. It has since levelled up several more times, most recently after Barry was added as a fourth director.

I have, on more than one occasion, been told that I don’t look like a chairperson.

I’d like the record to reflect that the company has done okay despite this. What was just Vaughan is now 122 people, more-or-less, working in four offices in Auckland, Melbourne, Toronto, and San Francisco. And counting. We’ve grown from a handful of brave initial customers to over 10,000 retailers who use Vend to run their businesses – selling everything from jewellery to polo geargasoline to music lessons. We’ve raised over $35m, from what would have seemed to us at the beginning to be a dream list of investors from NZ, Australia, Germany and the US. We’re trying to spend that wisely to fuel further growth.

I try not to be offended, because I doubt that was intended. But I am always tempted to ask what they think a chairperson looks like. Or what role they think would be more appropriate for me.

The thing is, I’ve never really looked like the things I was.

I didn’t look like a computer science student in 1994. I wore shoes, for a start.

I didn’t look like a management consultant in 1997. I borrowed a suit jacket for the job interview. I never really got comfortable wearing a suit and tie.

I didn’t look like a founder in 1999. I can only imagine what the property managers I was cold calling made of the sloppy kid trying to convince them to advertise on the “internet”.

I didn’t look like a manager in 2003, when I came back from London to run the growing development team at Trade Me.

I didn’t look like an angel investor in 2007, after we had sold the company and I was starting to think about what to do next.

I suppose this should give me confidence to not put too much weight on what others think I do or don’t look like today.

I figure the best thing is to show them what I am, by doing the job as well as I can, rather than waiting for their permission. Maybe doing that will cause them to change their mind about what makes a good director or chairperson. Or, maybe not. Whatever.

Who are you waiting on to tell you that you qualify?

PS I’m currently thinking about who could be the fifth person on the Vend board, and I’m determined to not limit ourselves just to people who look like directors. The ideal candidate would be somebody with a sales and marketing focus, ideally with experience in retail and/or small-medium business, who is excited to help us grow to the next level and beyond. Y’all are the closest thing I have to an old-boy network (and with the added benefit of not being all boys!), so if you know anybody who we should consider for this role please do let us know.

Full on Keynes

Here are three possible explanations for why we all feel so busy:

  1. We all spend too much precious time telling each other how busy we are, as if it were something to be proud of. (ref: this blog post)
  2. We all mistakenly believe we can have it all. And multitask. (we massively underestimate the switching costs)
  3. Men, of course! (at least according to this recent book review in the New Yorker – it’s unclear, as a man, who I should blame, but maybe I just need to lean in more, I don’t know?)

By the way, Keynes’ prediction was actually right, in my opinion: most of us struggle to do three hours of productive work per day. How else would we find the time for so much reality television otherwise?

As an experiment I’ve been trying to stop using the negative versions of the words we use to describe our activity, when we are unconsciously sympathising with each other: busy, stretched, slammed, etc. There are alternatives which are much more positive: full (as in full of interesting and awesome things), focussed, engaged.

Of course, using those words to describe your day does force you to consider how accurate they are as a description, and if not, maybe think again about how excited you are to be “busy”.

Give it a try.

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