StartupNorth

Category: Resources

  • Founders & Funders: Nov 18, 2014

    It’s that time again – to bringing together the people that start emerging technology businesses and the people that fund them, early.

    Who should attend?

    Uhm, yeah. Founders & Funders.

    Founders

    You are a founder of a emerging technology company or a technology-enabled company. You are actively raising a round of capital or starting to think about raising your next round. Feels like we’re leaning to Seed and Series A – basically if you’re name is Tobi or Ryan most investors know who you are 😉

    Funders

    Space for funders will be limited. We have room for approximately 60 people. And we like to keep the ratio of 3:1 founders to funders. This means we roughly have room for 15 funders. We’re going to be picky, the target will be Seed and Series A.

    Why should you attend?

    Relatively small and intimate gathering of other emerging technology company founders and the people that fund them. The funder mix ranges from individuals that write first and very small cheques to larger institutional funds.

    • Social event – no formal pitches
    • Community is the framework – chance to talk to other founders about the current fundraising climate

    What to expect?

    It is a chance to have a bite to eat and a drink with other founders and investors that are actively investing in Toronto companies. It’s a chance to figure what has worked for others, to figure out which investors you want to spend more time with, and just connect.

    How do I attend?

    Submissions will end on Nov 10.

  • Making Canada SAFE

    It has been 9 months since PG announced the YC SAFE (Simple Agreement for Future Equity). The Winter 14 batch included Canadians: Taplytics, Send With Us, Piinpoint, Minuum, Gbatteries and others. (There have been an increasing number of Canadian companies since Chris Golda and Michael Montano headed down in 2008. Maybe there should be a new drinking game: how many Canadian YC companies can you name?). This usually means a trickle down effect of culture, term sheets and deal structure. But I haven’t seen a SAFE used in the wild.

    Until now.

    Thanks to Aaron and Cobi at  Taplytics, Dan Debow, Jesse Rodgers at Creative Destruction Lab and Tom Houston at Dentons for providing a working draft for Canadian companies of Cap, No Discount SAFE.

    I have also seen angel deals using Laberge Weinstein and Cognition LLP that are using the SAFE as the starting points Canadian companies (h/t @ddebow). It seems like we might have a functional alternative to convertible debt.

     

  • When should startups pursue a patent strategy?

    [Editor’s note: This is a guest post by Bob Stratton and Andrew Currier of PCK IP  about patents and patent strategy for Canadian startups. And while “traction is the new IP”, this is one very cost effective strategy for startups, but is it the right one for you? ]

    Photograph JOHNNY CASH by Leopold Bloom on 500pxJOHNNY CASH by Leopold Bloom on 500px

    Seriously, patents? Are patents really an effective strategy for startups? It’s an almost Shakespearean dilemma for founders, to patent or not to patent.

    There is a real tension between the long term benefit which must be balanced against the short term need to manage cash burn carefully and the management time required for a successful patent program and the immediate need for focus on getting product out the door.

    Understandably, early in the corporate development lifecycle most startups choose to focus on building and shipping product and growing traction and revenues. We’ve heard that traction is the new IP. There are unintended consequences to this decision, that founders need to be aware of that have impact on the business down the road.

    The refusal to even consider patents can be left for another conversation.

    We present an analytical approach for founders to consider performing an upfront analysis of: “Are patents an important part of my business plan?? and “When do I start pursuing a patent strategy?”. Here are some starting points.

    Timing is Critical

    There are a couple of unpleasant patent facts that we must be considered:

    1. If you disclose the invention before filing a patent application, you lose the ability to patent it in most of the world.  (A short list of countries, including Canada and the US, forgive your prior disclosure for as long as a year, and let you still file a patent application before the expiry of that year);Prior disclosure is an issue because you may have to disclose your invention to a variety of people such as investors, potential customers, suppliers, etc. – who refuse to sign a non-disclosure agreement.It is also an issue because your successful launch of your product/service is a disclosure.
    2. The first inventor who files an application at the patent office blocks any subsequent inventor who files for the same invention.First to file is an issue as someone else can beat you to the patent office, at best blocking you from filing your application and at worst blocking you from running your business.  It actually happens that two or more people independently invent the same thing at roughly the same time, especially in the tech space wherein technological advances may suddenly enable a new product or business.

    In view of (a) and (b), pretty clearly the correct answer is to file “as soon as possible”, but patents cost money and start ups, in particular, should defer expenditures as long as possible until their valuation has increased, to make raising money less expensive.  Again the short term and long term are at odds with each other.

