Archive for the ‘Business Lessons’ category

Key Metrics for Startups on Marketing, Sales and Customer Success


Most of the metrics we are going to see here will sound obvious but I’ve seen even some matured companies do not actively follow it. In a startup company discipline becomes very crucial, keeping things simple and measurable helps a lot. There are more complex metrics like Customer Acquisition cost (CAC), Lifetime value of the customer (LTV), Average revenue per customer (ARPA) etc, but I feel it’s better to have basics correct before complicating it too much.

Marketing Metric

Lead Quota: One of the common mistakes I’ve done in early stages is not setting up a lead quota for the digital marketing team. We simply allocated a monthly budget and not actively measured exactly how many leads we have generate for that month. The goal of marketing team should be increasing the number of leads (quality) we receive every month. If we can measure just this one metric then the other metrics become irrelevant from a top management perspective, example volume of visitors to the website.  The number of visitors to the site really doesn’t matter, it’s the quality of conversion that matters. This will push the marketing guy to look deep into finding new channels, tuning the existing channels, A/B testing the landing pages etc to increase the lead quota.

Cost of Lead Acquisition, this becomes the second part. How much money are we spending each month to acquire X number of leads? In an ideal situation, we wanted to generate a maximum number of leads from the minimum amount spend. Once you have a baseline number say for example 200 leads cost $20k, the cost of lead acquisition is $100 then we can push on optimizing it and bringing the expense down or increase the budget and hence the lead quota. One of the major problems in the digital marketing is if you are not careful it’s literally throwing money in the fire. PPC platforms like Google, LinkedIn, Facebook etc will all just observe it as much as you throw at them.

Sales Metric

Sales Quota – also termed as revenue generated per SDR (sales development rep). This will hugely vary from startup to startup, most likely in the range of $2k-$3k MRR (monthly recurring revenue) in a typical SaaS startup. It’s important to balance out the number of leads required for the SDR to achieve the assigned sales quota. The number of leads that can be handled by an SDR will be industry specific, in a B2B long tail sales pipeline typically a 1 or 2 quality lead per day is a good number, whereas in a short sales cycle SaaS startups it can go up to 8 per day. Don’t go beyond this, it’s practically impossible for the SDR to handle since you also need to consider the backlog follow-ups that add up quickly.

Customer Success Metric

Once your SaaS startup gets enough traction and you have a handful of customers, it’s important to set up a Customer Success team to make sure the existing customers are happy and address their concerns as soon as possible before they become unhappy and start looking for alternate solutions. The startup founder should give as much importance to customer success as marketing and sales team. I’ve seen companies focusing purely on acquiring new customers and not paying attention to churns, if you think the amount of effort gone into acquiring those customers, it’s become vital to preserve them. It’s 5 times harder to acquire a new customer.

Expansion Revenue is the revenue that gets generated from existing customers. Ex: If you are help desk product,  the expansion revenue is the additional revenue generated by existing customer either buying more agents or moving all of their agents to higher tiers.  This could be one rewarding metric for CS team.

Churns: The goal of the customer success team should be predominantly reducing the churns, and any expansion revenue they generate is a bonus. The culture of the team shouldn’t be set for increasing the revenue, rather it should be set for pure customer happiness and reduce the churns.

You can monitor the expansion revenue and churns as metrics for customer success teams.

Terms I’ve learned about startup financing

In the past few days I’ve spent considerable amount of time going through different articles, blogs, and speaking to my friends who have raised money, established an option pool etc to understand  the various aspects of startup financing. Even though I’m not looking for any investor money at this stage, I thought it will be good to understand certain terminologies and educate myself. I’ve captured a lot of useful terms and what it exactly means in this article, I don’t claim the content to be original here, it’s just a curation of  best piece of definitions/explanations I’ve found while searching (you can see the references at the bottom). This will save me lot of time in the future, I don’t need to do the same exercise of searching and reading tons of articles to get to the points. I hope some of you might find this interesting.


Lets start with valuation. This is extremely tricky one and there is no definitive guide to derive your company valuation, whether you are an early stage startup on stealth mode or you are generating some revenue.  It looks more of a guesswork than any scientific formula to derive your company valuation. I’ve spoken to few founders who raised funding, the more I speak the result are more obscure. I’ve come across founder currently doing $1m/annum valued at $20m and also a startup just begin their journey and making about $200k/annum still valued at $20m. It comes to factors like founding team, product, the market potential, investors confidence on the market and the team etc. It’s also common sometime you get x-multiples of your current revenue. Ex: $2m/annum might get you to $20-$25m at 10 to 12x multiples. Somehow you need to make the person who is either going to invest or an employee accepting an stock option to believe the valuation is approximately correct. Also, remember the valuation is analysis at that point in time and it will change over the course of the startup journey month on month.

Pre-money vs. Post-money Valuation

The difference between pre-money valuation and post-money valuation is simple. Pre-money refers to your company’s value before receiving funding. Let’s say a venture firm agrees to a pre-money valuation of $10 million for your company. If they decide to invest $5 million, that makes your company’s post-money valuation $15 million.
Post-money valuation = pre-money valuation + new funding

These terms are important because they determine the equity stake you’ll give up during the funding round. In the above example, the investor’s $5 million stake means he’s left with 33% ownership of the company ($5  million/$15 million).

Let’s consider a counterexample. Say the company was valued at $10 million post-money instead, implying a $5 million pre-money valuation. This means that the investor’s $5 million counts as half the company’s valuation. He comes away with 50% of the company in this scenario, rather than 33%. Given the difference in equity, you can see how important it is clarify between pre and post-money valuations when discussing investment terms.

Convertible Notes

When a company is young, quantifying its valuation is often an arbitrary, pointless exercise. There may not even be a product in hand, let alone revenue. But companies at this stage may still need to raise money. Convertible notes is a financing vehicle that allows startups to raise money while delaying valuation discussions until the company is more mature. Often notes convert to equity during a Series A round of funding.

