mental model – Musing

Don’t build on rejection

Rejection is a powerful force. It can help us defy the status quo and can become a never-ending well of motivation. But it can make us waste years of time and energy. Most of the successful people I know have strong rejections: of authority, monopolies, a way to do certain things, etc. They are the freethinkers that sometimes change a part of our society. But at the other side of the spectrum, most of the unhappy people I know embody dozens of rejections: fear, family grudge, lack of love, … They didn’t build on rejections, they were defined by their rejections.

Build on the right rejections, and avoid being weighed down by the bad ones.

Mark’s story

Mark is a genius developer at UnicornTech. He’s 30, nice, loves people, and is great at what he does: coding. UnicornTech’s CTO sees the potential in Mark and promotes him to VP Engineering. Mark takes the job despite his impostor syndrome and starts to manage 20 developers.

At first, things go well. Then a few people-issues arise and HRs aren’t of any help to Mark. Mark solves a few cases and has to fire one developer. It’s tough for Mark but it goes over it. A few months later, Mark’s team is in trouble: projects go over deadlines, a few members quit and others complain about the lack of recognition from UnicornTech. Mark compensates himself for the departures and tries to manage the complaints as best as he can.

18 months after his promotion Mark is burned out and way more cynical: “People always complain, they never take ownership and I can’t stand to babysit everyone anymore”.

So Mark quits.

“I’m a great developer and originally that’s what I loved. I accepted the VP Engineering position because my friends were happy about the opportunity, but I’m not good at management. So let’s become an individual contributor again and make as much money as before, without the trouble of handling people”.

As the market is dynamic, Mark finds a new job 3 weeks after quitting UnicornTech and starts as a senior developer. 6 months in and Mark starts to disagree with his manager’s strategy. For Mark, objectives are unclear and the company focuses on the wrong things. The situation with his manager gets more tense, and 6 months later, Mark quits again.

“I can’t stand managers that make bad decisions. I want freedom. I want to work on what I want. So let’s become freelance”

As Mark has great skills, he finds a few clients quickly. But work isn’t as exciting as it was. Some projects are rushed and some never finish. Mark isn’t socially integrated with his clients’ teams, and Mark spends more time coaching his clients than writing code. Mark spent 12 more months freelance and decided to find a new job.

“I’ve accumulated a lot of experience in those past 4 years. If I want to maintain my salary and social prestige, I’ll have to find at least a Manager position”. And so does Mark.

And the story repeats itself.

See what Mark did? He systematically looked for a new job that fixed the main discomfort he previously had. Management is tough? Stop managing. Can’t do whatever you want? Ditch all social structures and become freelance.

Mark built his career on rejection.

Mark’s career started on fertile ground: he was skilled, people-loving, and young. But by building on rejection, Mark decided to cut every branch that didn’t blossom immediately. Today his career is far away from a fast-growing specialized bamboo, and not as strong and solid as a bonsaï. His career is a shrub at most.

Marks are everywhere

Mark’s story is not the only one. After hundreds of interviews for different positions, I’ve seen this pattern again and again. The most common examples are:

My previous startup failed financially -> I want the stability of a big corp. Never mind the politics.
As a manager, I can’t stand people anymore -> let’s become an individual contributor. And ditch the strategic vision and collaborative impact.
The reason I failed my last venture was because we focused too much on SMBs -> my next startup will be focusing on big Enterprise clients only. Even if all my expertise lies in SMB.

People keep cutting those blooming branches and start over again.

Rejection is multi-variables

Building on rejection by itself is not bad. The problem is to not be focused enough on what we want to reject.

So when you experience the temptation of building on rejection, try first to deconstruct the rejection in several dimensions. What your environment looked like? How mature were you? Did you give your best? Was the output in your control or not? Etc.

An example of a first position in management at a startup that didn’t go well:

Environment: what was my startup’s culture? Was it positive or toxic? Was my team nice? Was performance ok in my team before I became manager?
Maturity: was I ready for this position? Did I want it at the start?
Stage: was it my first time managing? What do I think I’ve mastered and what are the things I need to improve as a manager?
Transition: was I supported during my transition to management? Was my startup providing training? Was my operational workload manageable?
Output: did I have the possibility to hire/fire whoever I wanted? How was my team when I first started? Did some decisions external to the startup impact my management?
Etc.

If we deconstruct Mark’s story, we may find that going from 0 to 20 people to manage in a few months, in a toxic company culture, without training and without operational workload decrease was.. a recipe for disaster, even for the best naturally-born manager. Mark wanted the job (he loved people) and was mature enough. He surely made mistakes as a first-time manager, but those are natural. By deconstructing the situation, instead of building on rejection (“management, never again“), Mark could have found another position in a positive-culture startup, asked HR for management training, and restarted with a 5-10-person team. He would have grown as a strong manager and accessed a VP position in a company he would not have dreamed of a few years before.

In medio stat virtus
La vertu se tient au milieu

Don’t underestimate “bad luck”. While luck is something we can influence, no one would dare to “reject bad luck”, right? Sometimes your startup fails because a new law is passed. It’s out of your control, and that’s it. Does it mean you’re a bad entrepreneur? No.

Interconnection

When we have deconstructed our global rejection and know more precisely what we want to reject in particular, it’s time to shape our ideal. But before doing that, we need to look for interconnections. Without taking into account the price of rejecting something, we will build an ideal picture that won’t apply in the real world. So we have to understand what it implies to reject something and see if we bear to pay the cost. The best question to ask ourselves is “What do I trade?”.

For example, going from a startup to a big company is usually a big trade. We trade:

A high-risk / reward environment vs. a low-risk / reward environment: better average financial stability in big corporations, but better career growth opportunities in startups
Agile vs. organized: more erratic “just do the thing” way of work in startups, and more predictive and rigid in big corps
Individual impact vs scale: more individual impact in startups, and bigger projects in big corps

Some interconnections may be cliché and need to be checked: some startups are safer than big corps and some big corps are faster than startups. But structurally it’s a given that you need more process to manage 10 000 people than when you’re a team of 10 people. By understanding the organic structure of your future environment, you will be more prepared to understand what are the trades.

