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The Startup Checklist

100 tasks to build unstoppable momentum for your startup from Jason Calacanis and the team at LAUNCH. Click the titles to watch Jason explain each bullet point in detail.

Note: This is built on Coda a great all-in one doc. We don’t even scratch the surface of its capability here... if you want to level-up your team go to

coda.io/twist⁠

and they’ll hook you up with a $1000 credit

Episode 1 -
`Do You Have What it Takes to be a Founder?`⁠
⁠

1) Are you solving a problem that has personal relevance?

Will you still care about your product, your company, and your customers after getting beaten down for a year straight?

Is the north star mission important enough to you that you will put potentially put everything else in your life second for it?

Examples of north star missions:

Robinhood's mission is democratizing finance

Calm's mission is normalizing self-care and meditation

Eight Sleep's mission is improving quality and tracking of sleep

Is the problem worth solving to YOU?

Not everyone is going to start a company that reduces carbon emissions across the globe like Tesla

It's okay if you're building a B2B sales tool, as long as it matters deeply to you!

But if you're just in it to get rich or get famous, it's probably not going to work out!

2) Can you build a great product?

Do you have these skills:

Developer (knowing how to build something)

Product manager (knowing what to build, and how to get there)

UX/UI designer (knowing what experience the user wants, and how to make it great)

If not, you can learn these types of skills for free on the internet → there are no excuses

Or you can try out no-code/low-code solutions, and see if you can get to a "Minimum Viable Product" or MVP without using hard code

We run a ton of low-code stuff at LAUNCH!

We use Notion, Zapier, Typeform, Bubble, Squarespace, etc.

3) Can you recruit elite talent to join your team?

Can you recruit one or multiple co-founders that balance out your skillset?

Example: if you are non-technical but great at sales and vision you probably want to find a technical co-founder that's can handle product

If you can't build a product, can you convince people to work for you that can?

Is your opportunity large enough that you can convince world-class engineers, designers, salespeople, etc. to come work for you?

Some things that attract high-end talent:

Equity: That's how you can compete with big tech salaries

Large opportunities: Uber, Airbnb, Stripe, Shopify

Meaningful work: Tesla (EVs), Blokable (Housing), etc.

4) Do you understand your ideal customer?

The first step in delighting your ideal customer is knowing who they are

Being able to identify the makeup of your most engaged cohort of customers could be the difference between finding product-market fit and running out of money

How is your customer solving the problem today?

What do you offer that is superior?

Why will they make the switch?

Things to look for: demographics, average time spent on site/in app, how you acquired them, are they likely to recommend your product to a friend?

Do you have domain expertise in your industry?

This is a controversial issues among investors:

Some investors look for domain expertise in a first-time founder

However, other investors (

like Keith Rabois⁠

) actually believe domain expertise is overrated and could be negatively correlated with outlier success

Keith thinks that the greatest innovations typically come from outsiders, since industry insiders are usually entrenched in a limited way of doing things

Jason calls this "fresh eyes on a problem"

Also: your ideal customer might wind up NOT being who you thought they'd be - if that's the case, are you flexible enough to pivot and still succeed?

5) How much personal runway do you have?

People underestimate how long it takes to either A) raise money or B) get profitable

Ask yourself: What is your personal burn rate? Can you optimize it to extend personal runway long enough?

How you can hack this:

Build a side project on nights and weekends before leaving your day job

If you aren't technical, try no-code solutions to see if you can create a minimum viable product

If you can get to any amount of revenue while still in "side hustle phase" - that's amazing!

Then you can start doing calculations like "When I hit X dollars in profit, that will be ~70% of my salary and I can quit my job and make up the difference"

6) How much are you willing to sacrifice? How resilient are you?

Before you quit your job to start a company, do a self-assessment on your personal resiliency

Here are ten tips for building emotional resiliency (

via CNBC / Kristin Harper⁠

1) Practice mindfulness (mindfulness helps with building self-awareness, which is key to emotional resilience, according to the CNBC article)

2) Breathe slowly and deeply

3) Build a robust emotional vocabulary (distinguish between different emotions in yourself and others so you are less likely to react without thinking)

4) Reflect on situations (take responsibility and articulate what you learned and how that will make you wiser in the future)

5) Reframe your mindset (view setbacks as challenges instead of threats)

6) Search for meaning (reframe suffering to create greater meaning for yourself and your team)

7) Forgive (break psychological ties that tie you to your past)

8) Engage your support network (the CNBC article notes that "research shows extroverted individuals tend to be more resilient because they’re more likely to reach out to others when they need help" so introverts should be extra mindful of this)

9) Express gratitude (gratitude can redirect negative emotions)

10) Take control of your outcomes (YOU control your destiny)

7) Do you have a bias towards action?

Complacent people do not make great founders

If you enjoy a casual working environment, don't like working long hours, prefer not to work nights and weekends... than being a founder is NOT for you

As a founder, you will be forced to put out fires from Sunday morning to Saturday night, and everything in between

8) Do you need a boss?

Some people need oversight, direction and someone else telling them what to do

Those people can still be good employees, and can knock off tasks and help your business once you start hitting scale

However many successful founders were NOT great employees, and in fact many were tough to manage

If you're somebody who takes comfort in having someone above you who could take responsibility and give you a direction, you might not be fit to be a founder

9) Do you make excuses?

There are a lot of people who think they have what it takes

But they tend to be hesitant in getting started - often coming up with excuses:

They are willing to start companies if you give them money

They will start companies if they find a developer to work for free

They are willing to start companies, but only if they can make the same money they made at Google

These are NOT signals of a great founder

Great founders start building now, no excuses!

10) Can you build the startup flywheel?

Product, Customers, Team

Can you:

Build a great product?

Is it well designed, or is the product clunky and ugly? Do you have a product at all?

Delight your customers?

Do you even know who their customers are?

Do you know the pain point they're solving?

Build a great team?

Can you recruit and hire a team?

If the founder can't do these simple things then this is probably not a founder that is going to win

Episode 2 -
`Choosing a Business Model`⁠
⁠

11) Pick a business model that easily aligns with your product or service and customers

Your business model will depend on the type of product or service you're offering

Today we're going to go through the most popular business models for tech startups, which models investors love and which ones they avoid

Examples:

Imagine if Uber charged a monthly subscription for unlimited rides instead of a marketplace solution... would they have still succeeded?

Companies that sell business software should NOT sell it as a one-off, you should always sell it as a subscription so you can have recurring revenue and reduce your churn

12) Keep it simple: FOCUS on a single business model

One mistake founders make (besides picking the wrong model) is trying to do too much

When founders get unfocused, that's very dangerous for a startup

Businesses with multiple streams of revenue can get clunky with less chance of outlier success than focused business models from the start

Example of single business models (at the start):

Uber → marketplace, takes a percentage of every ride

Calm → subscription for meditation

Slack → subscription for messaging app

Spotify → subscription for music

Pro-tip: Here is one way in which you can use to different business models to prop up your startup in the early days:

You can use service-based revenues to build out your SaaS business

We see this all the time with early-stage startups, and it's a great way to get quick capital to grow your recurring revenue business

HOWEVER... make sure you differentiate "service-based" from "subscription-based" when you're talking to investors!

Competent investors will always ask about the "quality of revenue"

13) Do you understand why investors love SaaS (Software-as-a-Service)?

Because it allows startups to increase revenue on a recurring basis, while keep fixed costs relatively consistent

What is SaaS? It's when a business charges a monthly or yearly price per seat for business software

This business model creates "recurring revenue" for a startup, which investors love because you start every new payment cycle with almost 100% of your revenue from the last cycle

If you sell on a "bottom-up" basis (meaning you sell into an organization from the lower level employees, not top-down from the VP level) your product can spread through a company like wildfire

Example: Slack, Notion

With bottom-up SaaS, you also can have a "cross-pollination" effect, where employees that get addicted to your product move to other companies and then infect THOSE companies with your product

14) Do you understand why investors love the Fintech model (SaaS + Transactions)?

This model combines the best parts of SaaS and transaction-based revenues

What is the Fintech model? It's when companies charge a SaaS fee AND take a percentage of each transaction (if your product enables transactions)

This is a popular business model with Fintech companies like Stripe, Shopify, and Plaid

Why? Because 100% of revenue coming from transactions is not as ideal as having as a recurring SaaS component

These companies typically charge a relatively affordable monthly or yearly SaaS fee and takes a small percentage of each transaction

For example: In Q2 2021 Shopify had $334M in subscription revenue and $785M in transaction-based revenue (they call it "merchant solutions revenue")

Shopify had about a 30/70 split between SaaS and transaction-based revenue

Shopify's standard plan costs $79/month, and they charge 2.9% per transaction for merchants using Shopify's payments processor

15) Do you understand why consumer subscriptions are coveted by investors?

Subscriptions make a vertical with historically high churn rates much more investable by creating pricing lock-in and recurring revenue

Consumer subscription are when companies charge a monthly or yearly fee for a consumer software

Examples: Spotify, Calm, Fitbod

Interesting insight: Calm used to sell their app for a "one-off" price of $10 back in the early days

When they started to charge $5/month (or $60/year) instead of just $10 for life, they actually saw a jump in downloads and paying customers

Why? Because people love subscriptions, even though it makes no logical sense!

The brain thinks "Hey, I can cancel this whenever I want." even though you'll likely paying 10x-100x the original purchase price over time!

16) Do you understand why marketplaces are coveted by investors?

Marketplaces are hard to get started, but even harder to stop when they hit scale

Marketplace businesses take a percentage of each transaction

Marketplaces are two-sided, and the two sides traditionally consist of "buyers" and "sellers"

These buyers and sellers can appear in many forms, depending on the vertical:

Amazon has third-party sellers and buyers (obviously)

Uber has drivers and riders

Airbnb has hosts and guests

Rover has dog sitters and dog owners

Hipcamp has private land owners and campers

Marketplaces rely on the total amount of all transactions on the platform - typically called GMV (or Gross Merchandise Volume)

The GMV in a marketplace determines the revenue that company will make, since companies typically take between 5-20% of the total transaction cost

This differs by vertical as well:

Uber and Airbnb refer to this metric as "Gross Bookings"

In Q2 2021, Uber had $21.9B worth, and revenue was $3.9B (about 18% of Gross Bookings)

In Q2 2021, Airbnb had $13.4B worth, and revenue was $1.3B (about 10% of Gross Bookings)

Marketplaces eventually become "self-sustaining" once they hit scale!

