Increase your odds of winning by setting smart goals for the new year.
KPIs, MBOs, OKRs. You’ve probably heard of these and several more ways to set your company’s objectives. With so many options to get to the same goal, it is no wonder why by the middle of the year, objectives, as originally set, often go the same way as New Year’s resolutions. The problem often lies on the goal development: sometimes goals are crafted at the leadership level and not effectively shared and refined with the rest of the organization. Also, there’s a tendency to focus on numbers without regards to the operational goals that drive these numbers, for example, growing revenue by x% (a key business goal) may require sales restructuring (an operational goal).
OKR: a framework that may work for you
Although there is no magic formula for setting goals and sticking to them, I’ve found that the framework provided by OKRs (Objectives and Key Results) can set teams on the right track when it comes to goal setting. Before going into details, diving into the Wikipedia definition of OKR can be useful:
“[OKR’s] main goal is to define company and team “objectives” along with the measurable “key results” that define achievement of each objective. One OKR book defines OKR as “a critical thinking framework and ongoing discipline that seeks to ensure employees work together, focusing their efforts to make measurable contributions.”
The key term to focus on is “to ensure employees work together.” The OKR framework is good at steering top management to align their goals with those actually in charge of driving the business towards them throughout the year. This means that as you think of OKRs, you need to make sure you’re delivering on the key initiatives the company needs to get done to get to where it needs to be. I find it useful to think of a “value chain” that will support the OKRs with specific initiatives from your team.
Some guidelines about setting objectives and key results
Setting goals and key results together – which is basically what OKRs are all about – can help you create the discipline to have the right internal conversations initially and throughout the year to ensure the team stays focused.
Here are three easy ways to get you going:
The benefits of using a framework like OKRs go beyond just ensuring you develop objectives and meet them. Crafting objectives and key results together disciplines thinking at all levels, communicates the company’s vision accurately, establishes a measurement culture, focuses the effort of your team and enables employee engagement.
Are you ready for OKRs?
Goal setting using OKRs is valuable regardless of your size. As stated before, creating a culture around setting measurable objectives is always a good thing. Think in terms of developing OKRs around functional or product teams in addition to the executive team.
No matter your size, aligning goals with the specific results needed to get there will only result in an organization where everyone – from the CEO to the most recent hire – point their efforts in the same direction.
To play the marketing game prepare a solid marketing budget with which you can win.
Photo courtesy of Christopher Michel.
Crafting a marketing budget can feel like a guessing game. The options to invest your marketing dollars could seem endless, and you could spend weeks debating what will move he needle for your startup. In this article, Steve Lim, Vice President and Head of Marketing at Vantage Data Centers, and I have put together a quick guide that our CEOs and their marketing teams have found useful for budgeting marketing spend. We divide this brief guide in two parts: the three guiding principles for guiding your plan and the process for defining your marketing scope
Guiding Principles: The 3 Cs of your Marketing Budget
We’ve found three simple guiding principles we call the “3 Cs” that can help you navigate your marketing budgeting options.
Your budget must include spend for the key areas:
1) brand awareness
2) content and tool creation
3) demand generation
Specifically, to drive awareness for the brand, you need to budget for public relations, social media, websites and digital presence as well as other brand related programs that reach customers but do not drive direct lead creation or engagement. Then, to develop content and tools, you need to budget for thought leadership content and sales tools. The important thing to keep in mind is that you need an ongoing strategy to tell your story in a compelling way and to portray your company & products in a positive light. Finally, to deliver contacts and leads to sales, you need to budget for things such as digital programs, digital media, trade shows & events, and partner marketing – all of these create a blended program that directly engage customers and drive lead or contact creation for sales teams.
We recommend that rather than using rules of thumb, you calculate estimated marketing spend based on lead conversion or customer acquisition costs (CAC) payback period. To do this you need to incorporate specific building blocks, including:
For each category of marketing spend, there is a minimum threshold. Either you commit to spending a certain amount or, in the category, forego spending anything. Do not try to find cost savings in specific line items. The worst possible scenario is to try and execute a plan after your board agrees on that plan but asks for simple percentage cuts across the board. You have to look at each area of marketing spend and determine what the minimum threshold for spending should be, and either decide to proceed or cut entirely. This is especially true for demand generation programs that drive direct contact acquisition and lead creation. For example, activities like media spend (digital ads, SEM, etc.) require a certain level of investment with some consistency over time to tune, adjust and manage before you see real results. If you cannot commit to spending consistently for a minimum of 6-12 months, you are best to forego this activity completely.
Some areas are more flexible in how you can tune spending up or down, but you need to ensure that you know the thresholds for each as well as the overall mix of spending required across the key areas of marketing. Properly planned and executed marketing is a well thought out mix of spending across the key areas with deliberate thought to how each investment influences the activities overall – essentially the sum is greater than that parts.
Process: Size and Shape of your Marketing Budget
You need to spend time to determine the right size and shape for marketing spend based on your unique circumstances and your market.
