Note: While reading a book whenever I come across something interesting, I highlight it and later turn those highlights into a blogpost. It is not a complete summary of the book. These are my notes which I intend to go back to later. Let’s start!

On the calls, HR was engaged and interested in pitch meetings, and we felt like we were really on to something. We set up hundreds of meetings, got lots of positive feedback, but never sold a dollar. Unfortunately, HR had no money to pay for our solution. The limited budget they had was deployed rather slowly, and implementation time lines ran over the course of several years. We couldn’t wait several years to earn our first dollars. HR was generally viewed as a back-office cost center. As a result, HR had no budget and little prioritization, and our sales never went anywhere. The people who could afford our product, like the CEOs of our target customers, didn’t want our solution. They simply didn’t care about improving communication and feedback from their distributed workforce, and in some cases, they downright avoided it. We had failed to thoughtfully pick a buyer with purchase authority and develop a solution based on their problems.

When trying to find a buyer problem, I want to find a problem that is extremely important to the buyer, commonly referred to as a “burning problem,” which the buyer will act on urgently. Here is a rough idea of how I think about problem scoring:

  • 0–7: not a problem
  • 7–8: neutral
  • 8–9: a strong problem
  • 9–10: a burning problem Put another way, if the average respondent score is below an 8, you should be concerned that this problem is not a really big issue for your buyer.

Post-Pitch Verbal Survey

  1. How much is X problem an issue in your work/life? (Rate 1–10) Rating: 1: It is not an issue at all; 10: It’s a very important problem.
  2. Why do you feel that way? Open-form answer
  3. How interested would you be in X solution for this problem (break out solutions if more than one)? Rating: 1: Not at all; 10: Very interested
  4. Why do you feel that way? Open-form answer
  5. What do you like the most about this solution? Open-form answer
  6. What do you wish was different about this solution? Open-form answer
  7. What other things have you tried to solve this problem? Open-form answer; can make list once you get a lot of replies
  8. How would you rate your satisfaction with (insert alternate competitor solution)? Rating: 1: Not at all satisfied; 10: Very satisfied
  9. Why do you feel that way? Open-form answer

Principles of Building Your Solution

  1. Cut 50 percent of your minimum viable product (MVP): Decide what you want to build for your initial product, then cut the features and product in half so you can test and learn faster.
  2. How to launch your product off the ground: Create a snowball from one customer to hundreds.
  3. Executives should do customer support: Your cofounders need to be embedded with customers at every stage in the business to understand what’s working.
  4. Don’t go social: Hold back the temptation to tell the world about your new venture. The benefits are often short term, and the negatives can ruin your business.

A low CAC early in the life of your company is a great sign of product-market fit. It means you aren’t spending a lot of money to drive each new sale, so getting more sales will likely not be very expensive. So what is a low CAC? I’d estimate it to be < 10 percent the cost of your product, but will vary based on the margin of the product you sell. Low-margin products need lower CACs to be profitable. You should also consider breaking out your customer acquisition costs into different subgroups of your customers, called cohorts. For instance, with Attentive we divide our customers into five different customer tiers. Tier 1 customers are massive businesses that may spend seven or even eight figures with us each year. On the other hand, tier 5 businesses are very small and may not spend more than ten thousand dollars. We use different types of marketing to reach the tier 1 “enterprise” customers than to reach the much smaller tier 5 customers. This is important because you may find your business is efficient in reaching certain cohorts and highly unprofitable in reaching others, and thus you need to adjust your operations accordingly and focus where your business is profitable.

At a lot of companies, you will see a marketing hire get a flat base compensation, but a salesperson making significant dollar-based commissions. Instead, I would suggest playing with marketing compensation to align with sales-based compensation. Pay your marketing team in line with the output you desire. At Attentive, we paid marketing for the amount of conversations they drove between Attentive and potential customers. Our marketing team had the opportunity to make a lot of additional cash if they drove a lot of meetings with potential customers. As a result, they worked really hard to hit and exceed that number each quarter.

Look at the top most valued companies in the world today.

  1. Apple—mobile phones/pcs
  2. Microsoft—operating system/business software
  3. Saudi Aramco—oil
  4. Google—search
  5. Amazon—ecommerce
  6. Berkshire Hathaway—various
  7. Nvidia—chips
  8. Tesla—electric cars
  9. Meta—social media
  10. J&J—consumer packaged goods

Almost every company here is a category leader. Consumers and businesses usually want to buy the well-known and trustworthy brand to avoid risk. People are going to buy the category leader. Due to this dynamic, category leaders are often able to charge higher prices, make greater margins, and have lower churn rates. As a result, investors tend to give the category leaders big premiums in terms of price and long-term potential. For category leadership, you have two options: create an entirely new category, or pick a category with weak leadership in a dynamic market. For my companies, we have done both. For TapCommerce, we solved the problem of low mobile app retention rates with app retargeting. After a consumer downloads a mobile app (such as eBay or Angry Birds), only 5 percent of consumers are still using that app six months after installing it. When we started TapCommerce, retargeting was common on laptops and desktops, but had not yet been successful on smartphone mobile apps. There were one or two companies experimenting with the strategy, but it wasn’t their core business. We started Attentive in 2016, when text messaging was well over twenty years old. I recall one of our investors even told me the story that he had personally sold a text message marketing business over fifteen years before the founding of our company. So clearly we were not creating an entirely new type of category—well, not yet anyway. There were a half dozen or so text message marketing companies operating at decent scale throughout the United States, and they all seemed to be ashamed of their core business. If you went to one of their websites, it was hard to know what they actually did. They spent most of their marketing materials trying to push ancillary products related to whatever was the new in-vogue software area—customer data platforms, mobile wallets, or mobile app notifications. What we realized, though, was that text messaging was an amazing communication channel that was completely underused due to a lack of providers offering great text messaging software. With the advent of smartphones with mobile applications, software vendors had turned their focus toward mobile app software, but consumers still loved text messaging. Simply put, text messaging wasn’t cool, but it was ubiquitous and incredibly effective. We built solutions to make text messaging great.