Craigslist, Amazon, eBay, etc.

17) At the most basic level, why do investors love these four business models?

The four models: SaaS, SaaS + Transactions, Consumer subscriptions, Marketplaces

Because they allow startups to capitalize on the scale-ability and high margins of selling software

The power of software: Instagram sold to Facebook for $1B with only 12 employees

What advantage does this provide the founder?

Founders can keep fixed costs relatively similar while growing revenue rapidly due to simple and scaleable business models

Which means they can pour the profits back into building their business

Business models of Jason's outlier success:

Calm (Consumer subscription), Uber (Marketplace), Superhuman (SaaS), Thumbtack (Marketplace), Grin (SaaS), LeadIQ (SaaS), Fitbod (Consumer subscription)

18) Which business models do most venture capitalists stay away from?

Typically these are not "venture scale" businesses, meaning they can't get to $100M in revenue in under 10 years

Direct to Consumer or anything CPG (Consumer Packaged Goods)

Lower margins and scales slower than software

For DTC, you need at least one of these differentiators:

1) Elite product/brand (Ex: Eight Sleep, Warby Parker, Dollar Shave Club, Away Luggage)

2) Elite acquisition strategy (Mastery of TikTok/Instagram/Facebook advertising, or organic)

Hardware

Famous saying: "Hardware is hard"

Historically low margin, and scales much slower than software

Race to the bottom

Pro tip: If your hardware item has a software component, you can sell HaaS, or Hardware-as-a-Service, which is much more appetizing to investors

Ex: Density, Cafe X

Advertising

Making money through ads on your platform

This business model only works if you hit massive scale, which is why investors are typically skeptical

Example: Google, Facebook, Amazon, Yelp, Twitter, Snapchat

Advertising budgets are also dependent on the economy, as major advertisers cut their ad budgets FIRST after there is a down turn

Service-based

Not venture scale, usually bad businesses for everyone except the founder

19) How soon do you need to identify a business model after starting your company?

Most great companies know how they will make money from the start

However, your business model can change as new opportunities appear. Some of the greatest modern tech companies have changed their business model.

Example: Netflix

Netflix had TWO business model changes

First, they went from mailing physical DVDs for a monthly fee to selling streaming software (their margins and user base increased dramatically)

Second, Netflix used to "rent and distribute" 100% of their digital content when their streaming platform first launched

They would sign deals with companies that owned the rights to content and pay to list that content on Netflix

In January 2013, Netflix CEO Reed Hastings released a memo to employees and investors announcing a commitment to producing original content

From the memo: "We don’t and can’t compete on breadth with Comcast, Sky, Amazon, Apple, Microsoft, Sony, or Google. For us to be hugely successful we have to be a focused passion brand. Starbucks, not 7-Eleven. Southwest, not United. HBO, not Dish."

Netflix's first piece of original content, House of Cards, launched one month later in February 2013

In Q1 2013 (the same quarter that Hastings released his memo) Netflix had $1B in revenue and only $3M in net income

Eight years and three months later, in Q2 2021 (their most recent quarter) Netflix had $7.3B in revenue and $1.3B in net income

So in the 8 years since Hastings letter, Netflix has ~7x'ed their revenue and grown their profit ~433x, largely due to their focus on producing original content!

20) Pricing: How much should you charge?

Charge too little and people don't think your product is good enough to buy

Charge too little and you don't cover expenses

Charge too much and people won't give it a shot

Charge too much and potential customers might get "sticker shock" - which is why some SaaS companies don't list their prices publicly

Compare to competition

What are similar startups charging?

How do you compare? Are you the affordable solution, or are you the premium offering?

Know your metrics

At what number of customers and what price can you be profitable at your current burn rate?

If you need 500 customers at $20/month to be breakeven, that seems very doable!

If you need 3000 customers are $100/month, that might be a little harder, and you might want to lower your burn rate

Episode 3 -
`Finding and Delighting Customers`⁠
⁠

21) Do you know who you're building for?

How can a founder distinguish their "ideal" users vs their "first" users

First users: could be your friend from college, a neighbor, your grandma, etc.

Ideal users: who your product ultimately solves the problem for, and who is willing to use it the most OR pay you the most money

Here is an easy trick to identify early potential ideal customers:

Segment your users into cohorts based on an engagement metric like time on site, rides taken (Uber), workouts registered (Peloton), etc.

Focus on the top 10% of engaged users

Ask yourself:

What do these users look like?

What are their occupations?

Where are they located?

Why are they engaging with my product?

How much time are they spending on the platform?

Use this info to create a blueprint for a potential customer

Ex: Small business that needs help with web design, but doesn't need to hire a full time software engineer

This example would be a blueprint for an ideal customer of a marketplace of freelancers

Remember: Winning founders understand their customers deeply

Superhuman has an innovative approach to focusing only on potential customers that fit their ICP:

CEO Rahul Vohra only on-boards email "power users" due to his product's relatively high price point (~$360/year for an email client)

Rahul knows if he onboards a customer who is not the right fit, that customer will likely have a bad experience, churn quickly, and the entire cycle of acquiring that customer will be a waste of time

Superhuman actually REJECTS potential customers if they are not a good fit

Instead, Rahul chooses to only spend time onboarding and acquiring customers they know will love and utilize their product

22) Can you explain your startup in one simple sentence?

Call this "Jason's OSS Rule" - One Simple Sentence

Any great company can explain what they do in one simple sentence

At its core - what does your company do?

No buzz words; just a clean, clear, and crisp sentence that anyone could understand

Investors see convoluted, buzz word-y company descriptions often

Here are some examples with popular companies:

Slack example:

Bad job: "We're a future of work startup leveraging software and integrations to improve workplace communications for the long-term."

Good job: "We sell chat software to startups."

Coinbase example:

Bad job: "We're leveraging the blockchain and decentralized technologies to allow any investor to get exposure into the world of cryptocurrency."

Good job: "We help people invest in crypto."

Uber example:

Bad job: "We use AI and machine learning to connect riders and drivers, disrupting the worlds of transportation and mobility as we know it."

Good job: "We help you get rides faster and cheaper."

Something to keep in mind: Does all your branding align with your simple sentence?

Is the messaging consistent across your website, Twitter, TikTok, etc.?

Can every employee explain what you do in one simple sentence?

Does your sales team speak clearly?

Remember: Winning founders can explain their product simply

Einstein famously said: "Everything should be made as simple as possible, but not simpler"

Winning founders can do this in their explanation as well as with product development

If you can't say what your company does simply, your customers won't understand your value

23) Do you know where to find more customers?

Once you have your first 5 customers, you should immediately look for 10, then 50...

Too often founders find their first group of customers and quit looking

They often get lost building new features or assume the customers will keep coming

Winning founders are obsessed with acquiring new customers

If you found a way to acquire customers that works - keep doing it!

If you find oil, keep digging!

So, how do founders go about finding users?

What are a few customer acquisition strategies in the early days?

Hangout where your users are

If you're selling developer tools to software engineers on a bottom-up basis...

Post on hacker news and subreddits to try and get early users and feedback

Attend live events (like meetups) and talk to the users themselves

Build in public

Create a sense of community around your product

Being open and transparent on Twitter is becoming more popular

It is a great way to find users with word of mouth

You can also build publicly on Indie Hackers and engage that community

Leveraging your network

Are you solving a problem that your network suffers from?

Do you have ideal customers you can easily reach out to?

Alex Tew, co-founder Calm used a strategy to attract users by building an interesting viral site called

donothingfor2minutes.com⁠

- and it's still live today!

The virality of the non-product drives traffic back to the product

He did this with Calm by creating a simple website that asked if you could sit still for 2 minutes

If you moved the mouse or touched keyboard it would say "Fail"

People shared their scores, and he collected ~100k emails of engaged users (in a few days) before ever launching Calm

There is also the waitlist strategy

Obviously, you need serious demand in order to create a waitlist in the first place

Companies like Superhuman have perfected the waitlist

You should create a waitlist if:

You want to gauge the level of interest

You want to limit the amount of customers you're on boarding

You want to build up hype and demand for your product

Once you have a few hundred users on the waitlist, you can utilize growth hacks like:

Enticing users to move up the waitlist by referring other people to sign up, which creates a virtuous cycle

24) Do you have founder-product fit?

Ask yourself "Are you using your own product?"

Are your employees using your product?

Do you truly understand the problem you are solving for the end user?

There are several benefits to "eating your own dog food"

1. You can quickly help your team find bugs before impacting customers

2. It strengthens your relationship with the customer

Everyone at your company understands the customer experience

You'll build credibility by knowing all the work flows and pain points

3. It keeps your company on the same page

Engineering gets to hear feedback from users (even if they are internal)

Marketing knows how the product works to better strengthen campaigns

Sales better understands the problems the product solves when talking to customers

Executives stay involved in the day to day functionality of the product

Fitbod is a great example of this:

Fitbod's co-founders Allen and Jesse originally built their product for themselves

Or, in other words, they were their own ideal customers

In this case: hardcore fitness enthusiasts with disposable income that wanted a data-driven approach to exercise

Do you know your one key feature and how that feature is being used?

What is the main way that you use your own product?

Fitbod's key feature was their workout recommendation engine

This was a machine learning model that would put together your next workout

It was based on your preferences, past workout fatigue, available equipment, and more

When you know who your ideal customer is, what your key feature is, and you use the product yourself regularly

You can build marketing campaigns and sales strategies around these markers

25) Do you know how people are using your product?

We've established that you and your employees are using your product...

But are your customers using it in the same way?

This goes back to the first point today - do you know who you are building for?

Remember, winning founders understand their customers deeply

Are the features you think are most important the same ones that your customers think are most important?

STEEZY uses their customer support tickets to inform their product roadmap

Are customers having to work around clunky UI/UX that is making their lives harder in your app?

If you are dog-fooding your own app you'll identify issues sooner and prioritize a fix

Being able to proactively tell a customer something like:

"In our latest release, you can now save your most common view - you don't have to click this sequence of buttons anymore - it should save you 5 minutes every time you log in"

This builds trust that you understand their problem and your own product

And solving a problem your customer may or may not have known they had goes a long way

Look at the data whenever possible to understand your customers

Understand who logs in and when

What pages are they on longest?

What actions are they taking?

Where do they get stuck or lost and log out?

Study patterns across users

Grouping your users into cohorts to track trends is helpful

You can segment users based on when they signed up, the industry they are in, or any way that might be valuable to slice your user base for insights

Quantitative data like this is extremely valuable

But so is qualitative data... which leads us to:

26) Do you know how to conduct customer interviews?