Investors who agree to use convertible notes generally receive warrants or a discount as a reward for putting their money in at the earliest, riskiest stages of the business. In short, this means that their cash converts to equity at a more favourable ratio than investors who come in at the valuation round.

Capped vs. Uncapped Notes

As discussed above, convertible notes delay placing a valuation on a company until a later funding round. But investors often still want a say in the future valuation of the company so their stake doesn’t get diluted down the line. When entrepreneurs and investors agree to a “capped” round, this means that they place a ceiling on the valuation at which investors’ notes convert to equity.
So if a company raises $500,000 in convertible notes at a $5 million cap, those investors will own at least 10% of the company after the Series A round ($500,000/$5M).

An uncapped round means that the investors get no guarantee of how much equity their convertible debt investments will purchase, making these kinds of investments most favourable for the entrepreneur. Let’s consider a company that raises $500,000 in an uncapped round. If they end up making so much progress that they convince Series A investors to agree to a $10 million, this means that their convertible note investors are left with just 5% of the company, half of what they would get if they capped the round at $5 million.

Cap Table

The capitalization or “cap” table reflects the ownership of all the stockholders of a company — that includes the founder(s), any employees who hold options, and of course the investors. For most people to understand how much of a company they actually own, all they really need is the fully diluted share count, the broader breakout of ownership among different classes of shareholders, and a couple other details.  The fully diluted share count (as opposed to the basic share count) is the total of all existing shares + things that might eventually convert into shares: options, warrants, un-issued options, etc.

Here’s a new company that has no outside investors, and existing stock allocated as follows:


If someone were offered 100 options, those shares would come out of the 1,000-share option pool, and so they’d own 100/10,000 or 1.0% of the fully diluted capitalization of the company.

I found couple of good resources for cap table here (venturehacks) and here (

Common vs Preferred shares

Most startups have both common and preferred shares. The common shares are generally the shares that are owned by the founders and employees and the preferred shares are the shares that are owned by the investors. So what’s the difference? There are often three major differences: liquidation preferences, dividends, and minority shareholder rights plus a variety of other smaller differences. The biggest difference in practice is the liquidation preference, which usually means that the first thing that happens with any proceeds from a sale of the company is that the investors get their money back. The founders/employees only make money when the investors make money. In some financing deals the investors get a 2x or 3x return before anyone else gets paid. Employees typically get options on common stock without the dividends or liquidation preference. The shares are therefore not worth quite as much as the preferred shares the investors are buying.


Any analysis of percent ownership in a company only holds true for a point in time. There are lots of things that can increase the fully diluted share count over time — more options issued, acquisitions, subsequent financing terms, and so on — which in turn could decrease the ownership percentage. Of course, people may also benefit from increases in options over time through refresher or performance grants, but changes in the numerator will always mean corresponding changes in the denominator.
This is something to keep in mind, a ownership of 5% equity in a business will not stay the same forever.

Original issue price, Conversion price, Exercise price


Dilution is a loaded word and tricky concept. On one hand, if a company is raising more money, it’s increasing the fully diluted share count and thus “diluting” or reducing current owners’ (including option-holding employees’) ownership. On the other hand, raising more money helps the company execute on its potential, which could mean that everyone owns slightly less, but of a higher-valued asset. After all, owning 0.09% of a $1 billion company is better than owning 0.1% of a $500 million company.

If the company increases the size of the option pool to grant more options, that too causes some dilution to employees, though hopefully (1) it’s a sign of the company’s being in a positive growth mode, which increases overall value of the shares owned (2) it means that employees might benefit from those additional option grants.

Let’s return to the example we introduced above, only now our company has raised venture capital. In this Series A financing, the company got $10 million from investors at an original issue price of $1,000 per share:


The important thing to keep in mind here is the magic number 100% is never going to change, it’s only the number of shares and corresponding price per share (value) going to keep changing constantly over the life of the company .

The fully diluted share count increases by the amount of the new shares issued in the financings; it’s now 20,000 shares fully diluted. This means the employee’s 100 options now equate to an ownership in the company of 100/20,000, or 0.5% — no longer the 1% she owned when she first joined. But… the value of that ownership has increased significantly: Because the price of each share is now $1,000, her stake is equal to 100 shares * $1,000/share, or $100,000.

Anti-dilution protections

While not all dilution is equal, there are cases where dilution is dilution — and it involves the anti-dilution protections that many investors may have. The basic idea here is that if the company were to raise money in a future round at a price less than the current round in which that investor is participating, the investor may be protected against the lower future price by being issued more shares.

Most anti-dilution protections — often called a weighted average adjustment — are less dilutive to employees because they’re more modest in their protection of investors. But there’s one protection that does impact the other shareholders: the full ratchet. This is where the price that an investor paid in the earlier round is adjusted 100% to equal the new (and lower) price being paid in the current round. So if the investor bought 10 million shares in the earlier round at a price of $2 per share and the price of the current round is $1 per share, they’re now going to get double the number of shares to make up for that, equalling a total of 20 million shares. It also means the fully diluted share count goes up by an additional 10 million shares; all non-protected shareholders (including employees) are now truly diluted.

Ideally, anti-dilution protections wouldn’t come into play at all: That is, each subsequent round of financing is at a higher valuation than the prior ones because the company does well enough over time, or there aren’t dramatic changes to market conditions. But, if they do come into play, there’s a “double whammy” of dilution — from both the anti-dilution protection (having to sell more shares, thus increasing the denominator of fully diluted share count) as well as the lower valuation.

Liquidation Preferences

The preferred stocks hold by the investors will normally come with liquidation preferences that attach to their shares. Simply put, a liquidation preference says that an investor gets its invested dollars back first — before other stockholders (including most employees with options) — in the case of a liquidity event such as the sale of the company.

