Archive: 2020

My friend Nikhil recently made a great point about how more startups are serving both consumers and enterprises. “The technology world used to clearly segment businesses by consumer or enterprise,” he wrote. “But those lines have been blurring for quite some time. The most interesting companies don’t fit into either bucket.” He cites Zoom, Amazon, PayPal, Notion, and many others as examples of this trend.

I saw this firsthand at eBay. It started as a consumer company, but very soon, two things happened:
1. Sellers on the marketplace realized eBay could morph from a fun side hustle into a profitable main business. Some of these sellers grew into SMBs. The world is full of enterprising people. And when your product encourages them, they will find new and interesting ways to stretch and use it.
2. Businesses realized there were a lot of buyers on eBay. It became an attractive additional storefront for them to sell their wares.

By the time I got there, eBay was already both a consumer (p2p) and a business company (b2c and early signs of b2b).

So, I agree with Nikhil 100% that the next big thing will be both consumer and enterprise. However, I believe there is an even more important lens to evaluate companies: mission.

I think of a company’s mission or purpose as its raison d’etre.

• Why does the company exist?
• At scale, what problem does the company solve?
• If the company solves the problem, does it make our world significantly better?

If your company can answer that final question with a resounding “yes,” you are at a big advantage.

One advantage is that you can hire talent at reasonable rates, because people buy into the mission. Gen Z is the first generation to prioritize purpose over money. If they authentically believe in what they are working towards, their commitment level is incredibly high.

Another advantage of being mission-driven is resilience. All startups hit speed bumps, but with a strong mission and a team of believers, these become easier to weather. The purpose will help guide your team through the hard times.

Finally, customers value mission, too. Millennials and Gen Z care deeply about which brands they patronize. When they see a mission-driven company that aligns with their values, it is much more likely they will form a strong affinity for the brand.

At eBay, employees thought about the mission every day. Last week, I was catching up with a former eBay colleague, and he expressed the desire to be driven by mission again: “I mean, we weren’t working for just any company.” When you’re helping expand access to economic opportunity, and you’re doing that with a great team, it’s a powerful thing (and it’s a ton of fun).

Core, one of our portfolio companies, exemplifies this idea of consumer + enterprise + mission. It’s a mental performance company that encourages meditation. Consumers are adopting it, and companies are buying Core to help their employees find a sense of calm and focus. Their mission, to cement mental performance as a pillar of well-being, gives them an important advantage.

Historically, mission (or purpose) has been sneered at. Investors believed the lack of singular focus on money led to sub-commercial returns and failed startups.

Not us. At Spero, we believe that when you combine a great business model (an absolute must) with a great mission, magic happens. Purpose is not just icing on the cake. When a company, by executing on its core business, makes the world better, that’s a huge win. eBay, Tesla, and WhatsApp are all examples.

Mission/purpose is your secret sauce. It’s your superpower. That’s why I believe the best companies of our generation will be purpose-driven.

What I love most about the newsletter format is that it encourages discussion. In response to my last post, Put The Money On The Screen, a founder emailed me with some points that I want to share and discuss.

The founder rightly pointed out that there’s nuance to the idea of putting the money on the screen. Spending and cost-cutting decisions depend on the stage of the company and the unique circumstances.

Here’s part of what the founder wrote:

The problem with cutting off-screen costs is that the results over time mainly go to investors (because the great majority of the company over time is investor owned), and proportionally less to employees and common shareholders, which are asked to bring the sacrifice. Just be mindful of what asking people to sacrifice means.

This founder was speaking from a personal experience: being asked to take a ridiculously small salary after raising a significant Series A from a top-tier firm. The founder went into debt as a result of this, and it took a long time to recover.

While I haven’t heard both sides of the story, I do think putting a founder in that situation is harsh. VC firms should make sure founders and CEOs aren’t under undue financial stress—it’s in everyone’s self-interest for the CEO to be able to focus on building the company. Additionally, some expenses that might strike VCs as superfluous may be legitimately necessary for team morale or culture. Those are best judged by the company’s leadership.

All of this depends on the stage of the company. At the later stages, the tradeoffs will change. But regardless of stage, employees bear the brunt of putting the money on the screen during tough times. I’ve seen this happen in film, where the writer/director bears the highest cost in “making it happen,” and first-time founders are often in the same situation.

While that’s the nature of the beast, it’s something worth pausing on. It is not always the right decision to cut some “off-screen” costs. The best decisions may emerge when investors and CEOs have honest conversations that recognize the impact and consequences of these decisions.

In all film, but especially low-budget or independent film, there’s a saying that goes, “Put the money on the screen.”

It implies that creators will sacrifice things like their own fees, the quality of the accommodations, number of crew members, all in order to optimize for what the viewer sees – what’s eventually on the screen, the end product, the movie. They will, therefore, prioritize the best cast members, lighting, props, location – anything they believe will make the end product better.

The ultimate success is whether people love the film. No one is going to know if there were 2 or 3 grips, what kind of bottled water was provided on set, or what the creators went through. All the viewers judge is the final product and how the film makes them feel, whether the actors were superlative, the editing flawless, and whether it stays with them and makes an impression.

Startups are very much like indie filmmaking. There are many constraints, you cannot build everything you want, and you certainly cannot have everything you want. When sacrifices have to be made, how do you prioritize?