Are you talking to your customers regularly?

Are you solving their problem?

Winning founders solve big problems for their customers

Use every interaction with your customers as a way to gather this data

You do not need to provide a formal "interview" to gain valuable insights

A simple email to check in and see if they have any needs, thoughts, or questions can provide a lot of great information

When you release a new feature let your customers know about it and be excited FOR THEM...

"I think you'll love this new feature, it is going to make your life easier by doing XYZ - would love to know what you think! What did we miss, what works for you?"

You'll quickly get feedback without people even feeling the need to commit to an interview

Building relationships and checking in with customers before you "need" anything also builds good faith and confidence

Offering additional value and

Providing great customer experience by being available is a way to stand out from competitors

And when you want to conduct interviews, people are more willing to participate if you have a relationship

So, how to find the right customers to interview?

Use the segmented customer engagement data we talked about before

Take the different cohorts and select a random sample of customers

This should range from your most engaged cohort to your least engaged

Reach out via email or phone

If necessary, offer them a gift card, or something relatively meaningful for their time

You want to hear from a wide variety of users

But make sure to weigh your "super users" input more heavily

What kind of questions should you ask?

Sample questions:

What do you think about the product?

What would you change about it?

What does our product allow you to do that you couldn't before?

How would you feel if you couldn't use our product anymore?

What should we stop doing?

Would you recommend our product to a friend or colleague?

Have you? Why or why not?

Listen to their answers and ask follow up questions that keep them talking

"Can you say more about that..."

"Can you explain what you mean by that..."

"Would you elaborate on why..."

Do not interrupt your customer's feedback!

You can also conduct listening labs

Where you have the customer test out the app and think out loud while they explore

You can ask them questions like

"What are you looking for..."

"Did that do what you expected it to do when you clicked on it... why?"

"What do you need to do next..."

You can also take interviews in another direction and create a Net Promoter Score survey...

27) Do you understand Net Promoter Score?

Net Promoter Score (NPS) is a way to measure customer experience

Winning founders are obsessed with metrics

Measuring, tracking, and making decisions based on data is important

Instead of the open ended discussion questions you can ask users to answer on a scale

This makes it easier to compare answers and group results

Customers rate their experience with your company on a scale from 1-10

Something like, on a scale of 1-10 how likely are you to recommend our product...

Here is how it's explained at

NetPromoter.com⁠

⁠

Promoters (score 9-10)

They are loyal enthusiasts who will keep buying and refer others, fueling growth

Passives (score 7-8)

They are satisfied but unenthusiastic customers who are vulnerable to competitive offerings

Detractors (score 0-6)

They are unhappy customers who can damage your brand and impede growth through negative word-of-mouth

You find your NPS score by taking your percentage of promoters minus your percentage of detractors

This means your NPS score can range from -100 to 100

You can use NPS results to anticipate churn or drive customer outreaching

NPS for major brands (via

customer.guru⁠

Apple: 47

Facebook: -21

Starbucks: 77

Delighting customers is the ultimate goal

You need to be able discover answers to questions like:

What problem are you solving for them?

Do they feel you are solving it adequately?

What sets your product apart?

Which features do they love?

Which do they want removed?

Do you make their job or life easier, faster, or better?

Why do they use your product?

What do they wish was better?

Do the customers recommend your product to others?

Why or why not?

A savvy way to increase NPS through a growth hack is with referral programs

Robinhood had one of the best referral programs ever

You might know it as the "Free stock" program

Every time you'd refer a user to sign up, both you and the new user would get a free stock on the platform!

This created a huge surge of sign ups in the early days

No other brokerage had ever done anything like that before

Delighting customers is a vital part of the Startup Flywheel

Collecting customer feedback is a great way to gauge how you are doing

28) Should you start with a free or paid product?

This is a very common question

And it depends on your business model

Are you going to be a free app that generates all your revenue via ads?

Think, Google, Facebook, etc

Are you SaaS, consumer, or a marketing place that needs people to pay you to survive?

It also depends on how much runway you have from the start

It is best to turn on revenue as soon as possible

Is growing customer base or growing revenue more important?

Ideally you're growing both!

Free users, without skin in the game often provide high frequency, low value feedback

Free users speak with their words and their engagement

Customers who are paying, have skin in the game and are invested in your product

Customers speak with their words, wallets, and engagement

What signals should you look for that tell you it's the right time to turn on revenue?

You've figured out the pain point your company solves

And are seeing early signs of product-market fit

You've run successful free or paid pilots with happy users

During customer interviews they indicate that they would pay to continue using your product

You have a waitlist that includes a price users will pay for your product

How do you shift from a free to a paid product?

There are ways to roll this out

You could offer a freemium version of your product

Allow the free users to have access to part of your product

If they want full access they'll can start paying

You can offer early users a discount to continue using your product

You could grandfather legacy users in at an original price point

You can just flip the switch, turn on paid and know that you might have a high churn month but you've identified your ideal customers as those who stuck around

Anytime you have free users you should work on ways to convert them to a paid plan

Let them know what they are missing, and how it would be better if they paid a monthly fee

29) Do you understand the technology adoption curve

There are 5 stages to think about in technology adoption

Innovators, early adopters, early majority, late majority, laggards

⁠

Anytime you are creating new technology you need to win over all five of the individuals

The technology adoption curve was introduced by E.M. Rogers in 1962

And made popular in the book Crossing the Chasm by Geoffrey Moore

Innovators

They take risks with new technology

Typically support a transformation within the company around new tools

Early Adopters

Look to understand the technology fully before the support it vocally

They like to be at the forefront but care about their reputation

This is typically your group of beta testers

Early Majority

This group makes decisions based on data

They support technology but want to see the proof first

Late Majority

Require even more proof than the early majority

Don't like risk and not that interested in change

Laggards

Skeptical of new technology

Give up when a new tool doesn't work and revert to their old way of doing it

Identify the innovators and early adaptors and market accordingly to those users!

30) When should you fire a customer?

Do you know when to cut bait with disengaged users?

Can your ideal customer shift as your product evolves?

These users are giving you bad data also - if they're disengaged, you should NOT be building your product for them

Should change your product to increase engagement?

Are you prepared to tell paying customers, we're not for you?

How do you manage the current relationships as you shift?

How do you communicate that you are firing a customer?

Is it better to fire them?

Or let them continue using your product - knowing they might become upset and churn anyway?

Remember, the people paying the least money are usually the most needy and have the most complaints

Remember the Superhuman example we covered earlier:

Superhuman actually "fires" potential customers during the on-boarding process!

Meaning, if a user doesn't fit the specific qualities of an ideal user, they won't even bring them on as a customer in the first place

Superhuman is able to preemptively "fire" their customer because they understand their ideal customer profile SO deeply

Episode 4 -
`Building a Great Product`⁠
⁠

31) Do you know what problem(s) your product solves?

The answer to this question can guide your product roadmap

Another way to phrase this is "Why does your product exist?"

Examples:

Superhuman exists to make email faster

Uber exists to connects riders with drivers for faster and cheaper rides

Shopify exists to make entrepreneurship easy on the Internet

How important is that problem to your customers?

How are they currently solving it?

Ex: Gmail? Yellow cabs? Excel?

How is your solution better than the current solution?

When building a technology company, the answer should always be some combination of faster, cheaper and better

Uber helps people get rides faster and cheaper (which is better!)

Superhuman makes email faster and better (but not cheaper)

Remember: Winning founders know this is a race for credibility - do you deliver what you say you will?

32) Can you build an MVP?

MVP stands for minimum viable product

An MVP is the most basic version of a product that you can launch

Don't be precious about your MVP

Remember what friend of the podcast Reid Hoffman says: "If you're not embarrassed by the first version of your product, you've launched too late"

Some things to keep in mind before building your MVP:

Are you a builder?

Can you code?

If not, are you familiar with Bubble, Webflow or other tools?

Do you have UI/UX experience?

If not, do you KNOW what good user experience is?

Do you have a growth/sales background?

If not, do you know how to build a growth model

Do you know how to create a go-to market plan?

How minimum is minimum?

You need be able to solve a customer's problem

How viable is viable?

Will customers actually pay you for it?

Is a landing page enough?

It depends on how complex the problem you're solving is

I've seen people create an MVP with a landing page and typeform

But you will want more functionality in most cases to see real traction

How far can no-code take you? If you can get to an MVP using no-code, that means you can get traction

And if you can get traction, that means you can get meetings with investors

33) Is your product simple to use?

Can a user quickly understand how to navigate and use your product?

Does your product highlight your main feature?

You want your product to be incredibly simple from the home screen

Don't make it difficult for users to navigate your product, that could result in more churn!

Calm

⁠

Zero Fasting

⁠

You should make it incredibly easy and delightful to be a user of your product

Again, the harder your product is to use the less likely a customer is to use it

34) Does your product have world-class design?

Achieving "world-class design" may sound like a high bar, but it's more doable now than ever before

No-code / low-code platforms like Bubble, Webflow, and Squarespace all have great templates that you can use as a starting point

There are also sites like

dribbble⁠

where product designers share their work

You can draw inspiration from any of these places

There are some web 1.0 companies that have had mediocre design grandfathered in

Example: Craigslist, Amazon

These platforms have hit such massive scale that they can't really change anything on the UI side

If Amazon overhauled their e-commerce interface, they would get millions of complaints in minutes

But, first impressions still play an important role

Also, users are savvier than ever and will pick up on janky design instantly

If the product is clunky, slow, and hard to navigate you'll have trouble getting users to engage

Think of how simple and easy it is to use your favorite products

Robinhood used a great interface and no-fee trading to upend the entire stock brokerage industry

Designer co-founders have a great track record in building massive consumer-facing companies

Examples:

Airbnb (Joe Gebbia) - $100B market cap

Canva (Cameron Adams) - $40B valuation in most recent round

Instagram (Mike Krieger) - Sold to FB for $1B in 2012

Pinterest (Evan Sharp) - $30B market cap currently

YouTube (Chad Hurley) - Sold to Google for $1.6B in 2006

And world-class design doesn't just apply to consumer-facing companies

Remember, Stewart Butterfield (a designer) built Slack and started the "Consumerization of SaaS" movement

35) Does your product have "One Killer Feature"

In other words: the key feature that your product is known for

Examples:

Snapchat's ephemeral messaging and stories

Facebook's news feed

Instagram's filters

Spotify's entire catalogue of music for one low monthly fee

Robinhood's no-fee trading

A major mistake that first-time founders make is focusing on new features over ones that are already working

Remember, new doesn't always equal better

Prioritize perfecting your killer feature before you start expanding your product

Founders get into a mindset that if they add a new feature then traction will improve

No! Identify your key feature - get users, listen to them, delight them

Double down on what is working!

