Prioritizing is Difficult but Vital

Prioritizing is difficult for startups because there are so many uncertainties and not a lot of solid information to base the prioritizing on.  Most of the time it is a judgement call which is uncomfortable because it is easy to be wrong and, as humans, we don’t like to be wrong.

Frequently this difficulty means that startups don’t aggressively prioritize and even if they do they work on multiple priorities at the same time. This is staggeringly inefficient and is indicative of a weak management team that is afraid of committing to a course of action. if you don’t decide you can never be wrong, but you will also never succeed. Human beings are naturally more afraid of loss then they are excited by gain – you have to fight this instinct.

You should only work on your top priority, unless you can no longer efficiently devote more resources or time to it. For example your top priority might be selling to a particular customer – if you’ve done all you can with the customer and you are waiting for them to hold an internal meeting and you can no longer do anything to increase your chances of winning the customer, then you should feel free to work on priority number two.

Imagine that you have two priorities: A & B. Each priority will take you one week to complete and each priority has a 50% chance of revealing something important about your market. There are two approaches

  1. Work on both priorities simultaneously (in parallel).  Since each priority takes a week you will have both priorities completed after 14 days and no results before then.
  2. Alternatively you can work on the top priority first and only when you have completed it do you work on the second priority (in series). After 7 days you have completed the first priority and after 14 days you have completed both. The bonus is you will frequently discover something important about your market from the first priority
Many thanks to Adam Hodgson for the Diagram

It should be clear that working through your priorities in series rather than in parallel is dramatically more efficient. Have you taken the time to prioritize and do you re-examine your priority order everytime you learn something significant?

Frequently startups pay lip service with prioritization and cheat by pretending to themselves that they are prioritizing.  This is easily done by working on projects that are actually multiple different priorities.

Ideally you should prioritize using solid data to back up your prioritization, however given how little information many of you have scientific prioritization is going to be impossible.  THIS DOES NOT MEAN YOU CAN’T PRIORITIZE. Even a blind guess at prioritization is better than no prioritising at all. Startups must be good at working with ambiguity and have tremendously limited resources – make sure you applying those resources efficiently.  

Your Job is to Make Tough Decisions

As CEO of a startup, it is your job to make tough decisions and if you aren’t making them you aren’t doing your job.

Tough decisions are decisions where you don’t have enough data to be fully informed but you need to make one anyway. Tough decisions are where you decide to fire a staff member who is trying their best but isn’t up to the job. It’s going back to a long term customer and telling them that they aren’t going to be your customer anymore because you have decided to pivot the business. It’s telling your co-founder they aren’t performing.

Easy decisions are obvious and by their very definition anyone competent would make the same decision. It’s the difficult decisions that define you and your business.  If you aren’t making these sorts of decisions then the company could have any CEO – you are letting circumstances control your business. It is through difficult decisions that you shape the future of your company.

We all face difficult decisions every week. How we address these decisions decides the fate of the business. Never let difficult decisions slide, they rarely become easier. Bear in mind that consciously deciding not to make a decision until you have better data is a decision and can often be the best course of action. However, do not use this an excuse not to make the tough decision when you need to. You do not have the luxury of time and resources that these unnecessary delays will require.

At the end of each week ask yourself what difficult decisions you made. If those painful decision aren’t front and center in your mind then you’re probably not addressing the real problems in your business.  We all want to ‘kick the can down the road’ but we all know that is a losing strategy. Be a winner, be brave, make the tough decisions.

You don’t just Burn Financial Capital in your Startup

What age are you? How often are you going to be that age? Once, right?

Entrepreneurs burn two forms of capital in a start up – financial capital and human capital.  Since the financial cost of setting up a company has steadily and dramatically declined, the scales have firmly tipped to burning human capital and in particular the human capital of the entrepreneur.  Every day you work at your company you are burning a little bit of your human capital.

It’s not a renewable resource. In fact, it is not just finite, it’s irreplaceable – every second you burn is never going to coming back. Time in your eighties will not compensate you for the time you missed your child’s birthday.

Financial capital is fungible and human capital is not.

