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I just read this post about how the startup Level Up has raised $41MM but may now be running out of cash, and according to the article is down to half its previous employee count. It got me thinking about a big mistake I see startups make, which is over-extending before finding true product/market fit.
I was well aware of this danger at Socialize, and we still made that mistake. At one point in early 2012, we were up to 16 employees. When we sold to ShareThis, we were down to six. It's not that six employees was too few -- it was exactly the right number and type of employees for the stage of our company -- it's that sixteen was way too many. We didn't absolutely need that many people to build and sell our product, even though we felt at the time that we did. The six employees that ended up forming the core of our company in the year before we sold it were all very key employees and are incredibly productive, and that's what we needed to find product/market fit.
So if a CEO is acutely aware of the issue and still falls into the trap, I can't imagine what the siren call of rapid expansion does to CEOs who aren't watching out for it. But it is possible to get around it: On the opposite side of the spectrum you see companies like instagram that sold for $1 billion with just a dozen employees.
So I've come up with a mental framework to optimize the outcome of a new startup dealing with this issue.
Daniel's Framework For Optimizing Product/Market Fit:
A few weeks ago, Heidi Roizen, a well known venture capitalist with DFJ and longtime entrepreneur in Silicon Valley, called me a cockroach.
Usually, it would be offensive to be branded as a cockroach. But in this case, it was awesome. Heidi's exact quote was this:
So there you have it. Great entrepreneurs are like cockroaches, doing whatever they have to do to survive.
Vinod Khosla is a legend in Silicon Valley. He's the powerhouse behind Khosla Ventures. Way before that, he was one of the founders of Sun Microsystems, and then became a general partner at Kleiner Perkins. He's also done many other amazing things. Vinod gave the keynote at Stanford's recent Graduate Business School event. Afterwards, I gave a breakout session talk with Heidi Roizen, where she called me a cockroach.
Vinod's keynote contained all the stuff you'd expect to hear from a super successful entrepreneur and VC. For most people, I'd imagine it was underwhelming in its obviousness, but only because hearing someone talk about what it takes to be successful is so different from actually doing it. Vinod offered no magic bullets. Just a solid list of advice that any current or want-to-be entrepreneur has heard and internalized. Things like, "Be a risk taker." "Be a good listener."
That's the entire point of why I'm writing a blog about his talk. There are no silver bullets. The key is to execute flawlessly on the basics. And that's so incredibly hard that most people don't do it.
Vinod highlighted the importance of perseverance in his talk. But the actual example of how he got into Stanford business school is what makes it shine, and what separates him from so many others.
I had to get back to our new SF office after a meeting, and instead of taking a cab, I decided to try Lyft. One the way over to the meeting, I had taken an Uber car that my colleague Adam ordered from his phone, making it a "taxi-free" day.
This was my first time trying Lyft. I submitted a request for a pickup using the iPhone app and was told "Romeo will arrive in 9 minutes." Funny enough, this was also Romeo's first day as a Lyft driver. So we had a great convo about what the experience was like for both me, and him, as first timers. Lyft drivers are the ones with pink moustaches on their cars. Here's what Romeo's car looks like:
I took a video as I used Lyft for the first time. Here's what my experience was like:
Why do some people succeed at fitness while others fail miserably? If there were ever a subject I could be called “obsessed” with, this would be it.
This subject pains me greatly; it pains me, because if people simply internalized the things I'm about to say, obesity would cease to be an epidemic.
Yet even the smartest people think about fitness in the wrong way. They'll often reduce fitness down to “eating less and moving more.”
As an example, I’ll often see the smartest tech minds in Silicon Valley become enamored by the latest fitness gadget. These same people constantly struggle to get fit, as evidenced by the tweets from these very same devices. (This also leads me to believe that there is no correlation between fitness IQ and actual IQ, but that’s a different subject altogether.)
You see, the biggest myth in all of fitness and nutrition is that people fail because they're lazy about exercise... that they fail because they didn't have the willpower to "eat less, move more."
As was reported in TechCrunch today, we've just signed a deal to sell our startup Socialize to ShareThis. Although having a successful exit is a dream for many entrepreneurs, I find myself feeling a wide range of emotions and thoughts. I'd like to share some of them in this blog to provide an honest assessment of what it's like to work tirelessly on a startup and then sell it.
The first thing I want to say is that often upon a sale, you'll hear everyone involved talk about how "pumped" or "excited" they are. The truth of the matter is that it's much more complex than that. There is absolutely a sense of excitement. But I've asked for, and gotten, permission from ShareThis to speak honestly about the wide range of feelings and to speak to the complexity of it all so I can provide a more thoughtful and honest assessment than one typically sees in these situations. Think of it as a peek under the covers of an acquisition.
I've broken this blog up into several parts:
I'll start with the really positive aspects: We're selling Socialize to the absolute best buyer I can imagine. ShareThis is a very fast-growing company with a strong team. As Forbes recently reported, ShareThis is #35 on its America’s Most Promising Companies list. Forbes pegged 2012 revenue at $30MM, and it’s on a rocketship-like growth trajectory. ShareThis didn't just buy us for our talent, but also because its beliefs around the value of social are closely aligned with our own, and because mobile is becoming a big part of its business (see this related blog post with my warning to Fortune 1000 CEOs about the sudden growth of mobile). ShareThis wanted to gain an immediate leadership position in social via the mobile channel, and with Socialize it's achieved that. And Socialize has gotten an incredible platform from which to further develop our social infrastructure for mobile devices. The fit just couldn't be better. Often when I would describe Socialize to people, they would say "so it's like ShareThis, but for mobile, right?" Exactly. So I'm very confident that together, the value of the two companies will be greater than their respective parts, and I'm very pleased that ShareThis saw the same benefits (dare I say, "synergies"). A lot of the credit here goes to Nanda, ShareThis' CTO, who called me out of the blue one day and said "we should do this deal; I know it'll be perfect," and to the ShareThis team for backing Nanda's vision.