    Patents Cost Money, Defer or Spend?

    So, what do you do?  It depends? Or there is no easy answer. It requires a founder to be able to use their experience and interpret the market signals to make informed decisions about spend.

    Our suggested set of analytic steps is:

    1. Determine which aspects of your product/device/system/business might be patentable.
    2. Determine which of those aspects might be worth patenting from a business perspective.
    3. Determine when those patentable aspects will be first disclosed.
    4. Determine when you can afford to file patents.
    5. Compare 1, 2, 3 and 4 to identify critical dates (disclosure of invention vs. available funding) and decide what to file and when.

    Unfortunately steps 1-5 sound simple, but of course there is a fair amount of dependency upon specific fact situations.

    For example, you may have several possible inventions identified at step 1, but whether they provide a commercially significant advantage to your business (step 2) will vary widely and can be hard to predict given that your goal is to create an entirely new market and how that market unfolds is not predictable with complete confidence.   You may also require some professional advice to help with step 1, as it is not always straightforward to identify developments which are patentable from those which are merely clever.

    For step 2, some inventions may have a limited useful lifetime: e.g. the first implementation is web-based, but you expect that most of your revenue will be generated from a custom mobile app – once you can build and deploy it.  So, you may forgo protecting the web-based version to save the expense, knowing that you are leaving the possibility of web-based competitors in the future. Other fact-specific scenarios abound.

    Depending on the outcomes of steps 1, 2, and 3, step 4 can be made somewhat easier by deciding upon an appropriate filing strategy to manage the trade-offs between expenditures and protections.  For example, you may decide to limit the countries in which you file for patent protection and/or you may decide to “beat” a disclosure by filing a provisional patent application, rather than a complete application, to reduce immediate costs.

    You may also identify, at step 2, different classes of inventions: i.e. – those which are fundamental to your business and which should be patented as broadly as possible/reasonable and those which are mere “nice to haves” which can be deferred or allowed to be lost to manage costs.

    Seek Informed Advice

    We believe that the patent analysis is really just an adjunct to the kind of big-picture business case analysis that is necessary to achieve long term success.  Founders must know their market and have the vision to see that their startup investment has a real potential of a long term payoff.

    Founders are already faced with complex crystal ball gazing business decisions such as: What is my product road map? What investment do I need? Who should be on my management team? How can I monetize my product? Who is my competition?  Where founders don’t know the answer to these questions they seek out a number of excellent, unbiased resources to help them.  A patent analysis can be added to the other analyses both at the outset and at each milestone, and the results fed back into the planning process to best manage the path to immediate and to long term success.

    Reach out to Andrew or Bob for a conversation about your startup.

  • A Perspective on Investor/Mentor Whiplash

    CC-BY-NC-ND AttributionNoncommercialNo Derivative Works Some rights reserved by nocklebeast
    AttributionNoncommercialNo Derivative Works Some rights reserved by nocklebeast

    The other day Fred Wilson posted an opinion and some tips on Investor/Mentor Whiplash. He took the position that that is a big problem for accelerators as well as early stage and seed environments. Brad Feld took this as a bit of a misunderstanding on accelerators, he insists that TechStars creates an environment where early stage companies can learn to manage the whiplash. Brad Feld states:

    I disagree with Fred. It’s not a big problem. It’s the essence of one of things an accelerator program is trying to teach the entrepreneurs going through it. Specifically, building muscle around processing data and feedback, and making your own decisions.

    On the surface this seems correct. A problem (one of many) new founders face is the overwhelming barrage of mentorship (good and bad) and information mixed with the inability to filter. An accelerator should be able to provide the environment where a strong group of peers with some guidance can help to build the “muscle around processing data and feedback.” In the last 6 years I have noticed that is a common problem founders face and their ability to manage it is important to their success. It wasn’t until I experienced the whiplash myself a 2nd and 3rd time that I fully appreciated the damage it can do even if you are prepared for it.

    Generally what I tell early stage founders:

    • Only talk to customers once you have something to show them — but that shouldn’t take you a long time, don’t go heads down for months. Asking people what they want and not focusing on something specific they can touch/feel is a path to busy work and infinite sadness.
    • Avoid the mentor parties/socialization. Find two (or three) good people with opposing views and bounce specific data off them but only when you have done something that requires fresh eyes to advise you how to interpret the results.
    • Focus on what isn’t working when getting feedback from mentors. Founders need to be positive but you need to focus on the bad things when talking to your close mentors that have been through it already. If they can’t help you with the tough stuff why are you spending a lot of time with them?
    • Don’t expect a direct answer. Experienced mentors know you are the best person to run your company, not them, and they have developed a way of not telling you what or how to do things but instead challenge you to figure it out in a positive way.

