I was talking to a very successful entrepreneur recently about valuations of startups as they grow. Specifically, valuation multiples for an evolutionary startup with great revenues vs. a revolutionary startup with good revenues, especially when both are still in early-stage. 

In an evolutionary startup, the product offering is just that – evolutionary. That is, the industry has been moving in this direction for years. The valuation of this startup can be good due to traction, but as an evolutionary company in an established market, competitors will follow and then the evolutionary product becomes substitutable. Its multiple is likely less than 4X.

In a revolutionary startup, the product offering is defining a new space. Getting traction can be hugely difficult like pushing a boulder up a mountain. But once momentum hits, the valuation multiple can be significantly higher due to the meta knowledge and technology surrounding the startup. Yes, a startup doing well in this new revolution will create second-movers. However, proprietary technology and knowledge can be hard to emulate, and with capital, the company can continue to outpace new challengers and drive significant value. 

Being a second-mover has its advantages; namely, requiring less capital to go to market as the first-mover because the first-mover is spending more effort educating the market. However, a well-capitalized, experienced team at the helm of a first-mover can outpace second-movers, and drive up the valuation against second-movers — and evolutionary markets/ companies. For revolutionary products, expect multiples in excess of 6 or 8X revenues.

Consider your next startup idea/ product – is it evolutionary or revolutionary? How will you defend your position and drive up the value of your company and your offering?
In a couple talks I’ve given this year, I talked about failure – promote the book! I talked about over-confidence/ hubris as one of the reasons I, at least, failed.
I spoke to and heard from a number of successful entrepreneurs who advised me on certain traps as a first-time entrepreneur. I ignored some of the advice thinking we were going to be successful despite these “red flags”. This confidence is an example of optimism bias.
From Wikipedia, “optimism bias is a cognitive bias that causes a person to believe that they are less at risk of experiencing negative events compared to others”. There is optimism bias for both positive events – we will be more successful than others – and negative events – we will not succumb to the trappings of others who have failed.
Optimism bias is powerful and part and parcel of the confidence to succeed; however, it needs to be paired with a healthy dose of curiosity and adaptability. In our case, we should have heeded the cautions from entrepreneurs who have done it before and made similar mistakes such as full-time vs. part-time dedication, the importance of customer discovery, and even product and market focus.
Since we failed, I’ve talked about this “rite of passage” where entrepreneurs must make some mistakes to appreciate the lessons from others (and yes, part of entrepreneurship). However, that’s partially flawed. The rite of passage, instead, could be appreciating the difficulties of creating a viable business from nothing, not succumbing to mistakes others can teach you.
Beware of optimism bias. Be confident, not cocky. Practice more humility and greater curiosity. Realize everyone intrinsically has value and knowledge you don’t have.
Shout out to Carling, Stranger 22 from 100 Strangers, 100 Days for teaching me about optimism bias.
I was back with a startup I’m advising this past weekend discussing the importance of metrics. Or rather, more specifically, what you get with event tracking apps like MixPanel vs. Google Analytics.
So let’s start with an example from my office – tours at Atlanta Tech Village.

You’ve taken the tour before, but you’re here with 2 friends who have never been. Meanwhile, there are seven other tour guests to which two say they’ve taken the tour again, but they loved it so much they’re doing it again. 

The tour starts downstairs in the lobby before entering the rec room with game consoles, a ping pong table, shuffle board, and a kitchen. 

Then, the tour goes through the “hot desk” area before re-entering the lobby and going up a flight of stairs to the second floor with dedicated desks and some smaller offices. 

The group then goes up to one of 3rd, 4th, or 5th floors to see the larger office spaces. The tour guide is showing the group the kitchen as well as maybe an introduction to a startup who happens to have a door open. 

Then, the group goes up the roof to check out the sweet rooftop patio. 

The group may also then head all the way to the basement where the gym is. Then, the tour ends going back to the first floor – lobby.

Got the flow? Awesome. Let’s talk about this from Google Analytics and event-tracking with MixPanel (for example).
If tour visitors were tracked in a Google Analytics-like way:
  • You + the two other visitors who said they’ve taken the tour before would be Returning Visitors while the other seven are New Visitors.
  • How everyone came to take the tour – maybe referral from a friend like me, by an ad people saw at Farm Burger, or maybe they just walked by Piedmont Road.
  • What floors and rooms the group visited.
  • Great at telling you that most everyone came in through the lobby floor – the front door or the parking garage door. It can tell you some high level flows of how you traversed the building.
  • Perhaps a couple tour members got side-tracked and skipped a floor and met back up with the group. Or maybe a couple of them left mid-way through – exits.