36) Does your product have a "hook"?

Great book on this topic -

Hooked by Nir Eyal⁠

⁠

Nir describes the product hook cycle in four stages:

Trigger

Something that gets a user to take the first action

What makes you open an app in the first place?

On his website, Nir Eyal uses the example of a user getting "hooked" into browsing on Pinterest

In this scenario, the trigger would be a link back to Pinterest on another social media site like Facebook or Instagram

Action

User takes an action that will eventually get them a reward

For example, click the link, open the app, register for the product, etc

It is key to have as little friction as possible here

In the Pinterest example, the link to the Pinterest app for a product they are interested in

Variable reward

Key word here is "variable" - so user does not lose interest

Users are forming a habit and if they always know the reward, then they will get bored

In the Pinterest example, the user is "rewarded" by similar images and products to the item that brought them over, and now they can discover new products

Investment

Requires the user to contribute back into the product

Part of what makes IKEA so successful is that the user feels pride in what they built

Finishing the Pinterest example, the user "pins" items that interest them, which gives Pinterest better data on what to show

Fitbod example from LAUNCH's portfolio:

Co-Founder and Head of Growth Jesse Venticinque described his products "hook" on

Season 2 Episode 5 of Scaling Your Startup⁠

⁠

Here is Fitbod's product hook cycle:

Fitbod's Trigger: User has a psychological need to know how to exercise effectively, and Fitbod automatically generates a new workout for users

Fitbod's Action: User launches Fitbod to start their workout

Fitbod's Reward: Fitbod sets incremental and achievable goals that leave users feeling achieved after a workout

Fitbod's Investment: Users spend time entering data on Fitbod for better personalization

More data improves Fitbod's workout recommendation engine

Which then increases switching costs and reduces potential churn

After your workout ends, Fitbod immediately generates your next workout, which restarts the cycle (that's the "hook"!)

37) Do you have a viral loop?

You can also think of this as: is one user incentivized to create more users?

Remember, on episode three we talked about Robinhood's free stock referral program

If you invited a user to sign up you get a free stock and they get a free stock

The trigger and action are clear

The reward is variable - you don't know what stock you'll get... could be Apple, could be a penny stock

Here is why this was the best viral loop of all time

Via Robinhood's S-1:

Over 50% of users are first-time investors

So over half of Robinhood's 17.7M MAUs (at the time of their IPO earlier this year) were first-time investors

Ask yourself: What would be the hardest part about getting a first-time retail investor engaged in your brokerage?

Likely answer: Linking a bank account, depositing funds, and actually making their first investment

So to fix this, Robinhood said "Here's a free stock" now YOU have skin in the game and are instantly engaged!

And the results of the free stock referral were staggering:

Via their S-1, over 80% of users were acquired organically or referred

Can you leverage your product to create a viral loop as great as Robinhood's?

Dropbox did it with free storage: Dropbox Basic users got 500MB of extra storage for every user they referred, up to 16GB!

The app "Words with Friends" is another example:

A user can easily challenge a friend to play Scrabble

If that user doesn't have the app, WWF generates a download link to send them

Now that they are in they can invite their friends to the platform

38) Do you have a strategy to retain users?

User retention is a big topic, let's start with a simple example:

LinkedIn has an amazing user retention strategy

After you have gone a few days without opening the app, they will send you an email reminder to log back in

This is NOT a non-personalized, generic, "we miss you" email

They actually say "80 people are viewing your profile" to pique your interest

Then, when you go to the site, they let you know who was viewing your profile

Twitter does something similar

If you don't log in for a few days, you'll get a push notification:

Don't miss tweets from *your most engaged with accounts*

So if Twitter knows Jason engages with Knicks and VC content the most, they'll say "Bill Gurley and Knicks Film School are tweeting - don't miss it!"

These are all in-app ways to retain users, BUT customer success teams are becoming more popular as well

We'll touch on this more on a future episode called "Building Your Team"

Many people like a human touch

39) Do you know which product-focused metrics to track?

Remember - these metrics are "product-specific" so we're not going to include burn rate, runway, etc this time. We'll cover those on a future episode!

So here are the four product-focused metrics that matter:

1) Active User Growth

If your product is providing value, you're going to start growing users quickly

Are you tracking your daily, weekly, and monthly active users?

DAU - Daily Active User

WAU - Weekly Active User

MAU - Monthly Active User

Can you define an active user?

Remember, sometimes founders can get cute with how they qualify an active user

Nextdoor disclosed in their SPAC investor presentation that they count anyone who opens an email as a daily/weekly/monthly active user

This is not good hygiene - an active user is someone who opens your app and uses it

Founders should model their reporting after Twitter - who only reports on "Monetizable Active Users" - if a user can't be monetized (by being shown ads), they will NOT count them

Measuring and growing active users is crucial for startup success

2) Revenue (or MRR/ARR if you're selling software on a subscription basis)

If you're growing users and you have revenue turned on, you should also be growing revenue!

MRR = Monthly Recurring Revenue

ARR = Annual Recurring Revenue (MRR x 12)

Note - Founders can get a little cute with ARR sometimes, especially if you had a recent jump in revenue

Jason always asks founders for their last three months of revenue to see the raw numbers

Revenue growth is the engine that drives your business

3) CAC: Customer acquisition cost

How much does the average customer cost you to acquire

My bestie David Sacks' CAC formula: Divide sales and marketing expenses in the prior month by the number of new paid customers in the current month

the one month lag is to reflect the time it takes for sales and marketing to materialize

Remember - Amazing viral loops and word of mouth will acquire you users for FREE

4) LTV: Lifetime value of an average user

How much value are you getting out of an average user?

This is the total revenue brought in from a customer in a certain cohort

You can divide your LTV by CAC to get an accurate picture of how much profit you're making (or how much money you're losing) from an average customer

Remember, churn has a huge impact on LTV

The more value your product provides, the less frequently your customers will churn

Less churn = larger LTV

David Sacks put out a playbook last week called "The

SaaS Metrics that Matter⁠

Goes into great detail and breaks down high level metrics

40) Do you know when to sunset a feature?

How much time should you give a new feature to breathe?

What if it goes mostly unused?

Consider

sunk cost fallacy⁠

⁠

Ex: Uber Pool

Uber Pool was launched in 2014

Pool was a new type of ride where passengers could get cheaper rides by carpooling with others on a similar route

Pool was supposed to be better for the environment, cheaper (so more people could use Uber), and more efficient for drivers (multiple riders along one route)

Pool never was able to turn a profit since it was lower margin than regular rides

Uber sunset the feature in 2020 during the middle of the pandemic due to safety reasons

It's been theorized that Uber was going to sunset Uber Pool anyway, and the pandemic just sped up that process

It took Uber six years to sunset Pool

Episode 5 -
`Building a Great Team`⁠
⁠

41) Do you need a co-founder?

If you are a first-time founder - YES!

Starting a company can be stressful and lonely

having a co-founder is helpful

it's good to have a partner to divide and conquer, especially when you are fundraising, which is a full-time job.

Plus, VCs will want to see you have a co-founder

Why? Because if you quit someone else is still there to work on the idea

Many startups don't work out

Placing a bet on a solo founder adds risk to an already risky situation

Investors like to see complementary founding teams (ex: technical founder + sales-oriented founder)

If you have already started a successful company and have the credibility, it isn't as important to have a co-founder

How to pick a co-founder?

Identify the skills you have and the skills you need to build a successful company

You want a co-founder that has a complimentary skill set to your own

If you have a sales background - you want to find a builder

If you are a builder you might need someone who is a marketer

Have you worked with them before?

Do you know how they work day to day?

How do they handle stress when things go wrong?

Do you trust them?

Where to find a co-founder?

Start with your network and people you know

Have you worked with anyone on projects that went well?

Do you know anyone that has the skills and background you're looking for?

Attend events, conferences, and network

Finding a co-founder is essentially your first sell

If you can't find one person to join you that is not a good early sign

42) Do you know when to make your first hire?

When can you justify paying someone to do the job(s) you are currently doing as co-founders?

Ask yourself - how much would it cost to have someone else do this?

Will the quality stay consistent without my constant input?

What else could I be working on as a founder with this time?

JMC: Is there a benchmark level of revenue you should hit before hiring an employee?

JMC: What percentage of spend is typically set aside for salaries?

JMC: What amount of burn is smart to take on for employee salaries?

JMC: Should founders make their first hire before raising money funding?

43) Do you know which positions to hire for first?

What are the priorities for your startup when building out your team?

A deep AI, machine learning application may require different hires than a fashion marketplaces

Do you know what qualities or skills are important in early hires?

General rule of thumb:

If you have less than 10 employees

Hire GENERALISTS

Once you have more than 10 employees

Hire SPECIALISTS

Are there specific roles every startup needs to hire sooner than later?

Developer (sooner)

Finance/accounting (can outsource early if needed)

PR (don't need it in early days, then outsource if needed)

HR (outsource at first, can hire when company scales to ~50 employees)

Lawyer (outsource)

'Bar Raiser' hiring process at Amazon

Every person hired should be better than 50 percent of those currently in similar roles.

⁠

Amazon concept for hiring⁠

- from "Working Backwards"

What to ask in an interview:

You want to ask questions that help you understand how the the individual works & if they'll fit your team.

For example,

What is a new skill you've learned in the last year?

Do you think it's more important to be talented or hardworking?

Teach me something in two minutes (The Chamath question)

Highlights their passion, ability to be concise, ability to convey information, etc

How do you handle having multiple assignments at once?

44) Should you build a distributed team?

When hiring in today's landscape, is offering remote positions a requirement?

Finding talent is going to be a challenge

Startups can give themselves an advantage by offering flexible working situations

This can help small competitors outrun larger companies who have sunk cost in real estate

And if you aren't offering flexible options, you may put yourself at a disadvantage

How can you build culture and accountability with a remote team?

What we do at LAUNCH with a remote team:

⁠

SOD-EOD reports⁠

⁠

Slack huddles

Weekly team calls

Quarterly team retreats (planned)

JMC: Can a co-founder (or early employee) be located in another country?