    Whiplash from mentors doesn’t just happen in startups, it happens everywhere people are giving you advice or have something to gain by influencing the decisions you are about to make or the opinion you develop on something.

    Being prepared and learning to manage the whiplash isn’t just the essence of accelerator programs, it is the essence of education that culminates in the top level you can achieve to filter information – a phd program. At the phd level the filter muscle is almost too strong but that is a topic of a whole other blog post.

    The scary thing for entrepreneurs is that accelerator programs are too often run by people that don’t know how to effectively educate people and/or they have something to gain financially by the decisions founders make.

    I think this *is* a big problem in accelerators. I wonder if the ability to teach that skill to founders (or select founders that already have that skill) is the difference between a successful accelerator (which is really only TechStars and YC) and one that isn’t (pretty much everyone else)?

    [Editor’s note: This post was originally posted on Jesse Rodgers’ Who You Calling a Jesse blog on July 31, 2013.]

  • Making the business case

    I have spent a lot of time in Halifax in the past year. I have been out for HPX Digital and for 2 workshops with Toon Nagtegaal (LinkedIn). It has allowed me the privilege of hanging out with Atlantic Canadian entrepreneurs. I’m going to try to spend additional time in Moncton, Saint John, Charlottetown and hopefully St. John’s (but a road trip like that will require additional planning and spousal support).

    My next 2 trip are very different. The first is another workshop with Toon. The second is to attend Atlantic Venture Forum (still working on travel plans).

    We are looking for startups that are “at the point where you have to push your business or business idea to the next level”.

    The Workshop

    Subset of PhaseMap by Toon Nagetaal

    The workshops with Toon are interesting. You can read Peter Moreira’s piece on the workshops. The workshop is a Thursday to Sunday ordeal. It’s called an Investor Readiness Workshop. The goal is to put companies through an artificially intense meat grinder and focus on building a stronger investment presentation. The goal is to walk through your business plan, your assumptions, and your traction. Toon provides his guidance from his experience funding companies in Europe and North America. I provide my experiences as an entrepreneur and what I’ve learned living for a short period of time on the other side of the table.

    The goal is to provide Atlantic Canadian founders practical advice about refining their business plan. It revolves around Toon’s PhaseMap methodology and software tools.

    The PhaseMap methodology helps define and articulate a business case around 4 questions:

    • Do customers need and want my product? = Value Proposition
    • Is there a market, big enough and ready to pay now? = Market
    • Do customers wan to buy from me? = Positioning
    • Can I deliver? = Execution

    Why?

    • Learn how focusing on your customers pain is the key to defining your value proposition, market and position. Practical real world, in the trenches advice about raising financing from both sides of the table
    • To provide the team with methods and tools they can use to learn more about customers and product/market fit.
    • Provide individual feedback to startup teams throughout the session, both to guide the iteration and strengthening of their startups and to provide strong group learning

    Who?

    Ideally, founders either written a business plan, started the investment circuit, and/or generated a few business models or a Lean Canvas or two. The target audience is companies that are actively raising investment capital. The focus is on how to make the case for your business. How good is your business case and how well you are able to present it? These are the crucial factors founders will learn in how to convince others of the quality of your plans.

    How much?

    Update: I’ve been informed that if companies are willing to cover their own travel expenses, the good folks at ACOA are willing to make exceptions for companies from across Canada.

    The workshop is sponsored by ACOA. If you are a founder based in Nova Scotia, Newfoundland, PEI or New Brunswick you are eligible for ACOA sponsorship. The ACOA team has informed me that the workshop is open to any Canadian startup willing to cover their own travel expenses to the region. The fees are divided between the founders and ACOA. Fees for founders are $750 for up to 2 founders to attend. This covers hotel and food costs. The remaining fees are covered by ACOA.

    When?

    The next workshop is June 6-9, 2013 in Halifax.

    Attend

    It’s a fun, intense weekend that is designed to help startups and founders.

    [gravityform id=”10″ name=”PhaseMap Workshop” title=”false” description=”false” ajax=”true”]

     

     

  • Bay Street & Natural Resources – FinTech in Toronto

    TL;DR

    Toronto is a center of gravity for financial services. There aren’t a lot of financial technology startups in Toronto. There is a new Toronto FinTech Meetup. FIrst meeting is Wednesday, April 10, 2013 at the MaRS Commons (Suite 230, 101 College St.) hosted by Blair Livingston of Quantify Labs.

