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The Series A Crunch Hits 2017 Fundraising

As mentioned in this LinkedIn post, ‘B’ round fundraising is getting more difficult in 2017 and may stay that way for some time. Starting several years ago, a number of innovations came together to make startups cheaper faster and easier to get off the ground. There are actually a lot of contributing elements. the Journal of Financial Economics report focuses on AWS and certainly cloud services and cloud infrastructure have helped a lot of startups get from concept to beta very quickly. I would add a lot of other things to the list including shared work spaces, freelancer networks, angel investing and kick starter funding platforms and even improved mobile communications and productivity apps.

All these things did cause an increase in Angel funding and that also led to more ‘A’ round candidates and funding. More ‘A’ round funding has not led to more success. Venture firms are not increasing staff along with the increase in early stage funding so their early stage investments are getting less governance and attention. So, at least so far, this has led to more failures and harder ‘B’ round fundraising. Cloud Commerce Consulting is here to help in this process and can position early stage companies to demonstrate the progress and market traction needed to warrant closing that critical ‘B’ round.

 

 

About the author

Michael Zammuto is CEO of Cloud Commerce Consulting
Michael Zammuto heads the company advisory services

Michael Zammuto is the founder and CEO of Cloud Commerce Consulting. He has helped 6 startups achieve profitability, been involved in six exits and major fundraising rounds. He is an adviser to several companies. He also currently servers as Chief Executive of Completed.com. Zammuto was the CEO of Brand.com and Sapago and was President of Chaikin Analytics and Chacha.com. Zammuto also served as COO of Ontario Systems and was a senior executive with Ecometry Corp. before the acquisition by Golden Gate Capital. Mike’s full profile can be read here.

Michael Zammuto in the news

I have been dividing time lately supporting Completed.com and developing a new selling program for a client in the digital marketing space. That client has a valuable offering and has found an eager market for it but needs a scalable sales architecture to reach their potential.

At Completed.com we have been heads down on a new development cycle. We had a investor commit another $250k and have put most of that towards enhancements to our UX. The team is doing an outstanding job and we have brought some very gifted new people to the team so that project is going very well. I have been doing as much media as possible during this time. This includes a podcast interview with Neil Hughes and an accompanying article he did on The Next Web. We also have gotten great coverage from Cheddar TV, Fast Company, TechCrunch and others so I am very happy with this. It is amazing how full and fulfilling the days can be and the time is just flying by. I am really looking forward to the next release in late June.

5000 Boomer-Owned Software Businesses to Shut Down By 2021

As a generation of Baby Boomer business owners plan their estates, some in the software industry say that thousands of firms providing the highly-specialized software running many businesses will cease operations or be absorbed by competitors by 2021. This will lead to the largest ever consolidation of business software: the elimination of as many as 100,000 tech jobs and the evaporation of billions of dollars in value from Boomer estates.

Michael Zammuto, CEO of Cloud Commerce Consulting specializing in advising mid-sized software companies, claims “These firms are at a crossroad and, while a few will sell for big dollars, I expect 5,000 will be gone by 2021. Many companies, employees and their customers simply are not prepared.”

Boomers Automate Every Business

Baby boomers are the generation born between WWII and 1964.
Baby boomers are the generation born between WWII and 1964.

Throughout the late 1970s and into the 1980s, the personal computer revolution and access to inexpensive and simpler software programming tools allowed enterprising Baby Boomers to found independent, usually niche or vertical business software and service companies providing the first software to thousands of types of businesses including storage units, produce wholesalers, furniture manufacturers, liquor distributors, call centers, collection agencies, insurance companies, restaurants, and thousands more. These businesses required highly specialized solutions to replace their paper-based processes for every aspect of the business including purchasing, manufacturing, service delivery, customer service and account management. Businesses of all sizes bought their first computers and built their first computer networks, launching a revolution in business productivity.

Young software firms often customized the software for each new customer and structured software licensing deals where large licensing fees are captured up front followed by smaller annual maintenance fees of 10% to 20% of the original licensing costs. Over time, software for even small businesses could grow to include thousands of options and configuration settings, ensuring the sales and setup of the software was a costly and lengthy process. As a result, software companies producing vertical software solutions developed fewer economies of scale than more horizontal software providers such as IBM, Salesforce.com or SAP.

