Categories
founder management startup

Company Values: Why They Matter and How to Come Up With Them

Why Values Matter

It’s no secret that your company’s culture is directly tied to its success. And that culture is founded upon core values, which in turn define how you work together as a team. So if this crucial aspect is overlooked, you’ll find yourself having a lot of problems later down the line: issues that could have been addressed early on start festering and become much larger problems in the long run.

Therefore it’s a good idea to define your core values early in the game. This creates a baseline through which you can gauge your company’s performance, and — more importantly — the performance of your employees and co-workers. By having a solid set of values that everyone understands and agrees on, the whole team can abide by the same rules.

Co-Founders Divided

Take my old startup, Gymhopper: some difficulties arose early on when dealing with new hires, because the company’s values were just not well defined. This became especially apparent when my co-founder’s behavior started clashing with mine — a red flag that, being ignored, caused way more problems than it should have.

This happened because, while I really valued Honesty as a core tenet and wanted to have a transparent view of the company and clear feedback from our team with which to improve and plan future goals, my co-founder was… well, not entirely honest. This led to time and energy being diverted from productive tasks and instead being redirected towards trying to pick apart the truths from the lies.

And let me get this straight: you simply cannot have the co-founders lying to each other. That will tear the company apart; it will breed a culture of paranoia and second-guessing in everyone. For those reasons as well as several others, my problematic co-founder had to be fired from the company. In retrospect, it has become clear to me that our values were not aligned — but had this been identified much earlier, some of these situations could have been resolved without causing the ruckus that they did.

Accountability and Versatility

Do not underestimate the importance of the company’s core values. Define them early on, look for them in the people you hire, and hold these people accountable to them. That is how you keep everyone in the company moving in the right direction.

An ideal startup team should be composed of a few talented members whose complementary skill sets each fill a niche in the company, and among all of these people there should be 3-5 shared values which everyone agrees on and works according to. This way, productivity will be much higher, because team members feel secure in having a solid foundation upon which to cooperate.

How to Find Them

If you are already working with a team, here are a few steps on how to get the process started and how to find the unifying values among your co-workers:

  1. Use a survey that allows your team members to select their Top 10 values.
  2. Then, you need to analyze the data and find the patterns. Identify which values show up the most and see if they align with your own. If you picked the right people for your company, the same values should consistently get picked.
  3. Set up a meeting to talk about the values. Discuss which ones were picked the most, and more importantly discuss what they mean for everyone. Hear every opinion, from both those who selected them, and those who did not.

At this point you should have your top 3-5 values identified. But the work does not stop there. Now you need to define them. A great way of doing this is by assigning a phrase to each value, so that you can encapsulate them in easy-to-remember forms. This way, you will avoid making your values vague or open to interpretation.

Values Stated Briefly

As you may imagine, such discussions can be intense, but they are nonetheless crucial for the company’s long-term success. So, to exemplify this concept, let’s take five specific core values and define them in this fashion:

  • Ambition – Aim Higher, Go Faster
    • This communicates that everyone on the team should push themselves to achieve as much as possible, raising the bar to the next level.
  • Accountability – Walk the Talk
    • If you say that you are going to do something, then do it. Follow through with your word.
  • Excellence – Go the Extra Mile for Quality
    • If you are going to do something, aim to be the best at it, because you won’t get there unless you really work for it.
  • Efficiency – Get More Done with Less
    • Find ways to squeeze as much productivity and quality work out of the situation you are in. If you are efficient, you can accomplish the things that larger, less coordinated teams can’t.
  • Creativity – Finding Unexpected Ways to be the Best
    • Often, the established norm will not necessarily help you stand out as the best in your field. Do not be afraid to be creative and try new things, even if you encounter failure along the way (which you certainly will).

These simple sentences encapsulate the meaning behind each value, clearly transmitting the desired message in a way that everyone at the company can understand.

Upholding Your Ideals

Now armed with the core values, you should think about printing posters and hanging them up around the office. Bring up your core values as often as you can, so that they become ingrained in the team’s psyche. When it comes to this matter, it is better to over-communicate than to under-communicate, lest your values become forgotten.

Another important factor to keep in mind is that you should make your values exceedingly clear to potential new hires. That way, you can hold them to the same standard as everyone else. You should also consider holding quarterly meetings where you rate your team members based on their adherence to the company’s values and culture (including yourself of course). Through a simple rating system, you can give them feedback on whether they are living up to the expectations, or if they are falling short, and more importantly, how they can improve.