You Can’t Spend All The Money you Raise (or at least you shouldn’t)

Everything takes longer and costs more than you think it will. However, everyone should know this already and most companies allow for this to degree (not nearly as much as they should do) and I’ll write an article about this at a later stage. However, this post talks about the fact that you can’t spend all of the money that you raise and therefore you need to raise more money – confused yet?

When you raise funds you do it to invest in your company. As you invest you increase the company’s cost base (salaries increase, you move offices, etc.).  As your cost base increase so does the buffer of cash you need to ensure you can meet those cost without interruption (failing to meet payroll is a very bad thing).

Let’s say you raise €2 million to grow your software company. A few programers here and a sales team there and before you know it you have a payroll of €150K and a total monthly cost base of €200K. Now cast you mind forward to when you’ve scaled the company and your total cost base is €200K a month. Just how low would you be willing to let your cash balance go or are you willing to run it all the way to zero and risk bankruptcy? 1 month? 2 months? 3 months?

If it’s 3 months then you only have €1.4M to invest in your company not the €2M that you actually raised. The remaining €600K is going hopefully sit in your bank account to protect you from the possibility of not making payroll. You can’t spend all the money you raised.

There are loads of reasons why you need to raise more than you think but working capital requirements is one of the easiest to quantify and inexcusable to ignore.

Where’s The Mango Market?

Run through this thought experiment with me.

  • How many mangos are sold in your city? It doesn’t matter how wrong your answer is – a guess will do.
  • How much does a mango sell for?
  • So what the mango market worth? This isn’t a trick question, just multiply the previous two answer together
  • Where is the mango market?

Ok, the last one is a trick question. This is because there is no mango market. There is a fruit and vegetable market.

Mangos sales aren’t significant enough and compete so directly with alternatives that they don’t have their own market. The price and availability of alternative fruit is almost as significant to the volume of mangos sold as the price of the mangos themselves.

Who cares whether there’s a mango market or not? Well, no one reading this. However every entrepreneur should care whether their product or service has its own market or if it is just one small part of a much larger market.  It is a common mistake to assume that just because there is a demand or need for a product that the product automatically creates its own market.

This is important because it is not possible to have a go-to-market strategy without recognising the market that you are in. The market dictates where your customers gather, what websites they visit, what conferences they go to, who they buy from, how they buy, the terminology they use, etc..

As a general rule if your ‘market’ doesn’t have an industry conference or any independent trade publication you should be asking if it exists in its own right or is just a part of another market.

Example: There is no flavoured water market – there is a soft drinks market. If you want to buy a bottle of flavoured water you go to the chiller cabinet in your convenience store. The flavoured water competes with all soft drinks for shelf space. If the flavoured water you want is out of stock or too expensive you will buy some other soft drink.

While there may be a demand for flavoured water there is no market independent of soft drinks. If you were the CEO of a flavoured water brand, realizing that you compete directly against bottled water, juice and sugary drinks in their market faces up to reality and allows you to create a credible go-to-market strategy. Thinking that you’ve got your own market is self-delusional.

If there are lots of alternatives that you haven’t included in your market then the chances are you are fooling yourself. There is no point trying to sell to this market because there are no customers there – they are all at the soft drinks cabinet.

  • There is no firewall market – there’s a digital corporate security market.
  • There is no invoice reconciliation software market – but there is a financial software market.
  • There is no wooden puzzle market – however there is a games and puzzles market.
  • There is no SMS market – there is a messaging market.


Don’t just pay lip service to running experiments

Startups are experiment machines. In the early days you’re testing hypotheses, testing market demand, testing pricing, everything is an experiment. The problem is that most startups don’t approach or think about the experiment they are running with any degree of rigor.

Founders tend to think a failed experiment is one that haven’t given the desired result. This is wrong. Any experiment that gives an accurate result, regardless of whether we like it or not, is a successful experiment. The only failed experiment is one that hasn’t given an accurate result.

Rigor is key to running a successful experiment. Lack of rigor leads to a host of problems, such as running an experiment for too long because we don’t like the answer, silently changing the goal posts or searching for data to fit our idea rather than letting the data shape our idea.

Introducing a Base Level of Rigor

Write down the hypothesis you are trying to prove and the constraints of the experiment (how much time, effort and cash are you willing to spend proving it?).

