Business Building Stages

What the greatest technology investors say about Business Building Stages

BUSINESS BUILDING STAGES POSTS (8 posts)

The following is a list of the post titles by author under this topic.  Scroll further down this page to find the actual blog post by your selected author.   Note that for this topic, following this list, all posts are by Fred Wilson.

 FRED WILSON  (8 posts)

 Fred Wilson:   Hire Slowly & Wisely, not Quickly

Fred Wilson:   Building the Business First

Fred Wilson:  Bootstrapping Leads to Great Products & Great Companies   

Fred Wilson:  What's the "Right" Monthly Burn Rate

Fred Wilson:    Building Product is about having the Right Team

Fred Wilson:   Management is Relevant when Building Usage

 Fred Wilson:   Culture, Values & a Vow to a Great Workplace are Everything

Fred Wilson:  Fred Wilson's Comfort Zones on Fundraising & Valuation

 

 

Fred Wilson's Comfort Zones on Fundraising & Valuation

Fred Wilson venture capitalist and Co-Founder Union Square Ventures

“I'm all about “back of the envelope”.  I am old school but these are my comfort zones:

Build product - raise [$] 600k at 3mm post [post-money valuation] 
Build usage - raise [$]1.8mm at 9mm post 
Build company - raise [$] 4mm at 20mm post

I am not in my comfort zone these days.” [Wilson was referring to valuation-wise late 2011 and presumably early 2012 as well.] Fred Wilson Burn rates: How Much?  Comments, Dec. 12,  2011; http://www.avc.com/a_vc/2011/12/burn-rates-how-much.html

 

Culture, Values & a Vow to a Great Workplace are Everything

Fred Wilson venture capitalist and Co-Founder Union Square Ventures

Once the user base supports a long-term sustainable business (stage 2), the final “building the business” stage begins, i.e., building a management team including leaders for engineering, product, customer support, finance, marketing, sales, business development and HR (human resources). 

“Founders should think of the business as [the ultimate product being built] because from the company can come [additional products and initiatives].  The company, if built correctly [with strong founder commitment], will be more important than any single product it can create”. 

Wilson recommends that the founder /CEO have “a partner to help [] build the company” like a senior, experienced HR leader or “a strong number two, a President or COO.”

“[The] people side of the business is harder and way more complicated than building a product is.  [Culture], values and a commitment to creating a fantastic workplace [must] come from the top [and are everything]. [] [If] there is a meaningful culture that the entire team buys into, the team will stick together [and surmount challenges].

[] A company is a self sustaining entity that expresses the hopes, dreams, vision, values and culture of the founder and leaders.”  Fred Wilson  The Management Team - While Building The Business  Jan 16, 2012  ; http://www.avc.com/a_vc/2012/01/the-management-team-while-building-the-business.html

Management is Relevant when Building Usage

Fred Wilson venture capitalist and Co-Founder Union Square Ventures

Once the product has been built, launched and achieved ‘product market fit’, “it is time to get more users or customers [as the company enters] the “building usage” phase.”

This means the team must now be built including more engineers to scale the product/service and more employees in product, customer support, marketing and business development, sales (if an enterprise/SAAS focus) and administration.  Team size will at least double from building product’s stage with upwards of twenty when the building usage stage is exited.

Management issues herein: 1. managing engineering (where most of the headcount now is), i.e., recruiting, retaining and sometimes terminating engineers.  “[The] right people [must work] on the right things, [teams must execute and] the right environment” must exist for engineering success. 

“[Many] technical co-founders and lead engineers [don’t] enjoy managing.”  Wilson suggests helping a lead engineer become a good manager or hiring “a VP Engineering who is a great manager and move [the] technical co-founder or lead engineer into a more technical role [ i.e., CTO or chief technology officer]”. 

2. Founder/CEO’s challenge of navigating more direct reports. With potentially 10 + direct reports, a founder/CEO in management crisis can occur. Wilson suggests “find[ing] [team members with] management talent or inclination and invest in their ability to help [] manage the team” while “building communication systems, business processes, feedback, and routines [to efficiently scale the business and team].  [He] suggest[s] that founder/CEOs [][work] with coaches [to build management skills].” 