Rapid Growth but Little Consolidation

New industries often experience rapid growth in the number of startups followed by similarly rapid consolidation. For example, hundreds of automobile manufacturers were started in a short time span. But, in the 20 years following 1909 more than 200 of them went out of business. This trend eventually left a few huge Detroit behemoths with access to top talent, technology and cash. The software industry grew rapidly throughout the 1980s and 1990s. For reasons that are unique to vertical business software this segment often bucked the traditional patterns.

A similar trend of consolidation did occur in many segments of the tech industry. Computer hardware companies, providers of operating systems and ‘horizontal’ business software like accounting poured hundreds of billions of dollars of sales into IBM, HP, Microsoft, Dell, Cisco, Salesforce.com and others providing the platforms for personal computer and internet revolutions. In the 1990s, search engines exploded in number and then consolidated to Google and Bing whose combined market share is reportedly over 95%. Unlike computer hardware, search engines and horizontal software companies, many vertical business software segments didn’t consolidate in the same way.

For many boomer-founders, selling their business is the key to retirement and providing for their families.
For many founders, selling their business is the key to retirement and providing for their families.

The founders of many of these vertical business software companies discovered that it was more difficult to raise growth capital or find strategic buyers. The high degree of customization, often relatively small vertical market sizes and usually aging technology limited their appeal as acquisition targets and their access to the capital markets. Some leaders in the space, often backed by private equity, acquired competitors but their success varied due to the same factors that prevented natural consolidation.

Many firms stayed founder-led (or at least family dominated) to varying degrees of success. Most founders discovered their kids couldn’t or wouldn’t take over the business. Much needed outside management expertise and investment capital went to faster growing horizontal software and internet businesses.

Retirement Delayed

Annual Baby Boomer Retirement Numbers in millions
Annual Baby Boomer Retirement Numbers in millions

Now the one obstacle the founders haven’t been able to avoid is at the door. These founders, with immeasurably valuable experience, are getting old. The oldest boomers are already over 70 with millions more crossing that line every year. Many have stayed vibrant much later than their parents did and are working long after they expected to retire. Their businesses stayed successful enough to keep them engaged but many are still dependent upon their founders’ involvement. Like other Boomers, many are not as financially prepared as they expected due to the 2008 financial crisis and high, long-term health costs eating into their retirement and estate plans.

Large numbers of these firms will not find buyers.  Many will simply cease operations, either de-facto closed or sold at bargain basement prices and absorbed into larger software firms. This will lead to a huge opportunity for those few survivors who can gain market share faster than before and an opening for the horizontal platforms and startups looking to take their places. “The ones who survive are preparing today,” Zammuto says, “Cloud Commerce Consulting has a 90-day transformation process to improve these businesses to make them more attractive to acquirers or improve profits and cash positions so they can survive and thrive.”

Contact Cloud Commerce Consulting For a Free Assessment of your software company


	
B2B Sales Is Changing Due To The Dominanace of Big Internet Platforms

B2B Selling In The Age Of The Mega-Platform

Synopsis

The rise of online “mega-platforms”, a small number of sites controlling huge amounts of the internet, is obsoleting traditional Sales and Digital Marketing leadership roles to make way for a new Chief Growth Officer. CGOs drive huge sales growth by combining sales, marketing, operational, entrepreneurial and data expertise and they see traditional marketing and sales tactics not as integrated programs but parts of a whole they construct from the ground up in what we are calling Sales Architecture.

 

Growth In A World of Giants

Today, any scalable, successful sales and marketing program must start with your strategy for working with the mega platforms that control the internet. The main effect of this is that traditional B2B sales and marketing programs must give way for a single, enterprise Sales Architecture that aligns the entire experience from your target audience’s phone and laptop screen to the successful booking at the bottom of your sales pipeline.

Listing of the top websites - increasingly these sites have to rest at the core of every B2B sales and marketing leader's strategy.
Listing of the top websites – increasingly these sites have to rest at the core of every B2B sales and marketing leader’s strategy.