Event-tracking with MixPanel would show you…

  • Three of us tour members are returning.
  • I’ve been to ATV dozens of times, and I took the tour three times.
  • I am Daryl and give you some contact information because I filled out some user information the first time I entered building.
  • Each room we enter (like Google Analytics).
  • Four of us on the tour played ping pong for 3 minutes before going to the next room. This is more detailed than Google Analytics may say we were in the ROOM for 5 minutes by telling you what four of us did in the room.
  • When we got to the second floor, two of us stopped to talk to a startup, and we also grabbed a couple drinks from the kitchen. Perhaps we also sat in a room so we could test out what it’d feel like to be a startup at ATV.
  • Two people who left the tour mid-way stopped by the bathroom for two seconds, and left the tour. (Maybe the bathroom was horrendously dirty.)
  • It was my friend, John, who hit the elevator button before we all went down to the gym.

… are you starting to see what event-tracking is? In this case, MixPanel is telling me more details of what happened on the tour – events. MixPanel is able to tie in user data because a few of us signed in from the beginning.

Google Analytics is able to quickly and automatically track much about our tour group’s visit. However, it’s still pretty high-level, and though it can be exhaustively tweaked to track a lot of events, it would take a lot of work to get the data and make sense of it all. Event-tracking apps like MixPanel are made for this stuff.
Google Analytics is a powerful tool that does a lot out of the box, and should be one tool for marketing insights. An app like MixPanel allows far greater insights for customer engagement, product roadmap, and yes, marketing.
Ah and another difference between Google Analytics and MixPanel… Google Analytics relies on cookies to associate site visitors as new or returning. However, if I stayed silent at the beginning of the tour and didn’t say anything, that’s like me hiding or starting a new “cookie” session. Google Analytics would count me as a new visitor. MixPanel could recognize me as a returning visitor in the system because I would sign back in as part of the tour.
Google Analytics. Easy set-up. Automatic high-level aggregate tracking. Insights via cookies.
MixPanel. Much more work to set up. Tracks the details (events) of visits and engagement at the individual level. Easier to build and determine funnels (drop-offs) of users as they move.
Hope this was helpful. Get trackin’! 
https://smile.amazon.com/Start-Why-Leaders-Inspire-Everyone/dp/1591846447

I recently finished Simon Sinek’s Start With Why. I didn’t even know about this book despite knowing of his infamous Ted Talk, but when I did hear of this, I was excited to go in-depth on the subject.

If you’ve been reading my blog for a while (or probably even recently), you’ll know that I’m a big proponent of being grounded in purpose and why – as an individual and as a company.
My take-aways:
  • Leaders and founders utilize WHY to set the vision of the company. Typically, too, the founders are complementary in one providing the WHY while the other enables the HOW. For greatest effect, both must be present. Note: one is not “better” than the other. They’re complementary.
  • We (and companies) are good at espousing the WHAT and HOW we do, but are “fuzzier” on our WHY. Starting with WHY allows us to build on an emotional pull with our audience – a trust. When we sell on our WHAT and HOW, we differentiate by features, price, etc. Why allows us differentiate on a deeper level – a belief and compelling motive. Our WHAT and HOW aligns to (and amplifies) our WHY.
  • Most companies start with some WHY, and reason for being that was born out of a need and a vision. The challenge, then, for companies is maintaining that WHY. Typically, companies start espousing WHAT rather than grounding into the WHY. It’s a shift in culture – the “split”.
  • Leadership change can have a drastic shift in a company’s culture (and indeed, a shift from WHY to WHAT). Culture is driven top-down.
  • WHY can pull your company through the tough times. WHY creates loyalty amongst “followers” (consumers) who are willing to pay a premium or bear an inferior product.
  • Do not sell a 500GB music player… sell 10,000 songs portable anywhere.

I’m definitely not doing Simon justice with this book review, but hopefully, it’s enough to motivate you to check out the book. It’d be great to hear what your personal WHY and PURPOSE are.