⁠

H-1B visa eligibility⁠

⁠

45) Do you know what to outsource to freelancers?

What kinds of projects can you outsource as an early-stage startup?

If it is strategic - keep it in house

If it is administrative or repeatable - outsource

How outsourcing looks to investors:

Outsourcing product development / engineering (BAD)

Outsourcing sales (BAD - sales should be founder-led in the early days!)

Outsourcing HR (GOOD!)

Outsourcing other administrative work (GOOD!)

Remember: Product, customers, team

Worry about perfecting these three things...

and find ways to outsource things that do NOT impact the startup flywheel

Utilize SaaS instead of contractors where you can

Ask yourself, is there a SaaS tool that can simplify a process?

For example,

HR tools or software

Helps to create a repeatable and consistent process

What are the pros to outsourcing?

Free you up to do other tasks

Focus on the parts of building a startup you're best at

Freelancers typically are efficient with their time

What are the cons to outsourcing?

There is risk they don't understand your vision

This can lead to loss of time and money

Not a priority - your project is likely one of several the individual/company is working on

Communication

Constant communication eats up time - the top thing you were trying to save by outsourcing

Lack of communication can lead to unnecessary errors and delays

46) How much do you pay early employees?

"Don't make compensation a conversation"

Have a plan early

Know at what stage of growth each key hire needs to be made

VP of sales when you hit X amount of revenue

VP of marketing when you hit X amount of revenue

Head of PR when you hit X

Do your homework

Know what is fair value for each major role

What goals does your startup need to hit to be able to afford top talent?

Get creative with hiring

With remote work - you can get MORE QUALIFIED employees more affordably

How do you balance experience & high compensation vs. affordable & high potential?

You probably can't afford the best developers on salary alone

But you can sell them on your vision and offer equity

You can also find mid/junior developers with potential that you can groom

Many startups will have a senior dev that helps to upskill more junior level individuals early on

47) Do you know much equity to give to early hires?

What percent makes sense to reserve when the time comes?

It can vary but some back of envelope numbers may look like:

(Numbers below are from

TechCrunch⁠

Carta⁠

blogs)

A third co-founder might get ~10%

A VP that joins to lead sales or marketing may get ~1-2%

Senior engineers who are building your product can get as much as ~0.7%-1%

Mid-level engineer ~0.45%

Junior engineer ~0.15%

Junior business hire ~0.05%

Equity is limited - so be smart with it

One major mistake of founders is giving away too much of their company early

This will mess up the cap table - making it hard for others to invest later on

Establish and communicate ownership with your team

Set an employee stock option plan (ESOP)

If you want to go super deep into employee stock options and liquidation preferences:

check out

thisweekinstartups.com/basics⁠

and click on the stock options episode with Wilson Sonsini's Becki DeGraw!

One MAJOR take away from that episode:

We talked about selecting the 83(b) provision which is CRUCIAL for founder and employee stock options

this is because it gives you the option to pay taxes on the total fair market value of your stock options AT THE TIME OF GRANTING

if you don't elect this option, you'll owe taxes on your stock after every new round of fundraising!

Implement Vesting schedules

4 year commitment with a 1 year cliff is common

This means you need to work at a startup for 1 year before any ownership is given

At that point you get 25% of your total

Then 1/48th (48 months over the 4 years) for each month after your first year

Build an org chart & adapt as you grow

48) Do you know when to start thinking about culture?

Culture starts at the beginning

A culture will emerge regardless — so you need to set and guide it intentionally

Value hard work & reward your high performers

When your team is small everyone needs to carry their weight!

One way to do this is allow multiple members of the team to interview new hires

This goes back to Amazon's Bar Raiser

It is good to have a 3rd party (non-member of the internal team) sit in on interviews

For example, a member of the ops team helps interview for a podcast role

This helps give an unbiased view of the candidate

And helps ensure cultural consistency across the organization

And this actually happens at LAUNCH:

Nick had Ashley and Jacqui meet with producer Rachel and producer Justin before extending offers!

⁠

SOD-EOD Report⁠

⁠

As founder, lead by example and set the tone early

Do not wastefully spend

You don't need the expensive downtown office

You don't need swag

No one is going to buy your product because of a t-shirt they saw at a conference

If you want your team to take days off you have to take days off

Your team will follow your lead

Instill a culture of accountability

Have the team hold each other accountable for their work

Don't allow unsatisfactory work slide

Address it head on

You may learn about blockers that make everyone else more efficient

Remove cultural killers

At a startup with 3, 5, 10 people you can't afford to have dead weight

You have to fire people who aren't contributing

49) Do you know when to fire an employee?

"The one that got you here aren't necessarily the ones to get you there"

Create a performance improvement plan (PiP)

Document everything

Be graceful and professional

Communicate the decision with the team

Make sure you understand employment laws of the state of your employee

50) Are advisors valuable?

Advisors are NOT full time employees but might offer ideas or answer questions a few hours each month

Can you find experienced individuals who believe in what you are building?

Will they offer you valuable insights?

They are typically paid with equity

A few basis points is common

Say 0.1% to 0.3% equity for an advisor

See Founder Institute's

FAST Agreement⁠

- Founder / Advisor Standard Template

Are the insights they provide worth a stake in the company?

The hope is that at least one of your advisors can provide enough value to justify having a few on board

Episode 6 -
`Market & Branding`⁠
⁠

51) Market: Are you creating a new market or servicing an existing one?

Let's use two consumer subscription companies as examples for this:

Spotify and Calm

The market for Spotify was clear - everyone loves music

Consumers would LOVE all the music in the world catalogued and instantly accessible for a small monthly fee

The issue with Spotify was figuring out the rights issues that plagued music startups in the past

Spotify KNEW their market existed (everyone loves music), they just had to figure out how to not make the same mistakes as Napster

For Calm, their market did not exist

They helped create their own market by launching a great product at the perfect time

just as the general population became more aware of self-care

Calm did not know for sure that there was a pot of gold at the end of the rainbow

but their product was so good it helped create the market they now exist in

GREAT PRODUCTS CREATE MARKETS:

Uber

Airbnb

Calm

52) Market: Understand the difference between "Lazy TAM" and "Bottom-Up TAM"

Early-stage investors typically don't need to see a TAM slide

"Lazy TAM" is a term I coined after having hundreds of founders show me an uncorrelated Gartner number on their TAM slide

Let's use an example:

Imagine a startup was pitching me...

They are an IT setup marketplace that's used by startups and SMBs

Worldwide IT spending is expected to reach $4.4T in 2022, according to

Gartner⁠

⁠

If they used this $4.4T number in their TAM slide, that would make no sense!

Founders: Do NOT do this, it makes you instantly lose credibility

The great early-stage investors don't care about an insanely huge market size

We care about the flywheel:

Great product

Great team

Obsessed customers

BUT - if you do want to impress an investor with a TAM slide

Bottom-up TAM is another term I coined

Why? I want founders to start with REALITY and build UPWARDS from there

This is the right way to calculate your TAM in the early stages

If you do this coherently, you will increase credibility with investors

Made up startup example:

Acme Corp sells SaaS software to dentist offices

They charge $1000/month per office

First, let's do a LAZY TAM example:

According to an ADA (

American Dental Association⁠

) report from June 2020, the total projected dental spending for 2021 was between $123.9B and $154B

Lazy TAM would be taking the average of these two numbers ($139B) and pitching that as your yearly market size

"We can capture 10% of this market, and if we were at scale in 2021 our yearly revenue would have been $13.9B"

This calculation would completely miss the mark, and lose you credibility with investors

BOTTOM-UP TAM example:

Remember, you're only selling to dentist offices, so find that number first

In 2020 there were 201K working dentists in the US,

according to the ADA⁠

⁠

But there are only 187K total dental offices in the US in 2021,

according to market research firm IBISWorld⁠

's projections

This makes sense, as some offices have multiple dentists

Out of the 187K dental offices, what % can you convert to customers?

Let's say you think you can capture 10% of the market in ten years

That's $1000/month x 18.7K = $18.7M/month OR $224M/year in revenue

$224M in revenue is a GREAT business!

And if you walk investors through your TAM bottom-up style, you will look really prepared and considered

Make sure to emphasize that you're only going after the customer segment that fits into your business, not the ENTIRE market

Ex: The Acme Corp selling into dental offices does not care the total dental revenue of toothbrushes, oral hygiene products, etc.

You can also put a "looking ahead slide" where you talk about potential markets you can expand into in the future

Expanding into different markets has made great companies go supernova

Ex: Amazon building AWS

through the first 9 months of 2021, AWS accounted for ~70% of Amazon's profits ($13B out of $19B)

And AWS had only 13% of Amazon's total revenue ($44B out of $332B)

Another Ex: Uber first expanded from black cars into Uber X's, then expanded into delivery

The first expansion (offering Uber X) basically created the gig economy on a global scale and kicked Uber's business into hyperdrive

The second expansion (delivery) made Uber's business anti-fragile and kept them growing throughout the pandemic as rides shut down for a few months

53) Market: Have investors had success in your market before?

Also called the "Scar tissue issue"

OR - is the market opportunity appealing to investors?

Can dozens (or hundreds) of VENTURE SCALE businesses be built in your market?

Being in enterprise SaaS is MUCH more investable than owning a bunch of laundromats or restaurants

Why? The path to creating a $1B company is EASIER in enterprise SaaS

Venture scale means "can your startup can get to $100M in revenue or a $1B valuation in under 10 years"

When Calm first started out, they were not viewed as a "venture-scale business"

Investors were skeptical that Calm's market size was larger than people who were currently into meditating (which would NOT have been a venture scale business)

Once Calm added Sleep stories, mental recovery for athletes, and other products, the market expanded

Ask yourself: Can you get to $100M in revenue in 10 years in your market?

In a February 2017 blog, Elad Gil (

Angel S5 E3⁠

) described a trick to assess if your market was a good one to be in:

Elad calls this "The 2% and $1 Billion Rule"

QUOTE: "In general, you want to be in markets where multiple companies could afford to buy you for $1 billion, or where 2% of their market cap is at least in the hundreds of millions of dollars."

Ex: If you're a startup that's building tools to help creators monetize, you could be acquired by...

Google: ~$2T market cap

Facebook: $950B market cap

Snapchat: $88B market cap

Twitter: $43B market cap

Ask yourself: "what are the market caps of the biggest companies in my space"?

