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What is Netflix really costing you?

What is Netflix really costing you?

The true cost of Netflix

When Netflix IPO'd in May of 2002, the company was valued at a mere $300 million. Over the last 15 years Netflix has been on a rampage capturing 100 million subscribers and $81 billion in market cap. Yet Netflix has apprehended something far more valuable: our precious time.

Of course, there's a time and a place for entertainment: who doesn't enjoy getting into a good show every now and again?

However, this entertainment comes at a dear cost far exceeding the $11.99/mo membership fee. If you believe time is our most precious commodity, than we must acknowledge the massive opportunity cost that we sacrifice every night in front of the screen.

Let's start with some facts

  • The average subscriber spends 20 hours per week on Netflix
  • . . . That's 80 hours per month
  • 70% of Netflix users binge-watch shows
  • Netflix streamed 10 billion hours last month
  • The Netflix catalog is approximately 115,000 hours of content (21 years; waking hours)

Sources: DMR, CinemaBlend, Variety

20 hours per week is a lot

Let's start by acknowledging the obvious: 20 hours per week is a LOT of time. In most states, 20 hours per week is considered part-time employment. With 55 million subscribers in the US, you can say that 17% of Americans have a part-time job watching Netflix (US population = 323 million). This absurd reality provokes a crucial question: is this really the best use of our time?

The importance of personal development 

The short answer is no. Watching Netflix for 20 hours per week is likely not the best use of our time. Life is short. Really short. And for life to improve, we must heed the guidance of legends like Jim Rohn when he writes:

"Learn to work harder on yourself, than you do on the job."

Side note: if you haven't read The Art of Exceptional Living by Jim Rohn, it comes highly recommended from most of the executives we work with.

Only by building the habit of daily personal development can we truly improve our personal and professional wellbeing. Netflix is kryptonite to this endeavor.

"Want to watch a show?"

The question sounds innocent enough. Enticing, even. But next time you ask—or get asked—this question, make sure you keep this perspective in mind:

  • The typical human is awake for 15 hours per day, or 105 hours per week
  • As stated, Netflix is commanding 20 hours per week (on average)
  • 20 hours / 105 hours = 19% of our waking hours are devoted to Netflix

Breakdown: How we spend our time in a given week

Hours per week. Source: https://graphics.wsj.com/time-use/

What else could we be doing?

Below is a chart of Netflix binge sessions and their personal development equivalent.

On Netflix you could watch: Or you could: Time required
1 episode - Archer Run 2-3 miles 22 minutes
1 episode - House of Cards Write a blog post 50 minutes
2 episodes - The Blacklist Bike 20 miles 1.4 hours
3 episode - Orange is the New Black Read 82pp. of a book 2.75 hours
4 episodes - Stranger Things Learn 5 new subjects on Khan Academy 3.2 hours
Season 1 - House of Cards Complete Stanford's CS101 online 10.8 hours
Season 1 & 2 - Orange is the New Black Learn how to program in C 23.8 hours
All 5 seasons - House of Cards Train for a marathon 54.2 hours
All 7 seasons - The West Wing Become conversational in Italian 112.9 hours
All seasons - HoC, OitNB, The West Wing Read 34 of the 51 Harvard Classics 227.1 hours
21 weeks of Netflix (at 20 hours/week) Build the first version of Facebook 420 hours

You are always choosing

So the next time you're tempted to binge of Netflix, keep the above list in mind. Realize that you are always choosing: a choice to watch Netflix for 3 hours is also choice to NOT learn 5 new subjects on Khan Academy. A choice to weekendbinge on 2 seasons of your favorite show, is a choice to NOT learn how to program at a basic level. 

Every decision has tradeoffs, and the more we keep this in mind, the better off we'll be on our quest for transformative personal development.

Next episode playing in. . .

You can also disable autoplay: https://help.netflix.com/en/node/2102. This one decision could help reduce your Netflix consumption by up to 50%. I'm curious: what would you do with the extra time?

3 Words to Describe You

3 Words to Describe You

Two guys grabbing dinner in San Francisco

I recently had the pleasure of catching up with one of my old teammates from Optimizely. He's doing well: director-level position, managing a growing team, and meanwhile hyper-focusing on how he can take it to the next level as a leader.

So I asked him a question:

"If I were to meet with your team over drinks, and I asked each of them to describe you in three words, what would you want them to say?"

Simple question. Long, thoughtful answer.

His final answer: 

  • "Caring, consistent, and challenging."  [Three C's FTW]

While the answer was revealing, the true value was in talking through the various tradeoffs one makes as a leader:

  • Friend vs. boss
  • Lenient vs. stern
  • Strategic vs. tactical
  • Inspirational vs. directive
  • Spontaneous vs. predictable

And while none of the above are mutually exclusive, a leader has limited time. Very limited. So you have to explore: what is your management philosophy? How do you want to be perceived? Even. . . remembered?

So I challenge you:

What are the 3 words you would want your team to describe you?

If you're still staring instead of thinking, below is a insightful list of questions your team is likely asking themselves right now.

Credit due to Fred Kofman’s book, Conscious Business, in which he crafted these questions about communication clarity, mission, shared values, respect and teamwork.

  1. Do I know what is expected of me at work?
  2. Do I have the materials and equipment I need to do my work right?
  3. At work, do I have the opportunity to do what I do best every day?
  4. In the last seven days, have I received recognition or praise for doing good work?
  5. Does my supervisor, or someone at work, seem to care about me as a person?
  6. Is there someone at work who encourages my development?
  7. At work, do my opinions seem to count?
  8. Does the mission/purpose of my company make me feel my job is important?
  9. Are my co-workers committed to doing high-quality work?
  10. Do I have a best friend at work?
  11. In the last six months, has someone at work talked to me about my progress?
  12. This last year, have I had opportunities at work to learn and grow?

The DBT Ventures team hopes this article has been helpful in urging you to proactively control what 3 words describe you as an executive.

If Seneca was a CEO

If Seneca was a CEO

"Life is the fire that burns and the sun that gives light. Life is the wind and the rain and the thunder in the sky. Life is matter and is earth, what is and what is not, and what beyond is in Eternity."      —Seneca

Who was Seneca?

Seneca was a Roman Stoic philosopher born in 4 BC. He was widely known as a brilliant statesman and advisor to emperor Nero. Considered one of the most influential philosophers of the Roman era, Seneca's ideas and legacy have been captured by the likes of Epictetus, Dante, Chaucer, Petrarch, Montaigne, and John Calvin among others. He probably looked something like this:

Photo credit: The New Yorker magazine

Quick primer of Stoicism

To understand Seneca—and what he might be like as a CEO—we first need a quick primer on his school of philosophy: Stoicism (source: Stanford Encyclopedia of Philosophy which I've found to contain much clearer descriptions without Wikipedia's tint of public opinion.)

Stoicism started in 301 BC when Zeno started teaching at Stoa Poikile, or "Painted Porch" which was basically a colonnade above the Agora in Athens. It probably looked something like this:

Stoicism primarily focuses on personal ethics guided by system of logic and its views on the natural world. It teaches:

  • philosophy should be a way of life: a daily practice or exercise instead of "academic"
  • they prize four cardinal virtues: wisdom, courage, justice, and temperance
  • we can overcome destructive emotions with self-control and fortitude
  • the path to happiness for humans is found in accepting what we have been given in life
  • the universe is governed for the best by a rational providence grounded in logic
  • contentment is achieved through a simple, unperturbed life in accordance with nature
  • human suffering should be accepted and has a beneficial effect on the soul
  • study and learning are important

Okay, back to Seneca

If Seneca was a modern-day CEO, he would first have to learn English. Latin just wouldn't cut it. This would be an important first step so Seneca could begin teaching us awesome things, and leading his hypothetical company as CEO.