When the interconnections are found, the only remaining question to ask is: is it a good trade? If we lose more than we gain on one dimension, can we narrow the size of our ideal picture, so that we don’t have to trade on one dimension?

Group rejection

A lot of management decisions are built on rejections. Improving a team is like building muscles: to grow you need to break some things and rebuild them. So it’s normal to reassess what one is doing. But if bad management were a movie, it would be most likely [rejecting] everything everywhere all at once (John Cutler would argue that it would be called In the Dark). Bad managers add new stairs but destroy the building’s foundations by doing so.

Let’s Franck as an example. Franck just joined the company as VP Engineering. The CEO gave him a mission: “We’re not fast enough. Please accelerate our team’s velocity”. The message is clear: reject slowness.

What does Franck do at his first meeting? He put a new value on the wall: speed. He focuses all his team on velocity. Of course, he tells his colleagues to “keep doing the same good work, but try to make it faster”. And so people do.

6 months after Franck took the job, the level of support tickets exploded and the product quality is deteriorating faster than ever.

Franck rejected everything just to go faster. He was right to emphasize heavily the variable to change. But by doing so, he forgot the other untold values that the team was previously living by. Franck inherited a team of conscientious people. When you stress conscientious people, they become paralyzed.

What could have Franck done better? He should have communicated the tradeoff, not the variable of change. That’s what Zuckerberg did at Facebook. The old mantra was “Move fast and break things“. He stated the focus (speed) and what Facebook was prepared to lose by picking this focus. It was a calculated bet, and everyone was prepared that things could break.

Timing

To conclude: pick the right rejections to build on. It’s like receiving feedback: don’t react right away. Take it, embrace it, analyze it, and then react. You will find hidden gems.

On individual identity

In an age where brands strategically construct evocative identities, we forgot to talk about how people define themselves.

Corporate storytelling forgot the individuals

Today’s market dynamics value differentiation and daring ventures. Brands, in response, have moved away from mere transactional interactions to embrace the age-old allure of storytelling. When you hear names like Apple, Tesla, and Amazon, they don’t just represent companies; they represent experiences, emotions, and entire narratives. They’ve become the protagonists of modern corporate folklore. Whole governments embraced the move, with for example the Loi Pacte in France, including an incentive for companies to define their “raison d’être” (purpose).

But what about individuals within corporations? While organizations, as collective entities, are rigorously molding their stories, many individuals within them float adrift, uncertain of their personal narratives. Yet, to drive people to change, moving identities is one of the most effective methods.

If you want to build a ship, don’t drum up the men to gather wood. Instead, teach them to yearn for the vast and endless sea.
Saint-Exupery

Managers tend to be good at setting directions. The employees often know the destination (the goal), the why (“to save the princess and the company’s margins”), and the tempo (“before the dragon eats our profits”). But who are they in the party, and what’s expected of them? Are they the warrior, the mage, the healer? If you are the mage, do you cast spells on the small-but-many goblins or do you focus on the so-much-HP dragon? What are you gonna do during an improvised fight? Are you the one that protects your party, or are you the one that helps it clear monsters faster? There are many ways to be a mage, and it all depends on your identity.

Identity for the people you manage

Identity is who someone is when you’re not around. It’s how people behave when the direction isn’t clear. It’s what shape the direction of the 35000ish decisions someone takes every day 1.

If you’ve read anything about the “science of building habits” you may have noticed that one of the best ways to create a durable habit is to change how you think about yourself. Thinking of eating that burger? Tell yourself you’re the “kind of person that’s always good-looking and energetic”. And I bet you won’t eat that burger.

So, do you know what your teammates would do faced with a mountain of burgers? Have this little conversation with them: ask each member to tell you in a maximum of 2 sentences what it means to be “[job] at [company]?”. Most of them will give you a 3-minute explanation, correcting themselves as they talk, and ending their answer by listing the quarter’s objectives.

[Manager] “So Franck, for you what’s an Account Manager?”

[Account Manager] “Good question! I think my goal is to have great relationships with our clients. Well, hmm… Not only a relationship but a real partnership. I need to guide them and be their referent on anything technical. If I can I’ll do some upsell and cross-sell. For example, I need to do 120k€ of upsell this quarter. And achieve an NPS > 60. I need to be energetic, product-driven, and nice. Email communication is a must for Account Manager. Oh, and one day, I want to become Sales, as it’s the promotion policy in this company”

If the manager was a psy, he would label his patient as “unclear split personality”

It’s more than just a job description—it’s about the essence. Almost no one takes the time to think about who they need to be. And as such, almost no one has a clear, ready-to-use understanding of how to behave in case of uncertainty. What you should expect from someone who understood his role is an immediate two-liner: “As a Manager, I’m the one that helps my team grow so they can deliver the best customer experience there is”.

There is no right or wrong identity, but each embodies something different from the other. If a customer support tells you that his goal is to “solve customers’ problems”, it’s different from “providing our customers with solutions”, and it’s different from “helping our customers find solutions”. While these statements may seem similar, the subtle differences will lead to very different behaviors. Based on how he perceives his role, he might prioritize efficiency and expertise, or lean towards collaboration and fostering relationships.

Depending on your company, some identities are more relevant than others. A salesperson who defines himself as someone who “shows the best option to a prospect” is more adapted to an SMB-focused/many-features type of company, while a salesperson who views his role as “helping the client think about his problems” is more adapted to a B2B complex selling process.

Identities are useful because they are biased

Identity isn’t set in stone. Just as an individual’s environment and role dictate their self-conception, so too can changing circumstances nudge them to adopt new identities. Picture someone entering Goldman Sachs versus another stepping into the shoes of a high school teacher; though they may begin with similar foundations, the identities they cultivate will be starkly different (but chances are that both will end up in burnout..!).

