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5 ‘product market fit’ tips to make your startup successful

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“We don’t have product market fit.” 

The board room fell silent. How could a rapidly growing company with a $50 million revenue in a hot category not have product market fit? Yet having invested over $100 million, we as the board had just realized that lack of product market fit imperiled the business. 

Product market fit (PMF) has evolved as a concept over time. Moreover, PMF requirements increase as a business matures. Here is a schematic that my team uses to assess PMF prior to investment and among our portfolio companies: 

We think of PMF in three stages: Product Validation, Business Validation, and Financial Validation. In our experience, these distinctions are meaningful. 

Across over 100 investments and over 50 exits at NGP Capital, we found that, unsurprisingly, company success is correlated with PMF. It was striking to observe the extent to which company success differed across these three PMF stages.      

[Read: Here’s why ‘if you build it, they will come’ is shitty advice]

Among our exited companies, those with Product Validation when we initially investment ultimately had a 25% success rate with success defined as a positive financial outcome for investors and founders. Companies with Business Validation had a 50% success rate. Those with Financial Validation have had a 100% success rate. 

Optimizing product market fit

Entrepreneurs and investors have a shared interest in optimizing company outcomes — or maximizing value for risk assumed and capital or time invested.  

We have found that understanding the key elements of PMF and taking a systematic approach in validating the product, business, and unit economics at each stage can optimize company outcomes. Following are five principles that we have observed among our company successes: 

1. Avoid premature scaling

A leading cause of startup death is mistaking early traction for PMF. Companies win markets by being first to PMF, not first to market. Hiring after PMF speeds up companies. Hiring before PMF slows companies down, increases burn and risks a death spiral.

As Warren Buffett observed, “Only when the tide goes out do you discover who’s been swimming naked.” In the aftermath of the Softbank-sponsored steroid era, there will be many new nude beach postings. 

2. Go deep before trying to go broad

Focus on and win a market segment. This is the fastest, most efficient way to test PMF and the business model at scale. As an example, Ganji first proved its mobile classifieds business in Beijing, then developed its expansion playbook and tested transferability of its model to a new city when launching in Shanghai.

Only after winning Shanghai did Ganji expand rapidly across China. Ganji sold for $3.6 billion in 2015, the largest tech acquisition in China at that time.

3. Iterate quickly

In biology, species that reproduce rapidly (r-selection) survive and thrive best in unstable ecologies. The same applies to startups. Rapid iteration is essential for success in any fast-changing environment. Market segmentation allows companies to run multiple carefully designed experiments in parallel to test key hypotheses and optimize business models.

For instance, UCWeb, a mobile portal that Alibaba ultimately acquired for $4.9 billion, ran A/B tests daily. Similarly, Lime opened initially in a half dozen cities of varying size and demographics to test variations on its shared bike and scooter offerings before expanding to over 100 cities. 

4. Focus on revenues

This may sound obvious, yet I frequently hear companies say, “We are focusing on growing our user base before we monetize it.” Monetizing is essential to strong PMF and is often harder than anticipated. 

Serving as a prime example, Moovit launched its public transit app in over 2000 cities and had over 50 million users before seriously testing revenue models. CEO Nir Erez now acknowledges that he should have started much earlier.

Though it took much longer than expected, Moovit is fortunate in finding a revenue model that scales. Too often funding runs out before a company with great traction learns how to monetize its users.   

5. Measure product market fit

NGP Capital benchmarks companies using key metrics for each of the nine categories identified in the above schematic.  While entrepreneurs are understandably focused on their business, peer group comparisons help them see where their companies must improve or course correct. Growth efficiency — a ratio of revenue growth to burn rate — should improve over time if a company has PMF.

High-performing companies tend to be early adopters of Net Promoter Scores. Phil Koen converted Intermedia, a cloud services business, to NPS early in his tenure and reported it in his CEO report at each board meeting signaling his focus on customer service. Intermedia thrived under Phil’s watch and ultimately sold for about $500 million.    