Your “screen,” as a startup CEO, is user experience. Many of you may be thinking about how to get through this pandemic and the resulting recession. Let’s use the principle of “put the money on the screen”. Your goal is to get as many people as possible to use your product, love your product, and talk about your product. User love means the NPS will be through the roof, and they can’t live without it.

To achieve that outcome, you need to have exceptional talent that is motivated by your mission and who can do more with less. User-focused product, design, and engineering folks. You will have to give up on a fancy office, free drinks, and more painfully, the expensive, but unproven product feature you’ve longed for since inception. You and the team may even have to take pay cuts to get through this time.

A director knows that a fantastic feature will set her on a path where she can finally start to control her own destiny – choose which projects she works on, have a crew that fits the vision, and not have to worry about endless fundraising cycles. The same is true for startups. Success, here traction and revenue, will allow you to control your destiny – decide how you want to grow the company, have a team that fits the vision, and be able to raise money (or not) to fulfill the goal. And that is the best outcome for any startup CEO.

You know how sometimes, something just sticks with you?

Here’s one of mine: When termites battle predatory ants, the oldest termite citizens form the front line, sacrificing themselves first.

It was so jaw-dropping that I’ve thought about the concept several times. Upon investigation, I learned that termites are considered “eusocial.” Eusociality is defined by cooperative brood care, overlapping generations living within a colony of adults, and a division of labor into reproductive and non-reproductive groups. There’s a form of caste system and individual members of the group sacrifice their freedom and independence in favor of the common good.

There are different points of view on whether humans are eusocial (one example thread). Primarily, though, we can’t organize our society like termites because we care deeply about individual agency. But that doesn’t mean we don’t get into a lot of arguments about the common good.

This little science fact led me down so many paths.

It made me think about politics — it’s usually the elderly that commit the young to wars, quite the polar opposite of termites (although, old and young termites are equally effective fighters, which can’t be said for human beings).

And the climate — it is, again, the elderly who seem to be sacrificing future generations when it comes to climate change. I am clearly not talking about sacrificing lives, but we aren’t even willing to sacrifice SUVs that give us 18 miles per gallon (!) and quarter pounders that are terrible for the environment.

It is perhaps more relevant now with Covid and the controversy about what’s best for everyone during this time. It made me think about the nuclear family, which is still controversial, apparently, with David Brooks arguing that it was a mistake. At this moment in time, more people are likely to agree with him as couples are returning to cohabitate with their parents to better manage the burden of 24×7 childcare combined with 24×7 work.

Every generation seems to be dealing with Covid differently. The elderly are afraid for their lives and health, but are, generationally, sitting on wealth they were able to build during their lifetimes. Meanwhile millennials are facing unemployment having never built a solid foundation to cushion them. The fears are different, the approach is different, and we are all in conflict.

Which brings me to the question — do termites make the sacrifice because it is “their” colony, the one in which they grew up? Much like (most) grandparents would for their grandchildren? Would termites display the same behavior if they were dropped into another colony?

Termite warfare, ageism, and self-sacrifice for the greater good — it’s an idea that expands, and it’s so broad that it leads to a lot of interesting, interconnected things. The concept is also straightforward to understand, unexpected, and emotionally resonant. All the reasons why this idea stuck with me for months.

What random, yet utterly fascinating things do you find yourself thinking about?

Okay, that’s an exaggeration. But in reality, there are hundreds of questions the director has to be able to answer. Many come as they are preparing for the shoot, but things happen, and there are always tradeoffs to be made while they’re on set.

A good director has a point of view on all these questions because she keeps the vision of the film front and center. She knows how every one of these decisions will affect the vision.

Like the director of a film, the CEO is the final arbiter in startup, especially at the early stages. In order to make the multitude of decisions, she needs to have a very clear vision of what she is trying to achieve. Every decision either takes her towards her vision (slightly or bigly) or away from it.

If the vision for what you want to become is muddled, it becomes very hard to make decisions. You always want optionality—to keep all options open, because you don’t know where you are headed.

That is impossible on a film set, because most films are shot in 30 days or less. It’s not impossible in a startup, because you can always defer the decision. But doing so will put the startup at risk of not executing or of muddled execution that leads to failure.

To keep your eyes on the prize, you need to know what the prize looks like and which direction you need to go to find the prize.

You also need to know the fundamental underlying tenets that will help you achieve your goal. For example, at eBay, one unbreakable tenet was always “level playing field”, meaning that every seller, whether a big company or your next-door neighbor, would be subject to the same rules. Another was that eBay would not touch the items, thus keeping it a purely person-to-person marketplace. When opportunities came up, it was easy to evaluate against these (and other core) tenets and determine if they kept us moving towards our vision.

This does not mean that you don’t react to changing circumstances or opportunities. Some of the best scenes or shots on a film set can be the ones where the director decides to improvise on set. She may see an opportunity in a location, in the weather, or in the actors’ mood and try something unscripted. But the reason she can do that is she knows what she wants to achieve and has prepared so well that she has a strong hunch that this improvisation will improve the film.

For a CEO with a big vision, unexpected changes can present an opportunity. With the vision front and center, and all the hard work to understand what moves you towards and away from that vision, you can think of ways to bend and adapt to strengthen the company. Otherwise, you stand the risk of losing what the company is and what it stands for.

Make your vision a touchstone that you come back to often. Make the time to come back to it, refresh it, and let it refresh and reenergize you.