The key point here is that you need to communicate to people how they are performing. Because if you do not, you tolerate their behavior, which in turn develops a bad company culture. So, if someone does not fit into the company’s culture, it is simply best to part ways amicably. No hard feelings, just a clear understanding that this way will be better for all parties involved.

To get you started, follow this link to select your top 10 values: https://www.valuescentre.com/tools-assessments/pva/

Categories
founder management startup

Success comes from de-risking

You might think that the most successful entrepreneurs on this planet got where they are today by taking huge risks. Some of them got lucky, others didn’t. While luck indeed does play a crucial role in achieving success, there is another component I recently discovered. It seems counterintuitive at first but actually makes a lot of sense. I am talking about de-risking your options.

More Risk = More Reward

What is true for investments, where higher risk is usually compensated with higher return and therefore more risk offers more reward, is also true for the business and startup world. But as with any investment, you can think about how you can de-risk your choices while still keeping the upside as high as possible. That’s what I want to talk about in this short article.

Richard Branson marvelously practiced the strategy of derisking when launching Virgin Airlines. He saw a business potential but wasn’t sure if it’s going to work. Instead of just blindly investing and hoping for the best, Branson was looking for ways to cap his downside. So he was able to negotiate a deal with Boeing to return the airplanes he bought in the early days at no cost if the business plan didn’t work out. Here’s what Branson said about this on the Tim Ferriss podcast: “Look, I promise that I’ll only go into the airline business on one condition and that is if I can persuade Boeing to let me hand the plane back at the end of the first year to protect the downside. So I knew the worst that could happen would be to lose six months of the profits of Virgin Records if it didn’t work out. Boeing agreed to it.”

Think about the worst scenario of your new business idea or business decision you are currently facing and understand what the worst possible outcome is. Then think about ways to mitigate this worst result by negotiating special deals, setting yourself a specific timeline e.g. trying something out for 6 months and kill it if it doesn’t work. You focus on the downside rather than the upside and try to cap the maximum risk you could get there. At the same time, you most likely still have a significant upside, even if it’s just a testing period or a pilot project that you launch. That’s exactly the scenario you want to be in.

A real life example from a startup

Now it’s time to focus on a real life example from a startup I was able to consult over the past months. When the corona crisis hit, many small businesses were caught off guard and either had to suspend or even close their business activities. One company I was working with during that time was active in the fitness industry. Their product was a physical fitness installation that was being sold to gyms. Unfortunately, due to the corona lock down, the gyms were closed and not open for any business and people had to stay at home.

Now you think, people stay at home, so we should develop a version for the home market so people can train at home. This is not what the product was designed for but it is an obviously logical way of thinking about the chances and limitations in the current corona crisis. The only issue: This means quite some heavy upfront investing to adapt the product and software to a completely new market in a super short period of time and without having any proof if the new, adapted product will work. So the investment and time commitment that is required to pull this off as fast as possible is significantly high. The potential upside on the other hand, by not knowing how many people will buy this and having low revenues per customer is pretty limited. This is basically the last situation you want to be in.

A good way of handling this situation is thinking about how you can derisk the downside, the huge upfront investment of time and money while still keeping a relevant upside potential. One way to go would be to launch a landing page, explaining the home product there, before it is even built, driving traffic to the site (e.g. through your own email list or some social media ads) and giving people a chance to preorder the product. If you hit a certain number that justifies and compensates for the upfront investment, you give it a go. If you don’t, you reimburse every single person that preordered from you and apologize for not being able to go ahead with the planned product launch. That way, you can test the upside potential while limiting your downside risk.

As you see, successful companies and entrepreneurship are not so much about taking huge risks, but thinking about how you can mitigate and cap your downside while still having a significant upside. The application of this strategy of risk mitigation allows you to stay alive longer and take more bets than just a single big one. That way you are more likely to find success along the way, and out of different experiments and tests you run an upside you can capture and a successful business you can build around this opportunity. So the next time you face a tough business decision, ask yourself how you can mitigate the risk while still keeping a relevant upside potential in the equation. Happy derisking 🙂 

Categories
founder idea problem solution startup

How to start the next big thing

In his book zero to one, Peter Thiel delivers a blueprint of how to build a successful company. Although his book was published several years ago, it’s still relevant today. Let’s have a look at the most important takeaways.

