Puzzles in Growth Businesses

Growth

How to find growth in all the tough places.

Presented by Andrew WaitmanTuesday, December 16, 2014

In life, always

be starting

newnew things.

My Past Attention…My Past Attention…

SW Engineer

5 Years

I-Banking/Analyst

4 Years

Managing Partner

12 Years

CEO

6 Years

My Current Attention…My Current Attention…

InvestorCo-Founder

Board Member

FIDUS FIDUS TECHNOLOGYTECHNOLOGY

InvestorCEO

ASSENT ASSENT COMPLIANCECOMPLIANCE

InvestorCo-Founder

Board Member

Nectar Nectar FlowersFlowers

InvestorBoard

Member

PYTHIANPYTHIAN

Breakfast TalkBreakfast Talk

• The answer to the city’s/country’s venture paucity

• Lessons learned in growing Pythian

Venture Investments – Venture Investments – Follow (not lead) WinnersFollow (not lead) Winners

BUILD WINNERS

…that provide liquidity.

Venture Investments – Venture Investments – Follow (not lead) WinnersFollow (not lead) Winners

BUILD WINNERS

…that exit.

Sequoia Venture Investments – Sequoia Venture Investments – Exits MattersExits Matters

Think Ottawa Ottawa (circa 1998-2002) and Silicon Valley Silicon Valley (circa 1970-2015)

…and the money, investors, angels, VCs, entrepreneurs with crazy ideas and no mortgages, everyone with envy, many with ambition, drive, risk taking, initiative, people with good ideas, those who can work for free, lawyers, real estate, lots of failures, and more winners, bankers, accountants, advisors, gov’t program wannabes, advisor wannabes, tons of customers, expertise, many start-ups, fantastic entrepreneurial culture……

willwill followfollow…

Recipe for a vibrant technology city…(Scale of 1 to 10) Silicon Valley NY/ Boston Toronto Ottawa

1.Money 10 8 7 ?2.Talent 10 8 7 ?3.Risk Appetite 10 7 6 ?4.Distribution Proximity 10 9 8 ?5.Culture/Encourage 10 8 6 ?6.Volume/Probability 10 8 7 ?7.Repeat Success 10 8 6 ?8.Clusters/Networks 10 9 6 ?9.Ambition 10 7 7 ?10. Inspiration / Hero's 10 7 6 ?

Venture Ecosystem ComponentsVenture Ecosystem Components

Then there are the outliers…Then there are the outliers…

Most uninspired VC questions and Most uninspired VC questions and how to respond:how to respond:

Q. Why will ______ giant company not copy and crush your idea/start-up?A. Did Google kill Youtube? Did Blockbuster kill Netflix? Did Ebay kill Paypal?

Did Kodak kill Instagram? Did Blackberry kill WhatsApp? Did Microsoft kill Google? Did GM kill Tesla.

Q. Show us the growth numbers and data/evidence to support your thesis?A. Dude (and please do reply ‘Dude’ to the VC) if I had that data, I would not

be sitting here responding to your uninspired inquiry.

Q. What is your financial forecast for the next five years?A. Dude in the start-up world ‘pivot’ is not a dance move, it’s a way of life…

anything I project will be wrong in the next 10 minutes or major business decision which ever comes first!

Smart Mobile

Cloud

Big Data

Social

Analytics

Internet of Things

Setting the Macro ContextSetting the Macro Context

ThreeThree Types of Business

Know Your Market ContextKnow Your Market Context

Market Size Large Any Any

Market Adoption Rapid Rapid Modest

Cost of Acquiring Customer Very Low Lower High

Margins High Any Any

Barriers to Entry High Medium Low

Competition / Subst. Low High High

Black Swan

Fashion Grinder

AIDAAIDA

Why Do Consumer Markets Matter?Why Do Consumer Markets Matter?

It is noteworthy that the vast majority of  outlier companies in the past decade (see slide below)  have been consumer and not enterprise businesses.  There are important insights even here.   Consumer businesses (Apple, Google, Amazon, Twitter, Facebook, PayPal, Twitter, Pinterest)  are less regulated by government and can bypass corporate inertia, status quo laziness and risk aversion.  

Remember Microsoft, DELL, Salesforce started off selling to consumers (or small business) and then moved into the Enterprise.  Enterprise are laggard adopters due to business and decision inertia.  This point—business inertia-- has to do with risk aversion, regulation, status-quo and laziness.   Large segments of consumers are on the other hand quick to adopt new technology and new and better ideas and improved ways of doing things. 