To illustrate how such a preference works, let’s go back to our example, only now assume the company was sold for $100 million. Our Series A investor — who invested $10 million in the company and owns 50% of the business — could choose to get back its $10 million in the sale (liquidation preference), or take 50% of the value of the business (50% * $100 million = $50 million). Obviously, the investor will take the $50 million. That would leave $50 million in equity value to then be shared by the common and option holders:


Given the high sale price for the company in this example, the liquidation preference never came into play. It would, however, come into play under the following scenarios:

Scenario 1. If the sale price of a company is not sufficient to “clear” the liquidation preference, so the investor chooses to take its liquidation preference instead of its percentage ownership in the business.

Let’s now assume a $15 million sale price (instead of the $100 million) in our example. As the table below illustrates, our Series A investor will elect to take the $10 million liquidation preference because it’s economic ownership (50% * $15 million = $7.5 million) is less than what it would get under the liquidation preference. That leaves $5 million (instead of the $50 million) for the common and option holders to share.


Scenario 2. When a company goes through several rounds of financing, each round includes a liquidation preference. At a minimum the liquidation preference equals the total capital raised over the company’s lifetime.
So, if the company raises $100 million in preferred stock and then sells for $100 million, there’s nothing left for anyone else.

Scenario 3. There are various flavours of liquidation preference that can come into play depending on the structure of the terms. So far, we’ve been illustrating a 1x non-participating preference — the investor has to make a choice to take only the greater of 1x their invested dollars or the amount they would otherwise get based on their percentage ownership of the company.

But some investors do more than 1x — for instance, a 2x multiple would mean that the investor now gets 2x of their invested dollars off the top. The non-participating can also become “participating”, which means that in addition to the return of invested dollars (or multiple thereof if higher than 1x), the investor also gets to earn whatever return their percentage ownership in the company implies. The impact of this on other stockholders can be significant.

To isolate the effects of these terms, let’s first look at what happens when our Series A investor gets a 2x liquidation preference. In the $100 million sale scenario, that investor will still take its 50% since $50 million is greater than the $20 million (2 x $10 million liquidation preference) it’s otherwise entitled to. The common and option holders are no worse off than they were when our investor had only a 1x liquidation preference:


But, if the sale price were the much lower $15 million, the investor is going to capture 100% of the proceeds. Its 2x liquidation preference still equals $20 million, but there’s only $15 million to be had, and all of that goes to the investor. There’s nothing left for common and option holders:


Finally, let’s take a look at what happens when we have participating preferred, colloquially referred to as “double dipping.”

In our $100 million sale scenario, the Series A investor not only gets its $10 million liquidation preference, but also gets to take its share based on its percentage ownership of the company. Thus, the investor gets a total of $10 million (its liquidation preference) plus 50% of the remaining $90 million of value, or $55 million in total. Common and option holders get to share in the remaining $45 million of value:


In the $15 million scenario, the common and option holders get even less. Because the Series A investor gets its $10 million in preference plus 50% of the remaining $5 million in proceeds, for a total of $12.5 million, only $2.5 million is left for the rest of the shareholders:


Employee Stock options

“Stock options” as typically granted give you the right to buy shares of stock in the future for a price which is determined today. The “strike price” is the price at which you can buy the shares in the future. If in the future the stock is worth more than the strike price, you can make money by “exercising” the options and buying a share of stock for the strike price.

Startup employees get stock options that typically vest over a four-year employment period, so if they choose to leave the company after four years (or at any time for that matter), they have only 90 days in which to exercise or forfeit the options. And that’s the catch: Exercising requires cash. Not only do you have to pay the company the exercise price for each share (because they are stock options, not actual restricted stock units), the IRS then taxes you at year end on the difference between the then-existing fair market value of the stock and the exercise price.

There are four groups of people who will own the company: investors, founders, employees, and former employees. When a company is first started, the CEO often puts aside a pool of common stock from which to grant employee options, generally around 15% of the company’s capitalization.

Over time, that pool shrinks as options are extended to new employees or as existing employees are given additional grants. The pool can be replenished when employees leave — either because they leave before their options are fully vested or because they don’t exercise vested options within the 90-day period that currently exists — so those options go back into the pool. When the pool gets exhausted altogether, the company will often ask shareholders to increase the size of the pool (i.e., getting them to approve an increase in the number of authorized shares the company can issue).

But, the pool can’t magically increase without impacting all existing shareholders, because 100% = 100%. If an employee owned 1% of the company before the pool increase and then the company increased the option pool by 10%, that employee now owns 0.9% of the company. Increasing the pool dilutes ownership. Just because a company can increase the nominal size of the pool to whatever level it wants, doesn’t change what the company was worth before it increased the pool.

Many early startup employees are generally okay with some dilution because, at least in theory, increasing the option pool to hire more people helps grow the company — which in turn hopefully increases the value of the company. So while an employee might own less of the company than before, he or she would rather own 0.9% of a company worth $1 billion than 1% of a company worth nothing. 1% of 0 is still 0 after all.

How Does a Employee Stock Option Work?

The following shows how stock options are granted and exercised:

Expiration and termination : Options typically expire after 10 years also typically in 90 days, which means that at that time they need to be exercised or they become worthless. Even if they are vested, you need to exercise them or lose them at that point.

Stock options – Mergers & Acquisitions

One of the most frequently asked questions about options is what happens to them if a startup is acquired. Below are some possible scenarios, assuming four years to fully vest but the company decides to sell itself to another company at year two:

Scenario 1. Unvested options get assumed by the acquirer.

This means that, if someone is given the option to stay with the acquirer and choose to stay on, their options continue to vest on the same schedule (though now as part of the equity of the acquirer). Seems reasonable… Unless of course they decide this wasn’t what they signed up for, don’t want to work for the new employer, and quit — forfeiting those remaining two years of options.