What results will indicate that your hypothesis was proven and what results will show that it was disproven?

If the experiment produces a result that lies between the two, then it’s a failed experiment that either needs to be extended or abandoned.

Example: Experiment to test market demand using Google Adwords

Hypothesis: There is a market demand for my product that can be reached through Google Adwords

Constraints:  €500 and two weeks

Proven: 20+ sign ups

Disproven: Fewer than 5 sign ups

If the experiment results in between 5 and 20 sign ups then we don’t have a result. We can extend the experiment or decide that it’s no longer worth it.

Startups need to be fluid and it is expected that you will need to change your criteria during or even after an experiment, however if you ensure those criteria have been written down then at least when you change them you will do it knowingly. Not doing so guarantees over/under investing in experiments, sand shifting and unclear communication with stakeholders,  and it opens you up to a whole host of cognitive bias.

Don’t just pay lip service to running experiments – actually run experiments. WRITE IT DOWN!

Stop looking at your analytics all the time

Whatever gives you that dopamine hit first thing in the morning: Google Analytics, Adwords, Mixpanel, bank balance, overnight orders, Stripe, stock price, Salesforce ….  it’s time to stop. You know you’re exhibiting compulsive behaviour, you know there’s no business reason you need to check your key metrics 20 times a day and certainly you don’t need to hit refresh to see if things changed in the last 30 seconds.

All you are doing is searching for that next high. Like a self-destructive addict, if the first metric is good you go onto the next, knowing if you keep going you will eventually find the inevitable – a metric that’s going the wrong way. If you are tracking 15 metrics it is statistically improbable that they can all be positive.

Once the negative metric has been spotted, it’s impossible not to keep looking. Logically you know that it’s not statistically significant and you can’t judge your site or product’s performance hour to hour, but you do it anyway, living the emotional rollercoaster of highs and lows dictated by the shape of the graph.

I was this soldier. I’d check 20-30 metrics across 5 different systems within 60 seconds of my eyes opening in the morning, 7 days a week. Occasionally I’d wake in the middle of the night to get my fix. Some days I’d check hundreds of times.

It wasn’t like it was even my job to stay on top of them. I had good people looking after all aspects of the business. But I felt like it was my job. I felt like I had to be on top of every aspect of the business and I boneheadedly took pride in being more up to date than anyone.

Self-realization dawned early on a Tuesday morning. I’d woken at about 5am and, as was my habit, checked revenue, site availability & traffic. Something was very clearly wrong. Even though the site was normally quiet at this time of the day, revenue was way out of line. I got out of bed. I was worried and stressed and I picked up my phone to call my CTO. It was then I realized that the best course of action was to do nothing and wait till the office opened and fresh, well rested engineers looked into the problem. My revelation was that information is valueless unless you are prepared to act on it.

I created a new rule for myself – only look at metrics when I was prepared to act on them. For example unless looking at the bank transfers that had arrived overnight would lead me to make a different decision then I wouldn’t look.

So I created a schedule for myself. Firstly, no looking at analytics in the AM unless they were needed for a specific purpose such as a meeting.  This allowed me to me to be proactive in the morning without having the day blown off course.

Schedule

  • Everyday 1.30pm: Bank Balance
  • Every Friday: 1.30pm Analytics, Revenue and Sales Pipeline  (Alright I’ll admit it became daily on the last week of the month. I didn’t say I was totally cured).
  • First day of the month. Adwords, Engineering tickets, site performance and everything else

Did I stick to it? Mostly. Every now and then I’d still crack but I easily cut out 95% of my habit.  I was happier and able to focus on the longer term and didn’t waste time stressing over irrelevant data.  This resulted in more thoughtful business decisions, better time with my family, and better time with me.

Next time you reach for your crutch of choice, ask yourself what decision you are going to make differently. If you are not sure and the answer is that you ‘just need to know’ then stop. You are not making anything better by looking and you are making life a lot worse for you and everyone around you.


If you are going to sell then commit 100% – don’t waste your time “cleaning your apartment”

Adding the job of sales to the CEO or founder’s role is common for startups that are exiting the gates of customer discovery. Now they’ll sell the product for 50% of their time and continue with their other responsibilities for the remainder of the time.  

