Michael Skok is one of those people who when he speaks, you simply need to listen and you will leave a wiser person than when he started talking.
Last week we had the opportunity to catch up with him for a Google Hangout in the wake of his Business of Software USA Talk, which was focused on scaling a company from Zero to a Billion Dollars revenue. The hangout was incredibly wide reaching with a lesson a minute dished out – far beyond the realms of any summary article. The video above is best viewed for full effect.
However, if you’re really short on time, here are some key points from a conversation, broadly organised on the topics of investment and entrepreneurialism.
Entrepreneurialism
Establishing your company
Create something that people have to ask, how would I not use this? Ideas are two a penny. Everyone has them. The difference between a product that sells and one that doesn’t is that the former solves a problem and relentlessly focuses on solving this. The latter may be a great idea but if no one will use it, it will not be a billion dollar idea.
A Billion Dollar Company needs to solve a multi-billion problem. A 100% Market share is never going to happen. If a company is to grow to be multi-billion, it needs to solve a problem where there is an opportunity to grow within this market. Think the e-commerce problem 10 years ago.
Define Your Culture: What is your culture? This is something that should be defined at the beginning and should never change. Good start-ups find a culture which remains consistent right through until they are at a billion dollars. As an example of a company that had and then lost this, you need look no further than HP.
Goals make the difference: If you are targeting a $10 million business, you will structure your activities and goals differently to how you will stricture them for a business you aim to have $1 billion aim for.
Focus. The difference between a vision and execution is a series of focussed steps which will help achieve the end goal. The lesson: set out a really clear roadmap of how you intend to get to your goal, instead of just spouting your vision.
Aim to solve a problem for the Minimum Viable Segment. Instead of targeting a wide range of customers, a product has to solve the same set of needs for the same set of customers. Getting to the same personas + needs, allows you to repeat the same solution when scaling.
The power of one. Big markets are won one customer at a time.
Scaling your company
Don’t let metrics run your company. However, if two were to be picked, focus on retention and upsell. With retention, churn is the enemy. With upsell – if an entrepreneur valued a customer they already have, they’re far more valuable as they do not have the purchase cost involved with getting the customer to a sale. Therefore their value to you as a business is far higher. Investors understand that, and will value you accordingly. Companies with long product life cycles should consider the value of a customer over the entire lifecycle, not just one time purchases. A customer may go from buying £100 of a product to £1000 in five years. If you spent £500 gaining their custom in the first place, then you’re still making money from them.
Model of 6. Big changes occur every time the workforce is multiplied by 6, starting from 6. The first big challenge is when a company reaches a couple of hundred people. The challenge here is in effect to bring together a communication layer. The next struggle is a couple of thousand. Can you promote people who are succeeding in their jobs, but don’t want to become managers, for example, some engineers?
The only money that matters is the customer’s money. Everything else is meaningless. The only research that matters is the one that results in a paying customer. Pilot customers who are on the way to paying are also valuable, however, with them it is important to first define your terms and route to acceptance within the company. If someone pilots, set out the roadmap to getting them to purchase.
Models for scaling
Repeatable, Scalable, Valuable, Predicable – RSVP Model – Those are things you have to focus on if you are really going to go big
Addiction, adoption, absorption, adaptation
Addiction – People need to decide they love your service before they buy it
Adoption – Selling doesn’t mean using. If you sell something before someone starts using it, it’s not the right type of sale.
Absorption – If people haven’t absorbed software into their processes, they are unlikely to adopt it in the future. How do you get the other 90% to use your software? What are the factors that move you from 10 to 100%?
Adaption – How will you continue to get money to these people? What are the things people need as new functionality throughout the years.
Investment Stage
A little snippit. There is 3-5x times more money to be made in firms in the few years after they go public, than before
The difference between start-ups and companies is companies have legacies. Why SAP are currently struggling – they are tied to their current model.
Are there fashionable things for VC’s? Yes. Definitely. There are many things like this. It is important to be clear in these fashionable industries what you are doing that is improving this and making it better? Whatsapp and Facebook were not the first companies to do what they did in their respective industries, but they did add something new to the field.
What if you are in an area that isn’t popular? Simply don’t give up.
Grass routes business models – Time and patience is of significant important of patience for grass routes organisations and business models to grow.
So there you have it. How to start, scale, and look for investment for your billion dollar venture. As pointed out at the beginning of this article, the video is best viewed for full effect. Also watch Michael’s BoS Talk here for more great insights into this very topic. It could well be the best hour you spend working on, rather than just in your business today.
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