The right area and market to start a business

Peter Thiel is a contrarian, he opposes popular opinions and therefore likes to ask questions like “What important truth do very few people agree with you on?” during job interviews. His personal answer to this question is that “most people think the future of the world will be defined by globalization, but the truth is that technology matters more.”

In order to choose the right area for your business you should first of all think for yourself and develop a clear image about the future. Then you should ask yourself: “What valuable company is nobody building?” There are underlying secrets behind this question that tackles secrets about nature that we have not yet discovered and secrets about people that we don’t want to tell.

Thiel delivers an example for a promising business: Nutrition. It’s important for everybody on earth but top scientists seem to work in other fields and most of the big studies were done 30 to 40 years ago. There might be an underlying secret behind this area and by uncovering this secret you could build a great business.

It’s important to note that the area where you want to do business should be something that you’re good at but also something that will be relevant in the future. Once you identified your business area, it’s time to tackle a small market where you can gain a large market share fast.

You should aim for the last mover advantage and enter the market last in order to develop a strong, monopoly position for your business. Only with the avoidance of competition will you be able to build a sustainable long term business that generates profits.

A monopoly is usually created through one or several of the following areas: 

  • Proprietary technology
  • Network effects
  • Economies of scale
  • Branding
  • Distribution channel(s)

While the proprietary technology is the most important point to focus on. Your underlying technology should be at least 10x better than the closest substitute.

Finding the right co-founder(s)

Thiel describes the choice of your co-founder(s) as important as getting married. Once you decide to work together (“getting married”) you are basically bond together for lifetime (the lifetime of your company).

A good co-founding team offers strong technical abilities to develop proprietary technology, complementary skill sets and should have a history together before they start a company. From my personal experience the last point especially is very important (which I got wrong at my first startup Gymhopper) because only then can you decide whether you also work well together and share the same values to make it work. 

What a successful company structure and incentives look like

Your company will basically be structured in three different parts:

  • Ownership
  • Possession
  • Control

The ownership focuses on the legal owners of the business, meaning the shareholders. Usually this is a mix between founders, employees and investors. The possession focuses on the operations, the people operating the business and executing the plan. These are usually founders, managers and employees. The last part control describes the board of directors which consists of investors and founders.

A few additional remarks here: Your board should be small and fast and therefore not be bigger than 3 people. Usually it’s a smart idea to have 2 founders sitting on the board and one representative of the investor’s side.

On the employee, founder and manager level it’s important to make sure that everyone who is involved with your company is involved full-time. Usually part-time doesn’t really work out. It’s also important to realize that everybody who does not own stock options or draws a regular salary from your company is fundamentally misaligned. Because these people are biased to the short-term value instead of long-term value creation. That’s also the reason why startup consultants rarely work out.

One important topic is also the CEO’s and founder’s salary. Peter Thiel has strong data that supports that a company does better the less it pays its CEO. That way the executive focuses on long-term value creation and increases the value of the company, instead of defending the status quo.

This alignment is also important for employees. While you are usually not able to pay market salaries (and also shouldn’t due to the points just mentioned before) you should definitely hand out share options to your employees in order to incentivize them to create long-term value. Don’t waste time on people who don’t have a long term future with your company.

Sales is constantly underrated

Sales is constantly underrated by companies. Most businesses are not able to make one distribution channel work and go bankrupt after desperately trying. If you can make one channel work well, you have a solid business. Additionally, superior distribution can create a monopoly by itself.

There are two important metrics you should focus on in sales: The total net profit that you earn on average over the course of your relationship with your customer, called customer lifetime value CLV. The second is the amount you spend on acquiring a new customer, called customer acquisition costs CAC. They should be at a ratio of 3:1 or higher.

Also think very hard about how you distribute and price your product. For expensive products (10k + USD) it makes sense to set up a sales force and hire sales people. For products that cost around 100 USD, hiring sales people would never pay off, so you usually go with traditional advertising. In between, usually for products priced at around 1k USD, there is a deadzone because these products are too expensive to just sell through traditional advertising but don’t pay enough to set up your own sales reps. Avoid this zone at all costs.

Additionally, something Swiss companies don’t like to do too much, selling your company on the media is a necessary part of selling to everyone else. Even if you don’t run your own salesforce and have a viral growth, media coverage will help you attract the right employees and investors for your company. So pay attention to this area and have a clear PR strategy.