4 things CEO Seneca would be really good at

  1. Storytelling: Seneca had a knack for sharing short, insightful stories with staying power. What a great skill for a CEO! Seneca often drew from his eclectic experiences to impart bite-sized nuggets of wisdom most evident in his 124 letters that he wrote to his buddy, Lucilius. If you're new to Seneca, I highly recommend reading these letters as the best way to understand his philosophy. You could also go the podcast route, compliments of Tim Ferriss.
  2. Emotion Management: Ever the Stoic, Seneca practiced emotional self-awareness and control. Seneca taught what Marcus Aurelius later called the Discipline of Will, or the humble acceptance of what is outside our control. In short, Seneca had a highly-developed sense of emotion management and wrote about the damage of uncontrolled anger and its pathological connections.
  3. Education: Seneca believed that if you aren't constantly learning, your capacity of a thinker will atrophy. Therefore, he committed himself to disciplined self-improvement and education. As a CEO, one might expect Seneca to build a world-class "Learning & Development" function within his company to operationalize this competitive advantage.
  4. Gratitude: Some writers regard Seneca as the first great Western thinker on the complex nature and role of gratitude in human relationships, e.g. The Psychology of Gratitude, Emmons and McCulloch. As a CEO, Seneca would find a way to bring gratitude into the day-to-day work of his employees: What are you thankful for? As a company, what do we thankful for? Seneca understood that gratitude is the antidote for arrogance and entitlement—two destructive corporate ailments. Seneca was also ahead of his time: in the recent "Grateful Heart" study—published in the American Psychological Association—Paul Mills actually proved that gratitude materially improves heart health. 

What to do with this information

Based on this partial list of Seneca's talents, one could reasonably expect Seneca to thrive as a modern-day CEO (once he learned Latin, of course). If you wish take action and incorporate some of Seneca's teachings into your role as a leader, below are three suggestion:

  1. Download The Tao of Seneca podcast on Audible and begin listening to Seneca's letters—if you prefer to read them, they are also publicly available for free via WikiSource.
  2. Next time you are in a position to offer direction or guidance, consider employing Seneca's unique style of storytelling, often starting with an eclectic or trivial experience or observation.
  3. As a leader, think about how an off-beat value like Gratitude manifests in your company culture—is it even present? How could you inspire your employees to embrace a perspective of gratitude? Example: One DBT reader recently concluded his weekly C-level meeting by going around the conference table and having each exec share what they were professionally grateful for.

Seneca died in 65 AD (suicide, long story) shortly after the Great Fire of Rome. Thankfully his life's work didn't burn in the carnage.

Leaders that Listen

Leaders that Listen

Most working professionals have read Stephen Covey's landmark book The 7 Habits of Highly Effective PeopleIt is considered a cornerstone of the knowledge worker's curriculum. However, most leaders neglect Habit 5:

Seek first to understand, than to be understood.

Sounds simple right?

But its not. Based on personal experience and countless first hand accounts, many leaders fail to embrace empathic listening to develop a genuine understanding of their direct reports.

As Covey describes the challenge:

Communication is the most important skill in life. You spend years learning how to read and write, and years learning how to speak. But what about listening? What training have you had that enables you to listen so you really, deeply understand another human being? Probably none, right? 

As you'll witness in this inner monologue, the inherent hierarchy of the relationship compounds the problem:

As a boss I am expected to assess situations, give advice, make decisions, and coach my direct reports. This is my job as a manager.

Why would a manager actually take the time to listen beyond understanding a problem? They don't because they don't have to. They are paid to assess and decide, not listen and reflect.

It is at this crossroads where the good managers are surpassed by great leaders. Recall that leaders lead people. Managers manage tasks. True leadership is built upon character and emotional intelligence to work through people. Managers direct people through work.

As highly-paid task masters, most managers listen autobiographically and then respond in one of four ways: 

  • Evaluating: You judge and then either agree or disagree.
  • Probing: You ask questions from your own frame of reference.
  • Advising: You give counsel, advice, and solutions to problems.
  • Interpreting: You analyze others' motives and behaviors based on your own experiences.

This tactical, superficial exchange often leaves the individual contributor feeling misunderstood with an overdose of advice, not to mention the risk of terrible advice due to minimal understanding.

Trust is lost.

Since the immature manager lacks the patience or skill needed to truly listen and understand, they often resort to pontificating which makes them feel important. In fact, immature managers are often so eager to conquer situational challenges that emotions and context becomes casualties of war.

Want to buck the trend? In your next 1:1 with your direct report try the following:

  • Put your agenda aside
  • Give them 100% of your attention
  • Try to identify the emotional underpinning of what they're sharing with you
  • Try to identify how they FEEL
  • Rephrase how you think they feel back to them, e.g. "It sounds like you're feeling pretty anxious about this renewal coming up next month."
  • Be comfortable with long pauses
  • Take the time to reflect on what they've shared with you
  • Resist the urge to evaluate and judge.
  • Resist the urge to probe into the tactical details.
  • Resist the urge to give advice.
  • Resist the urge to analyze.

Do nothing except talk about how they're feeling. Admittedly, all of this is quite counter-intuitive amidst a hectic workday, but trust me: if you've done this effectively, they will eventually ask you for your perspective: "How do you think we should handle the renewal?"

BINGO.

Since you've taken the time to listen empathically and develop a genuine understanding of their situation, trust has been earned.

You have just taken the first step from being a good manager towards becoming a great leader.

 

S&M vs. R&D: Where does your company stack up?

S&M vs. R&D: Where does your company stack up?

Perhaps the biggest decisions C-level executives make is resource allocation:

  • Should I double down on hiring more Account Executives?
  • Should we invest in hiring more top-tier PMs to guide product development?
  • What are the cost implications of migrating our backend to H-Base/AWS? 
  • Does sales really need $350k for SPIFFs next quarter?

Therefore, let's create some guide wires with the data that's publicly available to understand how Sales & Marketing costs typically compare to Research & Development costs:

Notice the spike in the S&M-R&D ratio in year two: this is usually the result of the founding pair hiring some sales muscle once they've established product fit, sometimes prematurely. You can use this chart to benchmark your levels of relative investment over time.

But publicly-available 10-Ks and S-1s have a misleading quality to them: they bundle very big things into bigger things. Therefore, I've injected six line items in blue to help you isolate the following costs relative to median revenue:

  1. S&M Investment
  2. Sales-Only Investment
  3. R&D Investment
SM Sales RD investments.png

Based on the data, marketing is typically 19-22% of revenue, so I've unbundled the above numbers to show just the 'S' in S&M. The critical achievement here really starts in year 3-4 when the successful companies start to focus on driving sales efficiency per rep thereby eventually reducing Sales:Revenue from ~50% to 30-35% in year 7-8. 

The most underrated growth strategy in tech/SaaS

The most underrated growth strategy in tech/SaaS

By now most executives have heard of the Net Promoter Score system, aka the #1 litmus test for customer loyalty: "On a scale of 1-10 how likely are you to recommend [your company] to a friend or colleague?"

As we've written about in past DBT blog posts, the NPS responses tell you a lot. . .

Starting from the left in red:

Detractors (0-6) borderline hate you. As unhappy customers the don't say nice things about you at cocktail parties or conferences, and they certainly wouldn't recommend your company or product.

Passives (7-8) are on the fence. They are the swing states of the NPS electorate.

Promoters (9-10) fucking love you. They'd hand out your goddamn business card at the mere mention of your company. Recall, when you asked them "How likely are you to recommend us?" they said 9! or 10! Promoters are super stoked about what you're up to.

So what is the most underrated growth strategy in tech/SaaS?

To illustrate—and as a bit of a teaser—here is how the NPS thing works at most tech/SaaS companies.