Scenario 2. Unvested options get cancelled by the acquirer and employees get a new set of options with new terms (assuming they decide to stay with the acquirer).

The theory behind this is that the acquirer wants to re-incent the potential new employees or bring them in line with its overall compensation philosophy. Again, seems reasonable, though of course it’s a different plan than the one originally agreed to.

Scenario 3. Unvested options get accelerated — they automatically become vested as if the employee already satisfied her remaining two years of service.

There are two flavors of acceleration to be aware of here, single-trigger acceleration and double-trigger acceleration:

In single trigger, unvested options accelerate based upon the occurrence of a single “trigger” event, in this case, the acquisition of the company. So people would get the benefit of full vesting whether or not they choose to stay with the new employer.
In double trigger, the occurrence of the acquisition alone is not sufficient to accelerate vesting. It must be coupled with either the employee not having a job offer at the new company, or having a role that doesn’t quite match the one they had at the old company.

Note, these are just general definitions. There are specific variations on the above triggers: whether everything accelerates or just a portion; whether people accelerate to some milestone, such as their one-year cliffs; and so on — but we won’t go through those here.
Not surprisingly, acquirers don’t like single triggers, so they’re rare. And double triggers give the acquirer a chance to hold on to strong talent. Still, it’s very unusual for most people to have either of the above forms of acceleration. These triggers are typically reserved for senior executives where it’s highly likely in an acquisition scenario that they won’t — or literally can’t (not possible to have two CFOs for a single company for example) be offered jobs at the acquirer — and thus wouldn’t have a chance to vest out their remaining shares.

The simple way to think about all this is that an acquirer typically has an “all-in price” — which includes up-front purchase price, assumption of existing options, new option retention plans for remaining employees, etc. — that it is willing to pay in the deal. But how the money ultimately gets divided across these various buckets can sometimes diverge from what the initial option plan documents dictate as acquisition discussions evolve.

Pay attention to option pool shuffle

Option pool is a term used to refer to a chunk of equity reserved for future hires. The size of your option pool, as determined during a round of funding, has a direct impact on your company’s valuation and hence, your ownership.

This is because the option pool is often included in the pre-money valuation of a company. So let’s say investors agree to invest $2 million at a $10 million pre-money valuation, implying a $12 million post-money valuation. Option pools are expressed as a percentage of post-money valuation, so if the deal includes a 20% option pool, that means the pool is worth $2.4 million. Your $10 million pre-money valuation is now effectively a $7.6 million pre-money valuation. The investor isn’t taking a larger percentage as a result—they’ll still own 16.7% of the company in this case—but you will be substantially diluted because the option pool will come directly from management’s stake. So if you owned 100% and think you now own 83.3%, you’re wrong. That 20% option pool, reserved for future employees, means you now own 63.3% of company.


A vesting schedule is imposed on employees who receive equity, and determines when they can access that equity.  This is useful because it means that if you give 5% of your company to a partner, that partner can’t just quit a couple of months later and keep the equity. A typical vesting schedule takes four years and involves a one year cliff.

The “cliff” means that none of the employee’s shares vest for at least one year. After that year, typically 25% of the employee’s equity is released, and the rest vests on a monthly or quarterly basis. The cliff is there to protect the company – and all the shareholders, including other employees – from having to give shares to individuals who haven’t made meaningful contributions to the company

References used:

Stop thinking about avoiding mistakes

Stop thinking about avoiding mistakes

One of the common things start-up founders tend to do is spending a lot of time trying to educate them by reading tons of articles and video on topics like “How to avoid start-up mistakes”. Few examples here

5 Fatal Startup Mistakes — and How To Avoid Them
9 Brutal Startup Mistakes That Can Kill Your Business
7 Mistakes to Avoid When Starting Up
10 Mistakes You Will Make as a First Time Entrepreneur

The real truth is, just don’t bother too much. If you come across these articles by accident, you can glance through them quickly, pay little attention to the headings and move on.

Running a business whether it’s small or big, comes with all kinds of challenges. Every day is different, every business is different. In my experience so far running BizTalk360 for 5+ years, you never know what surprise you are going to get next. It may be something like your website gone down, your competitor released a big update, one of your core employee resigned, sales team lost a big contract,  angry customer fuming in social media etc, etc. The list is literally endless.

In almost all cases you really can’t avoid them, you can only deal with them in the best way possible. Stop worrying about things that didn’t happen and focus on things that matter the most “Getting things done”.

Even though you are a small start-up founder, compare yourself with great CEO’s like Satya Nadella and  Mark Zuckerberg. We all have exactly same amount of hours in a day, you cannot keep thinking and worrying about endless things that come to your mind. Keep your mind clear and focus on what’s important.

I can’t change the direction of the wind, but I can adjust my sails to always reach my destination.
-Jimmy Dean

The Entrepreneurs Journey

As a founder of a growing business, I’m always in a look out for opportunities to learn new techniques, connect with relevant people and bring some fresh ideas to table. On that basis based on one of our friends recommendation I attended a workshop called “Brand Expansion Workshop” delivered by Daniel Priestley. Daniel is originally from Australia and has successfully built and exited few business at very young age. In the recent years Daniel and his company are trying to coin the term “Key Person of Influence”.

The basic idea behind KPI is to choose your narrow niche and become the key person of influence in that area. This is not just a software workshop, I got a chance to meet people from different backgrounds like a doctor who wants to become a KPI in specific specialization, a guy who want to become a KPI for arranging holidays for disabled people etc.

A lot of times Entrepreneurs think their business problems are unique and keep struggling to find solutions to it. But in reality most of the business problems are pretty common, it will depend on what stage of the business you are in, and where you wanted to go next.

I really liked this particular slide, where it showcases the Entrepreneurs journey or the state of the business. 