Traffic is power and the power has shifted to the huge and mighty. Every gatekeeper, influencer, recommender and decision maker that you need to reach is on some combination of Twitter, Facebook, Amazon, Google, Yahoo, LinkedIn, eBay, Instagram or a handful of other sites but social marketing won’t let you reach or influence them.

The number of internet users continues to grow but that growth is dwarfed by the surge in the number of websites. In 1993 there were 108 thousand people on the internet for every website. Ten years later it was 19 people per site and today less than 4. So, your website is lost in an endless digital jungle.

The monsters are getting an ever-growing share of all that traffic too. In 2012, ChaCha built the largest PPC social traffic platform in the world on Twitter. We harnessed a deluge of data to align topics and keywords of large influencer tweets to keywords in articles to optimize advertising revenue per session. As a result, ChaCha.com shot up to become the 35th busiest website in the world in just a few months. Today, if a site had that same traffic today it would nearly make the top 10 because the mega platforms are consuming more and more of the traffic.

At Brand.com we built a platform to connect over 100 major news sources to marketers and could (for a while) use content marketing and SEO to strongly influence search traffic. But Google decimated traditional SEO tactics so the ‘above the fold page 1’ spots are increasingly dominated by mega-platforms and sites with authority you cannot practically build. As planned, this helps shift traffic to Google’s paid search offerings meaning you pay for what used to be free. Increasingly, sites like Google are integrating information into their search results effectively hoarding traffic from sites in their own search results. Today content marketing is a powerful tool but without paid traffic sources you will rarely get volumes for large scale marketing programs.

The growth in number of websites has drastically outpaced growth in users. So today there are fewer than 4 internet users for every website.
The growth in number of websites has drastically outpaced growth in users. So today there are fewer than 4 internet users for every website.

This consolidation means the giants are squeezing everyone else. Publishers are getting killed by the downward trend in advertising rates while marketers are having to pay more and more for access to eyeballs. This means that traditional online marketing, especially so called ‘brand building’ is getting killed with out of control costs per leads (CPL) and campaigns that drive clicks for the behemoths but few sales for you.

 

Sales Architecture: One Internet – One Pipeline – A Billion Cohorts

Clicks don’t equal sales. Clicks equal cost. Because the mega platforms were built themselves around network effect, at their core they are B2C engines. Every step in the process needs to be built around how these mega platforms can be tamed to profitably increases B2B sales at the end. This means the correct message must reach each person in the sales process at the right stage. This means that online marketing and your inside and outside sales have to work together as a single unit. Small errors in one tactic can be harder to find but cost you dearly in missed growth. Guerilla marketing and the company website or blog and niche sites such as those around verticals have their place but are decreasing elements of the sales architecture. For starters, no activity can be done without clear cohort analysis that connects every marketing and sales decision with the outcome and few organizations have true end-to-end management of their spend.

 

Extinction Level Event: The Demise of Sales & Marketing

At great firms the traditional border between sales and marketing campaigns has collapsed. These companies are seeing massively scalable success by moving to a Chief Growth Officer who owns the company’s Sales Architecture and views every marketing and sales activity as part of a continuum. I always house sales and marketing together and measured and reward every step from beginning to end. Getting complete cohort analysis and testing of every critical decision and visibility and KPIs at every step is a massively difficult process that many traditional sales and marketing experts cannot tackle.

Traditional sales and marketing roles historically attracted very different types of people and they approach the internet from their silo. Most have failed to keep up with the lighting-fast pace of change. Surprisingly few have any deep knowledge about the internet. Many talk a good game but probe and ask your sales manager the CPL for their leads. Ask them how to social proof during the proposal phase in a world where every company is Googled. Ask them to show you the cohort of close rates for outside sales on leads from content marketing vs. advertising. Or ask them how they connect the dots between the positioning value prop in social marketing with the final pitch. Too often you will find a disconnected process. Many sales people view online marketing purely in terms of market awareness and lead generation. As leads reach the bottom of their sales funnel the tactics and messaging increasingly looks like the same approach as 5 or 10 years ago. Chief Growth Officers, on the other hand, ensure that every step of the process supports the sales team converting the booking by ensuring cohesive prospect experience throughout.