    Bay Street and Natural Resources

    [Editor’s Note: This is a guest post by Blair Livingston LinkedIn , founder of Quantify Labs. Full disclosure: I’m an investor in Quantify Labs. Blair and I share a view that given the technology and talent available on Bay Street there should be a strong financial tech and startup community in Toronto. It is sad that my typing “toronto fintech” into Google results in a Montreal conference as the first result. ]

    Google Search for Toronto FinTech

    Great cities prosper and thrive, in part, because of their proximity to valuable resources. Arguably, the nearby resources were likely the main reason the city or village was situated in that location to begin with. However, it’s not enough to simply be near resources – gold still has to be mined – and we need to put those resources to work. Indeed, Canada is a country rich in resources; we have diamonds, gold, lumber, oil, gas and everything in-between. Canada’s strong economy is fuelled in part by this abundance of resources.

    However, over the last hundred years (or so) new types of resources have emerged – communities, technologies, groups, industries and people. Many of these resources don’t take the familiar form of something tangible and malleable, and for that reason can go unnoticed for a long time.

    One Hub to Rule Them All

    When we talk about finance, we invariably talk about New York City. We talk about Wall Street, the 1%, and a concentration of capital, services, people and technology that makes NYC one of the financial industry capitals (if not THE capital). It is the density of entrepreneurs, emerging companies and people that are one of NYC’s greatest resources. Consider the effects on start-ups built to service financial companies – this industry has supported, nurtured and allowed some of the biggest financial technology companies in the world to grow and flourish in its ecosystem.

    Bloomberg LP, with estimated yearly top line revenues of $10 billion, was started in New York. The city is host to a number of trading venues, back office technology providers, data aggregators and other interesting and innovative companies built on the resource of this community concentration. They even have an accelerator dedicated solely to financial services technology (appropriately named the FinTech Innovation Lab).

    In New York, FinTech flourishes by connecting the community and building an ecosystem that leverage existing resources. Financial institutions play a role in supporting the new ecosystem by acting as customers, acquirers of startups and hiring talent that develops in each of the early stage companies. Demonstrated by the support, both financial and at very high management levels, that FinTech Innovation Lab receives. It’s no wonder a large portion of all leading financial technology, especially institutional tech, is coming out of New York.

    Where is FinTech in Toronto?

    Toronto has a booming financial industry. Our banks are in excellent shape. The combined market capitalization of Canada’s six leading banks is more than $323 billion. And with that kind of market capitalization comes new problems, new opportunities and potentially new tech. The difficulty lies in the regulation, legislation, risk standards and software/hardware requirements. This poses challenges for developers and entrepreneurs in selling to financial services firms. It doesn’t matter if the solution is aimed at the retail (bank branches or individuals), corporate (the mother ship) or institutional (sales & trading, investment banking). Selling to financial institutions is not an easy process. It requires assistance in process, guidance (legal, technical, financial), support, experience and a depth of knowledge that is greater than just hustling.

    It is because of the complexity in the go-to-market and technical requirements, why very little innovation happens in financial services technology (aka fintech). It’s like the shadow cast on a wall – it looks menacing, like a panther or some dangerous beast – but in reality it’s only a little kitten. If you understand how to deal with the issues, and properly approach them, they aren’t all that scary (and a little help never hurts).

    But, with little innovation comes massive opportunity – there is so much opportunity in financial technology that it’s hard to decide where to begin.
    What Toronto needs is to start taking advantage of these resources – a thriving financial services industry. It’s already happening in pockets around the city, but it’s about time we started getting aligned to make a consolidated push together. I have had the opportunity of meeting with/hearing about/noticing some interesting financial tech companies in the city, who include:

    • D+H (payment/lending solutions)
    • Market IQ (data/social sentiment analysis)
    • FINMAVEN (data/social sentiment analysis)
    • eDYNAMICS (salesforce integration and consulting/cloud computing)
    • OANDA (FX trading platform)
    • Quantify Labs (institutional content/CRM platform)

    Who else should be on this list? Who are the startups, developers, investors and entrepreneurs that are interested in FinTech in Toronto? If the community is the framework, let’s get the community going. Let’s share stories and guidance on selling, building and launching financial technology. Let’s offer insight and experience into usage and problems. Let’s discuss. Let’s take advantage of one of this city’s most abundant resources. That’s what we want to do, and if you have any interest in financial technology, I would encourage you to sign up for the Toronto Fintech Meetup. We’re having our first ever meeting next Wednesday, April 10th, at the MaRS Commons, just a ‘get to know you’ – no speakers, no schedule, just an introduction to the financial tech community in Toronto.