  • Company: "Dear [first name], How likely are you to recommend our product to a friend or colleague?"
  • Customer: 9 !!! You guys rock !!! My whole team LOVES your product.
  • Company: [canned response] Thank you for your feedback.
  • Company: [awkward silence]
  • Company: [awkward silence]
  • Company: [random marketing update]
  • Company: [six months later]: "Dear [first name], How likely are you to recommend our product to a friend or colleague?"
  • Customer: 10 !!! It's even better than last time. Honestly, I consider you family. Well done.
  • Company: [canned response] Thank you for your feedback.
  • Company: [awkward silence]
  • Company: [awkward silence]

Meanwhile at the Company's quarterly leadership offsite. . .

Chief Revenue Officer: "Thank you all for coming to this quasi-swanky venue today. We are here—as a leadership team—to figure out our growth challenges and brainstorm how we can grow revenue faster and hit our goals for 2017. I assume you all read the pre-read [blank stares] so we'll go right into the ideation phase. Who wants to go first?"

  • VP Marketing: "What if we did more EVENTS! Like real enterprise caliber events?"
  • VP Sales: "Pipeline generation is weak. We need more support in late stage deals."
  • VP Success: "We could hire more CSMs and Support reps to help customers drive more value."
  • VP Monetization: "We could rethink our pricing and packaging. . ."
  • Everyone: "Haven't we tried that like 3 times already?"
  • VP Monetization: "Or, I mean, Product could build new features that customers really want."
  • VP Product: "I think everyone's shared some great ideas today. I'll have the PMs incorporate all of this at our next release planning."
  • VP Engineering: "I mean, can't the sales people just close more deals? Sorry, why am I here again?"

Chief Revenue Officer: "Thank you—all of you—for the very, very good ideas. Growing revenue is challenging, especially during times like these [strong eye contact with VP Sales]. We just need to roll up our sleeves and get to work."

  • EA who's at the offsite for the sheer purpose of keeping track of time and taking notes: [brazenly] "What if. . . we asked our happy customers. . . to introduce us to people they know. . . who might consider buying from us?"
  • CFO: [looks up from his computer for the first time in 1.5 hours] "Go on. . ."
  • EA: "Well, we've been doing our NPS survey for 4 years now and some of our customers are actually quite happy and gave us a 9 or 10 when we asked them would you recommend us to a friend or colleague. . ."
  • CFO: [eyebrows raised] "Are you suggesting that we ask happy customers if they'd recommend us to a friend or colleague?"
  • EA: [looks around] 
  • EA: [brazenly] "Yes."

[10 seconds of silence that feels like 10 minutes to the EA]

  • Everyone: ". . .That's AMAZING! Holy smokes. It's SO OBVIOUS—why didn't we think of that? We could ask promoters to recommend us to a friend or colleague! I mean, that's the question in the NPS survey, right? Haha, it makes SO MUCH SENSE."

EA be like:

 So what is the most underrated growth strategy in tech/SaaS? You betcha. Customer referrals. Specifically, referrals from promoters (assuming you use NPS), or overall happy customers (if you don't use NPS).

Why are referrals so valuable?

  • 1-2x higher close rates
  • Shorter deal cycles (20-50% depending on complexity)
  • Lower customer acquisition cost (CAC) due to lesser marketing spend / nurturing
  • Higher retention (customers that were introduced from a friend/colleague are more likely to stick around)
  • More referrals: customers that were introduced via referral/promoter are 2x more likely to provide additional referrals—so the whole strategy can grow exponentially if you really get behind it

That's it really. At DBT we've witnessed several tech/SaaS companies make the grave mistake of clinging to what they know: hire enterprise AEs, hire more AEs, close deals, pay generous commissions, grow revenue, attract more investors, start thinking about retention when it dips, freak out when it dips more, hire more Customer Success people, "take a step back", think market share, craft go-forward strategy, growth decelerates, freak out, schedule leadership offsite for the Company.

If you want to equip your team on how to become dangerous with referrals, check this out:

Click here to download the whole PDF

We hope you find this resource helpful to empower your account teams to have more effective conversations with your happy customers to ultimately generate more leads the close quicker and more often to ultimately drive revenue to the heights of your ambitions.

Colorful Leadership

Colorful Leadership

Where love rules, there is no will to power; and where power predominates, there love is lacking. The one is the shadow of the other.  —Carl Jung

He had affairs. He was into alchemy. He was even buddies with Sigmund Freud. We're talking about Carl Jung, aka the most interesting person to ever come out of Switzerland.

Jung's impact on the world is hard to overstate: he founded analytical psychology, created the collective unconscious, the archetype, and personality types extraversion vs. introversion (remember that Myers-Briggs test you took in high school?)

Even art wasn't off limits: Jung's teachings inspired the iconography and mythical figures found in some of Jackson Pollock's best art in the late 1940s. He was also an early proponent of art therapy for psychological healing.  #renaissanceman

But what does any of this have to do with leadership?

A lot. Particularly when it comes to understanding other people. Why? People are the pulsing lifeblood of leadership. If you don't understand people, your chances of becoming an effective leader are slim to none. 

Of the countless derivative works attributed to Jung, one of the most impressive—and practical—is the Insights Discovery. Had Jung lived to be 118 years of age, he would have witnessed the founding of The Insights Group in 1993. They are the creators of Insights Discovery which draws heavily from Jung's framework and abstracts complexity through the creative use of COLOR.

Wait, what is Insights Discovery?

Insights Discovery is a professional personality assessment that takes about 30 minutes to complete and costs $150. Honestly, its the best $150 you'll ever spend. 

Why is it valuable?

Because you will learn about yourself, your "preference", your strengths, your blind spots, and how OTHER COLORS might perceive you—and how you can communicate better with them. In addition to learning, the program also suggests actionable next steps.

Enough context building. Let's get to the actual colors and what they mean:

This is the Insights Discovery Wheel. There are four colors [you: thanks Sherlock]:

  • Fiery Red: Let's do it now!
  • Sunshine Yellow: Let's do it together
  • Earth Green: Let's do it in a caring way
  • Cool Blue: Let's do right

Other important characteristics to note:

  • Right half of wheel: Extroversion (Red & Yellow)
  • Left half of wheel: Introversion (Blue & Green)
  • Top half of wheel: Thinking (Blue & Red)
  • Bottom half of wheel: Feeling (Green & Yellow)

Okay, so you take the assessment and you get a dominant color. Mine, for example, is red. But humans aren't 1-dimensional beings and, as Jung would attest, we have layers of conscious vs. unconscious complexity. So all of us have actually have all four colors, but in very different mixes. We have a natural "preference" for some color(s), and make an effort to "dial up" some color(s) within the dichotomy of our unconscious and conscious, respectively.

Here are what the colors are like on a bad day vs. a good day:

As mentioned, I am a RED dominant type. If I don't make a point to be self-aware and manage my own tendencies, I may come off as aggressive, controlling, driving, overbearing and/or intolerant. These are terrible things for a leader to be viewed as.

On a good day, my "Fiery Red" nature is competitive, demanding, determined, strong-willed, and purposeful—traits of a great leader which I aspire to be.

Putting this into action

Step 1: take the assessment (ideally with your whole department or team)

Step 2: learn

Specifically, learning what NOT to do was super helpful for me. As my father used to say, sometimes the best decisions are the ones you DON'T make. Insights gives you a blueprint on what to avoid per color. For example:

YELLOW - Do not:

  • Bore then with details
  • Tie them down with routine
  • Ask them to work in solitude

BLUE - Do not:

  • Be overemotional or exaggerate
  • Be careless or casual with important issues
  • Keep changing things without good reasons

GREEN - Do not:

  • Take advantage of their good nature
  • Push them to make quick decisions
  • Tell, instruct, or command

RED - Do not:

  • Hesitate or be indecisive
  • Focus on feelings
  • Try to take over

It gets better. Here are some "Do's" for each color:

YELLOW - Do:

  • Be friendly and sociable
  • Be engaging and stimulating
  • Be open and flexible

BLUE - Do:

  • Be well prepared and thorough
  • Put things in writing
  • Let them consider all the details

GREEN - Do:

  • Be patient and supportive
  • Ask for their input before making a decision
  • Ask their opinion and give them time to answer

RED - Do:

  • Be direct and to the point
  • Focus on the results and stimulating
  • Be confident and assertive

Conclusion

"Colorful leadership" can help you become a more effective leader by 1) having a deeper appreciation for the true nature of other people, 2) having a deeper understanding of yourself, and 3) putting that perspective into action.