The size of your marketing budget should be based on an overall estimate of spend. To determine the range for marketing spend, we recommend using the average cost for an inquiry and lead conversion analysis to estimate the spend per closed/won opportunity (Marketing program portion of CAC). With a range of estimates for leaders and laggards, you can then determine the overall Marketing spend level with confidence. It’s important to note in the process, however, that there are both minimum thresholds that you need to be conscious of and ceilings that are capped based on total addressable markets. Simply put, you have to spend at certain levels across marketing to achieve any results at all – if an average cost per lead is $100, you can decide to invest $100 and get one lead. On the other end, you should not assume you can put an unlimited budget into marketing and generate infinite leads. You’ll be limited by the total addressable market and by some basic assumptions about what a reasonable penetration percentage is for your target market.
To size the marketing budget determining the average costs per inquiry, answer the following key questions:
The shape of your marketing budget is determined based on the relative importance and spend between brand awareness, content & tool creation, and demand generation. For an early stage company to build infrastructure and capabilities, there is a minimum amount of spend needed in all areas. In later stages, companies can shift emphasis and spend depending on whether they need to build awareness, capabilities or sales leads. The shape is also determined based on the approach to planning and executing your marketing programs. This approach can be either agency or internal-resources led with the appropriate management resource for each approach and is a basic build vs. buy decision. To achieve high levels of quality, many startups should use an agency-model until they can hire enough people to assume relevant functions – after all, the trend in marketing – and in finance also BTW – is rent versus own.
Co-author Steve Lim is Head of Marketing at Vantage Data Centers. He has deep experience in marketing strategy, field marketing, sales enablement, program development & delivery, content marketing, and operations.
Make sure you fill those crucial initial spots with a great team that will take you places.
Congratulations to the Houston Astros, 2017 World Series Champions, and to the city of Houston who can use the win after a rough summer of devastating storms. How did the worst team in baseball in 2013 with only 51 wins turn it around so quickly and reach the pinnacle of their sport? They committed themselves to building the best possible team using all means available. The Astros beat the Los Angeles Dodgers, another great team that also had a great season. Both teams won over 100 games and survived a tough run through the playoffs. Also, both teams made major in-season moves that just may have been crucial to getting them to the World Series.
Assembling the best team
Like every other major sport, it’s now conventional wisdom that to win a championship, you do everything you can to put the best team on the field. The Astros traded for Justin Verlander, who went a combined 9-1 in the remainder of the regular season and playoffs and was key to all three of their playoff series wins. The Dodgers picked up Yu Darvish who helped solidify their rotation and get them to the World Series. Last year, it was Aroldis Chapman joining the Cubs and Andrew Miller joining the Indians. In 2015, it was Johnny Cueto and Ben Zobrist for the Royals and Yoenis Cespedes for the Mets.
This lesson applies just as well to startups and to companies as a whole. The best team wins, and the question to ask is: are you doing everything you can to put the best possible team on the field?
I spent 13 years as a venture capitalist and during that time we had a saying. If the three most important factors in real estate investing are “location, location, location”, we often said the three most important factors in VC investing are “management, management, management.” We would take an “A” management team with a “B” idea over the reverse every time. Why? Because we had confidence the “A” team would be able to handle all the twists and turns required to successfully navigate the startup minefield and eventually find the “A” idea. While the “B” team might just get stuck and fail to execute.
As a founder and entrepreneur, I had the same experience regarding the importance of having the right team. No matter how novel the idea, there were always multiple other companies chasing the same goal. With the proliferation of startups, accelerators, incubators, seed funds, crowdfunding, etc, this is likely more true today than ever. There is no doubt that timing matters. Market size matters. Business model matters. But all else being equal, the better team has a much greater chance at winning. I’ve seen it personally from both sides. Bet the jockey, not the horse.
The relentless pursue of opportunity
Of course, as a startup you don’t have unlimited funds to pay seasoned leaders to join your team. So, you need to be creative and grab talent whenever and however you can. Probably the best definition of entrepreneurship I ever heard was from legendary Harvard Business School Professor Howard Stevenson, who defined it as “the relentless pursuit of opportunity beyond resources controlled.”
I joined Burkland Associates about a year ago and one thing that has surprised me so far is how many founders I’ve met who spend their time building Excel models, creating pitch decks and even doing journal entries and reviewing expense reports instead of leading their companies. At a stage where assembling a great team is crucial, a great founder focuses on setting the vision, charting the course, motivating the team and assembling the resources to be successful. Recruit a team of experts – full time or part time, employees or consultants – to help you execute.
Justin Verlander and Yu Darvish may only take the ball every fifth day. They may not even be around 2-3 years from now, but this year, they made all the difference. The lesson to learn from this is: who can you add to your team to give you the cover you need to put you over the top?
Think about it.
There will be storms ahead. Make sure you learn resiliency from the ones that came beforehand.
Photo courtesy of Christopher Michel.
For millions of people in the U.S. and the Caribbean, the summer of 2017 is synonymous with tremendous suffering and loss, as one of the most active hurricane seasons in history hit their communities. As tactical response to the storms scales down and recovery begins, strategic focus will shift to making critical systems more resilient – such things as the water levies in Houston, and the power grid in Puerto Rico.