    When I started in finance ask a desk analyst, I was repeatedly told – “it’s too bad, the low hanging fruit is gone” – well I took a walk out of that orchard, down the lane, and stumbled into another called Financial Technology. The fruit just isn’t low hanging, it’s on the ground – we just need a few more people to come help us pick it up.

     

  • Growing successful companies

    Mark Evans (LinkedIn) wrote a blog post about my tweet. The blog post captures much of my sentiment and frustration around entrepreneurs. I commented about entrepreneurs learning about how to build a successful, high growth emerging technology companies. And there are lots of ways to learn what is considered a successful company. And a great way to learn is to learn from others that have been in the trenches. Debbie Landa (LinkedIn) and her team at Dealmaker Media have done most of the hard work for you.

    GROWtalks

    They have brought together a great event. Attending the event won’t bring you investment. It won’t make you a successful company. But it might increase the odds. They are bringing together an amazing set of entrepreneurs. And they are bringing them to Toronto and Montreal to share their experiences, stories about what worked and didn’t work for their companies.

    Local Events Matter

    You can and should get your ass on plane and head to New York City and San Francisco to attend events. But you don’t always have to. There are advantages to attending these events locally.

    1. Local connections can help you see The First Rule of Real Estate – you can find and connect with local talent. Whether that is for funding, moral support, hiring, etc. There will be people you do not know yet. Easy way to find them out.
    2. Travel costs are less for regional travel. If you live in Ottawa or Montreal or Halifax, you can make it to Toronto or Montreal by plane, train or automobile for a lot less than travelling elsewhere.
    3. Travel time is lessened. You can spend a day.

    This all assumes that the event is providing amazing content that you would travel to consume.

    World Class Content

    The content that Debbie and team have assembled is unbelievable. If you don’t know who these people are, my advice is take a little bit of time and use the GOOG. These are entrepreneurs that have seen the ups and downs, the ins and outs of successful businesses.

    Every single person is worthy of a keynote presentation at a larger conference. This is not a vanity presentation. They are on stage sharing information about their specific expertises in building successful businesses. It’s not Mark Organ talking about random things, which is fun, but Mark Organ talking about leveraging disruptive technology in fund raising. Holy crap! You want to learn how Mark used AngelList, LinkedIn and other tools to raise 2 of the most impressive rounds of capital in Canada…quickly.

    Every single person speaking, every one, will be providing expertise about what they did to build a successful company.  Here is the list of presenters in Toronto:

    You want more details, check out my first post. Do your homework. But this is an amazing opportunity.  The lineup is different in Montreal. It includes 2 of my close friends, but they are 2 of the best people in helping startups become successful. Mark MacLeod and Alistair Croll . Unbelievably kind and intelligent people, who beyond that know WTF it is startups need to do to become successful. They like the others are the best of the best.

    Our Commitment to Successful Companies

    There are initiatives like Startup Visa Canada and the Upside Foundation that we strongly support. And we’re committed to helping provide education to entrepreneurs to help them to build successful companies.

    We’ve committed to provide a limited number of $100 discounts. I am not going to tell you how many. If you are building a successful startup, and you want to hear the tactics and advice of other entrepreneurs that have been massively successful in building their startups, sign up now and save $100 before the discount expires.

    • GrowTalks Montreal – February 19, 2013 – Register use promo code: startupnorth
    • GrowTalks Toronto – February 21, 2013 – Register use promo code: startupnorth

     

  • Firing People

    I hate firing people. It’s the worst part of my job. Even after all these years I still spend days or even weeks agonizing over a decision to let someone go. I feel absurd complaining about this, given that of course it’s a hundred times worse for the person being fired than it is for me. Still, I hate firing people.

    My first firing at Top Hat was our VP Sales. He was employee number two, he joined right after we raised our angel round. In retrospect it was doomed from the start, and it was entirely my fault. I had no idea what I was doing when it came to building a sales organization and brought him into a role that didn’t make sense (read about the lessons learned in building a sales team). It took me 6 months before I finally pulled the trigger. In the end, it was undoubtedly the right decision and set the company back on track. But at the time it was an extremely tough call. It was admitting failure – to myself and to our investors – that this first major hire was a mistake. I felt  ashamed about it for months and kept convincing and re-convincing myself that we could still make it work.

