Glenn Kelman, CEO of Refin, wrote a must read post for entrepreneurs on Techcrunch. It is full of great actionable advice. Please click and read the entire article.
Here is a quick summary.
1. What’s your deadly sin?
Sequoia’s Roelof Botha said he only invests in companies that let consumers indulge in one of the seven deadly sins
. He rattled them off with alarming familiarity. “You don’t want to be the site that people should use,” Roelof said. “You want to be the site they can’t stop using.”
2. Where’s the real money?
Venture capitalists’ focus on the size of our company’s addressable market made us realize that half of our potential revenues lay in the eight markets we’ve already opened. “What’s the rush to open Orlando,” a VC asked us, “when you still haven’t cracked 1% share here in Silicon Valley?”
3. What are your unit economics?
The financial statements we look at every month don’t tell us what a small business will look like when it grows up: sure we need to account for all sorts of fixed costs like how much we spend on engineers or maps, but what really matters is whether we make more money from a customer than it costs us to get and serve that customer. So to see if a business works on a large scale, VCs first want to understand it on the smallest scale.
5. What are the explanatory events?
A money-raising deck mostly consists of graphs with lines going up and to the right, scrunched two to a page to make the lines look steeper. The only reaction we expected to our version of these slides was awe. But Roelof asked us to annotate each graph with what statisticians call an explanatory event. What change in our business had caused revenues to shoot up?
6. What are the accelerating effects?
It’s easy to grow 300% in your first year or two, when you’re starting with nothing, and people first hear about your service. What separates a potential colossus from other businesses is the capacity to keep growing at that rate in years four, five and beyond. When Reid Hoffman looked at Redfin, his primary question was whether there were “accelerating effects,” where growth begets more growth. For Amazon, the product reviews and personalization history it captured from its first users accelerated its second stage of growth. For Facebook and Twitter, the community itself constantly recruits new users. For companies like Zappos and hopefully Redfin, it’s word-of-mouth about our customer service.
7. What’s your secret sauce?
8. How do you win?
Thinking constantly about world domination can give you a little vertigo. The way I usually get through my day is by limiting my horizon to serving the next few customers, or increasing revenues in the next few months. Which means that even though the story of how we win should be etched on the inside of my eyelids, it’s more often at the back of my mind, as a nagging doubt that I’m focused on the wrong thing.
But the essential job of a CEO is to tell that story, to everyone who will listen, making it better all the time. If you are raising venture capital, that story is by definition highly improbable, involving such an absurd overthrow of the order of things that it’s almost embarrassing to say out loud. Rehearsing the whole narrative naturally focuses you on the holes in the plot.