Marketers are even worse off. Many corporate marketers feel totally disconnected from the sales process. So, they strongly naturally resist any integrated pipeline metrics. Few are taught direct response marketing and fewer still know how those responses support the later stages of the sales process. Too often, traditional marketing leaders want the same tall wall between their online efforts and close rate and want to be judged on engagement metrics that make direct marketers roll their eyes.

The Chief Growth Officer owns the Sales Architecture and is comfortable at the entire continuum of the marketing and sales process. They align the sales and marketing resources in new ways that allow them to leverage the mega platforms to drive massive growth. Armed with essential operational and technical skills, this new breed of growth leaders build organizations that use data like never before.

 

About The Author

 

Mike Zammuto is a multi-award winning SaaS and internet executive and an expert on driving transformative growth
Mike Zammuto is a multi-award winning SaaS and internet executive and an expert on driving transformative growth

Mike Zammuto, CEO Cloud Commerce Consulting

Mike is an Saas and internet executive and expert in organizational transformation and building highly scalable sales & marketing organizations. Mike

  • Transformation Executive Who Repeatedly Accelerates Growth to >100%
  • Deep Expertise Selling and Marketing High Growth SaaS CRM, PoS, ERP & Revenue Lifecycle from $1k to $5M Price Points
  • Top Digital Marketing Expert Who Built The 35 Busiest Website, The World’s Largest Social PPC Network, Content Marketing Network of 100 News Organizations, Massive Global Email Marketing, Hugely Profitable Webinar Programs and Keyword Hyper-Optimized Display Advertising Programs
  • Operator – Entrepreneur Hybrid Who Builds Optimized, Data-Addicted Sales Operations That Win
  • Case Studies at Stanford Business School & Microsoft Dynamics CRM

 

 

Sources

https://www.quantcast.com/top-sites Traffic at the mega-sites

http://www.internetlivestats.com/total-number-of-websites/ Users Per Website

 

 

 

Should the founder be CEO?

Should the Founder Stay CEO?

Executive Summary

Founding CEOs and board members should consider how the founder’s role may change over time and when and how to bring on an outside CEO vs. a COO or president reporting to the founder.

  • Rapidly changing startups and growth firms need very different leadership skills and operating models at different stages
  • Issues of trust and control must not limit implementing the right leadership for the firm
  • Never approve an annual plan and budget without addressing the evolving leadership needs
  • The founder should do what they are best at and the CEO should be the best person for that job even
  • Every firm needs expert general management but many founders are functional experts who tend to add other functional executives
  • COOs or presidents can be ‘executers,’ ‘change agents’ or ‘foils’ to the founder
  • An interim CEO or COO can help to navigate these critical decisions and smooth transitions
  • The founder’s role and actions after hiring a CEO or a COO is critical to the success of that new executive

 

Nobody personifies a company the founders. Founders have a deep, emotional connection with their startup and with their role as CEO. Founders are concerned with achieving their vision and maintaining control and they have skills and experience that can be impossible to find elsewhere. But, this unique relationship with the business prevents some founders from making the right decisions about the rapidly changing senior leadership needs of the company.

The operating model in the combination of company departmental structure and how it creates value and services customers. This involves all major processes and norms that direct development and production, how decisions are made, performance management, management KPIs, etc, etc, etc. Most failures of execution reflect problems with the operating model. What worked pre-revenue or at $ 1M, $ 10M or $ 25M revenue often fails miserably at other company stages.

Consistently we see that a critical leading indicator of the success of a firm is the evolution of the operating model. The CEO owns this and sometimes delegates management to an operational expert. Founders that don’t ensure the operating model aligns with company stage and strategy will underperform those who do and risk the venture. Except for scandals, this is the root cause of most founders who are forced out of their company.

The basic strategies for a founder include…

  • Stays CEO but get help
  • Hire a CEO and exit the company
  • Hire a CEO and take a role senior to the CEO
  • Hire a CEO and take a role reporting to the CEO

 

Founders should focus on their unique skills

Most founders are fantastic entrepreneurs and usually functional experts with deep domain expertise and they may be gifted company evangelists or technical, sales or product experts, for example. When a firm is small and immature they rightly fill many different roles but still make time to do that thing that they are uniquely qualified to do.