The trick is that you can change your identity as challenges emerge. Is your company facing dwindling growth? Time to don the cloak of a relentless sales leader for a few quarters. Any quality problem? Invoke the precision and dedication of a master craftsman. Why does it work? Because it’s all cliché, and we all love a good cliché.

Identities that we define for ourselves are often stereotypes. And that is why they work. They embody a few traits that we don’t have naturally. They push us towards a non-natural path. There are dozen of ways to be a great CEO, but when you think of a CEO you most likely think of a charismatic leader, who’s taking quick and strong-willed decisions, showing the way, and taking risks for the greater good of its people. And of course, it’s a gray-hair 50 years old man. In reality, the most effective CEOs are often closer to nerdy Bill Gates than workplace Schwarzeneggers. But it doesn’t matter when you embrace the CEO identity. Picturing this viril-cliché-CEO image will push you to have more confidence, act strongly, and speak up more than you would have done if you were stuck with an “I’m an Engineer” identity.

So use those biases. “Dress like George Clooney” can’t harm your style, even if you don’t have George’s bank account.

The perils of a unique external identity

Be careful when your identity is coupled with external factors. Many anchor their identities to external facets. The “husband and father of 3” have a tougher time after divorce. Athletes are coupled with medals. Pop stars are coupled with Spotify charts’ position. Etc. Founders often see themselves as inseparable from their startups. When they have a successful company exit, they become rich, they “made it”, and yet… Most fall into depression. They hit rock bottom. The reason is that they lost a part of their soul. Worst: they sold it. “Cofounder of X” was their main identity and was thus fated to rise and fall with their startup. Their social status was Mister CEO. Their purpose was the company’s mission. Their enemies were the competitors. The tempo was 9 am-9 pm. And now all are disappearing at the same time. Competitors congratulate you, big corp doesn’t care about your mission and no one complains if you leave the office at 5 pm.

So what do many CEO who just exited do? They embark on a world tour with their family, trying to find a new spark of passion. But piña coladas on the beach don’t build new identities. So they often find their salvation in an environment that matches their past identity: a new startup, a new “high-velocity” philanthropist venture, etc.

Don’t be defined by your identity, and don’t stick to a single one. Use them to push you where you want to go. Don’t let one identity truly define who you are. Because if you do, it will enslave you into a set of behaviors that aren’t truly aligned with your whole. I tend to doubt people that define themself first by only one attribute, such as “leftist”, “liberal”, “Christian” or “vegan”, etc. Often, it shows that they lack a deep understanding of all the nuances that exist in the identity they claim. “Leftist” for example doesn’t mean much today. Yes, it gives a few directions: fight inequality, success as a group achievement and not an individual aim, etc. But what about one’s position on nuclear? About universal income? Etc. When you define yourself as only one identity, you end up following a cult, not your ideas. Identity is a cursor you move in one or another direction, not an on/off button you flip.

Crafting identities

One must know oneself. If this does not serve to discover the truth, it at least serves as a rule of life, and there is nothing better.
Blaise Pascal

Pascal says it all. Our identity is not the truth. But it’s useful to follow a lighted path. Challenging people on their identity takes time. But that’s how you unlock durable results. As I transitioned from CEO to President of Supermood, I had to reinvent my job, and my identity. It’s embracing the fact that I can have multiple identities, one after the other or in parallel, that made me do my best work.

So what are your identities? Do your identities propel you to the stars, or have you chained your essence behind bars?

Dragster, boat or rocketship: are you building the right startup?

It’s 9PM. You just went through an afternoon of meetings and you just started responding to your emails 1h ago. You still have to finish this new presentation that your sales team is asking for. Zoom fatigue kicks in and you fall asleep on your keyboard.

While asleep the all-mighty God of Business appears in your dreams. As one of the busiest gods around, he directly asks you: “hello fellow servant. You’re faced with a choice: for the upcoming years, you can follow two paths. The first path will give you a very good shot to make $3M in the next 3 years. The second path gives you a 5% chance of having $20M on your bank account in 8 years. Choose wisely”.

What would you pick?

If you’re a first-time entrepreneur without a godly bank account, you’ll most likely rely on rational and mortal down-to-earth statistics and pick the first option. After all, what’s the difference between $3M and $20M ? $3M is already life-changing.

While the answer to the God of Business’ riddle seems obvious, from experience I see many entrepreneurs not picking any path and trying to follow both at the same time. Resulting in a lot of sweat for a poor return.

The problem lies in the fact that most entrepreneurs don’t have a clear strategy about the kind of startup they want to build. Talking to founders I found that growth tactics are well understood, but there are many misconceptions about the arrival line: how startups get acquired. Results: a lot of pain, bad long-term strategies, bad people investment, drastic culture change, a lot of frustration and very poorly optimized cash-return for the founders. Knowing what type of startup you want to build brings peace and efficiency. So it’s a major question to ask yourself, before doing your first customer interview.

The root of the devil lies in the fact that we all read the same passages of the God of Business’ bible. And today, the startup playbook is wrong. What we read are very-risky-big-boom-unicorn building books. Not how to create startups that maximize founders’ returns or impact.

Three kind of startups

Depending on the adventure you want to live, you won’t pick the same vehicle. Who would take a flight for a 10 min travel, and who would go half-around the world by boat? No one. So why do we all structure our startups as rocketships going to Mars?

If we take a look at how startups end up, we can boil down startups to three types:

The Boat: you’re the captain of your own adventure, exploring the sea at your rhythm and keeping control about where you want to go. You’ll get money by earning an honest salary and an exit strategy is not your priority.
The Rocketship: go to the moon or go boom. You aim for planet-IPO, with a very high risk, very high reward strategy. Most of your gains will come from a big exit. Rocketships need only one thing: grow higher. And to do so, you’ll need a large crew and a lot of fuel.
The Dragster: a least commonly used vehicle, dragsters are designed to go as fast as they can in one straight direction, and cross the finish line. Dragster are usually small teams developing a niche product aimed to get acquired by a big company as fast as possible. Low revenues, low dilution, middle risk and reward.