While varied in nature, startups follow a common path to success. Buzz around unicorns and large funding rounds easily distract founders from the mundane, but more vital, task of achieving PMF. Product market fit accelerates revenue momentum, shortens sales cycles, lowers customer acquisition costs and produces more lucrative outcomes. Ultimately, as the points above suggest, you may be pleasantly surprised to find that success is the accumulation of small things done well.

Re:Brand: Did you know we have an online conference about digital marketing coming up? Re:Brand will share strategies on how brands can still succeed in these unprecedented times.  

Published May 20, 2020 — 06:00 UTC

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Hey snoozy Susan, here’s how to stop falling asleep at work

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It’s 3pm on a Friday and you’ve had enough. Or maybe it’s just after 9am on a Monday and you’re struggling to get started, or even 12pm on a Tuesday and you’re falling asleep.

Sound familiar? If so, you’re probably used to the overwhelming struggle that is trying to stay awake at your desk when you really just want to fall asleep.

If it’s any consolation, you’re far from being alone. That’s why I’ve put together these few pointers to help you stay engaged, active, and awake while you’re at work.

[Read: The weirdo’s guide to WFH productivity: Sanity shower, squats, and snacks]

Get your steps in

Getting your morning routine right will undoubtedly set you up for a productive day and stop you from falling asleep.

Morning exercise is a good way of waking up your body and mind. If you can, go for a walk before you start work and get some fresh air.

You’ll feel more awake, and what’s even better, you’ll get your dreaded workout out of the way first thing.

Coffee isn’t the answer

Coffee is wonderful, it really is.

A good cup of the stuff can turn the worst of days into the best of days — but you shouldn’t abuse it.

If you’re going to be friends with caffeine, make sure you limit your intake because too much of it can leave you feeling lethargic.

I would recommend having one, or two (at most) cups of  in the morning and sticking to water for the rest of the day, which brings me on to my next point.

Stay hydrated

Water really is your best friend, especially when it comes to staying awake.

Dehydration can lead to fatigue because it impacts the flow of oxygen to the brain and can cause your heart to work harder to pump oxygen to all your organs, thus making you more tired and less alert.

Water can also help reduce stress. In fact, studies have show that dehydration can also lead to higher cortisol levels — the stress hormone — making it even harder to deal with daily problems.

You’ll need daylight

Natural daylight — or the lack of it — can have a huge impact on how you feel at work.

I used to work in a windowless office in a London co-working space and I’d find myself getting increasingly sleepy and restless throughout the day. I eventually realized this was mostly due to the lack of natural light — and it seems my conclusion wasn’t unfounded.

A study conducted by a US professor found that workers in day lit office environments reported an 84% drop in symptoms of eyestrain, headaches, and blurred vision symptoms all of which can detract from productivity and potentially lead to sleepiness.

Snack away

I don’t know about you but I used to experience an early afternoon drop in productivity and would start to fall asleep, particularly in the colder, drearier months — and then I started snacking.

It turns out this afternoon slump was probably caused by a drop in blood glucose levels and the good news is that I managed to solve this problem by keeping several healthy snacks within arm’s reach or just a short walk away.

Time yourself

Whether you’re working on an ongoing project or you want to tend to your overflowing inbox, own your productivity and hold yourself accountable by timing yourself.

Here’s a familiar scenario: You need to prepare a report by the end of the day but it’s 4PM and you’re struggling to stay awake. Stop what you’re doing, take a moment, breathe in, and set a timer on your phone. Give yourself a deadline and motivate yourself with the possibility of a nap once your work is submitted.

Get the hard stuff out of the way

Only you know when you feel more awake, so keep this at the forefront of your mind when you’re planning your day.

If you feel less sleepy in the morning, take care of the hardest, most boring tasks then and keep the fun stuff for later. If you’re more alert in the afternoon or evening, then save the most menial tasks until then.

There’s no hard science and if you’re fortunate enough to work somewhere that offers flexible working, you should use this to your advantage.

Let music be the food of love productivity

Lastly, but by no means least, I have to be honest with you: I can’t do anything without listening to music and while my taste may be questionable, that’s besides the point.

If you’re working from home or are lucky enough to have your own private office, why not sing along?