This almost never works. If you are going sell, then sell with 100% of your time and effort and find someone else to deal with your other responsibilities. Anything less than this requires a mythical level of willpower and dooms most people to failure.

It’s like that time you were meant to be studying for exams and you found yourself cleaning your bedroom, then doing the dishes. Studying was hard and uncomfortable and you’d search for any reason to avoid starting. You’d search for any activity that you could define as ‘productive’.  You wouldn’t play video games, or go to the pub. You’d clean your bedroom because you could fool yourself into thinking you were still being productive and therefore feel like less of a waster.

It’s the same thing with sales. Sales is uncomfortable and full of rejection. If the “salesperson” can do anything else and still feel like they are being productive then they will do that instead of selling. This is particularly the case with non commissioned salespeople such as founders.

Almost no one wants to pick up the phone and start to navigate a large organization, dealing with rejection every step of the way.  Good sales people do it because there is no other way to achieve their goals. As soon as you give them multiple goals then you’ve given them a way out.

Remove all other activities and responsibilities from your salesperson – even if that’s you.  Give them exactly one way in which they can feel good about themselves. Selling, not cleaning their bedroom.

Sales – it’s about Getting to No

Trying to sell something?

Well the answer’s no. Get used to it.

Stop looking for ‘yes’. It’s never yes. It’s always no.  If it  was yes then they’d already be your customer.

Your goal should be discover why it is no. Once you know why, you can work to overcome the objection. Maybe it’s price (it’s never price), credibility, risk, timing, authority, budget. You are dead in the water if you don’t know why.

If you go in looking for yes, then the best case is you find out that it’s not a ‘yes’. The worst case is you don’t even get that and the prospect stays in your pipeline like a ship becalmed. Your job is to force the issue, to question, to probe and to discover why they won’t do business with you NOW

Why I Hate A/B Tests

I hate A/B tests that are recommended to startups when they don’t have the volume to run them. I hate when they are used to avoid being courageous. I hate the false lessons they teach. I hate the illusion of certainty they give. In short I hate nearly everything anyone says about them and nearly every application of them.  So yes, I hate A/B tests.

They Provide No Insights and Generate False Narratives

A well executed A/B test will tell you which side performed better but it won’t tell you why. At the end of the day you may know that “Sign Up” works better than “Create Account”. Is it because the word “Account” has a very specific meaning for your target audience? Did “Sign Up” simply fit the button better? There are any number of possible explanations and you have no idea what the real answer is.  

The worst thing is that humans need narratives and when presented with a fact that is unsupported by a narrative we invent one. That invented narrative will spread further and be remembered longer than the original ‘fact’. But you have no idea if that narrative is actually true – someone just made it up. Try it yourself, go along to Optimizely and try not to create a narrative in your own mind.

They require a LOT of traffic

Split tests require a lot more traffic than most people who are running them have. If you have a page converting at 5% then on average you need about 30,000 visitors to that page to run an A/B test with 95% confidence. With the random walk inherent in your results you might sometimes need triple that. How long is that test going to take to run?  Are you happy standing still during that time?

Even then, the test is going to be wrong 5% of the time – statistically significant does not equal true.

The moment anything changes it invalidates your result

An A/B test requires both sides of the test to be identical except for the item being tested.  So what happens when something changes after the test? A soon as anything changes then the test needs to be rerun because the change invalidates the test. NO-ONE does this.

  • If you change a word on the page, a colour, a button, then the test is invalid
  • If your audience changes then your test is invalid
  • If the damn time of the year changes then your test is invalid
  • Even if significant time passes, your test is invalid as consumers tastes and views evolve over time

Most things aren’t worth split testing

Most of the time the cost of testing is going to far outweigh the potential benefit of the change. Your page probably has thousands of variables. The vast majority aren’t going to be worth the cost of testing.  Don’t expect minor changes to have major results.

On what basis are you choosing your test and what is your rationale?  Fear of being wrong, fear of being caught out, fear of being seen as rash or just because you think you should? Stop covering your ass and have the courage to plough forward and trust your own judgement.

P.S. A/B tests have their place and that place is where you are making fundamental changes that could radically impact performance and where you have large scale.