Few founders are also great generalists with experience scaling an organization. One common situation is a firm that has two founders where one is a technical or product whiz and the second is an expert is sales or marketing. The incorrect assumption is that those are the two things that drive their business so they can run everything until the company gets large or profitable enough for functional leads to take on less critical departments. This model works well in the earliest stages but falls apart under complexity because nobody owns the operating model and the founders must choose between doing what they love and running the business as chief executive. The founders’ time is not only valuable, but expensive to the firm if it is not yielding maximum growth.

Determine who are the best people to ensure success going forward.  What MUST happen in 2017 to exceed your goals? Think about the linkages between departments and initiatives. Are you working to drive hockey stick growth? Replatform your successful technology? Enter new markets? Determine if the founder is the best person with the optimal mix of skills and the energy to succeed.

 

Stay CEO But Get Help

There are two main things to consider with this strategy. First, is it temporary or long-term and second do you need functional expertise or broader general expertise (or both). There are a lot of options here. These include building out/up your senior team first with functional experts (CFO, CTO, product exec, etc. who’s scope is narrow on a single business discipline) or general managers (GM, COO, president, etc. who work at broader scope and P&L responsibility).

 

Founders often hire functional leaders when what is really needed is a generalist to address the evolving operating model. This frequently leads to revolving doors of frustrated, failed executives. A top-notch generalist often has the functional expertise to lead multiple areas and is better at ensuring that each area has what they need for everyone to succeed. For smaller teams, functional executives are usually the wrong first step. One growing startup hired a VP sales from IBM who has a $ 1B annual sales number and was used to managing other VPs and teams of hundreds. The sales VP brought new sales talent, processes, tools, etc but interdepartmental issues involving cultural, communications, morale, performance management, strategy misalignment, product/marketing mismatches, etc. ensured he couldn’t take ownership of his success. He butted heads with the rest of the organization and was gone in 4 months, blaming the founder and the rest of the company not supporting sales and delivering. In this case, hiring a functional expert brought to the surface that the founder-led firm was unprepared to support the new exec.

 

Generally, I advise against startups and maturing growth companies from hiring functional executives to grow into general management role, especially the CEO job. That requires too many things to go right. Most functional executives will never transition to senior level general management roles. That transition requires a lot of mentoring, time and a special breed of executive. You may think that hiring a new, awesome VP means she is the natural successor but think about the transitions. That person must join you and learn your company, often learn new offerings, new markets or segments, do a critical job while learning the broad range of skills to be a great general manager. This will take years and startups/growth firms change too much in a few years to plan for it. Hire people for the job you need them to do today.

Hiring a top-notch COO, a president to focus internally on operational issues or a general manager to own a P&L can be a great solution and that person can also mentor the founder on areas where he is weak. This HBR article is a bit older but touches on how the COO role is unique in that it is most tailored of senior executive roles to the specific needs of the business. https://hbr.org/2006/05/second-in-command-the-misunderstood-role-of-the-chief-operating-officer

Below are three ‘flavors’ of COO that are most valuable to CEOs of startup and growth stage companies. COOs should drive growth and strategic initiatives. Never hire a COO whose chief skill is process improvements, auditing or governance unless you are in a business and at a scale where that is what is really required.

 

The Executer: this COO adds value through better execution and by freeing the founders and CEO to focus on adding maximum strategic value.

The Change Agent: Change is a constant but also something that gets harder as organizations age and grow. Founders shouldn’t risk learning to manage change on the job when there are experts in this field.

The Foil: provides someone to be what the founders and CEO can’t be. This varies but where one is outward looking the other can be inward looking, good cop/bad cop, detail oriented/big picture, intuitive/data driven, etc.

 

I created COO roles at companies using each of these flavors. In each case, the startup dramatically increased growth and their first profits within a year and the founder was happier and more productive. The right second-in-command can be transformative if there is mutual trust and the roles are structured to bring the best out of everyone.

 

Hire an Outside CEO and take a new role

Larry Page and Sergey Brin knew that Google’s success depended upon them ensuring Google was the top innovator in online search advertising. Adding Eric Schmidt as CEO demonstrated maturity and while helping their venture investors to take a longer and bigger view of success.