 

The 3 best ways to change your customers habits

The 3 best ways to change your customers habits


"To truly adopt new software, customers have to change their habits. Users must convert their aspiration into new routines."  —Tomasz Tunguz

As a partner at Redpoint Ventures, Tomasz is no stranger to the challenges software companies face. As an experienced venture capital investor, Tomasz and Redpoint have studied a variety of factors to determine What is the most correlated business metric with Series A valuations? 

The answer: negative churn. 

For the uninitiated, negative churn means that your existing customers are paying you more (expansion) than they're paying you less (churn), over a given time period. Confusingly, there are many names for this metric, all referring to the same thing: account expansion, negative net churn, net retention, net expansion.

But the takeaway here is: whatever you call it, net retention is the #1 arbiter of Series A valuations. 

In order for expansion to outpace churn, your customers have to adopt your software. And that's where habits come in. As Tomasz shares:

"I learned this selling billing and invoicing software to law firms. It was one thing to convince the managing director of a law firm to pay for the software over a 90 day sales cycle. But it was an entirely different matter to educate, convince and convert individual attorneys to use the software. That took far longer."  Source: TomaszTunguz.com

But how?

That's the billion-dollar question that every software company is trying to figure out.

As we've cataloged in past DBT blog posts, achieving successful adoption usually starts with empowering a team to build new habits. Two key words here: 1) team, 2) habits. 

It's no coincidence that Atlassian's ticker is TEAM. As I write the stock is trading at $22.82 with a market cap of $4.78 billion. Revenue and cash flow look like this:

Source: Google Finance, 5/24/16

Source: Google Finance, 5/24/16

Atlassian—a software company designed for teams—is growing substantially and kicking off plenty of cash because they've figured out something important: how to change customer habits.

But how does a company change customer habits? Based on five years of research, I've found the 3 best ways to change your customer habits are:

  1. Keep the executive sponsor engaged post-sale
  2. Make your product's value so undeniable they can't ignore it
  3. Triggers

Before we unpack these strategies, let's revisit the formula for how habits are created in the first place:

Source:The Power of Habit, Charles Duhigg, 2014

The formula, therefore. . . HABIT = cue + routine + reward

It's a virtuous cycle of a prompted action, the action itself, and then a Pavlovian shot of dopamine to keep the cycle going. Boom. Habit created. New routine established. But back to the how. . . 

1. Keep the executive sponsor engaged post-sale

You'd be surprise how frequently the executive who made a software purchase vanishes after the product is bought. Based our DBT research, the frequency is 40% of the time. It's not his or her fault—they're busy. Very busy. Therefore, the challenge is on the account team to keep them engaged post-sale. Therefore, this strategy is both the most effective and the most within your control.

Backstory: The dirty little secret of SaaS companies is that software is incredibly easy to buy, but much harder to deploy (and therefore harder to reap the benefit of why said software was bought in the first place). Without the executive sponsor's influence, the actual users of the software are faced with a choice: 1) do what they usually do, 2) change.

As you might have guessed, they often chose option one :|

If you focus on a tight Sales >> Customer Success handoff where the executive sponsor stays involved, you will have greatly increased you chances to successfully deploy and change behavior. To do so, we recommend creating a workflow where the executive's goals are clearly documented in Salesforce so the Customer Success team can carry the torch:

2. Make the product's value so undeniable they can't ignore it

This really should be #1 but for the sake of practicality is is #2 because your product's value is (primarily) determined by your product and engineering team. If your product isn't valuable (accordingly to your customers), than this article doesn't really matter because your customers will eventually churn out.

But let's assume your product does create value. Then what?

A few things:

  • Think about the "Reward"—what makes your customers want to keep coming back and using the product? How does the product reward them for the routine the user has completed?*
  • Automate it: make that seminal value moment a thing. Celebrate it. Send them an email. A notification. Highlight the demonstrable show of value.
  • Schedule a Business Review. Pull the usage and results data from your software and showcase the value to the business user AND the Executive Sponsor.

*This is the "Reward" moment for MyFitnessPal (acquired by Under Armour for $475MM in Feb-2015).

3. Triggers

This is the step required to start the new routine. What brings your users back to the product? WHY do they come back? What prompts them to ditch their Gmail inbox and log into your software and DO STUFF? 

It's kind of like running. Personally, if I don't set our my running shoes the night before, I likely won't run. It needs to be easy. I need a trigger to brave the foggy cold air at 6am and MAKE IT HAPPEN. The trigger is often simple, but nevertheless very effective is catalyzing action.

In closing:

“We are what we repeatedly do. Excellence, then, is not an act, but a habit.”   —Aristotle

Hopefully you can influence your customers habits to help drive adoption and ultimately achieve negative net churn and thereby earn a lucrative valuation so that YOU = HAPPY.

 

Leadership learnings from Kerouac

Leadership learnings from Kerouac

"The only people for me are the mad ones, the ones who are mad to live, mad to talk, mad to be saved, desirous of everything at the same time, the ones who never yawn or say a commonplace thing, but burn, burn, burn like fabulous yellow roman candles exploding like spiders across the stars. . ."

Jack Kerouac attended Columbia on a football scholarship. This was an ironically "All-American" start for a young man who later became a central figure in the notorious Beat Generation which defied formal academics, renounced materialism, and loathed society-anointed "values".

His life doesn't fit the profile of someone we'd typically look to for leadership advice: Jack Kerouac never became a billionaire. He didn't start a tech company or become a Fortune 500 CEO. The only "unicorns" Jack knew of were from his psychedelic encounters while driving across the country with Neal Cassady (if you haven't read On the Road, highly recommend).

But despite his lack of business credentials, Jack was a true visionary who's eccentric lifestyle yields three powerful traits for those aspiring to grow in their leadership career:

  1. Authentic: embrace your "true original" inner spirit
  2. Simple: value the elegance of simplicity over complexity
  3. Spontaneous: harness the creativity—and fun—of life's serendipity

In short, be an ASS*. 

*I couldn't write a blog post about Kerouac and leadership in good conscience without somehow incorporating his special brand of counter-cultural irreverence. So there you have it: be an ASS. I hope Kerouac would approve.

Let's expound on these traits a bit.

AUTHENTIC. What does it mean to be authentic? Why is that important to good leadership? In short, authenticity is the absence of inner bullshit. It is comfort in candor. It is the ability to embrace your "true original" inner spirit while knowing—sometimes in a self-deprecating way—both your strengths and weaknesses. Authenticity isn't just important to good leadership, it is critical. Your peers can sense posturing, conflict and optics a mile away. Being authentic is the antidote to all perceived bullshit. The best article I've ever read on this topic is Tim Urban's Why you should stop caring what other people thinkTim elucidates the idea of your Authentic Voice in a uniquely powerful way to help us all become more true to our inner authenticity.

This is step 1.

SIMPLE. Today's business world has an insatiable appetite for complexity. At times, it can make your head spin. To address this challenge, our team recently spent a full-day offsite ruminating on the idea of "exceptional simplicity" to figure our how we can do the simple parts of our job (Customer Success) exceptionally well. One CSM offered up the idea of In-N-Out burger as a tangible example of "exceptional simplicity" in practice: simple menu, consistent, tasty. Does your leadership style or business workflow resemble the menu of In-N-Out or McDonald's?

If your leadership style or business focus resembles the myriad of options on the right, it might be a good time to get back to beat basics. A the saying goes, if you have more than three priorities, you don't have priorities.

SPONTANEOUS. The Beat Generation was know to prize spontaneity, particularly as a catalyst for creativity. For today's leaders, spontaneity can be an incredibly effective trait to harness the creativity—and fun—of life's serendipity.