Ex: Consumer internet: Google is ~$2T, Facebook is $950B

Ex: Enterprise software: Microsoft $2.5T, Adobe $315B, Salesforce $300B

If the market caps are huge, this will help you in three ways according to Elad:

1 - These market caps reflect market opportunity since they're based on total revenue, growth rate, and margin

2 - Large incumbents are competitors BUT they're also potential acquirers (they will create exit opportunities)

3 - High market cap and cash rich companies tend to be great strategic investors at the later stages for a company

54) Market: Do you know your competitors?

If an investor asks about competition:

You should be able to name your top 3-5 competitors and how much money they have raised

And you should also be able to explain how and why what you're offering is better for customers

If you were building a video game platform and your #1 competitor was Roblox, you could say:

"Roblox takes a 30% fee and they're focused on kids, we take a 15% fee and we pay creators MORE than anyone else"

It's also a bonus if you know ballpark revenue numbers

This information is typically pretty easy to find through Crunchbase or Pitchbook

Here is a scenario that happens often when founders are pitching me:

I ask them: "Who are your main competitors"

And they say: "We don't have any competitors"

You ALWAYS have competition!

Even if nobody is going after the same customer segment, there will still be other companies in your vertical

Even Uber - who basically created a new industry with the gig economy - had competitors: they were originally competing against yellow cabs

If you know the ins and outs of your competition, you will come across VERY credible to investors

And when you're trying to raise money, increasing credibility key!

55) Market: What are the barriers to entry in your market?

For most tech industries, the barriers to entry are pretty low - examples:

E-commerce

Enterprise software

Consumer software

Marketplaces

Most of the regulations are common sense stuff - no lewd content, no securities fraud, don't lie to investors or customers, etc.

In crypto, there are almost zero headwinds (until you get caught)

Ex: Tether has been operating a stablecoin for years that's now worth ~$70B without every undergoing a real audit or disclosing the makeup of their commercial paper

In enterprise software, some headwinds start to exist around security and compliance once you get to scale (signing contracts worth six figures and up)

In healthcare, housing, and education, there are massive barriers to entry:

federal regulations for healthcare

zoning and building permits for housing

local regulations for education

All of these barriers take TIME and MONEY to pass

That's why VCs are skeptical about those businesses

Music was also viewed as a really tricky market, until Spotify figured it out (and the prize was huge: they are a >$50B company)

Another headwind: Is your market limited by factors out of your control

Ex: Oculus developers can only build software for the hardware they are given

AND their games will only go as far as the market for VR headsets takes them

But keep in mind:

The bigger the barriers to entry, the deeper the moat

56) Branding: Is your company name easy to say and spell?

Does your company name pass the "bad telephone test"?

If not, you might be doomed from the start

This especially matters for consumer-facing companies

Remember the classic Bezos story from Brad Stone's book

"The Everything Store: Jeff Bezos and the Age of Amazon"⁠

Jeff Bezos originally wanted to name his company "Cadabra"

To convey how magical online shopping was

But Bezos's lawyer convinced him that the name sounded too similar to "Cadaver" after he couldn't understand the name over the phone

Bezos took his advice and named his company Amazon

How many great consumer-facing companies do you know that have really complex, weird names? Not a lot!

Look at how great and simple these names are:

Uber

Calm

Airbnb

Netflix

Spotify

Google

Amazon

Robinhood

Soundcloud

Now let's look at some great enterprise names:

Zoom

Slack

Shopify

Salesforce

57) Branding: Do you have a great domain name?

Great domain names build trust and prove to investors that you are able to negotiate something of value

If they can negotiate a six or seven figure domain name away from the owner, that's a big tell that the founder can be successful

⁠

Calm.com⁠

impressed Jason immediately

If you can't get the domain name, there are a few easy things you can do:

GetCalm.com

TryCalm.com

BeCalm.com

GoCalm.com

This goes for social handles as well!

58) Branding: Logos: When and how?

What comes first - the MVP or the logo?

Logos are hard to get right

You shouldn't shoot for a 10/10 immediately

You can be comfortable with a 7-8/10

Classic example of bad early design but great product: Uber!

⁠

The product was so good that the terrible design didn't matter

59) Branding: Is your website beautifully designed and clear?

Terrible websites destroy your credibility with investors

If you're selling to enterprise customers, your website's landing page will be the first place many people interact with your company and brand

If your website is ugly, clunky, and hard to navigate...

You are leaving a really bad first impression on potential customers/investors!

LAUNCH Example:

Mahreen (who runs Remote Demo Day) had a founder tell her that a bunch of high profile VCs were interested in investing so LAUNCH needed to move fast to invest

Mahreen checked out their website and product...

and it looked like it was from 1999

the founder immediately lost some credibility

60) Branding: Do you have a concise company mission?

What is the goal of your company?

Why do you get up for work everyday?

This should be a simple sentence that describes your mission

Examples:

Robinhood: Democratize finance

LAUNCH: Support founders and inspire innovation

Jetson (the E-VTOL startup we covered earlier this week): Make anyone a pilot

Airbnb: "Create a world where anyone can belong anywhere"

Uber: "Create opportunity by setting the world in motion"

Amazon: "We strive to offer our customers the lowest possible prices, the best available selection, and the utmost convenience"

Episode 7 -
`Optimizing Operations`⁠
⁠

61) Do you have a low-burn culture?

As a founder you set the tone for your company in all things

Especially in how you spend money

When you're able to save money, put it back into your product

No excessive spending - act like a startup

When using tools

Use free versions of tools until you outgrow them

Why pay for a solution that Google sheets provides for free?

Negotiate contracts for all vendors

When looking for office space

With covid & distributed teams -

There is no need for expensive office space

Getting a fancy space sets the tone completely wrong for your startup and the people you hire

When you travel - do so responsibly

If your team travel have one person in charge

Instruct them to get the best deal for your company

Don't waste money on swag

Episode 934⁠

we spent an hour on the importance of maintaining a low-burn culture as part of Scaling your Startup series

62) Can you calculate your burn rate and runway?

Burn rate:

First, you need to know your revenue

Are you charging for your product?

If you're not making any revenue, your burn is whatever you spent last month

So how do you calculate your burn rate?

Revenue - Spend = Burn

Most startups are not profitable

This is normal, it takes investment to grow a business

In startups, we call it "burn" to give the appearance that we're on a rocket ship...

but in reality, "burning" cash really just means you're losing money

If your burn varies widely from month to month, you can take the last three months average and use that to calculate it

Bonus: Do you know your burn multiple?

VCs sometimes use the Burn Multiple to help understand product-market fit

Burn Multiple measures how much a startup is burning in order to generate each incremental dollar of ARR

Formula is Net Burn / Net New ARR

David Sacks & Craft use the following as a rule of thumb:

⁠

Runway:

Runway means how many months you can continue to operate before you run out of money at your current pace of spending?

If you are profitable, your runway is infinite 🙂

To know your runway, you need to know two things:

how much money you lose every month?

how much cash do you have in the bank?

As a rule of thumb, we prefer founders to have 18 months of runway in the bank after fundraising

Do you have at least 18 months of runway?

You want to have some time between rounds to focus on growth and product

We suggest planning at least 6 months for fundraising

Keeping track of your runway will help you manage spending

If you can measure it, you can manage it

63) Do you have a forward looking org chart plan?

Early on as a founder you are doing everything

You are the org chart!

As we discussed in episode five (where we covered Building a Great Team) you want to hire generalists early on

So it might not be vital to have a formal org chart in the early days

But it is important to know who is responsible for what tasks as you scale out your business

Then as your team grows an org chart begins to provide structure

And if you can model a forward-looking structure for your startup, you can scale your startup!

Ex: How many Salespeople will you need to hit $X amount of revenue? What other roles will you need to fill to maintain the company as your selling more?

For example, at LAUNCH we have clear teams and people assigned to them

Production Team (Nick, Charles, Justin, Rachel)

Syndicate Team (Ashley, Heidi, Amber)

Investment Team (Jacqui, Presh, Mahreen)

Now we can model out how to scale up these teams

We are also working on implementing a Single Threaded Leader (STL) on new projects

This was made popular by Amazon

described as:

"STL is 100% dedicated and accountable to a new initiative"

"This could be inventing a new product, launching a new line of business, or executing a digital transformation."

Having an org chart helps track where your heavy workloads are and can drive hiring decisions

64) Are you tracking and properly categorizing expenses?

It is always important to know how much you are spending

And on what!

Founders that are not properly categorizing expenses call fall into serious trouble if it goes unchecked

It might sound boring and silly — but we occasionally see this issue with early-stage founders

Also - have a separate bank account. Do NOT use your personal

In our 12-week

Founder.University⁠

course we encourage founders to create an "Application Tracker" in the initial weeks

Essentially, it's a spreadsheet where founders track info on any tool, resource, application, etc that they are testing or paying for

In this spreadsheet they also:

assign an owner of each tool

track when the free trial expires

and how much it costs

This provides a nice visual of where founders are spending money

These small expenses can add up quickly

The team can then review at any time which tools or expenses are still needed and which are unnecessary

65) Are you doing a monthly P&L and balance sheets?

What the difference?

According to Investopedia:

The balance sheet reports the assets, liabilities and shareholder equity at a specific point in time

while a P&L (profit & loss) statement summarizes a company's revenues, costs, and expenses during a specific period of time

Typically these are reviewed every quarter at a minimum

P&L and Balance Sheet together is an instant "snapshot of your business"

Always have these on hand when you're talking with investors

If you type in "P&L template" or "balance sheet template" on Google there are tons of great templates and tools available

Sometimes founders will outsource this work

That is fine but you should review it at least monthly

Check their work diligently

As a founder you need to understand your P&L balance sheets

This can help you forecast any possible scenarios (whether it be growth or going backwards)

66) Make a growth plan and resource it properly.

When you want to raise money from investors, you should have a clear growth plan

Basically: map out how you will spend your targeted raise down to the dollar

Growing or Zombie mode

Examples we go through at LAUNCH:

Give three different growth models: 5% MoM, 10% MoM, 20% MoM (best cast, worst case, medium case)

Then, map out how you will hit these numbers based on the data you already have

If you're a SaaS business: how many new salespeople will it take to hit 20% MoM growth?

Or, how many months does it take an average salesperson to pay for themselves?

If you know these numbers, you can model out your growth for years to come

67) Make sure you're using accrual-based accounting—not cash-based.

Startups should ALWAYS use accrual-based accounting

Public companies are REQUIRED to use accrual-based accounting, rather than cash-based

Accrual-based is GAAP - or a Generally Accepted Accounting Principle

Will investors avoid your company if you used cash-based accounting?