It’ll perk you up, you won’t fall asleep, and if you’re as bad a singer as I am, well, no one will hear you!

Published June 5, 2020 — 09:00 UTC

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A step-by-step guide to becoming a better engineering manager

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The typical job description for many engineering manager roles is action-packed. It is a mix of hands-on coding, technical leadership and decision making, process and project management, product oversight, people management, finding and hiring talent… the list goes on.

In our work, we deal with both technical and people systems: we support individual engineers’ growth; help teams become successful; and make the organization more productive, functional, and innovative. Above all, an engineering manager is a service or support role across these various layers.

Perhaps most fascinating and difficult is the high-level of ambiguity that comes with engineering management. Many problems or questions don’t have straightforward answers. There aren’t absolute answers to what it means to be a good engineering manager either, but there are certain values and guideposts to follow.

In this post, I look at what can shape our thinking about our role as engineering managers and how to effectively support individual engineers, teams, and organizations.

What do engineers need to thrive at work?

It helps to start shaping engineering management roles by understanding what engineers need, and the environment in which they thrive. Research from performance coach and trainer Paloma Medina exposes six core needs humans have (including at work). She calls this research the BICEPS model:

  • Belonging. As humans, we strive to be part of a community of like-minded people where we understand and support each other. We also want to feel as if we are not being discriminated against or marginalized. Belonging is really important to me personally: I love working as part of a distributed team, but I also really enjoy seeing people in person every once in a while. It makes me feel more connected to them.
  • Improvement. We also seek to continuously learn, improve, and grow in areas that matter to us, as well as to our team or company.
  • Choice. We want to have choice, control, and autonomy over important parts of our lives. In one of my previous roles, I took on a lot of work to drive organizational change. But ultimately, the control I had over my domain was limited due to organizational issues – which led me to leave the company.
  • Equality. We want to know that our access to information, money, time, and other resources is fair and equal for everyone – not just for ourselves, but also for the people around us. Everyone’s needs should be treated as equally important.
  • Predictability. We look for certainty, safety, and stability in our lives. We also want goals, strategy, and direction to be consistent – and to not change too quickly. I’ve been leading teams in fast-growing startups for the last couple of years, and when there’s a lot of change happening, it’s a challenge to instill predictability in teams.
  • Significance. Deep down, all of us seek meaning, importance, and status. We also want to be appreciated for our work by people whose opinions mean something to us.

If our core needs are threatened, people resort to fight-or-flight modes of reaction, which are very stressful. The failure to meet core needs has high costs for organizations by harming people on our teams. So how can engineering managers put the BICEPS model into action to help their teams thrive?

Using trust-based relationships to help engineers grow

The foundation of being a good engineering manager is getting to know our teammates and understanding what is important to them. Here are a few places to start building trust within your team.

1. Ask questions

One of the most powerful tools managers have is asking good questions. The basis for doing our jobs well is listening, observing, taking note of what motivates our teammates, and really digging into their responses to our questions. I usually gather questions before I meet with my teammates one-on-one, so I am prepared and I can guide the conversation towards understanding them better.

Over time, I have built a kit of one-on-one questions that I pull out when I need some inspiration for these conversations. Asking questions helps us adjust our leadership style to the people we are leading. It also ensures that they feel understood and heard, which are really important pillars of inclusion and belonging.

2. Be curious

People are full of surprises, and sometimes our teammates’ reactions may be completely different from what we expected. I once received a message from an engineer on my team who was deeply upset about the specific wording used in a product-release note to customers.

At first I did not understand their strong reaction. But when we talked, I learned the engineer had been overruled by someone with more power, making them feel helpless, and threatening their core need for choice and equality.

What managers might perceive as no big deal can be enormous threats to other people. Cases where we’re surprised by our teammates’ reactions are good opportunities to focus on human-centric responses, like giving people the opportunity to talk through their feelings.

3. Connect to the bigger picture

Creating an impact is a very good motivator for all of us, so helping engineers understand how their work connects to the bigger picture (how it helps users or supports other teams) is an extremely important and strategic skill for managers.

While goal-setting frameworks like OKRs can help, it is also crucial to align engineering initiatives with higher-level goals, and connect them clearly with user value.