Why in spontaneity important? Because business is inherently NON-spontaneous. The nature of business is often planful, deliberate, and predictable. Adding a dash of spontaneity to your leadership approach can help you break through the rote monotony of the work day to unleash your team's creativity and passion.

“Whee. Sal, we gotta go and never stop going till we get there.” “Where we going, man?” “I don’t know but we gotta go.”  - Dean Moriarty speaking to Sal Paradise, i.e. Neal Cassady to Jack Kerouac; from On the Road (1951)

This isn't to suggest being spontaneous in, say, a sales forecasting meaning. . .

VP Sales: What is your expected new bookings growth in Q3 2016?

You: I don't know, could be anything! We're being spontaneous is our approach this quarter. We'll see what happens and update everyone when the impulse strikes.

{awkward silence}

{VP Sales' face gets redder, twitchy}

VP Sales: You're fired.

To be sure, process and predictability exist for very good reasons in business. By embracing spontaneity, however, you can amplify your special brand of leadership and set yourself apart.

How you can be spontaneous as a leader:

  • Instead of taking your next meeting in a conference room, ask the other person if they'd be open to going for a walk
  • Surprise your team with an unplanned team lunch outside the office
  • Share positive feedback on the fly
  • Instead of your typical team meeting, take your team to a nearby park and draw stuff on construction paper
  • Hire Speechless to deliver their (amazing) improv session with your team

Okay, let's recap:

Leadership learnings from Jack Kerouac. In short, be an ASS!

  1. Authentic: embrace your "true original" inner spirit
  2. Simple: value the elegance of simplicity over complexity
  3. Spontaneous: harness the creativity—and fun—of life's serendipity

Let's make Jack Kerouac proud. Let's go Further.

The way your company is valued has changed

The way your company is valued has changed

TL;DR

  • On February 5th the entire tech/SaaS industry got a wake up call: public cloud companies collectively lost $28B in market value on a single day.
  • Valuation models have changed: markets are rewarding software companies with sustainable growth + a path to profitability
  • How tech companies navigate this tectonic shift will determine the success (or failure) of their businesses

By now most people have heard the news: On February 5th the entire tech/SaaS industry got a wake up call: public cloud companies collectively lost $28B in market value on a single day. 

Even Linkedin (LNKD), a company that did $3 billion in sales last year, got hammered from $205 to $100 per share. So for Linkedin, the week looked like this:

  • Feb 1 valuation: $24 billion
  • Feb 9 valuation: $11.8 billion
  • Market cap incinerated: $12.2 billion

To put that another way, Linkedin lost the equivalent of Nicaragua's GDP in a six trading days.

What the hell happened?

Answer: the way your company is valued, changed—particularly for high-growth, SaaS, cloud-based tech companies. Markets are rewarding software companies with sustainable growth + a path to profitability

How did the overall market perform?

  • the S&P 500 was down 5.9% in the three months ending 3/1/16
  • if you look at the light blue and red lines below, you'll see that certain software and SaaS companies were down 26.2% and 24.1%, respectively

Okay, so that happened. But what does that mean going forward?

  • for starters, cash is king. For emphasis, cash is king.
  • these companies are moving (very rapidly) to reduce costs
  • these companies are moving (very rapidly) to improve cash flow

Why are they doing this?

  • to avoid imminent failure
  • to earn a better valuation (see: below chart)
  • the market is clearly awarding higher EV/Sales valuations to companies that expect to be free cash flow positive within one year

And finally we get to the meat of the discussion. What is one to do in navigating this unique—but not unprecedented—market environment? At DBT Ventures we don't try to boil the ocean, but rather focus on four pillars of business:

Ideas

  • Given the market challenges, a CEO would be wise to prioritize ideas that enable your business to 1) reduce costs, or 2) increase output.
  • Focus should be placed on "getting back to basics" and doing the simple things to perfection
  • Company first, team second, individuals third

Data Science

  • Increase data science effort on unit economics, specifically Customer Lifetime Value and empowering your account teams to understand the economic tradeoffs between how they spend their time (company money) and revenue (customer money).
  • It's a great time to kill exploratory projects and double-down on DS initiatives that are closely linked with tangible business value, e.g. prospect's likelihood to buy, customer's likelihood to churn/expand
  • Perform outlier analysis on all company-wide expenses to identify areas of bloated budget with lackluster ROI

Customer Success

  • Scale, scale, scale—alleviate the dependency on 1:1 support engagements
  • Get a tattoo: scaling ≠ hiring
  • Prioritize roles with higher output metrics with an emphasis on automation and 1:many deliverables, e.g. virtual trainings, online resources, personalized email drip campaigns
  • Attack churn proactively to reduce the headwind on top-line growth
  • Set a goal to reduce CRC to 10-15% of revenue, or less

Leadership

  • Adversity is an excellent opportunity to exude strength, resilience, and adherence to your cultural values and ethics
  • Give merit based comp adjustments to top performers to reduce the risk of attrition
  • Take the extra time to celebrate wins as a function, team, department, and company—this investment will help improve dour morale
  • Reward AEs for contracts with payment upfront which will help cash flow
  • Overcommunicate. Do not turtle shell. Your company needs you now more than ever
  • Recognize that "constraint yields creativity" and "necessity is the mother of invention" such that you green-light projects that improve scalable output
  • Lead by example: now is not the time to be lavish or spendy
  • If your goal is to go public, recognize that the median revenue at IPO is $83 million—set goals to achieve this number while imparting a sense of urgency at the executive level. Mindset: "the last round of funding was our last" given VC money has become more stringent.

Go forth and prosper.

Why most leaders fail to inspire

Why most leaders fail to inspire

"Despite the critical importance of inspiration and persuasion, most executives struggle to communicate, let alone inspire. Too often, they get lost in the accoutrements of companyspeak: PowerPoint slides, dry memos, and hyperbolic missives from the corporate communications department. Even the most carefully researched efforts are routinely greeted with cynicism, lassitude, or outright dismissal."        —Harvard Business Review; conversation with Robert Mckee

Let's start by defining a few esoteric words that Harvard decided to use:

  • accoutrements: an identifying and often superficial characteristic or device (origin: French)
  • hyperbolic missives: exaggerated written bullshit (definition not Harvard approved)
  • lassitude: lacking physical or mental energy; tired

With that said, it's high time we introduce the man of the hour: Robert McKee. But before you meet this living legend, he has two questions for you:

If you can answer Mr. McKee, you're half way to becoming an inspirational leader.

But you never even introduced who Robert McKee is!

Fair point. For starters, Robert McKee is a storyteller. A really, really good one. But what's more, he has an incredible gift for teaching his wisdom to other people.

As a Broadway veteran from Detroit turned screenwriter and educator, McKee adeptly launched his "Story Seminar" while teaching creative writing at USC. Over 50,000 students have absorbed his lectures, and many of them have gone on to illustrious careers: 63 Academy Award winners, 164 Emmy Award winners, 30 WGA (Writers Guild of America) Award winners and 26 DGA (Directors Guild of America) Award winners.

As word got out, the world's most successful companies engaged McKee for help with crafting their story, brand identity, and communications. Nike, HP, Microsoft, Time Warner—all doled out dollars to get a piece of this man's mind. He's consulted Disney, Paramount and Pixar. Pixar?! Yes. When Ed Catmull and Pete Docter want an outside opinion, they pick up the phone and call Robert McKee.

Much of McKee's wisdom is consolidated in his book Story: Substance, Structure, Style, and the Principles of Screenwriting (which, notably, spent 20 weeks on the NYT Best-Seller list).

My favorite quote from that book: "Stories fulfill a profound human need to grasp the patterns of living—not merely as in intellectual exercise, but within a very personal, emotional experience."

But why do most leaders fail to inspire?