Essentially, accrual-based accounting is when you record revenues and expenses when they are earned, regardless of when the money is actually received or paid

For SaaS businesses - this means an annual contract is recognized over 12 months, not up front

You need to know when and how your revenue being recognized

68) Are you "default alive." and why that's so meaningful?

Default alive was coined by

Paul Graham in a 2015 essay⁠

⁠

Default alive means you can make it to break even or profitability with your current runway

Meaning that you don't need to raise any more money to be profitable

This puts you in the drivers seat as a founder

You only need to raise money if you want to

In September 2019 I coined the term "

Pegasus⁠

Startup" in a blog post

Here is the QUOTE:

"A Pegasus startup is one that is so profitable that it is able to use its profits to soar so high, that it skips multiple rounds of funding."

Current Pegasus companies in my portfolio:

Calm

Fitbod

Default dead means:

Default dead means you need at least another round of funding before you can be profitable

Or - if you never raise money again, you will eventually die

In this case, your mindset should be "How can we save the company?"

69) Establish a frugal—but not cheap—culture.

Cheap examples

Losing a stellar employee because you haven't given them a raise in years

Being super tight with giving early employees equity (Taso Du Val from TopTal)

Being late on paying salaries

Haggling on price on unnecessary things

Frugal

Know every dollar coming in and out of your company

If you are NOT wildly profitable, you should NOT waste any money on:

fancy office space

daily catered lunches

snacks

Crazier example of reckless spending:

Adam Neumann bought a $60M private jet while WeWork was on pace to lose $1.9B in 2018

70) Read "The Lean Startup"

The Lean Startup was originally published in 2011

The author Eric Ries was on the podcast:

⁠

E199⁠

⁠

E1041⁠

⁠

Some great short QUOTES from the book:

"Startup success can be engineered by following the right process, which means it can be learned, which means it can be taught."

"…lean manufacturing, design thinking, customer development, and agile development"

“Success is not delivering a feature; success is learning how to solve the customer’s problem.”

The book also mentions "The Five Whys" a method developed by Toyota to get to the core of any issue:

Ries applies the "Five Whys" to a startup:

Example QUOTE from an Eric Ries

article⁠

in the Harvard Business Review:

A new release broke a key feature for customers. Why? Because a particular server failed.

Why did the server fail? Because an obscure subsystem was used in the wrong way.

Why was it used in the wrong way? The engineer who used it didn’t know how to use it properly.

Why didn’t he know? Because he was never trained.

Why wasn’t he trained? Because his manager doesn’t believe in training new engineers, because they are “too busy.”

Ries argues that to build a great company, you should start with the customers in the form of interviews and research discovery.

Building an MVP and then testing and iterating quickly results in less waste and a better product-market fit.

Episode 8 -
`Preparing to Fundraise`⁠
⁠

71) Is your company a Delaware C-Corp?

If you are not a Delaware C-Corp that's an immediate non-starter for venture funding

Why a Delaware C-Corp?

Delaware law is favorable to shareholders

It means the company must do what is best for the shareholders

It is also what everyone is most familiar with

Investors are comfortable because it is what they know

Process is straight forward

There is limited liability

There are some tax benefits

If you're an international company looking to raise from US VCs, but you don't have a US entity, what should you do?

72) Do you have a clean cap table?

A messy cap table is a HUGE red flag for investors, and can stop someone from investing

Having a messy cap table in the early-stage is the biggest red flag we see at LAUNCH

How much the founders should own at each stage:

Pre-series A: the founders should collectively own 50-65%

Series A: they get cut to 40-50%

Series B: 30-40%

Series C: 20-30%

IPO/Exit: 10-20% ownership

Do NOT give away a large percentage of your company to a dev shop or consulting firm in the early days

Investors will want to see that you've been capital efficient

If you've raised a lot of money and are still pre-revenue or pre-product, that will raise red flags with investors

73) Do you understand dilution?

What is dilution?

Definition: the reduction in equity as new shares are issued

Simple terms: the more of the company you sell, the less of it you own

Again - it is SO important to not get too diluted too early

Common shares and preferred shares

Common shares are what founders, employees, and advisors get

Preferred shares are what investors get

Preferred shares means that the investors get their money out FIRST, before the founders or employees

It also includes information rights, board rights, and more

Understanding pre- and post-money valuations:

Pre-Money

Pre-money is the valuation BEFORE the new capital has been accounted for

Post-Money

Post-money is the valuation after the new capital has been added to it

Ex:

Company A raises $100M at a $900M valuation

Their pre-money valuation is $900M

Their post-money valuation is $1B

74) Eliminate any other "surprise red flags" from diligence (aside from cap table)

Here are some major "surprise red flags" that investors see:

Outstanding lawsuits

Disgruntled former employees (that could potentially sue down the road)

Are you paying rent out of the business instead of paying yourself a salary

Cash-based accounting (covered this on E6)

Not being intellectually honest about the business

75) Build a data room

What is a data room?

A place where important documents are saved and easily accessible for the due diligence process

Essentially just a Google Drive with the following contents...

Items you should include in your data room:

Financials: P&L and balance sheet

Founders legal names and email

Board minutes

Bank statements

Incorporation documents

Documents from any previous raises: Convertible Notes / SAFEs

Cap Table

Other items that are helpful to include (but not necessary):

App reviews

Cohort data (retention/churn data)

Number of full-time employees

Number of part-time employees

How much money you have raised to date

And from whom

Do any of them have side letters?

What is the name of your lawyer?

What firm are they from?

Having a tight data room RAISES credibility!

76) Understand startup funding documents

Convertible Securities

Investments that CONVERT at an event that is specified in the investment documents.

EX: When $1M or more is raised in a priced round, the investment converts to equity at the predetermined valuation or cap.

SAFE:

Simple Agreement for Future Equity

They were introduced by YC in 2013

Not meant to be paid back, typically has a cap and a discount

Generally the least expensive way to raise money from a legal perspective

Remember TopTal - They never raised another round of funding after their SAFE - so investors never got money back

Convertible Note:

A debt instrument or "loan" that isn't meant to be paid back but can be at the investors request.

Has an interest rate, typically has a cap and discount

Long form document that has more protections for investors (more investor friendly)**

Here is a CAVEAT w/ convertible securities:

Founders should set a minimum investment amount: $50k is a good target

Then, don't raise at too many caps/discounts

Why? Because it's tough to know your true ownership as a founder and it can make the conversion at a priced round chaotic and more expensive

Priced Round:

A priced round is an offering and sale of newly-created stock in your company at an agreed-upon per share price

Typical cost for a priced seed round using standard documents is $12k-$20k

Could be more depending on how much clean up is need from multiple SAFE/Note rounds

77) Have a plan that gets you to 18 to 24 months of runway

18-24 months is the sweet spot

Raising too little will force you to start fundraising again too fast

Fundraising is a full-time job

Raising too much (giving yourself 3-5 years of runway) will hurt you

Your early-stage valuation will dilute you too much at a larger dollar amount

Remember: You're optimizing for finding PMF, not for an IPO

In point 66 I talked about building a growth model, here is where that comes in handy again:

Build a financial model for high growth, average growth, low growth

High growth/24 months of runway = is the upper limit for your target raise

78) Do you know how to value your startup?

Your valuation is mostly determined by the market

BUT, here is how you can think about it:

If you land a lead investor, they will set the terms.

If you go the party round route, though, you will need to set your own terms.

It's a crazy market (November 2021); valuations are 50%-100%+ higher than what they were last year.

Previous formula was roughly 10x ARR = valuation.

So, a company generating $1M of revenue is worth $10M

In this market, valuation calculator is out the window.

David Sacks recently said 100x ARR has become the standard for enterprise SaaS startups

So that $1M revenue company is now worth $100M instead of $10M

There will be higher valuations for trendy verticals and serial entrepreneurs with past success

79) Start governance early

Hold board meetings even if it's just two founders and an advisor

Add "Board minutes" to your data room - even if it's just you and your co-founder, or you and an advisor

Meet quarterly and talk about the business

Strategy, headwinds, any major

You don't need to meet for 3 hours, but taking the time to do this will be a positive signal for downstream investors

80) Know that fundraising is a full-time job

Do you have team members who can pick up the slack while you fundraise?

Goes back to the Startup Flywheel

Hiring a great team is vital

Solo founders will have a hard time being successful at this

Founders should block off 6 months to fundraise

Episode 9 -
`Fundraising Process`⁠
⁠

81) Be able to pitch your startup effectively and concisely

Jason's Rules for Pitching

1. Get to the product in 15 seconds 2. Examples matter (of people using the product) 3. Synchronicity (be talking about what’s on the screen) 4. One slide - one message (keep it simple) 5. Show don’t tell (performance data, customers, process steps > lots of text & vague descriptions)

Remember from checklist item #22:

"OSS" - One simple sentence explaining your startup

No jargon, no marketing-speak

just say what your company does in the most basic way

Get the team involved

The founder should not make this deck alone

Include any employees that has important insights in this

Sales provides input on sales slides

Engineering provides input on product slides

This is a lot of what we do at the LAUNCH Accelerator -

We help founders perfect their three-minute pitch to investors

We train them on how to answer investor questions

82) Do you know how to find investors?

NOT just the firm — but the specific investor

Some investors/firms are stage-specific, some are vertical-specific, and some are geo-specific

You don't want to try and pitch a growth-stage firm if you're raising a Seed round, for example

Others are agnostic to stage, vertical, and geo

Learn HOW they invest

Some investors only lead, some investors only follow, and some do both!

Of the followers-only, some will follow only if there is a lead, and some will be okay in a party round.

It might not be clear until you start to have conversations with them.

Tips for finding the right investors:

Who has invested in companies in your space? (Note: avoid investors of direct competitors.) Crunchbase and NFX Signal are good resources.

Once you identify firms, check out the firm team page and LinkedIn for each investor's focus and previous investments.

Research their background (past winners, were they an entrepreneur?)

Follow them on social media (retweet them, add them to lists, engage)

Learn what they care about, read their blogs

Tailor your outreach accordingly; explain why are you targeting that specific investor

No "spray and pray."

When you find an investor that fits your stage and vertical:

Research when they raised their last fund

If they've recently announced a new fund - they are LOOKING to deploy capital

PitchBook lists "Dry Powder" for VC firms - which is an approximation of how much capital they have to invest

83) Do you know how to build a fundraising pipeline?