4. Involve engineers in decision making

Feeling that decisions are fair and equitable is an important component of the BICEPS model. When we make decisions, it is helpful to ask everyone for their opinions first, and take their opinions into account.

It is not always possible to go with what everyone wants. But we can still do a good job at contextualizing the decisions we make, and helping people understand that their feedback was considered.

5. Give feedback for growth

One of the best things we get to do as engineering managers is support engineers’ growth. Give feedback regularly to help the people on your team understand where they are at and grow – by course-correcting where needed, as well as by doing more in the areas in which they are already doing great. Managers need feedback as well: it’s important to regularly ask your team for feedback so you can make adjustments.

6. Coach engineers

Coaching helps people find answers themselves, improves their problem-solving and leadership skills, and increases learning, resilience, and self-management.

7. Sponsor engineers

Think back on your career, and whether you have had a mentor who connected you with someone, put your name forward, and used their influence to make a difference in your career. Be that person for someone else: invest in their growth, lift them up, and put your weight behind their success. Supporting your team’s success can make a real difference for them.

This is the foundation of our work as engineering managers.

Driving a culture of trust and continuous improvement on teams

The next important building block in our work as engineering managers is the team. According to research, high-performing teams need the following elements.

  • Psychological safety. This is about believing that we will not be rejected, and feeling free to express our work-related thoughts and feelings to the people around us. It also means believing that others won’t think less of us if we make a well-intentioned mistake or ask for help.
  • Structure and clarity. Everyone on the team should understand expectations, goals, and accountability.
  • Meaning and impact. High-performing teams find a sense of purpose in their work, and know that their work has an impact.

Luckily for managers, this research neatly aligns with the BICEPS model. All human core needs are represented and have impact at the team level as well. By understanding and responding to people’s motivations, leaders create the basis for teams to express themselves – and provide the structure, meaning, and impact they need.

1. Build trust

The first step in creating structure is building relationships. For our distributed teams at CircleCI, we’ve built different structures to help teammates do that, such as regular pair programming rotations and engineering talks.

2. Structure around how we collaborate

Our engineering department has doubled in size for three years in a row. Over this time, we’ve moved to a more streamlined engineering delivery process for all teams. But we still leave it to the teams to decide how to implement t day-to-day processes, including daily standup meetings, planning sessions, or collaboration. Every team has specific needs, and they know best how to address them.

3. Remove blockers

Structures can also help mitigate the impact of getting blocked at work. We all know how frustrating it is to be stuck. Putting up pathways to help people get unblocked can be really important – for example, setting up regular pair programming rotations, investing in self-serve information access, supporting each other across teams, putting up escalation paths for people to get help when they need it, or helping people support each other through knowledge-sharing.

4. Continuously improve

We can use retrospectives to discuss and improve how we work together. Blameless postmortems are also a great tool to help understand problems and drive towards solutions. Code reviews, mentoring, or knowledge sharing can help team members learn from each other.

The way we talk about learning matters – especially the way we discuss mistakes. These decisions will fundamentally shape the culture of our teams, and determine whether people feel safe or threatened in their core needs.

5. Drive toward alignment

Communicate strategy, direction, and relevant tactical details to your teams – and remember it’s almost impossible to over-communicate these details. Always repeat what’s important.

As engineering managers, we are like mortar: we connect structures, teams, and people. We hold them together, but also identify and fill gaps as needed. Handling ambiguity is one of the most important and difficult aspects of engineering management. For a lot of work in our field, there are no straightforward answers, let alone resolutions.

Our work isn’t so much about us; it’s about the people, teams, and organizations we support. We build structures to help others shine.

Supporting organizational change

Lastly, creating environments in which engineers can thrive is about supporting our organization. We need to use our power as managers to drive organizational change, no matter the size of our businesses.

1. Advocate for change

To be effective as managers, we need to push for organizational change to improve the larger structures around us. For example, we may need to advocate for more clarity around engineering manager roles, have conversations about what engineering management should be like in our company, and determine requirements for hiring engineering managers.