While Rocketship is the most mediated and written about, if you picked the “$3M in a 3 years” path, a dragster is what you need.

Boats and Rocketships: not playing the same game

Boats and rocketships have less things in common than most people think. Sailing and flying are two different sports, and while you need a good crew and tough captains for both, the environment is really different.

Rocketships are driven by the VC-market. It’s go to the Moon or go Boom. For every 10 companies a VC invests in, 6 will die or make no return. 2 or 3 will be close to a breakeven investment. And 1 or 2 compensate for all the other failures. Sometimes those home-run companies pay handsomely : Kleiner Perkins is known for their early investment in Amazon for $8M, bringing a return of ~1 billion dollars. After a home-run like this, you can mess-up investments for dozens of years while still being one of the top funds around. Plus good track records attract good companies, increasing your chance to keep a good track record. Thus, the risk-cursor for VC in how they advise a startup is often more on the risky side

How companies get acquired

Acquiring companies is how big companies get bigger. Selling companies is how founders get rich. With an abysmal percentage of companies that get to IPO, being acquired or dying is the fate of most startups. So while launching a venture, it’s a good idea to understand why and how companies get acquired. If you don’t know the rules of the game, how do you play well?

Big companies mostly buy smaller companies for the following reasons:

Technology / Product: it’s less expensive to buy a technology than to build it
Know-how / Acquihire: a strategic transformations needs to happen at BigCorp and they need to bring in people knowing how to do stuff
Entering a new market: geographic (US → Europe, new country..) or adjacent market. Clients portfolio and cultural understanding are key
Killing a competitor: see facebook.

You’ve got a lot of other reasons, from financial optimization to brand acquisition, but most startups exit can fall into one of the presented categories.

One of the key points to understand is that for a big company, buying another company is a lot of work. You have lawyers to pay and a lot of due-diligence to do. Then you have to integrate new people into your existing culture. Founders and ex-startups employees’ interests are often misaligned. Technology needs to be integrated in your legacy systems. Sales need to be re-trained, startup’s clients need to be reassured, etc.

Thus: no buying investment if the buying company’s mid-term return is not big enough. Big corp don’t acquire to gain a few millions dollars. They acquire to earn or save dozens of millions.

There are many ways to reduce the cost of acquisition for big corp: incentivising founders to the merger with earnout bonus, adapting salaries for former employees, making light due-diligence when the business is small, etc. But the lesson is: if you want to get acquired, you’ll have to offer a competitive gain/cost balance. Companies below $5M of revenues are rarely acquired for entering a new market or killing a competitor. Rocketships are all about maximizing gain. The goal is to offset the “fixed” costs of an acquisition (lawyers, salaries, ..) by bringing a lot of value. For dragsters it’s another story: they aim to lower the cost side and become “affordable to buy”.

So dragsters tend to be acquired for technology or know-how. Not for revenue, growth or market penetration.

How buyers value your company

So we understand why companies get acquired. But how does the buying side know what price to pay? There are dozens of ways to calculate the valuation of a company using financial metrics. For SaaS, the most common formula is:

Valuation = f(growth, assets)*ARR

The leading metric is the ARR (annual recurring revenue) made by the company. Then it’s discounted or multiplied by two factors: growth and assets.

In growth you’ll of find:

Year-on-year ARR growth
EBITDA
Market benchmark

In assets you’ll find a lot of things from the list “why companies get acquired”:

Moat
Technology
People
Swag / Brand
…

Today a good company is usually valued between 3 and 7 times its ARR. It depends on the stage, timing and market mood (a few years ago it was 10-30x ARR). Even what “good” is depends on the timing. So while you’ve got a lot of drivers you can play on, your company valuation doesn’t 100% depend on what you do. As the Serenity prayer said “grant me the serenity to accept the things I cannot change, the courage to change the things I can, and the wisdom to make VC believe in crypto”.

But all this…… is quants’ theory. The real price of your company is the price a bigger player is willing to pay.

While those formulas anchor a price, give directional trends about your valuation, they don’t take into account the most important thing: what do you bring to the final company that will write the check to buy you?

We all think that the CFO or “VP of M&A” are the ones that make decisions about which companies to buy. Most of the time, it’s not. The real buyers are: CEO, VP Product, CRO and VP Strategy. While the CFO will almost always be involved in the buying process, your real champions are always people on the front-line of the business.

VP Product will buy your company because it takes less time to acquire your technology or people than to develop the feature in-house. It may be because they don’t have the talents, because they’re pressured by a competitor or because it’s just more convenient.

One of the under-valued strategies I know is to build boring companies: developing things that bigger companies need to do but that nobody likes to do. Like maintaining APIs for example. You’re the VP Product of BigCorp and you want to make your app available on every travel platform on earth: what would you do? Spending time to convince your highly efficient developers that supporting 50+ APIs is a great intellectual challenge, and most likely lose 30% of them, or would you buy a company that’s doing just that with a team of passionate engineers already seeing API support as an interesting task? Bonus: they’ve built a 24/7 API support team around the world to be always on watch when Airbnb changes its API without warning. And it costs only a few millions.

No brainer.

Another way to calculate a company value from a CRO perspective: you’re running Sales for a $500M/year company. You know that OfferX would make you win 5% more RFP against your most fierce competitors. Bonus: 40% of your current customer base could use OfferX in addition to their current offer. You make the maths: OfferX would bring $10M in RFP and with pessimistic forecast upsell of OfferX would earn $20M in the first year only. Buying CompanyX that develops OfferX would almost instantly bring you $30M in revenue. And it’s only the first year.