An outside CEO can be a powerful option but must be managed right or you risk undermining the new CEO and hurting the firm instead of moving it forward. Get someone who is experienced creating the role for scratch and working with founders.

This decision means the new CEO is the chief executive and the founder needs to make it crystal clear in words and actions that is what is happening. If the founder is going to de-facto stay running the daily working of the firm, then do not hire someone into the CEO role. It will confuse and frustrate everyone and can be deeply damaging.  A great COO, an internally focused president or a GM can have broad, cross functional authority and responsibility. Never give a title as important as CEO to someone as an honorarium when you don’t mean it. If the candidate isn’t happy being COO then don’t hire them. This isn’t just title inflation. It is not like giving your valued development manager a ‘director’ title when he directly manages one team. Misalignment between CEO title and role will do real harm. Hire someone who will want the role as it is detailed. Never dangle the CEO title as a way of getting someone to take a COO role if you are not willing to stick to strict timelines and achievable milestones. That isn’t a viable strategy and will destroy trust.

If the founder plans to take a functional role to focus on those things the they do best (like product, technology or sales) but will also be chairman you can make this work but it is the trickiest of all situations. A chairman is the head of the board and the board is the CEO’s boss. A CEO will be right to be concerned that one functional lead of the business is their boss.

For this to work the CEO and the founder need to put their egos aside completely. The founder needs to feel secure and that the CEO and board are aligned with the plan. The founder and new CEO need to stay in regular contact and discuss and debate issues privately and the founder needs to constantly reinforce publicly that the CEO is the boss. This means the founder must never allow people to come to them to settle their gripes with the CEO or to appeal a decision. Allowing that even once, when wrongdoing isn’t involved, will send contradictory messages and do immeasurable harm.

Transitioning from founding CEO to chairman is a good option if the founder cannot be involved with operations but wants or needs to continue to own the investor and board relationships. The founder needs to be mindful that their board responsibilities as chairman are very different than as CEO. This is a good role for pure external evangelists too. If you do this, give the CEO space and stop coming to the office all the time. Don’t second guess and don’t get involved. This will be uncomfortable but if it isn’t a board issue then keep out of it or discuss it with the CEO behind closed doors.

The founder’s impact on the business is truly unique but they may not always be the best choice for CEO. Ideas and markets are great but a company will never outperform the abilities of its people. There are several options for how to address this. Carefully consider the best role for the founder and make sure you have the senior level talent to take your firm to the next level.

Michael Zammuto CEO of Cloud Commerce Consulting
Michael Zammuto
CEO of Cloud Commerce Consulting

Contact Mike at Cloud Commerce Consulting

Mike on LinkedIn

 

4 Steps To Profitability For Your Startup in 2017 And Why You Should

Startups around the world have been building their 2017 strategic plans and presenting them to boards, investors and senior teams. Behind the graph-stuffed PowerPoints and Excel lies a crucial question. Will you be profitable in 2017? I argue that most firms don’t need to choose growth over profits and can (and should) pursue exponential growth and profits simultaneously. This is a what-to-do guide not a how-to guide but there are specific programs and steps behind everything here so reach out for more details.

 

Our world values growth and big exits over all else, which makes profitability a contentious topic. VCs and startup founders get into the game to make some history. VC’s are hedging their bets and founders are highly aspirational so the last conversation they want to have is about focusing on profits instead of the glide path to an IPO (or strategic acquisition). Invested money is sunk cost. Depending on the stage and check size of a VC’s investment strategy you need returns in your portfolio of 10x to 50x (or better) for the failed deals to back out to a >20% annual return on the fund.

 

Conventional wisdom suggests that profitability is an alternative to fast growth and is therefore an acknowledgement that you cannot find high-growth initiatives to fund. Some companies only really take profitable growth seriously when they have no other choice. Usually this happens after they have made the mental switch in their exit strategy from working towards a strategic exit based on non-financial measures to a more financially-driven exit. In other cases, their startup investors are getting fatigued and leadership simply acknowledges that they are not going to raise more money without demonstrating they can generate profits.