The Entrepreneurs Journey

Start-up: Very early days, no money, no customers you got some idea and trying to make it work.

Wilderness: Where you have a product (some asset) you can sell, you are about 3 people company and annual revenue of 300k. This is pretty true, majority of the business (about 70%) will be within this territory. This is really a “Red Ocean” zone, where you are literally fighting for survival with items as shown below.

Blue vs Red Ocean strategy

Blue Ocean Strategy is another interesting concept.

Lifestyle Business: The next stage is Lifestyle business where you scaled your company to about 12 people and somewhere making less than 2m in annual revenue. The business is run like a family business, where you all know each other very well, no big processes in place, everyone know what they are doing etc. Here the founder will get some helping hands and he will not kill himself with 70 hours work week. A lot of people will be happy to stay in this zone and may not look into go beyond.

Desert: This is again kind of wilderness zone, where you are moving away from your comfortable lifestyle business and start moving your company into a performance zone. This is one of the risky places, it can go either way. Once you employ your 13th employee into the company, all of a sudden the soft cushion of closely connected people/family business kind of bond will start to break, you will start looking into putting processes in place like holiday policies, stationary shelf, performance reviews etc. Your 12 member team will start to split into multiple 4-5 member teams and they will all be doing things of their own. In this stage normally founders get into a lot of trouble like relationship issues, financing issues, etc.

Performance Business: This is ideally where most of the passionate entrepreneurs want to get to. About 50+ people in the team, with an annual revenue of 10m+. At this stage your business is completely self-run and not relying on founder(s) alone. The majority of the business will not make it into this stage since they need to cross the desert.

Unicorn: The final stage of the journey is unicorns, where you reached 1bn+ revenue in 7 years or less. In general, you do not learn much from unicorn companies. The majority of the time unicorn companies are created based on facts like the right idea, the right time, the right team, right execution, perfect product-market fit etc. Examples include Facebook, Uber, Whatsapp, Instagram, etc. It’s very difficult to replicate that model, and the probability is about 1 in 15m, worst than winning a lottery.

It’s a no-brainer for the founder to know which stage of the business you are in. There are only 2 obvious choices, whether to stay where you are or put the plans in place to move to the next level. Not necessarily all of them want to move to the next level, it will depend on founders preference and what you need to achieve in life. It’s perfectly ok to have a lifestyle business and be happy, at the end of the day 2m/annum is a lot of money and can bring comfortable lifestyle than many people in the world. But if your ambition is to create an ecosystem, wealth for not just the founder but for the people who trusted you (employees, investors) etc then you should think about moving to the next stage.

When you decided to move to the next stage, then you need to put plans in place how you are going to achieve it, getting prepared for the obstacles that will come in your way.

Another interesting thing I liked from Daniel’s workshop is writing a handbook showing where you are now, where you want to be in 3 years time and write down all the obstacles you’ll see in between.

This blog is just about 45 minutes coverage of Daniels workshop, I’ll try to cover the remaining learning in another 1 or 2 blog posts.

REWRITE – notes from David Heinemeier Hansson talk at Business of Software 2015

I’ve taken few notes during the Business of Software (2015, Boston) talk given by David Heinemeier Hansson (Basecamp, Ruby on Rails fame) on the topic “REWRITE”. It was such an excellent talk, I just wanted to elaborate my notes so that it will make sense for me after few weeks.

David Heinemeier Hansson

The main essence of David’s talk is all about, as part of your growth should you go and rewrite your software from scratch or evolve your current product gradually keeping your current paying customers in mind. His talk mainly focused around 10+ years of running Basecamp and their recent effort in building version 3.0.

Idea of Transcendent software

It’s a great analogy to think about your software as physical object. Most of the time people do not give same respect to the software since it’s not a tangible asset, which you cannot touch and feel. But if you start thinking of your software as a physical object it will change the whole perception. Think  about a table or chair, when you are choosing it no one likes to buy a crappy looking table or chair. You wanted it to look good, you wanted the colours to be perfect, shape should be perfect and so on. If you bring the same perception to your software then the way you think about it will change completely.

Need to measure the cost of change VS value of change

David referred to the famous article by Joel Spolsky about “Things you should never never do”, where it’s generally not a good idea to scratch your legacy software and thinking about starting again. This will be one single worst strategic mistake you’ll ever make. Netscape did this mistake by deciding to rewrite their software from version 4.0 to 6.0 (never releasing 5.0), basically no innovation for 3 full years!!.

You always need to measure the cost of change vs value of change. If it cost you $10 to build a feature but the real value for the customer is only $8, it’s better off not to make that change.

Builders normally fall in love with their creations

In general developers fall in love with their creations and treat them like a teddy bear, they are so attached to it. But in reality the customers view your software similar to a fax machine. There is nothing sexy, it’s just used to get things done. The job of the fax machine is to send and receive faxes, that’s it. No one falls in love with the fax machine. Software for lot of people simply mean getting things done. When people move from job to job or position to position, the usage of the software might become redundant. In the case of the fax machine, it will be something like “I’ll use your fax machine, if I need to send/receive any more faxes, but now we have switched to emails, we no longer need your fax machine”

Compete with your very best ideas

Successful software is like golden cuff, in general once you have paying customers and the profits are coming gradually you are reluctant for a change or sceptical about taking features away. You must be prepared to make changes at the hardest possible time, when things are extremely good, if you wait till it goes bad, then it’s too late. Be prepared to compete with your very best ideas, it’s generally a bad practice to just ask few customers and work based on their feedback, they generally do not represent the whole population. If you go down this route you end up building a solution to a customer(or customers) not a world class product.

Sun setting the old version

You have to honour your legacy. In general killing an existing product (or sun setting in a nice way) generally doesn’t transition your current customers to newer versions, instead it will take them back to the market for shopping. In the later speech Rich Mironov highlighted the same issue, when Sybase decided to sunset their current version not thinking about the cost of change to their customers, customers moved to Oracle instead of moving to the new flashy version of Sybase.