The 7 questions every company must answer

Last but not least, Peter Thiel delivers seven questions that every business must answer. This can also be seen as an idea or investment evaluation tool – if people involved in that particular business have good and compelling answers to the questions at hand, they might be up to something. Here are the questions:

  1. Can you create breakthrough technology instead of incremental improvements?
  2. Is now the right time to start your particular business? (and why is now the right time?)
  3. Are you starting with a big share of a small market? (important to build a monopoly business)
  4. Do you have the right team?
  5. Do you have a way to deliver your product? (Distribution & sales focus)
  6. Will your market position be defensible 10 and 20 years into the future?
  7. Have you identified a unique opportunity that others don’t see?

With these key takeaways and questions you can find and evaluate your next big startup business. It all starts with the question: “What will the world look like in 10 or 20 years from now and how will your business fit in?”. Good luck!

Categories
founder idea problem solution startup

How to evaluate your startup idea

You might have several ideas to start a new company but are not sure which idea is the right one or has the biggest potential. The recently launched startup school by Y Combinator addresses this issue with an outstanding podcast episode. Here are the most important key take-aways.

A startup is focused on growth

Before you actually start a company it’s important to understand the playground you choose. A startup is designed to grow really quickly. Fast growth is everything. Profitability comes second. While it’s totally fine to also launch a company that is not growing quickly and considered as a “normal” enterprise or SME, it’s important to understand the implications if you launch a startup.

If you want to build a rapidly growing company your startup idea is basically a hypothesis – why your company can grow quickly. So it’s important to also treat it as such: test and learn as much as possible about it.

The basic structure of a startup idea

A startup idea basically consists of three key parts. The problem, the solution and the insights.

The problem

The problem you solve basically sets the initial conditions. It’s crucial to find problems people actually care about. There are several characteristics that make a good problem:

  • It’s popular, meaning millions of people face it.
  • It’s growing – usually characterized by a growing market of 20+%.
  • It’s an urgent problem – people want an instant solution for this.
  • It’s expensive to solve – and therefore a good basis for your business.
  • It’s mandatory – e.g. through new laws or regulations and need to be solved.
  • It’s  frequent – meaning it needs to be solved multiple times (per day ideally).

If your startup is not taking off, it’s most likely due to the absence of these points mentioned above. While you don’t need to have all the characteristics of a good problem in your startup, you should have at least a few of them, like 2-3.

The solution

As already mentioned above, it’s crucial to start with a problem people have and care about and not with the solution. There are many great technologies and solutions out there that nobody cares about because they don’t solve a good problem. Hence, you will not be able to create a fast-growing company around this solution.

Once you’ve found a good problem, test things out, learn by trial and error and validate or falsify your hypotheses to move towards a good solution. Here it’s important to prove that you can actually build the things you sell to potential clients and investors – a track record of your team certainly helps, but mainly proven execution and delivering on your promises is the best you can do.

Insights

In the third and last part of your startup idea you explain why your solution is going to work. This basically describes your unfair advantage that separates you from other people or companies trying to do the same thing. Your unfair advantage needs to be related to growth, otherwise it won’t be an attractive explanation to potential investors. It’s also crucial that you have one or several unfair advantages; otherwise you most likely won’t succeed.

Here are 5 types of unfair advantages a startup can have:

  • Founder advantage: Only applies if you are a super expert on a specific topic e.g. you have done lots of research in a very specific deep tech area, hold a PhD and several patents. This usually applies to max. 10% of all founders.
  • Market advantage: Meaning you operate in a market that is growing 20% or more year over year. This alone is the weakest advantage you can have but still a good position to be in.
  • Product advantage: Your product is 10x better than the competition, e.g. faster, cheaper, etc. and people will notice this immediately.
  • Acquisition advantage: You successfully set up user acquisition channels that don’t cost you any money e.g. viral loops or word of mouth. Any paid channel does not count as an advantage because as soon as you’re successful, competition will enter the market and prices will increase, so this paid acquisition is not a sustainable advantage.
  • Monopoly advantage: Peter Thiel probably describes this best in his book Zero to One: your company basically becomes stronger the more you grow. This is mainly a result of network effects and marketplaces where the winner takes all.

These 3 core components of a startup idea should give you a good overview of what to focus on in the early days when thinking about your next venture. Think the ideas through with the problem in mind, validate it with potential users and see where you have an unfair advantage and you might be able to build a successful company.