Why certain things succeedWhy certain things succeed

1. They are just better. Think Google!

2. They make things easier/convenient Think iPAD

3. They are cheaper. Think Dollarama

4. They get exposure. Think WhatsApp

5. People share if they care Think Pintrest

6. Social Influence. Think Justin Bieber• Highly influential people. • Highly connected people.

7. Ease of transmission. Think TXT, Email, Facebook, YouTube

8. Some stories more contagious. Think Susan Boyle

9. Mavens, Connectors, Salespeople Think Elon Musk/Peter Theil

10. THE CONTENT IS THE VIRALITY Think Youtube/GoPro

1. Social Currency : cool, smart, remarkable, clever

2. Triggers: Remind people to talk about.

3. Emotion: When we care, we share.

4. Public: Social Proof. What is everyone saying/doing.

5. Practical Value: People like to help people.

6. Stories: Message fits neatly into narrative.

The Science to Viral: STEPPSThe Science to Viral: STEPPS

SStrategytrategy

CCultureulture

RRisk Takingisk Taking

EExecutionxecution

AAdaptationdaptation

MMetricsetrics

SCREAMSCREAM to DREAM

FABRIC

OF SUCCESS

Setting the ContextSetting the Context

LeftCelticHouseEnd of July 08

JoinedPythianEnd ofSept 08

Context Jan-Dec 2009Context Jan-Dec 2009

• …..a first time CEO…

• …with 2007 LBO puts $2.7 Million of Debt @ 10+% coupon on Balance Sheet…

• …and modest size company requires investment in a growth leadership/management team…

• ….and HQ Office needs to move--lease up—the move will cost money…

• ….Clients losses/reductions are accelerating throughout 2009 as recession bites…

• ….just when you thought it could not get any crazier…

C$ Appreciation reduces Revenue results…C$ Appreciation reduces Revenue results…

C$ 30% Appreciation against US$ in 12 months

So whatwhat do you do?

DonDon’’t Panic.t Panic.

1. Win the crowd / Gather greatness.

Establish clear Priorities, Establish clear Priorities, Ownership, Deliverables. Ownership, Deliverables.

2. First things first. What’s important now? What’s important never?

Be Be clearclear about your strategy. about your strategy.

3. Who do you sell to and why? Be clear about what problem you are solving.

LTV – CAC must be +VELTV – CAC must be +VE

4. Life time value (LTV) vs Cost acquiring customers (CAC)

People MatterPeople Matter

5. The Leadership Team sets the tone/culture.

The Natural State of BusinessThe Natural State of Business

“The only things that evolve by themselves in an organization are disorder, friction and mal-performance”

-Peter F. Drucker

CommunicationCommunicationCollaborationCollaboration

Co-operationCo-operation

CoherenceCoherence

Creative SolutionsCreative Solutions

Conditions for SuccessConditions for Success

Fabric of CultureFabric of Culture

Where Have All the Great Leaders Gone?Where Have All the Great Leaders Gone?

Recipe for a Recipe for a WOWWOW early stage CEO… early stage CEO…

1.Cares about people and inspires as a leader-leader.2.Self-aware. Emotionally stable. ‘Keeps calm and carries on’. 3.Core competency somewhere e.g. Business Strategy, Execution.4.Risk/resource judgment comfortable/capable. 5.Adaptable/compatible with Founder(s).6.Understands all Functions and particular HR.7.Confident proactive decision maker (with humility).8.Strategy, Culture, Risk, Execution, Adaptation, Metrics.9.Equal parts Tireless, Energy, Enthusiastic, Encouraging.10. There is no ‘i’ in Team. An ‘i’ in Run the company is Ruin the company.

WhoWho do you listen to and do you listen to and whywhy??

6. Timely, data driven decisions…& judgment does matter.

Decisions Driven by Data MattersDecisions Driven by Data Matters

Feedback Loops Matter.Feedback Loops Matter.

7. Deliverables, Dashboards, Metrics.

What happens to Feedback Loops When What happens to Feedback Loops When

Time → Time → LargeLarge

How can we learn with feedback loops that are polluted over time or if causality is confusing?

T>> Days

Smart Experiments until Evidence. Smart Experiments until Evidence.

8. Sales, Marketing, Business Development Recipe

Find the Patterns.Find the Patterns.

9. Insights Adaptation Matters

Observation Insight Decision/

Action

10. Perpetual Learning Organization

Summary - Summary - TenTen Steps to Growth Steps to Growth

1. Stay calm!

2. Establish clear Priorities, Ownership, Deliverables.

3. Be clear about and communicate your strategy and goals.

4. TAM++, Success = LTV - CAC

5. The leadership team sets the tone, culture and dynamics.

6. Timely, data driven, risk judgment decisions taken daily.

7. Deliverables, Dashboards, Metrics matter.

8. Sales/Marketing/Business Development recipe matters.

9. Insights adaptation matters.

10. Perpetual learning organization.

BE AN OPTIMIST PRAGMATIST