And guess what? CompanyX is only a 10-people company doing $1M in revenue, because they don’t have the proper distribution channel. They’re ok to sell for $10M. So that’s $30M + $1M – $10M – cost_of_merger the first year. The years after, it’s free money.

No brainer again.

So remember: you’ll most likely sell to someone who’s out there on the front, selling and developing their strategic roadmap. 3-7x valuation are theoretical values that we don’t see in the wild. Good valuations come from being identified in a strategic roadmap, creating competition between potential buyers, and most of all a strong, trustful relationship between the buyer and the smaller company.

How does valuation really evolve?

Most people think that companies valuation evolve like this:

It’s almost never the case. First because most successful companies’ growth are quadratic, not exponential.
Second because your valuation is often calculated during VC-rounds. So a more realistic way to see things is per milestones: Series X raised, X million of revenues reached, X users, etc.

That’s great but remember: all these are VC-valuation. They’re driven by VCs that try to predict the final value of your company at the exit or the next round. They are just directions loosely linked to the real check made at the end.

So how does your “buyer-valuation” really evolve? Let’s take the example of a classic company that goes through a few VC-rounds and follow the classic startup playbook.

Your buyer-valuation will go through different steps as you develop your startup. First your valuation will grow quickly as you can be acquired mostly for your technology: you’re super-focused on building your product, and you’re one of the new kids on the market. Acquiring you would be not costly and a bet that your technology would improve BigCorp’s business.

Then your buyer valuation will decrease. In phase 2 you’ve developed most of your product, and your feature growth in logarithmic: 80% of your product real value comes from the first core features you’ve released. You’re not profitable so you had to take some VC-money. Worse: you’re not the only new kid as a few competitors appeared. They’re a bit behind, not as qualitative as you, but they’ve almost developed the 80% of your product value that matters.

Third phase: your buyer-valuation hit rock-bottom. The new kids have copied most of your product value for a fraction of the cost: they just had to copy. So from a technology perspective, they are more valuable than you as they cost less (no need to reimburse the VC that gave you money). You start to have a strong client base but you’re not profitable yet. And you don’t do enough revenues to offset the fixed cost of an acquisition.

Fourth phase: you just reached a significant revenue milestone and you approach profitability. Usually it’s around $5M+ ARR. You’ve demonstrated that there is a market for your product and that you can distribute it. You enter a new world where Private Equity firms and big companies can potentially buy you as you offset the fixed cost of acquisition. You’re profitable or almost, so they can make build-up pretty easily.

Fifth phase: you become a threat for bigger companies, or the symbol of a new market. Buying or killing you becomes a topic in BigCorp board meetings. You’ve not won yet: you just entered the global battlefield. But you’ve got a chance to win a war.

Of course, growth trumps everything. You can skip from phase 1 to 5 if your growth is stellar or your technology is insane. A lot of valuation-plummeting variables can be avoided if you’re fully bootstrapped, etc. But most VC-founded companies I know abide by this trajectory and are always surprised to see their valuation decrease between phase 1 and 3.

Straight line to the exit: how to build good dragsters?

Dragsters are designed for one thing only: optimizing for phase 1. It’s their straight-line race. The goal is to identify a need of the buyer-market, rush towards a technology solution that solves it and then exit as soon as possible. The condition being not spending too much during the process in order to lower the cost of acquisition for the buyer and maximize the financial return of the founders. Dragsters usually aim for a $2-10M exit with 70%+ equity for the founders.

To build a dragster you have to forget a lot of the common-sense written in the unicorn-building playbook. First big change: your real client is the one who will buy your company, not the users of your product. And the implications of this are enormous.

Thus your total addressable market (TAM) doesn’t need to be as huge as the ones for VC-founded startups. Thinking as CRO or VP Product acquirers, you “just” need to represent a 10% capture opportunity of a $100M market to be valued $10M+. So forget the market of “everyone booking an hostel” and welcome the “data-processing feature built internally that makes everyone crazy”.

Get to know your clients: have early conversations with your potential buyers. They’re the ones you want to build trust with. It’s just like Enterprise selling, but it takes a few years to get a multi-million dollar deal. Understand their market trends, how their clients are buying and what’s happening inside of their company. Ask them for advice about what you’re building. Send them monthly newsletters.

In terms of strategy, remember that strategy is making moves to be in the best position to win. Not to check-mate on your next turn. So orient your roadmap and communication towards things that position you well. Look for trends, and invest in Product Marketing. Target the right audience: if your buyers are international, build your SaaS in English first and go worldwide. If you’re targeting a niche, build where the niche is the deepest. Remember that when companies are bought, it can be in exchange of cash or shares. And you usually get an incentive to stay in the merged companies for at least the time of integration. Depending on how you structure your company you’ll be seen as plug-and-play or a long-term integration. It may impact your incentives.

Optimize for what you will sell: your technology. So don’t build a Sales team, chances are that they’ll get valued for $0 if you do less than $5M ARR. Hire developers, product managers and product marketers. Hiring will be one of the deciding factors of your pace during the first years. So have a good balance of specialist and generalist depending on what you build, and hire as few people as possible. Every team member should deliver a big impact on the business. On a rocketship with a hundred of employees or on a slow-moving boat it’s no big deal if you’ve got a few members not 100% performant. But in dragster races you can’t tolerate average members.

Don’t add friction for your users: what you want is to improve your product. If you have to give away a lot of things for free so that you can test and iterate on your product quicker: do it. Don’t put ARR as your main company metric: pick a product related one (# users, performance, etc.).

One of the biggest advantages of dragsters is that the goal is usually very clear and tangible. So it gives you the possibility to align all your stakeholders towards the same thing. Share the value with your employees by giving away stocks, bonus, and push everyone towards the finish line. For your early investors, be clear that your company most likely won’t bring a x1000 upside, but optimizes for a quick and decent return. They’ll be most likely to help you if you set the pace as a sprint instead of a marathon.