Although there is a world of difference between how governments and organizations respond to the challenges of large-scale disasters like storms and how a management team runs a business, I think there are some valuable resiliency lessons that can be drawn for startups.
When I’m not working as a consultant, I serve as a Civil Air Patrol liaison officer to FEMA’s Region II. In this capacity, I’ve worked six major hurricanes in the past several years, including Sandy in 2012 and this year’s Irma & Maria. Aside from master-of-the-obvious missives like “failure to plan is planning to fail,” here’s my top five list of lessons from disaster response every CEO can incorporate into their business strategy.
In many cases, your CFO can help you not only properly define your company’s strategic goals, but also help you execute the day-to-day demands in order to reach them in a focused and efficient manner. Like with disaster response, there is no one thing that makes all the difference, but rather countless small elements that make up the overall effort. To sum up, remember another old saying: Manage the little things right, and the bigger things will take care of themselves.
If you’re in for a long race, venture debt financing could give you the air you need to get to the next peak in better shape. Photo courtesy of Christopher Michel.
Raising venture debt is always an interesting subject for startups. For some CEOs it is completely off their radar, and for others it is a taboo subject. In between these extremes, there’s a growing number of startups using venture debt effectively to buy time for a higher valuation, making it a cheap form (in terms of amount of stock it costs) of financing while the value of your company rises.
I thought we could shed some light into whether venture debt is a good thing for your company by creating a simple model you can use to project its long-term effects on your valuation and on your stock and explore if it makes sense for you. For a sense of the value of this exercise, under a relatively conservative growth scenario, Venture Debt could save the company from having to give away 3% of equity. Before getting into detail about how this model works, it’s worthwhile to spend some time reflecting on a couple of issues you will need to think through before raising money this way: covenants and purpose.
Covenants and Purpose
Many think that some banks and venture debt providers require excessive terms and may tie up the company with covenants that hurt you in the long-run. Our experience with this is that most of the terms and covenants can be negotiated, with the exception of the investor support covenant, which requires the venture investors of your company to agree they will continue to support the company or the covenant is triggered. Even the MAC (Material Adverse Change) covenant, which seems to be the most draconian of all because it gives the venture debt provider the option of not following up on their promise if there is a significant change in the company (based on their definition), can often be negotiated. What you need here is a supportive board that has a venture investor with venture debt experience, working closely with you and your CFO to ensure you get the best deal for the company.
Putting in place venture debt is best done right after a VC raise. You can usually structure it to pull the funds much later – and face only a small portion of the costs before pulling the funds. The goal is to have it available in the future in order to buy time for growth so that the next round comes a bit later, giving you more time to increase the value of your company. This means that growth should be the purpose for making your case to raise venture debt with your board. Emergency money or, worse, an excuse just to spend more, is what this kind of financing can unfortunately be wrongly associated with. Although if it comes down to using it in the event of an emergency, that can also be a valuable use, but in that case, it’s usually just to give another shot at pivoting and potentially save the company rather than juice value. In any event, raising venture debt with growth in mind, before you need it, will help you get better terms with debt providers and negotiate favorable covenants.
The basic assumption behind our model is that you’re raising venture debt for the purposes of growing. As such, the spreadsheet helps you look at two scenarios of growing: with and without venture debt. The results, once you input your numbers, are quite simple:
If there is a positive number answering these questions, then you should take a closer look at venture debt. We plugged in numbers to show you how it works, feel free to substitute these with yours (red fields are input fields and the two key outcomes are highlighted in yellow).
Click here to access the spreadsheet.
The model begins by assuming a venture raise just happened (Cash at the End of Period 0, $10 million in the example). In the example, you raise $5 million in venture debt, giving away 0.2% of equity (0.1% when you put the facility in place and the other 0.1% when you draw the money), and paying a setup fee of $30,000. Cash burn is the same in both cases ($3 million), except for the venture debt payments. The example assumes a valuation growth of 25% every period (in this case, every 6 months). Note that you pay the bank the initial fee ($30,000 in the example) even though you don’t draw the venture debt of $5 million until you need it in the third semester.
This model is built to show the debt enabling a six-month funding delay in your next round ($20 million in the example) and assumes the same valuation for both scenarios, as it is just comparing financing structures in isolation. The result in the example: you raised money at a valuation of $97.6 million in the last semester rather than raising it at a valuation of $78.1 million six months before. The net value saved was $3 million, leaving you with 3.07% in equity you can keep. Not too bad!
Does venture debt work for you?
If you plug your numbers into our model through this link (red marks indicate input fields), you will see the impact of using debt in addition to equity for some of your financing. The model buys you time, but you need to keep in mind that growth needs to happen.
Venture debt works when it buys you time for a better valuation because things are going well. You pay for this time with debt and not with equity, saving you equity in two ways: initially by raising debt, and then afterwards by using that debt to get to a better valuation. If your growth scenarios come to fruition, venture debt enables you to raise money a bit later than you would, when the value of your company is higher. That is a great deal if you’re good at forecasting. You can also explore the impact of the debt using different growth scenarios, thus further exploring the potential value or the downside. Have fun 😉