2. Manage up

Managing our own managers is a useful but difficult skill. Driving organizational change also means making sure that our engineers’ concerns are heard at the highest levels, and that we use our power to make sure engineers have a voice in the rest of the organization.

3. Build frameworks and standards

While it is always important to make room for individual needs, structures and frameworks for managers help us hold each other accountable. They also help level the playing field and build in equality for the people on our teams.

On my current team, every quarter we pick some high-priority projects to improve how we work as an organization. Most recently, we’ve worked on our hiring process and incident remediation; last year, we developed an internal career growth framework for engineers.

Growing as a leader

Being a good engineering manager isn’t always a straightforward path; a lot depends on where we are at in our careers and where we are looking to go, as well as the growth stage, size, and needs of our organizations. In our daily work, we hold vast amounts of uncertainty while also trying to make progress.

An overarching theme in my work in engineering management has been growth and improvement. We rarely deal with greenfield projects or are able to build a team or department from scratch. Even when we do, we build on existing structures in our organization. I believe our supporting role largely means helping engineers grow, supporting teams at continuously learning, and helping organizations become better.

As engineering managers, we frequently face questions that don’t clear right or wrong answers. Many years ago, my leadership coach encouraged me to use those kinds of uncertain situations to ask myself, “What kind of leader do I want to be?”

I want to leave the last call to growth and improvement with you (and me): no matter what your role or company is like, work on shaping your approach to engineering management. Get to know the people that you work with, and use feedback to help them course-correct. Build teams that are psychologically safe places, where people find meaning in a shared purpose. 

And use your power and privilege to drive change in your organization. Make people the center and focus of your work, and build on that foundation to create an environment in which they can thrive. Always push to continuously improve. Lead with humbleness, empathy, and lots of curiosity.

Published June 5, 2020 — 06:30 UTC

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Why entrepreneurs need to find their ‘inner clown’

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Boris is the wise ol’ CEO of TNW who writes a weekly column on everything about being an entrepreneur in tech — from managing stress to embracing awkwardness. You can get his musings straight to your inbox by signing up for his newsletter!

Contrary to what many people may think, learning how to be a clown is not part of a circus school curriculum. I know, because I dropped out of school when I was 15, signed up for circus school, and graduated as a professional juggler three years later. 

Circus school was very much about specializing in one skill, spending countless hours practicing, and building an act around that. Becoming a clown, however, followed a completely different process.

Clowns, all joking aside, take being a clown very seriously. The thing is, you can’t just train eight hours a day for it and then eventually succeed, like with juggling. A real clown IS a clown. He or she isn’t acting. The clown is already there, hidden inside of us, and the course focused on finding your inner clown and peeling away the layers of respectability, rather than trying to make you simply act like one. 

Be authentic

Many years ago I knew a young entrepreneur who was always hustling. When he found an opportunity to make money, he went for it. He had no specific interest or hobby and was just interested in doing business. He’d buy and sell and make a margin and that was enough for him. I recently bumped into him and he’s now rich and successful and still hustling buying and selling ever more expensive things. 

[Read: Working from home is great — until your co-workers show up]

While this is clearly a success — he’s happy and rich and he has achieved his goals and dreams — I personally find it hard to be positive about what he achieved. I can’t relate because my starting point was always my interest in technology and innovation, building upon who I was at my core. Only caring about wealth is a very specific kind of poverty. 

I do realize that’s a very privileged thing to say, but if you can, try to unpeel your traditionalist layers and find out who you really are. Nothing can beat authenticity.

I heard a comedian describe once how he developed his act. At first, he began looking for jokes in the world around him, but soon he realized the best jokes were to be found within. 

When he felt uncomfortable about something, he discovered it paid off to poke and prod at it and build the joke around the discomfort it caused him. The deeper he went, the more personal and funnier his routine became, and also more distinctive. 

I guess we all have our inner clown to discover. And my inner clown is a very specific one. I couldn’t play a different clown and care about the things I don’t care about. Now let me ask you, who’s your inner clown?

Can’t get enough of Boris? Check out his older stories here, and sign up for TNW’s newsletters here.

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Published June 4, 2020 — 15:00 UTC

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