Jumping ships: is it too late to change direction?

Sometimes things change and one may want to change the direction of what he’s building. You can turn a boat in a rocketship, but it will need a strong culture change. You can turn a dragster into a rocketship, but you’ll have to structure an acquisition channel and a strong sales team. But you can’t turn a rocketship into something else.

When you’ve burned too much fuel you can’t stop half-way to Mars. At each round you set an expected valuation, and this valuation becomes the floor under which you can’t sell the company and make a good profit. In the shareholder agreement you signed during your fundraising, you’ll most likely have a clause called “liquid preference”. In a nutshell, it means that in case of a sale under your last round’s valuation, investors will get reimbursed first. So selling your company $20M when you raised $21M will bring you almost nothing.

If for any reason you sacrifice your company growth for something else (profitability, new product, …) you’ll still have to reach a higher valuation at the end. And you will most likely be stuck in Phase 3 where buyers can find other players with good enough technology for a lesser cost. VCs can accept that you become profitable for a while to wait for a turnaround of the market, but if they do, it’s that they trust you’ll have the patience and the nerve to wait for a few years with a “reasonable” company.. and start again the race when the market brightens.

Jumping ships is all about opportunity cost. Building one startup is giving up on addressing the million of other opportunities that you see. In the last few years, most startup founders missed bitcoin, AI, and save-the-planet companies because they were busy building their own. Some founders started young, had kids and would now gladly trade their shares for a high-paying company and less mental workload. Some senior founders launched companies and realize that their impact to the world is neutral – or worse noxious. As a CEO, managing people doesn’t make you progress on technologic skills. And leading a startup for a few years gives you skills that are very “bankable” on the market, so you could make a lot of money in the short term. Short-term temptations are always at the corner.

Or it can be the opposite. You can bloom by going faster and deeper in your adventure. A few months ago, the founder of a 15 years old startup, doing 10M€ and having 60 employees told me: “I can’t take it anymore. We’re profitable and all is going well, but… I’ll raise funds. I know that the VC path is intense, current valuations are low, but I want to experience the thrill. I’m so bored that I’m ok to risk it all just to feel alive again”. Today he’s hiring people to turn the mast of his boat into wings for his soon-to-be rocketship.

Finally, some realize that their business outgrows them and they’re not the most relevant captain anymore for what’s coming. David Okuniev – former CEO of Typeform – brought a new CEO and focused on what he loved: innovation. He became Head of R&D at Typeform and launched VideoAsk. Typeform continued to reach for Mars, while David created a small colony on the moon.

Startups give you freedom as much as they enslave you. At the end, it’s always up to you to decide how you want to trade opportunities versus current assets.

What to do now?

The first thing to do is to assess your current venture / idea. Are you targeting a VC-compatible market? Are you building a point-solution that can reasonably expand to a bigger market? Is your business tech or sales driven? Is your business capital-intensive? Start talking to the market and contact potential buyers. Ask for advice and make extra efforts to please your most trusted partners: it’s often them who will buy you or vouch for you.

Then talk to your co-founders and deep dive into what you both want. Sharing this article may be a good way to start the conversation! A lot of companies fail because of co-founders disagreement, so try to align as soon as possible. What do you want collectively and individually? Today and in 5 years? Ask the God of Business’ riddle. You may discover that we don’t all have the same relationship with money. If you’re not aligned, find solutions and make a deal. As startups growth isn’t very predictable, timing may accelerate or slip: so reassess your founder deal regularly. And reassess each time there is a major milestone in your co-founders’ life (kids, wedding, death…).

Launching something is a life-changing experience, and while we must take into account the financial return of the adventure, it’s not the only thing to consider. Startups are one of the best ways to impact the world. Startups are the best environment for hyperlearning. That is why they will break you, reforge you, and make you another person. No matter what you ride.

BFS Framework for scale

In a nutshell

The BFS framework gives a common language to prioritize tasks that needs to be done several times per quarter. The main idea is to make those tasks either Better, Faster or Scalable. The concept is simple, but it brings enormous results if applied with consistency. It has the added benefit of avoiding a lot of the early-employees frustration about “having too much to do” after one year into the job.

What is the BFS?

Early startups are made of “one-[wo]men-teams”: individuals that are capable to handle all of the necessary parts of a department. It’s for example the marketing magician than can do SEO, content, ads and webinars, while crafting the new branding, announce your new fundraising in the press, and designing your new goodies.

As startups grow, teams grow, and each team leader’s responsibilities expand. SEO need to be more precise, content must be of higher quality, product marketing comes into play, and… the marketing magician becomes busier. After hundreds of 1:1 with my team leaders, I have noticed a clear pattern: over time, team leaders stack up more and more things on their daily to-do list, and they don’t remove much from it. After a while, the to-do list becomes so bloated that the same conversations pop up in every meeting:

– “I’m overload”

– “I need more resources ($, people, consulting, etc.)”

– “If only we had launched [xxx] 6 months ago”

Sometimes those comments are legit concerns. They can reflect a misalignment between the company’s ambitions and the resources allowed. But most of the time, they come from a lack of anticipation. Thus, I came up with a simple framework to help my team leaders prioritize their projects months after months. I called it the BFS: Better, Faster, Scale.

Following the BFS improves the impact and the scalability of their department over time. By doing so, it’s easier for them to delegate, grow and get to the next level.

How to use BFS?

Easy! Each month, take the list of all the tasks you did and that need to be done again. Then for each of them, decide if you will make them better, do them faster or make them scale. The secret lies into this rule: only pick one adjective per task.

Every task should fall into one of these categories. As you gain experience doing a task, doing it again in the same conditions should be at least faster. If you spend the same time as before, you should be able to improve the quality of the task. And if you want to get rid of this task in your to-do list in the long run, you should spend time making it scalable.