Three main reasons:

  1. They favor rhetorical persuasion over emotional power
  2. They haven't mastered the art of good storytelling
  3. They can't really answer McKee's questions above

Whatever your industry, storytelling is a skill you HAVE to hone. To learn more, we recommend digesting the below article.

Wisdom from the Grove - Part 3

For those of you just joining us, this is part 3 of a series inspired by Andy Grove's epic book, High Output Management. You can find Part I and II here and here, respectively. So far we've reviewed pages 1-100. This post will cover pages 101-150.

Intel Plant, Philippines, 2007

We'll start with the awkward stuff. One of the main business decisions in this section—whether or not to open an Intel plant in the Philippines, and if so, where—is showcased to highlight the efficacy of 1) the "mission-oriented" meeting structure, and 2) Intel's decision-making process.

That's all fine and good, especially if you were in Cavite circa 2002 and you hear that Intel is pumping almost $100MM into your local economy.

However—and this is the awkward part—Intel actually shut down the Philippines plant and laid of 1,800 workers only 7 years later. Admittedly, it was during the worst bear market in over 75 years, but its worth noting that even the best management teams can't forecast macro demand forces more than a few years out.

Notes from pp. 101-150 of High Output Management

Let's start with a few quotes to warm up the tires:

  • "We must realize—and act on the realization—that if we try to focus on everything, we focus on nothing."
  • "I have seen far too many people who upon recognizing today's gap try very hard to determine what decision has to be made to close it. But today's gap represents a failure of planning sometime in the past."
  • "What do I have to do today to solve—or better, avoid—tomorrow's problem?"
  • "If you don't know where you're going, any road will get you there."
  • "It is entirely possible for a subordinate to perform well and be rated well even though he missed his specified objective." [Christopher Columbus analogy: he failed his Measurable Business Outcome (MBO)—find a new route to the Orient—but discovered the New World, thereby achieving Queen Isabella's objective: increase Spain's wealth]

Let this be a reminder that the DBT Ventures team members do not take ourselves too seriously. At times, while reading pp. 101-150 of High Output Management, it became fairly apparent that Andy Grove is ALL BUSINESS. Some levity would have helped lighten these dogmatic pages, but nevertheless he adeptly covers four topics:

  1. Planning: today's actions for tomorrow's output
  2. Hybrid organizations: a blend of mission-oriented and functional groups
  3. Dual reporting: when a individual contributor reports to two people
  4. Modes of control: different ways to make other people your bitch

With regards to Planning, most of the material presented is from the perspective of a manufacturer, specifically to forecast environmental demand, establishing current capacity, and creating a strategy to address the gap (or surplus). Andy doesn't do the work for you, but he provides a basic framework for thinking about planning.

Within Hybrid organizations Andy emphasizes something most of us already know: the vast majority of companies are "hybrid" orgs, meaning they have elements of both mission-oriented and functional organizations. No need to really rehash all that here.

Moving on to Dual reporting, we learn that at times it makes sense to have a single IC report to two different people simultaneously, especially if distance/region is a factor. That's about it.

Perhaps the most frustrating of the four, Modes of control delineates Andy's view of how to make other people your bitch. He of course doesn't write it this way, but that is exactly what the intended output is. He contends you can control people's behavior in the workplace via:

  • Free-market forces: price, as determined by counter parties operating under self-interest
  • Contractual obligations: written agreements with considerable overhead required
  • Cultural values: common set of values, objectives and methods

Andy then details the role of management in all of this, specifically how they 1) articulate and 2) embody cultural values. To identify the most appropriate mode of control, Andy presents the below chart along with a "CUA Factor" which stands for Complexity, Uncertainty, and Ambiguity to create a spectrum to reflect the nature of the environment for the worker.

The big takeaway here is: when the work environment is complex (high CUA) and individual motivation is based on self-interest, NO MODE OF CONTROL WILL WORK WELL. This is telling, because it is the representative of many of today's scenarios and illustrates just why management is so challenging.

 

Modes of Control, p. 149

Wisdom from the Grove - Part 2

This is Part II of a series inspired by Andy Grove's monumental business book, High Output Management. This series is designed for busy leaders seeking an edge on their day. Based on your feedback, we'll be breaking down Groves's 227 power-packed pages into 50-page summaries presented in actionable note format. But first, Dilbert.

If you're just joining us, be sure to read Wisdom from the Grove - Part I, the prelude to this post. 

Notes from pp. 51-100 of High Output Management

Before we jump in, its worth noting the structure of this book: 16 oddly-named chapters spanning four parts.

Part I: The Breakfast Factory

  • The basics of production: Delivering a Breakfast (or a College Graduate, or a Compiler, or a Convicted Criminal. . .)
  • Managing the breakfast factory

Part II: Management is a Team Game

  • Managerial leverage
  • Meetings—the medium of managerial work
  • Decisions, decisions
  • Planning: today's actions for tomorrow's output

Part III: Team of Teams

  • The breakfast factory goes national
  • Hybrid organizations
  • Dual reporting
  • Modes of control

Part IV: The Players

  • The sports analogy
  • Task-relevant maturity
  • Performance appraisal: manager as judge and jury
  • Two difficult task
  • Compensations as task-relevant feedback
  • Why training is the boss' job

The reason I've laid out the whole TOC is to 1) provide a lay of the land, and 2) share that this post will cover the last 3 bullet points of Part II which will put us about 50% through the book.

We'll start with a few quotes which highly Grove's prescient perspective:

  • "Beyond communicating facts, a manager must relay his objectives, preferences, and priorities". . .  [these are] "extremely important and a key part of delegation."
  • "How you handle your own time is the singly most important aspect of being a role model and leader."
  • "Because it is easier to monitor something with which you are familiar, you should delegate activities you know best."
  • "If people are spending more than 25% of their time in ad-hoc, mission-oriented meetings, you're likely facing malorganization [disfunction]."—which Grove attributes primarily to the ineffectiveness (or lack of) process-oriented meetings
  • "A meeting to make a decision should have at most 6-7 people, ideally less."

The premise of Part II is management is a team game. Andy supports this with best practices for getting shit done, i.e. humans working effectively with one another.

Wisdom from the Grove - Part 1

This is Part 1 of a series inspired by Andy Grove's monumental business book, High Output Management. This series is designed for busy leaders seeking an edge on their day. Based on your feedback, we'll be breaking down Groves's 227 power-packed pages into 50-page summaries presented in actionable note format.

Notes from the first 50 pages of High Output Management

We'll start with a few quotes to get the motor running:

  • "Let chaos reign, then rein in chaos." I don't even know what this quote means, but it somehow imparts a zen-like acceptance of business craziness with calm control.
  • "The output of a manager is the output of the organizational units under his or her supervision or influence." — Andy highlights this as the most important sentence in the book
  • "Activity is what we actually do and often seems trivial. Output is what we achieve and is significant and worthwhile."
  • "In the softer professions it becomes very hard to distinguish between activity and output. Aim to maximize output. Optimizing for activity can actually decrease productivity.
  • "Output and activity are by no means the same thing."

Andy is a big proponent of increasing managerial "leverage", i.e. focusing on activities with a multiplicative impact on your team's output. Andy later challenges the reader (the former President of Intel challenges YOU) with 13 opportunities to take action on increasing their managerial leverage.

Here are the best five:

  1. Define the three most important objectives for your organization for the next three months. Support them with key results. (For tech readers: yes, this is where OKRs originated from)
  2. Look at your calendar for the last two weeks. Classify your activities as LOW, MEDIUM or HIGH leverage. Generate a plan of action to do more of the HIGH-leverage category. Identify two activities you will commit to reduce.
  3. Define your output. What are the output elements of the organization you manage and influence? List them in order of importance.
  4. Conduct work simplification (reduction of steps) on your most tedious, time-consuming task. Eliminate at least 30 percent of the total number of steps involved.
  5. Walk around more. Andy was a big believer in taking "tours" of other teams and facilities to absorb their process, habits  and challenges. Similar to Steve Jobs, Andy seems to value serendipitous encounters which help encourage the flow of information.