Do not force customers to use new versions, let them continue using the current version however long they want and let them move to new version in their own pace. Basecamp 3.0 doesn’t have a import functionality, if customers want to use the new feature they can use it for new projects. The idea behind building a new version is mainly for new customers, existing customers are not targets for new customers. It’s not about forcing all of your current customers  into new versions. Customers would have spend years working on your software, setting up their system etc, it doesn’t make sense to force them to move.

Do not sunset your current version. Google Reader is a classic example, millions of users were relying on it for news reading, all of sudden Google decided to kill it. It’s not very nice from a customer perspective. Google was able to get away, but it will not be the same for all of us.

May be version 1.0 or 2.0 is over, you lock it down. Build 3.0 and let customer move there at their own pace. If they are happy with 1.0 or 2.0 let them continue using it. Basecamp have done the same thing for their Ta-Da list, they gracefully retired it You cannot subscribe as a new user any more, but if you have an account you can continue using it.


I have few key takeaways from the excellent talk given by David

1. Think about your current customers : Look after your legacy code and current customers, they are very important. You don’t want them to go around shopping.

2. Bring new versions without effecting existing ones: It’s essential to bring changes to your software periodically, you need to compete with your best ideas. But make sure your new versions are not killing your current ones.

3. Measure the cost of change: Question yourself constantly, whether the change is essential. It’s important to understand the cost of change vs value of change.

Sometime your successful product, dictates your company name. ALPHABET is an example


Google recent restructuring of the company with a parent company called “Alphabet”, shows it’s really hard to get your company name correct in lot of instances, or sometimes your successful product will dictate the future name.

Technically speaking, Google could have continued using their existing name, but we can see the problems they are getting into.

People mostly associate the term Google to web search, yes Google got a lot of other products like photos, mail, calendar, self-driving cars, etc. But when people say Google it’s all about search. This heavily restricts the company from exploring or introducing new products/offerings in a smooth way.

One option Google could have taken is naming the parent company as Google, and JUST introduce a new name for search ex: Alphabet could have been just for search. But this would have resulted in such a big risk for the company, after all it took so long for the company to make “Google it..” as verb simply meaning “Search for it”. I can’t think of people saying “Alphabet it..”.

This change will also help Google to run each independent products in a very agile way, and make each one of them accountable. This will also help them to acquire or invest in companies/technologies that are not really connected to their core business of search. Example: Nest, Project Wing (drones). I’m expecting “T” for twitter soon. 

Finally, this is my speculation. Every company get’s into some resource war and do whatever it takes to preserve its core employees. They might have reached a point to step up “Sundar Pichai” before losing him.  Sergey and Larry are too young to step down or move away from their baby. The only option for them to do it in a smooth way is to make Sundar Pichai CEO of Google and create an entity bigger than that oversee the full operations. 

Some companies like Microsoft has done extremely well in this area, as it’s very clear the company produces bunch of software and products like Windows, Office, Xbox, Surface etc

Some companies like Google need to do it in a hard way, but it’s inevitable to do it keeping long-term benefits in mind.

What I’ve learned about software pricing, in the process of buying a new car

Few weeks ago we decided to replace our current car, and we started the hunt. With the amount of models available and a number of options, you can customize on each model it’s never going to be easy to decide on what you want. A car purchase is going to be the second biggest purchase you are going to make after your house, so it’s important you understand as much as you can and make sure what you are buying.

As part of the process, I understood a great deal on car pricing, certain tactics they use to upsell the model, how they make you realise the value of certain things etc.

One of the problems with software and it’s features is, it’s not a tangible asset similar to the car and it’s features. In a car things are tangible, in certain cases you can visualize it (exclusive paintwork) and in certain cases you can feel it (quality of interiors). Whereas in the software it’s black box, it’s difficult to showcase the value proposition. But I think you should treat both more or less the same.

Here are few high-level things I observed and how it can be related to pricing your software, especially if you are in a SaaS business. I’m going to continue the article based on BMW X6

Never bundle everything into one pack

The number one lesson I’ve learned is never bundle everything under one price tag. There is always a base price of the car and the price goes up based on the features you add. 


This may sound obvious, but as software producer you may be making this mistake of having a single price for the product that contains everything. Certainly we at BizTalk360 are doing it. We have one flat pricing for the entire product (with about 60 features). We have multiple pricing tiers like bronze, silver, gold and platinum, but the level goes up based on customer environment complexity like number of servers and number of deployed applications not based on the features but all the customers get all the features.

The reason we priced it this way is to avoid confusing the customers, in one price they get everything. The problem with bundling all the features under same pricing is, certain features doesn’t get the respect they deserve.  Ex: We have something called throttling analyser an advanced feature with great level of technical complexity, if a customer get’s it for free (as part of the overall bundle), they are never going to appreciate it.

Having a single price for all features may be viable at early stages of the product, but once the software get’s matured, you should certainly think about restructuring your pricing based on the features.

If you don’t restructure your pricing based on features, it will be difficult to add new features to the product, you cannot justify the investment ( 2-6 months development/QA time) in building anything new. Adding new features not only involves initial investment, it also means supporting that features for all of your existing customer base.

There is also an another challenge, some of your customer might think they are overpaying. You might have 60+ features in the product, but a segment of your customer might have bought the product for only some 3-5 core features they are going to use. For those customers, it’s always in their mind they are overpaying for your software. Even though from a software creator perspective it’s good value for money, but from the customer point of view they are paying for features they don’t need.

The above point might also make selling your software harder in certain situations and may end up customers either not buying your product (they might think your product is too complex) or choosing some alternate light weight product in the market.

The concepts are nothing new here, the majority of the SaaS based companies get it correct, they call it value-based pricing.