Let’s say you have three objectives in your list on month #1. After doing the labeling, you should have the same amount of time devoted to those objectives in month #2 but split differently.

Does it sound obvious? It is. But as labeling tasks like this may seem simple, you need to clearly know when to choose one label over the others, and how to execute on them.

When to use BFS?

We can put the projects we work on in two categories: run and build. Run are the things you need to do to get your company moving. Not doing them would immediately hamper your growth. Ex: meeting clients, fixing bugs, handling your AdWords campaign, managerial one-one, etc. Run projects are usually in your daily or weekly to-do list and will be done again and again.

Build projects are things that make your company scale. They are the projects you do to make your growth curve as steep as possible. Your Build should improve your Run. Ex: launching a new feature, crafting a new sales presentation, launching a referral program, etc. Build projects are usually harder and more exciting.

The BFS framework is useful to improve your Run. BFS can be used with any project that has already been done at least once.

Faster

Faster is the easy one. Did you prepare your first webinar in 4 hours? Try to craft the next one in 3 hours! One of the common mistakes I see is accepting that doing the same task should take the same time. So, before starting the project, define a time limit. If you don’t, your project will take more time than needed, it’s 100% guaranteed (as stated by Parkison’s law).

If you didn’t know how much time you spend the first time you did it, it’s time to measure! Understanding your time is critical to your productivity (and to your CFO’s forecasts). Using timeboxing or pomodoro will help you. At Supermood, some of my colleagues are religious about using Toggl.

Better

When you choose to make something better, you need to deliberately spend more time than usual on the task. This time will allow you to improve the impact of the project.

Better = focus. As your time is limited, focus on improving only one or two dimensions of the task. Let’s say you chose to make your second webinar Better. You have several options: improving the overall satisfaction of the viewers, improving the number of leads it will generate, or bringing more qualified leads to the show. Each of those options needs different plans. If you try to do address all of the options at once, you won’t make it in a reasonable time. So, pick one dimension, make it better, and you will work on the others next month. It takes time to go deep into something, so be sure to not dilute your focus.

When you “Better” something, be sure to measure it. Define KPIs that measure the incremental value you are trying to deliver. Those KPIs will guide your choices during the task and will give you a sense of fulfilment when the task is done. As a bonus, it makes it easier to display and prove your success to your colleagues and boss.

Try to make KPIs as quantitative as possible, and outcome-based. But don’t obsess over it and don’t over-engineer complex KPIs. A few simple KPIs are always better than 10 complex ones.

From experience, defining what “Better” means for each task takes time. Finding the right KPIs takes time. Confronting your choices with other team members takes discussions. Creating smart dashboards takes time, sometimes a little help from the tech/data guys, and many minutes to define the exact color that fits with your mood for each graph…! 🙂

Take into account this time in your planning

Scale

Scaling means that for a given task, its outcomes can be exponential while the efforts are linear. Scaling comes into a lot of shapes: you can automate a task, delegate it to a teammate, hire someone dedicated to the task, outsource it, decentralize it, etc.

Example: to scale “responding to users demands”, you can create a knowledge base about your product, you can hire someone dedicated to Customer Support, you can automate answers with support systems, you can hire an external agency (bad idea!), or you can do some swarming, where everyone in your company becomes responsible for support.

Scaling something always takes more time than doing it once. The idea is to spend most of the time dedicated to the task to prepare its repeatability, so that the task can be executed quickly later.

Scaling is where most projects should end up. Successful startups are startups that scaled a lot of their operations.

Common mistakes

– Not focusing on one dimension of the BFS. Ex: trying do to “a little bit faster and a little bit better”. That’s the default. And so, you don’t pay attention to the time spent on the project, and you will accept having the same results than last time.

– Scaling things too early, or too late.

– Not accepting to pay the debt.

How to choose between Faster and Better?

From the three options, faster is my least favourite. Making a task in less time than before optimize for only one thing: your personal time. You sure are more productive as an individual, but the group doesn’t benefit much from the gain. Better and Scale do have an impact on the whole company in the long run. So, by default, I won’t go for Faster in my first task review.

That being said, Faster has an extraordinary benefit: freeing your time for more critical tasks. So, actually, most of your tasks will end up in the Faster section.

When the results of a task are not good enough, choose Better. “Doing crap faster only makes thing crappier”. Keep in mind that most projects have tipping points. The success of a project often depends on a minimum level of reach, quality or “magic”. So, by pushing the task further, you may unlock exponential value. Example: your sales presentation won’t close more deals if you don’t reach more leads. So before improving your deck, make sure you have enough leads in your pipe.

Doing things better or faster follow the law of diminishing returns. The further you Better or Faster things, the harder it gets. Takes this into account when you pick between the two options. If your enterprise client meeting lasts for 45 minutes, it will be difficult to compress the timing. You’d better Better it, and make sure to make those 45 minutes more valuable.

One of the most common mistakes I see is to try to Better and Faster a task at the same time. Doing so is the default. Usually, it ends up taking the same time with minor added benefits. Faster means “dumping the task out of your mind as quickly as possible”. Better means “think how you can improve the task’s output”. It’s impossible to think of both at the same time. So, focus on one dimension: either Better or Faster.

When to switch to Scale?

You have many reasons to scale things. Scaling a task often means splitting it into many small parts, test some of those parts, make sure that it works 10 times, etc. So, before scaling, make sure things are good and fast enough. Scaling crap is even worse than doing crap Faster. If your webinar doesn’t generate enough qualified leads and the overall satisfaction is low, do spend more time on it to make it Better. This way, you will be able to highlight the most important parts, get rid of the useless ones, and get to a quality good enough for each moment of the webinar. THEN, when the script is mastered, the audio quality fine, and the landing page converts, you can scale things. Don’t scale everything at the same time. First, scale the landing page and the script. Then, do check that your “Scaled” version gives the same results than the previous one. If it does, continue. If not, go back to Scale.