    As a general rule once you’ve lost faith in an employee, things rarely get better. You can sometimes fix a skill-level problem by giving someone time to grow, but you can never fix a personality problem. If you’ve identified that someone isn’t a fit you need to move on it quickly and decisively. The longer you wait the worse it will be for both parties.

    Firing is an essential part of running a successful company.

    In a narrow way, it’s actually more important than hiring. You could, in theory, use a shit-against-the-wall style hiring strategy and as long as you filter out the bad apples quickly enough you’ll be able to build up a functional team over time. Of course that’s probably not the best approach.

    The reality is that even the most effective interviewers are rarely more than 70% or 80% accurate. The average interviewer is quite a bit worse than that and isn’t much better than chance – often even worse, because the naive approach just selects people who are great in interviews, which disproportionately selects for bullshitters. However, even if you’re some kind of super-human talent screening machine with a 95% success rate, that 5% will accumulate and degrade the culture until you’re surrounded by bozos.

    The Best Firing Process is a Better Hiring Process

    Of course the best “firing process” is not to have to fire people, which can only be done through effective hiring. That being said, not having an effective firing process is like not having an immune system – the first cold will eventually kill you.

    It’s fairly common knowledge these days that A players only like to work with other A players. A slightly more subtle observation is that someone’s status as an A player isn’t fixed. Bringing a weak player onto a team has a tendency to poison the culture and downgrade the rest of the team (especially if that weak player has a shitty attitude.) This bad apple syndrome has been observed to happen fairly reliably in studies on organizational dynamics.

    CC-BY_SA-20 Some rights reserved by MrB-MMX
    AttributionShare Alike Some rights reserved by MrB-MMX

    The Bad Apple Syndrome

    We’ve experience this at Top Hat a couple of times. One of the most instructive was with our inside sales team. Early on when we were in a pinch to fill the team we lowered our standards and brought on a few people that we should have passed on. The results were disastrous. The quality of the team degraded and eventually hurt not only the inside team but also other parts of the company that came into contact with it. It took nearly a year of solid effort to rebuild the team. For a time it seemed hopeless. No matter what changes we put in place, no matter how much talent we threw at the team, the cancer of negativity and poor morale just wouldn’t go away. The most profound mistake we made in the process of trying to fix the team was to keep those who were performing well but had a negative attitude.

    There was a pattern we observed a few times: we’d put a new person into the team, their performance would be great and they’d be super enthusiastic. Then like clockwork after a week or two their numbers would slowly drop, and they’d become engrossed in the culture of negativity and gossip. It was only after the cleared out the ringleaders who were perpetuating the negativity (who happened to have decent performance numbers!) and put in strong positive management that things finally began to change. The most amazing thing is that many of the people who were B or even C players when the team was dominated by negativity shot up to solid A player status. The overall output of the team per person went up by nearly 300%. In addition it seems as though life was trying to setup a lab experiment for us to prove just how much things had improved – we had a person who had left the company a few months prior re-join the team. His feedback was that he was blow away, he couldn’t believe it was the same team.

    Lessons Learned

    The first lesson we learned was that no matter how strapped for manpower you are, no matter how much it seems like the world will end if you don’t fill a position, compromising on the quality of talent will surely be more damaging. Second, we learned that in fixing a damaged team the key is to identify the cultural sources of the underlying problem and focus on those. Finally, we learned to use a divide and conquer approach – we would pull all the top talent into a separate team while rehabilitating the broken remaining team separately – it really helped prevent the “negativity cancer” from spreading while we were fixing things. These are simple things in retrospect, but it took a while to pull it off.

    One of the most revealing questions I tend to ask when interviewing potential managers is whether they’ve ever had to make the decision to fire someone. The answer and subsequent discussion usually tells you two things: first, it tells you if the person has ever had to deal with the most difficult problems in management, second it tells you if they know how to handle those problems through the process they followed. Assuming the person has ever had to hire and manage a team of a decent size for any length of time, it’s almost certain they’ve made hiring mistakes, and their answer tells you that they know how to detect and correct these mistakes. If the person simply walked into a mature team, or has had HR handle all the hiring/firing decisions for them, then they’ve been living on easy street.

    The process of firing someone is always somewhat unique to each situation. That being said there are some basic principles that you should always follow:

    1. Give people plenty of notice and regular feedback. Give people several chances to improve. The actual firing should never be a surprise – if it is then you almost certainly did something wrong in setting expectations. Depending on the role the whole process should take 1-2 months (longer for senior roles.)
    2. Try to be generous with severance and leave the person in a good spot to find their next employment. I know it’s not always possible in a startup, but do what you can. It’s the decent thing to do.
    3. Take time to reassure the rest of the team and explain (with discretion) the process that was followed and why the decision was made. Letting someone go is always a huge morale hit (even if the person wasn’t well liked, it still scares people.) You need to make people understand that their job is not in danger.