While I can't speak to the terms of our deal with ShareThis, I'll use the experience to walk you through the general framework of a deal process, so you understand the multiple steps involved. What I'm going to share is not a reflection of how our deal went down -- I'm pulling from various deals I'm personally familiar with or from accounts I've heard from other entrepreneurs who have also sold.
The first thing I want to highlight is the stress that a deal puts on a startup. Uncertainty kills innovation, and for that reason, if you think you want to sell, it's critical that you get the process done super quickly. Thirty days from start to close is an ideal (although likely impossible) goal to shoot for. Ninety days is a reasonable and achievable goal.
It's also likely that the acquiring company won't be in as much of a hurry as you are: Getting the deal done is likely a secondary priority for them as compared to running their main business. For the startup, it defines the future of the company -- or at least, it's one major possible outcome with huge implications for the startup. There are a few exceptions on the acquiring side -- for example, Facebook is known for moving blazingly fast in deals as a part of its strategy to keep startups it's interested in from being scooped by other acquirers. As I assemble best practices for getting deals done, speed is at the very top of my list.
Next, from the startup's perspective, is evaluating alternatives. This is where someone like Ezra is invaluable. As I mentioned in this post, Ezra Roizen is a banker, but he's different from all the others I've met. Ezra is a scrappy "get it done" deal magician with a small team and a huge rolodex. He can get a temperature read from someone (usually either the CEO or a board member) at any potential acquiring company you'd like to speak to. It'll be up to you to decide what companies you want to target, and then Ezra can take it from there.
This post is a work in progress, since we’re just now selling our company Socialize to ShareThis. I also wrote about how the experience feels, and what getting a deal done is like.
One of my goals is to ensure a successful outcome from the deal. I'll start by defining what I mean by "successful outcome:" That the combination of the two companies produces more value together than we would have been able to achieve alone.
The first thing I did was start writing an Integration Document with my co-founders when we signed the term sheet. This document laid out the specific goals of the acquisition, the resources we had at our disposal, and the key items we would need to request to achieve those goals. Once we had co-edited that document in Google Docs to a point where we were all satisfied with it, I shared it with the ShareThis executive team.
I had already discussed and gotten agreement from Kurt, the CEO, on what the main goals of the acquisition were pre-term sheet. In the integration document, I outlined how we were going to prioritize those goals, and what resources we were going to put into them to achieve the goals.
Getaround is a car sharing service like Zipcar, except that it uses people's private vehicles instead of a fleet. It's a bit like AirBnB for cars. Getaround is part of the "collaborative consumption" movement, which believes that if we could share things we don't use most of the time it would be better for us in a lot of ways. Sharing cars means less cars on the road, which means less pollution, and generally less "stuff."
I'd never used Getaround and a few weeks ago I was trying to figure out why. I pinged Jessica, one of the founders, and told her that what I'd realized was that I didn't want to have to go to someone's house and "borrow" their car. The thought of actually interacting with the owner of a car was awkward enough that it had kept me from trying the service.
Jessica told me about a new type of rental they now have called "Instant," where I can use the Getaround mobile app to rent a car instantly and unlock it with my phone, meaning I wouldn't have to meet the owner or wait for approval. (This dovetails really well into my recent blogs about the power of mobile and apps to transform businesses, and how Fortune 1000 CEOs are going to get fired for missing it.) Getaround Instant was exactly what I was looking for, so my brother-in-law Dal and I decided to give it a try.
I had a few hiccups that Getaround is still working through (for example, Getaround verifies a driver's driving history with the DMV in real-time, and since my last name has a hyphen in it, but the DMV doesn't account for hyphens, my rental request initially broke Getaround's booking system. But both Jessica and Matt were very proactive at resolving these speed bumps). Overall the process was incredibly smooth:
Yesterday a group of students from my alma mater, the University of Virginia's McIntire School of Commerce, came to visit. They were spending a week in Silicon Valley as part of their spring break.
I've long privately urged McIntire to become more entrepreneur friendly. When I was a student at U.Va. in the late 90's, it was a very unfriendly place for entrepreneurs. It seems that things are finally changing, and the fact that these students were in California on spring break says a lot about their enthusiasm for tech startups. I've also written in the past about how high school students have seemed more receptive and responsive to becoming entrepreneurs than college students. It's almost like if one doesn't get introduced to the hunger to be an entrepreneur at young age, it becomes hard to impossible to stoke it later. But this trip made me feel like there's hope for helping people find a passion for entrepreneurship later in life. No matter what, though, I stressed to the students that came to visit that the passion had to come from within them. The best a school can do is support those that want it badly enough to try.
We spent an hour together, and I shared stories with them about how I paid for college by making UVa-branded Frisbees, and sold a card called the Hoos Savings Club Card. (It was way ahead of it's time -- basically an analog version of a daily deals service like Groupon). Here are some related pics:
I'd go around to shops in the Charlottesville area, get them to agree to provide discounts to students for the school year, print the discounts on the back of the card, and sell the card for $20 to students. For anyone in college today, it's a concept that would work just as well now as it did 15 years ago, and it's a great way to make $20k to $50k while you're in school, if you're willing to have a little bit of hustle.