 

  • Stop Calling Yourself A Startup
  • Apply A Microscope Then Scale Like Crazy
  • Shift Focus From Cash Burn to Operating Cash Flow
  • Think about time differently

 

Rapid, profitable growth is possible. Accept this and your world opens. It may require a complete reassessment of your business model and it usually requires a reset of your firm’s operating model but the solution is there if the fundamentals of your concept is solid and your team can execute. Profits not only signal to investors and other stakeholders that your startup can be a real business but it can calm nerves, open a lot of options and shifts the ownership of the future of the firm away from things the leadership cannot control (strategic M&A, the markets, VCs) to things they can (their own execution).

 

Once the startup leader is behind shifting to profits then you need to get the team you need on board. Not everyone will come along so you need to get people on board, or out of the way, as quickly as possible. You should enlist investors and board members who are on board to help get and keep the others there too. The same with the team. Accept that not all of them will. Leadership is about doing the right thing, not managing through unanimity. There are right ways and wrong ways to get there so plan this out carefully. To get everyone focused and motivated you need new KPIs to align behind. Figure out the connections between people and activity in your organizations that lead to generating margin and make sure there is ownership, incentives and transparency about each one. Accept that this is going to require you manage and communicate differently. Connect the dots for people. Vision is critical but people are most happy when they understand shorter-term, more measurable goals and how their daily actions contribute to the company success so, if done right, this should be very positive for your best people.

 

One critical place to start is to determine the effect growth has on cash. Growth, even profitable growth can eat a lot of cash and you cannot run out. Cash flow and profits are not synonymous and you need to plan and work towards both. Many startups focus on cash burn instead of cash utilization. The premise is that more time equals more opportunity. Cash should generate more cash and then profits and how you do that will dictate your maximum growth rate. Dell, during its heyday, was a near-perfect example of how this was done right. Dell’s customers paid for computers that Dell had not yet built, made with suppliers’ inventory they were not carrying. Consumers loved the customization but it was the just-in-time manufacturing supply model that fueled the business. Operating cash flow was profitable and this meant that sale drove more cash which fed more growth.

 

By the time, you start generating revenue you probably tried and failed at a bunch of things and may simultaneously be supporting little mini-businesses, different processes, different customer relationships and often different revenue sources. Now put those things under the microscope, find the super profitable slice of your business, cull everything else around it, drill and optimize, optimize, optimize and now scale like crazy. The narrower you slice your view of the organization the more profitable you will find that activity gets as you look for that part of your business that is ready for scale. This means tons of difficult decisions and often means restructuring deals and it will cost your business some relationships and clients. That’s ok. Growing businesses often hold on to early users and customers thinking they are the foundation of the company’s success. But be clinical about it. If they are not contributing to cash and profits, then you are subsidizing your oldest clients at the expense of future clients. Be especially wary of you or others making decisions to keep a part of your business because they are ‘strategic.’ If you cannot measure the impact of effort or dollars spent, then it usually isn’t worth doing.

 

You may conclude that some revenue-generating part of your business, like professional services, marketing, sales, etc. will suddenly get a lot more attention. These are people so don’t assume they will welcome this shift or be the best people to get you there. Listen to them but hear what they are really saying. Don’t let people sway you from what the numbers say.

 

If you are concerned that focusing on operating cash and shifting priorities to scaling what works now will impact long term goals, then there are solutions. Long-term, capital intensive initiatives need to be reevaluated and you should be able to generate cash and then fund them from operations.

 

Like cash, treat time differently. Managing through cash burn means staying focused on runway. The goal is usually to demonstrate enough progress before you are forced to go get more cash and to give your ideas and project time to mature and bear fruit. This mindset must change completely. Time is now a crucial commodity. Incentivizing and managing people using new KPIs is essential here.

 

This was intended as a ‘what’ document not a ‘how’ document. But, there are proven, specific plans and programs behind each of these things. They have been tested and developed in three very different startups who all doubled revenues and made their first profits within a year. If you are a senior leader of a startup or board member and want to learn more I would love to hear from you.

 

5_1headshot

Mike Zammuto is Founder & CEO of Cloud Commerce Consulting.

Mike has been the CEO/COO/founder of more than 10 startups with several successful exits. Mike also served as a senior manager at Microsoft’s product development headquarters in Redmond, Washington. You may reach Mike via our Contact page or through his LinkedIn profile.