Package options together

When you have lots of features in the product it’s going to confuse customers, no doubt about it. No one has time and energy to go through all little features. Packaging  (of course with a name) helps to group certain features together.

imageExample: In BMW world M-Sport package is a popular one, that automatically adds a bunch of items like Xenon headlights, sports seats, M-Body trim, exhausts, etc. In a similar way, they have entertainment pack, cold weather pack etc which all adds a bunch of items and makes life easy for the customer to add them.

You can apply the same concept to your software, instead of having a long list of 60+ features available in the software and having multiple pricing tiers with bunch of them scattered here and there, create a well-defined easy to understand packages. Example: In our case we could have created Security pack, Monitoring pack, Productivity tools etc, underneath each one of the bundle you can have the bunch of features.

Make certain things exclusive

This is another important lesson I’ve learned, make certain things exclusive and available only to certain levels. Example: BMW comes with few model variants like SE, M-sport, M etc, each level comes with some level of exclusivity. You cannot pay extra and get those features on lower tiers (not all of them), this forces customers to go for the higher tier, if you love certain features. This is a clear upselling technique you can learn from them.

Example: You may think exhausts are basic things in a vehicle, but BMW created a style variant in the exhaust between their models, which forces customer to go for higher tier if they really like certain things.  As you can see from the below pictures, the M-Sport trim comes with nice stylish square exhaust (+ few more similar little touches)

Regular SE model exhausts


M-Sport model exhausts


You can apply the same technique when it comes to your software, make certain things not available for lower tiers. Some parts you can make it as add-on options, but certain things you can definitely make it exclusive.

Example: In our case, we could have made certain things like EDI parties/agreements configuration, certain dashboards, certain productivity tools available only at higher tiers.

Make customers realise value of specific feature

One of the thing that really surprised me is how they make you realise the value of certain features. ex: Reverse assist camera is charged at £312, in the grand scheme of things, a car at £55k base price, this amount sounds negligible, but they don’t pack it as part of the car.  In a similar way, Audi hill hold assist, which helps the car from rolling backwards in the slopes is an option at £60!! Features like these which you can think of them as basics and should be part of the car are listed as optional extras. This just makes the customer realise the value of them, and make them appreciate more by paying extra for them.

You can do similar stuff in your software, as a technical person certain things may be pretty easy to implement or technically not challenging, but if you look at it from an end customer perspective, it might add huge value to them. That particular little thing may be the reason they need your software, so don’t just hide them into one overall package, make sure it’s visible by adding appropriate $ value.

Give the option for customers to go premium

At the top end of the tier is the exclusive club, where you go for some crazy items the regular public will not look for. But there will be customer who expects these kind of things and level of exclusivity. Example: Extravagance interior design package.


In software term this might differ from industry to industry, may be having a mobile/tablet application is exclusive, or storage over 1tb is available only to exclusive customers, data retention over 1 year is available only to exclusive customers etc 

Value added services

Finally don’t forget the bunch of valued added services you can add to your product. In the car case, that includes 3 years protection for your paintwork, 5 years protection for your tyres, 5 years parts and service cover, finance options, insurance options etc.

This is nothing new, but make it  separate from your regular product price. In software case, it might be things like dedicated account manager, software assurance package, initial training and configuration help etc.  Some people might take it, some people might not. But don’t leave the business opportunity.


The biggest lesson from the process is start with the base, allow customers to choose what they want, make them realise the value of things you have build, make them exclusive, don’t leave any money on the table by under valuing certain features, or not covering certain segment of the customer base like exclusivity, valued added services etc.

Understand who is your real Competitor

Understand who is your real Competitor

Every single business is susceptible to competition. In fact if there is no competition, then you can safely assume there is no real business. If someone is not trying to copy your idea, it’s better you fail fast and go and figure out something else.

Competition is something you don’t need to be scared of, it’s healthy in so many ways. There is a famous saying if Pepsi is not there, Coca Cola probably would have invented something similar. People always need a reference point, before they commit to buy something. They want something to compare against, to validate the pros and cons before they make up their mind. If you are a lonely warrior in your business area, you probably will have uphill struggle selling your product or service.

You also need to understand however good your product or service is, you are never going to have 100% of the market share. There will always be a vertical or horizontal split your product could cater for, example you are targeting medium sized business, or cost advantage, location advantage etc

Once you understand there will always be some competition, next thing is figuring out where your competitors are? It’s very easy to simply overlook or assume the guy who keeps you busy at Twitter, LinkedIn and other social channels and constantly bump across you in common industry conferences and speaking to the common partners as your main competitor. They may be your competitor (direct) at the face of it, but your real competitor may be somewhere else.

I’ll give you a practical example from our own product BizTalk360, a operations and monitoring solution for Microsoft BizTalk Server. There are few competing products in the market, not exactly like for like, but they can easily confuse customers (remember, customers do not have all the time in the world to evaluate all the available products). There may be few instances where you lose potential customers to these competition, probably due to market segmentation or due to geographical preference. But I believe the real competition is somewhere else.

Recently I was chatting to a close friend of mine who does consulting work in the same area. I asked him this questions “why he was not able to sell our product in the past 3 years to his customers” and his reply was “most of my customers are cost aware, they don’t want to spend so I just create some custom applications to monitor basic things…” there are 1000’s of similar consultants out there who could all be your potential competitors (indirectly, may be unintentional) and silently killing your growth. In this case if my friend insisted to the customer “you must buy this product…it’s more cost effective and more richer solution…”, it’s very likely the customer would have bought the product.

The other scenario I’ve witnessed is from consulting firms. On the face of it there is no competition between a company who sells product and a company who sells services. The good ones will understands the value proposition of the product, put their customer interest first, recommend your product and become your close friend/partner. Recently we were trying to sign a contract with a consulting firm to become our partner. This partner was trying to negotiate an unreasonable sales incentive in order to recommend our product, the reason they gave just blown my mind “our customer have problems your product will solve, when there is a problem they call us to fix, for which we charge. If we recommend your product, then we lose that revenue, to compensate that we need xx%”.