    Firing someone is always a brutal experience. Anyone who says otherwise is either lying or is a psychopath. That being said, it’s unfortunately a necessary evil and understanding when and why it needs to be done is essential to the success of any business.

  • SaaS Metrics: The Ultimate Guide to Building a Business

    This post is a recap from a how-to created by Mark MacLeod . I feature some of the most impressive startup strategies we encounter at StartupPlays and share them free, here at Startupnorth.ca. Enjoy.

    This guide is available in an interactive how to format Free at StartupPlays.com – Get it here

    The number one focus of Mark’s investment and advisory work is SaaS companies. There are lots of reasons to focus on this segment. For one, it’s large ($21B and growing at 20% per year). In addition, it lends itself well to (metrics) and is great for investors because of the visibility and predictability that the best SaaS businesses generate.

    The SaaS Terminology Cheat Sheet:

    AARRR: A pirate war cry or more importantly, an acronym coined by Dave McClure to summarize the flow of SaaS users from first activation to monetization and referral.

    Activation: The first time someone uses your service.

    Acquisition: A new user sign up. This does not necessarily mean a paid customer. It means a new user on a free trial or permanently free version. If you don’t have a free trial or free product and the only way for someone to use your product is to pay then acquisition for you is a new paid customer. In this series “user” will refer to people that don’t pay and “customers” will be people that do pay.

    ARPU: Average Revenue Per User: Total revenue / # of paying customers.

    CAC: Customer Acquisition Cost. Total costs of customer acquisition / # of new customers acquired. This should be calculated both for gross new customers and net new. Net new is net of customers that you lost in the period.

    Churn: The % of users / customers that abandon the service over time. This can be measured weekly, monthly, quarterly, etc. You will want to measure churn for users and churn for customers (assuming you have a free trial or freemium product).

    • Customer churn: % of paying customers that cancel their subscription.
    • User churn: % of free users that stop using the service.

    CLTV: Customer Lifetime Value. The expected total revenue from a customer over their lifetime less the cost of generating that revenue less the cost to acquire that customer.

    Cohort: Also called cohort analysis or class analysis. A cohort is a group of users that are grouped together based on a common attribute. That could be the month they signed up, the source through which you acquired them, the method in which they use your service (web vs. mobile vs. desktop app), etc. Say, you’re looking at cohorts based on month of sign up. You can then look at usage and monetization patterns for those users over time. For example all users signing up in January are a cohort. You can then look at the % of them that use, subscribe for, churn out, cancel their account etc. in February, March, April, etc.

    Conversion: Every time a user moves forward a step in your funnel from visitor (just visiting your web site) to user (signed up) to customer (paying you money) to referrer (helping bring you new users).

    • UV conversion: % of new unique visitors that become users.
    • Active conversion: % of users that use the service for the 1st time.
    • Paid conversion: % of free users that upgrade to a paid account.

    Engagement metrics: These are softer metrics that are specific to your application that don’t measure core conversion but measure specific feature uses and overall engagement with your service. Examples include # of likes, session length, # of comments, # of connections, etc.

    Freemium: A goto market strategy where you have a permanently free base version of your service. This, hopefully, replaces the need for a big marketing budget and reduces friction for user sign up enabling you to acquire lots of users. From that large user base you convert a small portion to a paid premium version. There are other freemium scenarios such as free content monetized by ads but in SaaS this is the primary meaning for freemium.

    K Factor: Also known as “viral co-efficient“. For every active user how many new users do they bring on. If your K factor is > 1 then your user base grows virally or exponentially. This applies well for social games and freemium services that have a built in viral aspect that introduces the game or service to new potential users.

    Retention: Subsequent usage of your service. Any usage after the initial (activation use). As you will learn, retention is the most important aspect of a successful SaaS business.

    Retention rate: The % of users that continue using the service over time. This can be measured weekly, monthly, quarterly, etc.

    Tenure: The # of months or years that you keep a paid customer. Calculated as 1 / churn rate.

    Upgrade %: The % of customers that upgrade from you basic plan to a higher plan.

    The Business Model

    Business model viability, in the majority of startups, will come down to balancing two variables:

    1. Cost to Acquire Customers (CAC), and,
    2. Lifetime Value of a Customer (LTV)

    Successful web businesses have long understood these metrics as they have such an easy way to measure them. However there is a lot of value in looking at these same metrics for all other businesses, especially in the SaaS model.