While stage 1 (building product) focuses on individual contributors and stage 2 (building usage) continues as such, management becomes relevant at stage 2.  “Strong individual contributors are often not natural managers”, presenting the CEO with challenges.  Fred Wilson  The Management Team - While Building Usage Jan. 9, 2012  ; http://www.avc.com/a_vc/2012/01/the-management-team-while-building-usage.html

Building Product is about having the Right Team

Fred Wilson venture capitalist and Co-Founder Union Square Ventures

“The first stage of a startup, [] the Building Product stage is management light.  The team should be small [with typically five or fewer: the founder/CEO (usually the product manager), often a technical co-founder leading development, two or three developers and maybe a designer].

[] Building product is [about] having a small team [of] the right people [with] product, design and software engineering skills [who are] focused, committed and driven[,] [] working together, and [executing]. [] Management skills are not a requirement.”  Fred Wilson  The Management Team - While Building Product  Jan. 2, 2012;  http://www.avc.com/a_vc/2012/01/the-management-team-while-building-product.html

What's the "Right" Monthly Burn Rate

Fred Wilson venture capitalist and Co-Founder Union Square Ventures

“The number of people [is important in] getting the company building process right. Too many [slows] things down, burn[s] through too much cash, and increase[s] [overhead needlessly]. Too few and [you’ll] be resource constrained and unable to grow as [quickly].”

Wilson’s suggested fully-burdened monthly burn by stage for mainly consumer internet, software-based businesses (Fully-burdened includes salaries, rent, overhead, etc.):

“Building Product Stage – [] below $50k per month []

Building Usage Stage – [] below $100k per month []

Building The Business Stage – [] below $250k per month []

A good rule of thumb is to multiply the number of people [] by $10k to get the monthly [fully-burdened] burn. [] [Thus,] suggested team sizes are 5, 10, and 25 respectively for the [above three stages].” Fred Wilson  Optimal Headcount At Various Stages Jun 4, 2012;  http://www.avc.com/a_vc/2012/06/mba-mondays-optimal-headcount-at-various-stages.html

Bootstrapping Leads to Great Products & Great Companies

Fred Wilson venture capitalist and Co-Founder Union Square Ventures

Wilson suggested a $50k/month burn rate for the “building product stage”, the first of a startup’s three stages.  “You can build a product for less than $50k/month, [especially with strongly technical founders having excellent product and design skills.] [] Many (most??) of [Wilson’s] early stage investments are in companies that have bootstrapped in this way.”  However for companies that can raise seed stage money to build product, “[Wilson stands by a maximum $50k/month fully-burdened burn rate], but with a big caveat.  If [the product can be built] for less,[] do that.  Bootstrapping is a great thing and leads to great products and great companies.”  Fred Wilson, How Much To Burn While Building Product, Dec. 19, 2011; http://www.avc.com/a_vc/2011/12/how-much-to-burn-while-building-product.html

 

Building the Business First

Fred Wilson venture capitalist and Co-Founder Union Square Ventures

“[Some] founders [] suggest building the business first (even if it takes longer) and then seeking investment later after it's proven successful and has a strong growth trajectory. [] Examples [][are] StackExchange and DuckDuckGo.” Wilson responds that “[] that's a great model if you can do it.”  Fred Wilson Burn Rates: How Much? Comments section, Dec 12, 2011 ; http://www.avc.com/a_vc/2011/12/burn-rates-how-much.html

 

Hire Slowly & Wisely, not Quickly

Fred Wilson venture capitalist and Co-Founder Union Square Ventures

“[Wilson’s] strong bias on [optimal headcount] [] is that  less is more.  [Repeatedly] [he’s] seen the entrepreneur who wants to hire quickly fail and [] the entrepreneur [who’s] [] slow to hire succeed.”

In his experience with software-based consumer internet businesses, “[] [success] might be most highly correlated with a slow hiring ramp [] [during a company’s early years.]  Being resource constrained can be [good] when [] getting started.  It forces [] [a] focus on what's working and get[ting] to the rest of the vision later on. []” His advice: “[] hire slowly and wisely instead of quickly.”   Fred Wilson MBA Mondays: Optimal Headcount At Various Stages, Jun 4 2012;  http://www.avc.com/a_vc/2012/06/mba-mondays-optimal-headcount-at-various-stages.html