Now that you know how to find investors, how many of them do you need to pitch to get a term sheet?

Here is what a typical fundraising funnel could look like:

Large list: 150 investors

Curated list: 125 investors

First meetings on Zoom: ~50

Second meetings: ~25

Go into diligence: 10

Term sheets: 1-3

So those 150 top of funnel investors could net you 1-3 term sheets

This varies greatly from startup to startup

This Week in Startups: Scaling Your Startup has a ton more info

E1210 "

Fundraising⁠

" - Season 2 with Andrew Farah of Density and Dejan (pronounced "Dee-on") Pralica of SoleSavy has great fundraising strategies from the founder perspective:

thisweekinstartups.com/scale⁠

⁠

84) Do you know Jason's "Perfect cold email" template?

Short and to the point

Examples matter

Should include a short, personalized intro (1-2 sentences)

And then these numbers:

How many customers/users

How you make money

Last 3 three months of revenue

Quick product demo (Loom)

Charts are good — show don't tell

The more wordy, the less likely it is to be read

85) Do you know the "Loom, Zoom, Room" Rule?

This is the standard for remote investing

It’s super simple:

First, send investors a product demo where you record yourself sharing your screen and walking through your product

A company called Loom does this automatically

Next comes the Zoom meetings (~30 minutes is ideal on Zoom for a first meeting)

Finally, you can meet in an actual Room to close the deal (or for a second meeting if they are local)

86) Nailing your first meeting

Prep:

Best practice is to have two decks (5-min and 15-min) ready

If using the short version, include an appendix to go into more detail if asked

include financial models and in-depth analyses (on competition, cohort and market)

You can send this as a follow up if you don't get to it in the meeting

Ask the investor: would you prefer to see a product demo and the short deck, or go through the longer deck?

Have positive, exciting, and contagious energy

Prepare questions

Practice answering investors' actual questions, accurately and concisely.

We practice this in our Accelerator.

e.g., If an investor asks what was your revenue last month, don't launch into an explanation on the vision.

Own your early traction, even if modest!

Before the meeting ends: make sure to have clear action items/next steps

Ask, "What would it take for you to invest in this round?"

After the meeting, follow up immediately to thank the investor and address whatever concerns they expressed in answering the above question (about what it would take to invest).

87) Can you nail the “post-meeting follow up email"?

Be positive

Add things that you think could have been clearer

Create a sense of urgency

Best reply (if true): "I have a term sheet"

NEVER lie

Follow up (nicely) if you don't hear back

Include an exciting update since the last email

88) Do you know how to diligence potential investors?

This is different than "researching" investors

You should figure out how valuable they are as partners

Investors WILL go deep on diligence on your company

And you can do that too

Speak to founders in their portfolio

What was their experience? Was the VC firm helpful, or were they a net negative?

You don't want to add a bad investor to your cap table!

Some investors just write the check and are hands off

Others are really helpful in various ways

Some investors have legal expertise, some enterprise sales, some operational, etc

And some are actually a net negative to your company

89) Send a great investor update

Once a month you should send an update

Or more!: Twice/month or weekly if you are trying to convert an investor, with an "exciting update" drip campaign!

Include the "not yet" investors on your updates; the ones who expressed interest but it might be too early for them.

Convince them over time!

You can have two separate updates:

One you send you current investors

And one you send to potential investors that you're trying to close

(and to whom you might not want to disclose certain information)

Here is what we look for in our portfolio founder updates at LAUNCH:

Charts:

Show month over month growth

Revenue

Spend (Expenses)

Burn/Profit

Cash on Hand

Runway

Team Size

Product Data

Updates

Key Findings

Highlights/lowlights

If you need help or advice — ask!

90) Understand SEC rules around fundraising

When you're raising 506(b) (most common) you can't talk about it publicly

With 506(c) you can raise in public BUT you have to confirm investors are accredited by reviewing accreditation documents (w2s or letters from lawyer/accountant are most common)

506(c) usually costs more money because it takes way more time

and folks usually hire a service to verify accreditation

Only accept $ from those who truly understand the risk

meaning: accredited investors

if you take $50K from your family, what happens if you lose it? Will it ruin your relationship?

If you take money from a non-accredited investor:

This can mess up fundraising down the road

Basically,

Only take money from accredited investors

Don't talk about fundraising publicly!

Episode 10 -
`Things We Missed`⁠
⁠

91) Understand lean management (SOD/EOD)

I wrote a blog post in January 2019 titled:

Lean Management: The Power of the EOD Report⁠

⁠

The Start of Day / End of Day / End of Week reports are incredibly powerful

These are even MORE important when you're managing remote employees

Basically, at the start of the day my team at LAUNCH lists their top 3-5 goals for the day, that's their SOD

At the end of the day, they list what they got done

Then, at the end of the week, they list the 3-5 major things they completed this week

This should NOT take more than ~5 minutes at the start and end of your day

If employees argue you about doing this — that's a red flag

Another tip: Work on your hardest problem first

Don't leave the hardest stuff for the end of the day!

92) Hire people smarter than you

It's a privilege to be the dumbest / least experienced person in the room

You want to hire people that can do things you can't do

And do things you CAN do but better

93) Understand how to spend your capital efficiently

Your total spend should be broken down into different segments

Here is how great founders typically allocate their capital:

Salaries: 20%-50% of spend (depending on how high your margins are)

Office space: Under 10% of spend (especially in COVID)

This is especially crucial in the days of remote work, where you don't need expensive office space

The less you spend on office space, the more you can spend on talent

Marketing: 2-5% of spend

COGS (Cost of Goods Sold): 20-60% of spend (depending on your business)

COGS is the cost of delivering the product to the customer

hardware has high COGS: cost of components/manufacturing, packaging, shipping, warehousing, import/export, personnel costs for sales, implementation, and customer service

software typically has low COGS: hosting, servers, personnel costs for sales and customer service

Other spend:

Professional fees (legal and accounting)

R&D

Travel and meals

Equipment (hardware, desks)

Subscriptions (software)

Taxes and licenses

94) Know the value of "little big things"

Little big things are seemingly small UI or UX features that make a huge difference for users

This was made popular by the blog

littlebigthings.co⁠

⁠

Airbnb CEO Brian Chesky absolutely understands little big things

A few weeks ago, Airbnb announced they would be adding Wifi verification to host profiles!

Basically, you can now test and verify the internet speed of an airbnb location before booking it!

⁠

airbnb_wifi_169.mp4

2.9 MB

⁠

This is such a small detail, but will make a huge difference for so many people!

Especially considering that in Q3, about 20% of bookings were long-term stays, and remote workers need good internet!

95) Be able to do back of the envelope math

If a founders gives me numbers that are ridiculously stupid...

I assume there is something wrong with how they are thinking about the business

Party trick for understanding a quick runway calculation:

I ask:

How much revenue per month

How many full-time employees

How much have you raised so far

Then, I calculate their

Always know your two week payroll cost AND your last three months of revenue offhand

It raises credibility!

Also remember the rule of 72

96) Read the "Mount Rushmore of Management Books"

We already talked about "The Lean Startup" in bullet point #70

You should also read these three books, which round out the Mount Rushmore of Management Books:

Checklist Manifesto

By Atul Gawande

Why?

The value of checklists

Pilots used to crash planes, surgeons used to mess up surgeries, until they implemented checklists

Working Backwards: Insights, Stories, and Secrets from Inside Amazon

By Colin Bryar and Bill Carr

Why?

Written culture, single-threaded leaders, managing inputs

No Rules Rules: Netflix and the Culture of Reinvention

By Erin Meyer and Reed Hastings

Why?

Freedom and responsibility

97) Go through your entire product workflow every week

I had Des Traynor on episode 543 back in 2015

On that episode, he said all founders should go through their entire product workflow at least 1x per week

This means:

go through the on-boarding process

understand what it looks and feels like to sign up and start using your product

Things to focus on:

How can you make it easier: less clicks, less time, less friction

98) Avoid "shiny object syndrome"

You don't need to change your business to web3 because it's popular on Twitter

You don't need to enable NFTs or the blockchain (if you're not a crypto company)

AVOID Founder ADHD at all costs

If you find oil, KEEP DRILLING

Do not lose focus, lots of founders lose focus and the business suffers for it!

99) Align your team with monthly updates

Like an investor update, you should also be updating your team on how the business is going

And you should have team members contribute to this every month

This keeps everyone on the same page

And it forces different team members to take responsibility and deeply understand what they're working on

100) NEVER lie (In general, but ESPECIALLY when you're raising money)

This should be a no brainer, but it's so important

When you are fundraising, you are selling securities

so always being 100% truthful is important

If you lie, or misrepresent the truth, you are committing securities fraud

in this case, knowingly omitting information is also lying

Never, ever, ever lie (in general, but ESPECIALLY when you're raising money)

Episode 1 -Do You Have What it Takes to be a Founder?

Episode 2 - Choosing a Business Model

Episode 3 - Finding and Delighting Customers

Episode 4 - Building a Great Product

Episode 5 - Building a Great Team

Episode 6 - Market & Branding

Episode 7 - Optimizing Operations

Episode 8 - Preparing to Fundraise

Episode 9 - Fundraising Process

Episode 10 - Things We Missed

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The Startup Checklist

Episode 1 -Do You Have What it Takes to be a Founder?⁠⁠

Episode 2 - Choosing a Business Model⁠⁠

Episode 3 - Finding and Delighting Customers⁠⁠

Episode 4 - Building a Great Product⁠⁠

Episode 5 - Building a Great Team⁠⁠

Episode 6 - Market & Branding⁠⁠

Episode 7 - Optimizing Operations⁠⁠

Episode 8 - Preparing to Fundraise⁠⁠

Episode 9 - Fundraising Process⁠⁠

Episode 10 - Things We Missed⁠⁠

Episode 1 -
`Do You Have What it Takes to be a Founder?`⁠
⁠

Episode 2 -
`Choosing a Business Model`⁠
⁠

Episode 3 -
`Finding and Delighting Customers`⁠
⁠

Episode 4 -
`Building a Great Product`⁠
⁠

Episode 5 -
`Building a Great Team`⁠
⁠

Episode 6 -
`Market & Branding`⁠
⁠

Episode 7 -
`Optimizing Operations`⁠
⁠

Episode 8 -
`Preparing to Fundraise`⁠
⁠

Episode 9 -
`Fundraising Process`⁠
⁠

Episode 10 -
`Things We Missed`⁠
⁠