Other select notes:

  • p. 14 - think of your work as production measured by throughput / output. What is your "limiting step" [dependency]? What is your "in-process check" [QA]?
  • p. 17 - for each indicator try to have a "pairing indicator" to measure both effect and counter effect, especially for administrative work, e.g. quantity AND quality
  • p. 24 - "the most valuable indicator of business trends that I've ever seen is a month-over-month 4-month stagger chart forecast [pictured below]
  • p. 28 - don't forget Parkinson's famous law that "work expands so as to fill the time available for its completion
  • p. 35 - "work simplification" entails reducing the number of steps in a given process, usually by 30-50% based on Andy's experience
  • p. 48 - writing reports may seem mundane, but are often an exercise—or medium—of self-discipline; the process enforces discipline, and the writing is often more important than reading them
  • p.49 - Grove advocates ad hoc in-person meetings as the most effective method to conduct managerial business
  • p. 50 - beyond communicating facts, a manager must relay his objectives, preferences, and priorities which is an extremely important and key part of delegation

Here's that 4-month stagger forecast that was mentioned on page 24:

In closing, its worth mentioning that Andy Grove applied many of Abraham Maslow's psychological concepts within the work environment. For that reason we've included the now-famous hierarchy of needs applied to employee engagement.

How would you evaluate your team?

Want to blow up your SaaS business? Ignore C4.

Want to blow up your SaaS business? Ignore C4.

Story Highlights:

  • There are MANY SaaS metrics to consider these days. Today we will review "C4"—which includes CLV, CAC, CRC, and Churn—and explain why they matter to a SaaS subscription revenue model.
  • Any one of the C4 elements can blow up a business.
  • Therefore, we must have a deep understanding of C4, how each element is calculated, and what we can do to manage and improve them.

Want to confuse your board along with all your employees? Start by showing them the below table of 59 different SaaS metrics.

These days, SaaS metrics are abundant if not overgrown. Similar to the investment industry, you can go down the metric rabbit-hole pretty quickly before you realize, "Wait a minute, what are we actually trying to accomplish here?"

But there are four key metrics that rule them all. You guessed it: C4. What is C4? 

This explosive composite combines four vital SaaS diagnostics:

  1. CLV: Customer Lifetime Value
  2. CAC: Customer Acquisition Cost
  3. CRC: Customer Retention Cost
  4. Churn

Churn—which typically garners most of the limelight—is the most cancerous, yet easiest to calculate. Churn is typically expressed as either a dollar figure or a percentage of revenue over a certain time period.

For example, let's say a SaaS startup has $1MM in monthly recurring revenue (MRR). Last month, a customer paying $10k/mo churned. Therefore, churn could be expressed as:

  • $10,000 MRR
  • Gross churn = 1%

Simple enough, right?

Churn is insidious, even maddening at times. But once properly understood and effectively managed, churn can materially improve how your run your business. The key is to treat every churned customers as an archeologist might approach a dig. The good stuff is down below, and you'll have to institute a process to have these conversations, diagnose root cause, and ultimately arrive at a LEARNING that will improve how you do business.

For example, you will likely lose a customer for product reasons. Perhaps you lacked the feature, functionality or performance they seek. This information MUST reach the ears of the Product and Engineering teams so that they can prioritize such items in their release planning.

Is there anything worst than a churned customer? Yes: when you fail to learn something as a business. That, in other words, is the greatest disservice of all.

 

 

Say it with me: "Trust and Commit"

The awkwardness was palpable. As the meeting droned on, the evidence began to mount: no agenda, lack of focus, petty side arguments, no meeting owner at the helm. . . not even a god-damn notetaker to capture the stream of insanity. It was going from bad, to worse: meeting hell.

Sound familiar?

Welcome to my weekly leadership meeting circa Q3 2015. Yeah, it was that bad, maybe worse.

How is this relevant? In a word: trust, the lack of which manifests itself in many ways much like the meeting I described.

Let's take a step back: great leaders have the ability to run effective meetings and channel energy towards healthy debate and ultimately group decisions. Great leaders are able to stitch together a tapestry of diverse perspectives at the seam of their similarities (or differences) and MOVE FORWARD with decisiveness and clarity. But what could get in the way?

Lack of trust.

And here's the catch: most meetings suck, and most leaders are too frazzled from the last meeting/offsite/marathon to really deliver their best 100% of the time.

Allow me to hit the pause button for a dose of positivity: Big things are accomplished only through the perfection of minor details. Why this quote? Because little improvements to say, meeting structure, can go a LONG way. For example, basic meeting etiquette suggests an agenda with time allocated to each topic, a meeting owner/organizer, and a notetaker. If decisions are to be made based on information, a meeting pre-read should be included. This is basic stuff and helps establish TRUST across meeting attendees.

But trust is much deeper and greater than just meeting etiquette. Its about people. Relationships. And what you need to do to earn/build/foster trust. As Stephen M. R. Covey shares with us in The Speed of Trust:  "We judge ourselves by our intentions, and others by their behavior. Leadership is getting results in a way that inspires trust."

Their are specific behaviors that these leaders embrace:

Remember the scene in Inception where they have to actively increase their consciousness of the dream state in order to offset the skepticism the dream world is imparting? A good leader will call into consciousness the fact that the team lacks trust and get them to focus on it. Bring it front and center and have it about.

Then what?

I've since heard three powerful words that inspired me to write this article: "trust and commit". Say it with me: "trust and commit." One more time, "trust and commit." I can't HEAR YOU !!??

Okay, that's enough.

The point is, these three words reshaped our team's ability to collaborate, discuss, decide and execute. "Trust and commit" became our mantra and a pivotal threshold at which the group would decide to "trust and commit" or not. If trust and commit was achieved, that means the decision was fully-baked and all stakeholders had signed off. More importantly, all stakeholders would be ACCOUNTABLE to the "trust and commit"(ment) they had made.

By simply having a decision-making mantra, our team was able to review and discuss initiatives quicker, make decisions faster, and execute more consistently.

Okay, one more time: "TRUST and COMMIT!!"

[Editor note: Thank you to our readers for all your calls and emails since this post was published.]



Effort without consistency is like interest without compounding

Effort without consistency is like interest without compounding

There is a battle underway, and most of us are losing. This isn't a battle overseas with platoons strategizing their next move. This is a battle of the mind. A battle for mindshare. To the victor goes our cognitive focus.

Mindshare.png

We fight this battle daily: hundreds of emails, native ads, social media intrusions—all of which are enabled by the average person's insatiable need to check our smartphone (the latest research suggests we do this at least 150 times per day). For the mathematicians in the house, that's once every 10 minutes over 14 waking hours (at a minimum). 

What we sacrifice is focus. Focus is becoming a scarce resource for today's knowledge worker and leader. And when we sacrifice focus we dilute our EFFORT, and therefore, results.

Effort with consistency is like interesting without compounding.

This troublesome dynamic is supported by a mountain of literature, e.g Harvard Business Review's The Cost of Continuously Checking Email.

But there's no value is denying this reality, so we must adapt. Therefore, we'd like to offer our readers a few thoughts on how to navigate this battlefield, particularly when is comes to goals.

In my view, there are two types of goals:

  1. Binary: you either accomplished the goal, or you didn't; it’s a singular, one-time deal.

  2. Recurring: an activity you seek to repeat by (hopefully) forming systems/habits.

For example, a binary goal might be: I will summit Mt. Everest by July 4th, 2017. You are either going to summit Mt. Everest by July 4th (and triumphantly stake an American Flag), or you will fail to summit Mt. Everest. There is a singular moment of accomplishment or attainment. Most executives track their quarterly goals on a goal sheet and cross them off upon completion.