Make sure to do an RoI-check before Scaling something. Let’s say you have to copy-paste data from one Trello card to the other every day. In average you have 10 copy-pastes to do. It’s boring, so you want to code a small script to automatically link the two Trello cards. Writing and testing the script will take you 1h, from start to finish. When done, you will gain 3 seconds per copy-paste. When will the Scaling be profitable? Well, after 3600/(10*3) = 120 times = 120 days. Was it worth it? Depends. If copy-pasting makes you insane, so yes. If you just wanted to save time: no, it was certainly not.

This last example leads me to another topic about Scale. It’s ok to Scale things not to gain time, but for comfort. Making things faster or easier often leads to more usage, awareness and quality. One of the commons tech dilemmas in early startups is “when to implement Continuous Integration (CI)?”. When the codebase is small, testing the code once a week and releasing after that is totally ok. So, scaling testing may not seem a big deal at first. Actually, it is. By implementing CI, you won’t gain much time at first. But you gain so much comfort: just launch a script and everything will be production-ready. The result: as it’s easier to push a live version of your work → you will change your release rhythm and you will be able to iterate quickly on your product → you can take risks → you innovate quicker à Scaling was 100% worth it. Not because it makes things faster, but because it enables another way to work.

A piece of good advice taken from the book “Lean Analytics” is to draw a line in the sand to scale your project. It means defining at what point you will start to Scale the project, before starting the project.

Let’s say you want to scale “Customer Training”. You know that a good solution to Scale it is to switch from physical training to a video repository available online. You won’t be able to Scale the task right away, as you have absolutely no idea about what customers want in their training. So, you start doing one physical training. Then another. Then another. After your 10th training, you’re pretty sure to have understood 90% of the customers’ needs. It’s time to scale, right? Yes! But what happens usually is that the 11th customer is super important. Or you want to try this one last thing to make the training better. Or, you just don’t have time to invest in Scale, because things got busy. So, you end up doing the 11th training physically. And the 12th? Same old song. Fast forward: you did 50th training before turning them into videos. Even worse: it’s now videos version 1. You will have to iterate on videos version 2, 3, 4, etc. before it’s as good as your training number 50. Imagine how much time you lost between training 10th and 50th. All this time could have been spent to improve your videos.

So, what’s the solution? Plan before training #1 to Scale training after the Nth one. Let’s say 10. Then, when you are at training #10, scale it. No excuse, no exception.
It has many benefits. First: if you have defined the number before, you will commit and won’t be pressured by the moment. Second: it will force you to test many things before the 10th one, so your chance of having a good webinar #1 increase.

Finally, scaling things is a good idea when you are not alone on the project. Scale forces you to deeply understand your task, formalize it and identify the moving parts. Doing so makes it easier to hand the project over to someone else, being a freelance or a new team member.

When NOT to Scale?

If you have an engineering background like me, you will have a natural tendency to optimize everything from the start. So, you spend more time on Scale than on anything else. Even if it feels good, most of the time it’s not cost-efficient on the short and long term.

First, don’t scale when you don’t understand the process and you didn’t go through it multiple times.

Second, some things just don’t scale. Don’t try to automate your Enterprise sale meeting: people are not ready to talk to a robot (yet!). Instead, try to Scale the inner parts of a sale meeting that can be optimized: invoice generation, social proof, etc.

Always remember that by scaling something, you remove yourself from the equation. It means that you won’t spend much time “living the thing” anymore. So, if you delegate sales meetings or webinars, you will progressively lose touch with your leads. It seems ok at first, but a startup employee that loses touch with the customer becomes irrelevant pretty quickly. So, as a CEO, I “scaled sales” by hiring a sales team a few years ago. But I’m still closing deals, not to improve Supermood’s growth, but to keep understanding our customers.

How to use BFS in your growing team

The first rule is: don’t BFS everything. BFS is a super useful framework, but it induces some brain load. You won’t have the time to Better or Scale everything. You won’t have the energy to race against the clock to make things Faster every day. So, use BFS for your most important projects. Repeat the others without any worry.

Knowing this, as a department’s leader, one of your top 3 priority must be to fire yourself out of your job. I love the expression “let go of your legos” (if you haven’t heard of this article, go read it immediately). There are so many legos to play within a startup that you don’t have to worry about having nothing to do after a while. The legos just become broader and more impactful. The problem is: if you don’t use some kind of BFS, you will never be able to handle tasks effectively.

Let’s take two young Head of Marketing (HoM) in an early startup. Both start the department from scratch. They both have 6 tasks to handle in the year. The first HoM want to push the startup hard and see himself has the one-man team the startup needs. The second HoM want to build solid foundations and uses the BFS.

This is what happens 6 months in:

As you see, it’s almost impossible for the first HoM to delegate part of his job. Nothing is really polished or structured. The second HoM tackled fewer subjects (he completely ignored SEA, CRM and Brand), but he can delegate his tasks quite easily. Who gets a chance to become a manager and earned deep expertise?

Bonus: most startups get high growth through only one acquisition channel. So, the further you “hack” one channel, the better. And hacking comes from making a few things Better and Better again, not “spreading and praying” your energy on billions of solutions.

Finally, one last thing that I do want to address, and that could be one article by itself. It’s the mindset to be humble enough to accept to pay our debt.

As a department leader, you may be overworked because your company objectives are too ambitious. But most of the time, it’s just that you didn’t spend enough time to use the BFS. You didn’t spend time to Scale your department, and so “working debt” accumulates. After a while, you have to pay this debt. And paying debt has always a hard cost and requires hard work. Worse: the more responsibilities you have in a company, the more expensive the debt is. So, don’t complain only about your company crazy ambitions or about the lack of resources. Be humble enough to pay the debt.

And it’s ok. Everybody pays debts. It’s impossible to have a perfectly fluid growth. So, don’t blame yourself too harshly, pay your debt and use the BFS. 🙂