    Image source: http://www.forentrepreneurs.com/startup-killer/

    Calculating Customer Acquisition Cost – To compute the cost to acquire a customer (CAC) you would take your entire cost of sales and marketing over a given period, including salaries and other headcount related expenses, and divide it by the number of customers that you acquired in that period. Use the “Cost To Acquire” sheet of the workbook to help calculate this.

    Calculating Lifetime Value – To compute the Lifetime Value of a Customer, LTV, you would look at the Gross Margin that you would expect to make from that customer over the lifetime of your relationship. Gross Margin should take into consideration any support, installation, and servicing costs. Use the “Lifetime Value” sheet of the workbook to help calculate this. SaaS businesses are usually initially very high cash intensive businesses because you pay upfront to acquire a customer and the customer only becomes profitable over time. So, you have a gap in cash flow. You can grow organically by saving up enough margins from your existing customers to acquire more, but this is slow. If you want to dominate your market, you need outside capital to maximize the pace of growth (more on this later). At the seed and series A stages, I recommend startups spend no more than 6 months of revenue to acquire a customer. This is because i.) cash tends to be tight; and ii.) the startup does not have enough cohort data to know for sure how many months customers stay on average. Later, when you have more data and more cash you can be more aggressive and spend more. It’s important to do this calculation both for your overall customer base and by price plan. You will likely find your higher price customers stick around a lot longer.

    Tipping the Balance – Tactics for Optimizing your Model

    If you are building a data driven company then i.) your entire team should have daily access to key stats (just put up Geckoboard on a big monitor and connect everything to it); and ii.) each team member should own a metric.

    Brainstorm – with your team – 5 ideas/strategies around the two key elements (Monetization and CAC) with help from the examples given. Calculate Your Monthly Recurring Revenue (MRR) And Average Revenue Per User (ARPU) – Monthly Recurring Revenue (MRR) is calculated by multiplying the total number of paying customers by the Average Revenue Per User (ARPU). This is usually a key indicator of profitability. Use the “Monthly Reoccurring Revenue” sheet of the workbook to help calculate this.

    Look at your CAC ratio monthly: this is the new Monthly Recurring Revenue (MRR) you added in the month * gross margin / the customer acquisition costs incurred that month. You can read more about this important ratio here.

    This and more is available in a step-by-step interactive format at StartupPlays.com

  • Waterloo mafia invade Toronto

    I’m guessing this is confirmation that Waterloo Region is really just part of the Toronto ecosystem.

    CC-BY-NC-ND-30 Photo by nadiakushnir
    AttributionNoncommercialCreative Commons - By NC-NDSome rights reserved photo by nadiakushnir

    I have seen The Communitech HubSpot space. Not a bad name given the facility that houses Communitech is called The Hub, calling a smaller zone in Toronto “The HubSpot” would make sense. Other than one of the leading CRM vendors based in Boston that has raised a combined $65MM in financing is also called HubSpot. That’s got to be bad for SEO.

    I first saw the Communitech HubSpot space when I looked at moving the Maintenance Assistant offices earlier this year. It’s space located on the 2nd floor of 170 University Ave, that doubles as offices for Phil Deck. Phil was previously the CEO and Chairman of MKS Inc. which was acquired by PLC for $305MM in 2011. Phil is also on the Board at Communitech, which features other key players in the Waterloo and Toronto ecosystem including John Ruffolo of OMERS Ventures, Carol Leaman of Axonify, Ali Asaria of Well.ca and John Baker of Desire2Learn.

    “It’s been a lot of hard work and even more fun putting Waterloo Region tech on the map with the help of a hugely supportive community.”
    Iain Klugman, Communitech Marks 15 Year Anniversary of Supporting Waterloo Tech

    Communitech in Toronto

    It’s great news as Well.ca already has offices in Toronto. Previously Waterloo-based companies like Top Hat Monocle have moved to Toronto. There are a large number of Waterloo alums actively working in the Toronto startup ecosystem (I’m a UWaterloo alum along with Farhan Thawar, Zak Homuth, Zach Aysan, John Phillip Green, Dan Holowack, Oshoma Momoh, Bruce Chin, Garry Seto, Mike Rhemtulla, Monica Goyal and that’s just off the top of my head).

    Too bad they chose to leverage an existing StartupNorth brand for the event. The least they could have done was invite us. Oh well, they stuck with our own “invite only” model.