Now you can spot another set of indirect competition from 100’s of such companies potentially blocking your growth. In this case the ideal scenario for that consulting firm will be recommend the right product to the customer, become a good citizen, earn the trust and get more business out of that customer. It’s your responsibility to explain the value proposition and win over such consulting firms.

Sometimes you also need to keep an eye on products that do not do exactly what you do, but can cover portion of what you are offering. In our case there are bigger enterprise monitoring solutions, that can monitor pretty much anything in your organisation, but has limited scope for Microsoft BizTalk (in some cases it’s for name shake) . If the potential customers are already using one of those products, it’s going to be a challenge to convince and win over them.

As a summary, do not get too carried away looking at just your direct competitors, be vigilant and do your research to understand the potential threats from different angles. In my opinion the competition from indirect sources are way bigger than your direct ones. The direct ones are easy to predict, understanding the value proposition and defend, but the indirect ones are mostly out of your control and requires deep planning to over come.

Your core employee decides to leave, what’s next?

In a start-up (I guess calling it a small organisation makes more sense) pretty much every single employee will have a role to play, and it’s nearly impossible to have a backup plan for everyone. In this scenario  anyone putting that resignation letter is going to hurt and will have impact in the company.

All the investments you have made with that person is going to drain. As a founder your natural reaction will be more emotional, angry, confused, lot of “why this ..that” type of questions will go in your mind! Most of the time your first reaction will be how to change that employee mind set and ask him to stay.

If you take a step back and think, the employee wouldn’t have made that decision lightly, he would have gone through all the implications and decided something else is better for him/her. On the other side, will you have the same confidence/trust sharing anything with that person who decided to leave. Either way, it’s a better decision to let that employee go, the more you prolong it’s going to cause more problems.

As a founder you need to understand, as a human being everyone’s expectations and priorities are different. This is one of the best quote on this subject

Waiting too long before acting is equally unfair to the people who need to get off the bus. For every minute you allow a person to continue holding a seat when you know that person will not make it in the end, you’re stealing a portion of his life, time that he could spend finding a better place where he could flourish. – Jim Collins

Even companies like Buffer who are known for their transparency and openness had to let people go time to time. By looking at their growth, culture and openness everyone might think, once you are there it’s a great place to be. But the reality is  different, here is the quote from Buffer CEO

No matter how awesome our hiring process is, it’s inevitable that sometimes the person is not a great fit. Now that we have grown to 13 people and had to make tough team changes along the way, we’ve started to see a ratio emerge. We now know not to be surprised if about 1 in 4 people we hire doesn’t work out. – Joel Gascoigne 

Analyse the situation and avoid it happening in the future

The best thing you can do is listen to what the employee had to say as part of exit interview carefully. See what went wrong, some of the common things to check and verify

This process will give you opportunity to learn what went wrong and possibility to correct it.

Bad Customer Service is guaranteed to kill your business

You may have top of the range product and top of the range technicians but if your customer service sucks, it’s guaranteed to kill your business over a period.

Few months ago I engaged with a local custom fitted bedrooms and home office company to transform a spare room into an office room. The designer came first, we discussed few options and finally settled for one. We agreed on fitting date 3 weeks down the line. On the fitting date, fitter came with some office units and when he started measuring he noticed there is difference in measurement of few inches. He contacted the head office and guy suggested to cut it off and patch it. Basically instead of a clean finish, there is going to be a joint, kind of defeating the purpose of paying a premium for a nice fitted furniture. I spoke to that head office person, he gave me couple of options,  we can either take everything back (with bit of anger) and come and fit it in 3 weeks time or can go ahead with the suggestion. I was not ready to wait for another 3 weeks, and I’ve already wasted that day.  So just asked the fitter to go ahead with the patch solution. The fitter was an excellent worker, he did an amazing job. Couple of days later the bill came for the full amount. I called the head office person and told him I’m expecting some kind of discount for the patch work. He treated me like one of those nasty customers, who always finds excuse to get a discount and was not ready to listen to my feedback. I could have simply told the fitter to take the stuff back and redo it, which could have costed the company some serious money (a new set of furniture, fitters day rate, etc). After 10 minutes I just gave up and told him I don’t have time to argue, will just pay the balance.

This ended up in a poor customer satisfaction, he could have dealt with the scenario smoothly by just giving a small discount (£100 out of the £3000 order) and made the customer happy.

After few days I decided to add additional seating area in the home office and contacted them again. The only reason was due to the good workmanship of the fitter who did the job. The designer guy visited the place again, sketched some designs and we agreed to go with one. I asked him to send exactly same fitter even if it takes longer. Three weeks later the same fitter came with new set of furniture. To both of our surprise, the designer messed with the measurement again. This time I didn’t get into any discussion, just asked him to take the stuff back and come with correct fitting, after 2 weeks the fitter came with right furniture and once again he did an excellent job. At this point I’ve already spent around £4k.

After few days I decided to do up our TV area, since it was cluttered with cable set up box, XBOX, DVD player, etc. I called the same company again (for the same reason the fitter Paul was really good and nice man). This time I received a treatment I’ve never expected. They asked me to measure the place myself and come and visit their showroom. If I can agree with the price, then they can come and do the actual measurement. This is bit unusual approach for a custom fitted bedroom company.  They always visit the place to see the surroundings and give suggestions. I just sensed they are not ready to waste their time due to the size of the order.  I still went ahead took the measurement myself and visited their office, the designer put some drawings and quoted a price of £543. I asked him to round it off to £500. He didn’t show any interest, and simply said can’t do it.  That’s the end of the story. I left the place.

Some of the lessons for business owner