Recurring goals are repeating by nature: you must accomplish the goal routinely, over time. For example: I will practice Transcendental Meditations twice a day for 15 minutes for 5 days per week. A recurring goal is designed to form a habit—a very powerful human ability. We define success as having accomplished 80% of activities you set out to do, e.g. a goal of meditating 5 days per week—or 60 times per quarter—would be deemed “completed” if you meditated 48 times (80% x 60).

Today's digital battlefield of distraction makes recurring goals extremely challenging. To win, we need to extract our recurring goals from our goal sheet into a separate system.

For your consideration, we offer you: The DBT Recurring Goal Sheet. 

As the saying goes, If you can't measure it, you can't manage it. How else can you really track a dozen or so recurring goals with any truthfulness? The above framework provides a simple process for tallying your progress for all goals that aren't a singular, binary event.

To get a copy of the DBT Recurring Goals Sheet along with our DBT Goal Sheet (Binary + Recurring on 1 page) within our Leadership Library, please navigate to the Contact page and fill out the form so we can email it to you (we promise not to spam).

We hope you find these two pieces of artillery helpful in the battle for mindshare to accomplish your professional goals.

Do you have what it take to be a superforecaster?

Three top traits of superforecasters include:

  1. They tolerate dissonance
  2. They practice "counterfactualizing"
  3. They embrace (unabashedly) rampant hypothesis generation

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Thoughts on organizing & measuring a CSM team

Thoughts on organizing & measuring a CSM team

Reposted from an interview with Aircall.io on August 8, 2015.

Optimizely is a San Francisco-based startup and the leader in A/B testing and experience optimization. I recently sat down with Luke Diaz, a manager on the Customer Success team—and founder of DBT Ventures—to share his experience and advice for organizing and measuring a customer success team.

Luke currently leads a 15-person Customer Success Manager (CSM) team in charge of over 80% of Optimizely’s revenue. The CSM team manages launch (onboarding), success management (adoption & value), renewals (retention) and expansion (account growth; in tandem with the Sales team).

The CSM team is one team within the larger 70-person Customer Success team at Optimizely which includes Technical Support, Strategy, Solutions Architects, and Education.

From my (personal) standpoint, Optimizely is very advanced on the topic. Yet every startup—whatever their stage of development or price point—can learn from Luke’s very actionable tips:

  • Measure the value customers extract from your product
  • Start customer success with the sales team
  • Transform your customer’s organization to achieve success

In order to effectively lead the CSM team, Optimizely focuses on 3 metrics:

  1. Customer value derived from the product
  2. Customer satisfaction
  3. Revenue generation

Luke articulates below on how these objectives are translated into processes and culture.

Measure the value customers extract from your product

Optimizely tracks the activity of each Enterprise customer: usage logs, number of A/B tests run, etc. Seems obvious – all serious SaaS businesses (should) do that. To do so, Optimizely uses a blend of Totango (a Customer Success Intelligence software) and proprietary regression models built by their data science team, e.g. churn score, upsell score, account potential score, etc.

What’s more, they follow the number of successful experiments (in their case, delivering a clear A/B winner), and, as much as they can they can, actuallycompute the value in $ generated by successful experiments.

As Luke says:

“When I plan a customer business review, I hope to have a very clear, factual view of the $, or millions of $, we’ve helped them generate using Optimizely. If it doesn’t make dollars, it doesn’t make sense.”

ROI is most explicit when displayed in revenue for, say, a Retail or E-commerce site. But this information is not always easy to gather, especially when dealing with SaaS or media businesses. How do you measure the actual value of improving lead conversion on an optimized sign-up form, or additional clicks on a media module?

Optimizely’s team is  considering adding such functionality and reporting  into their product, or integrating with technologies like Moat (ad viewability) to convey ROI better.

Beyond this #1 metric, Optimizely measures customer satisfaction (metric #2) using NPS (Net Promoter Score) surveys.  They run regular NPS surveys at brand level (4x a year), at the end of the onboarding phase (8-10 weeks), and after each interaction with the support team. The NPS results give an idea of the service quality, the perceived value, and a proxy for customer loyalty.

Finally, the #3 metric is revenue. Luke and his team are incentivized on the net retention rate of their portfolio. They’ve actually manage to have a negative net churn rate (reminder: net churn formula = gross churn – expansion + contraction), around (.5%), in recent months. One simple metric used for almost the entire CSM team.

Luke is currently experimenting with two additional functions on the CSM team:

  • Launch Manager: a new role dedicated exclusively to the enterprise onboarding process (measured by NPS and volume)
  • Mid-Market CSM: higher volume, lower touch account management approach (measured by renewal rates & net retention)

Start customer success with the sales team

As Luke shared with me:

“I feel lucky to work with the Sales team we have at Optimizely. They are some of the most empathetic and intelligent folks I’ve ever worked with, and they put the customer’s needs and goals first and foremost to ensure a proper fit. Sales and Customer Success have crafted a strong partnership which is imperative to achieve best-in-class net retention.”

Beyond the performance of the Customer Success team, the complementary process to ensure a negative churn rate is a sales validation process implemented by Optimizely’s VP of Sales, Travis Bryant: whenever a sales rep identifies a new account, he or she is  required to populate a 45-question validation form before closing the deal. Simple, straightforward, objective, Yes/No questions designed to determine whether  the new prospect is actually a good fit for Optimizely (Steli Efti, from Close.io, shares a similar philosophy although he uses different method).

According to Luke, the validation form by itself isn’t what guarantees the quality of new customers, but it sets the baseline for having a culture of customer success and retention inside the Sales team. It implies a shared agreement between the Sales and Customer Success teams that each customer is a good fit for Optimizely.

In addition, Luke  personally screens every new customer and gives a special importance to validating their needs. According to Luke, with this process, truly “bad” enterprise customers are extremely rare.

It’s common practice in businesses to build retention metrics into Sales people’s incentives to avoid chasing customers without a longer term view. Optimizely’s approach is interesting in the sense that it clearly incentivizes Sales people on revenue generation, but ensures coordination with the Success team—which owns net retention—using a validation process, along with tight collaboration.

In the spirit of transparency, they entire Optimizely organization receives an email alert whenever an enterprise customer decides to churn.

“This simple workflow ensures that all employees—from the intern to the C-level—are in the loop when we fall short for a customer, and it often sparks internal dialogue about priorities and opportunities to change, iterate and refine.”

Transform your customer’s organization to achieve success

Believe it or not, a major part of the customer’s ultimate success does not rely on your customer success team, your sales team, or your product, but rather: in your customer’s organization. We came to this conclusion as Luke was sharing his best and worst customer success experiences.

Worst? The biggest challenge is when the customer lacks the skills or people to execute: generate ideas, setup experiments, QA, measure, rinse & repeat. According to Luke, the main reason for “customer failure” with Optimizely is a disconnect between a buying decision made by a senior executive and the actual resources available in the team to use it and get value out of Optimizely’s software. The help close this gap, Optimizely has curated a network of 80Solutions Partners to help their customer build—or accelerate— their optimization program.

Another challenge: earning executive mindshare at the VP and C-suite level. In a recent survey of 500 CMOs, optimization ranked #12 out of 17 various marketing priorities.

“We are crafting our sales and account management strategy to uplevel the conversation and earn executive sponsorship. This strategy, along with the coming product releases (e.g. personalization) will ultimately make Optimizely unturnoffable.” 

Best? Luke’s most memorable customer success happened when one of  the Customer Success team members managed to convince a client to make a hire in order to lead and improve optimization initiatives, after demonstrating that the first tests generated a 15% increase in revenue. Optimizely provided the data to help the customer’s Marketing Director make the case for net new headcount, thereby creating transformational change in the company. “In my opinion, it was one of our proudest moments,” Luke said.

Worst scenario, best scenario: both are related to the customers’ resource allocation, and that’s one key lesson for all SaaS out there: the ROI your customers derive from your software is correlated to the resources devoted to it. Convince your customers to organize for success!

http://blog.aircall.io/customer-success-optimizely/