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Assessing the current state of university-based business incubators in Canada.

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Assessing the current state of university-based business incubators in Canada.

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This study examines the current state of university-based business incubators (UBIs) in Canada through interviews and case analysis. It highlights key themes like communication, innovation, and strategic thinking, offering insights for academics, entrepreneurs, and policymakers.

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Uncover the habits, decisions, and mindsets behind great startups.
Learn how founders navigated early chaos and scaled their companies.
Extract actionable insights applicable to your own journey.

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16 Lessons Learned After 16 Years As An Entrepreneur

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There are a few lessons that can help ease the way for entrepreneurs who are just starting out.

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Women Entrepreneurship Knowledge Hub (WEKH)

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Women Entrepreneurship Knowledge Hub (WEKH)

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Women Entrepreneurship Knowledge Hub (WEKH)

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Women Entrepreneurship Knowledge Hub (WEKH) | LinkedIn

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Women Entrepreneurship Knowledge Hub (WEKH) | 8,602 followers on LinkedIn. Strengthening Canada’s women entrepreneurship ecosystem w/ research, knowledge sharing, resources & networking in EN/FR. | Made up of 10 regional hubs, WEKH operates in both official languages and includes a network of over 250 organizations, reaching more than 100,000 women entrepreneurs. http://wekh.ca WEKH is a part of the Government of Canada’s Women Entrepreneurship Strategy that aims to increase women entrepreneurs’ access to financing, talent, networks, and expertise.
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Composé de 10 centres régionaux, le PCFE communique dans les deux langues officielles et comprend un réseau de plus de 250 organisations, touchant plus de 100 000 femmes entrepreneures. Le PCFE fait partie de la stratégie du gouvernement du Canada pour les femmes entrepreneures qui vise à accroître l'accès des femmes entrepreneures au financement, aux talents, aux réseaux et à l'expertise.

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Choose the right business model (e.g., SaaS, marketplace, subscription).
Identify diverse revenue streams and how value flows through your business.
Ensure scalability, sustainability, and alignment with customer needs.

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Revenue Streams are the various sources from which a business earns money from the sale of goods or provision of services. The types of

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The 8 Most Successful Business Models in Today's Digital World (Video)

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The 8 Most Successful Business Models in Today's Digital World (Video)

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This video explores the most effective digital business models, explaining how they generate revenue and adapt to changing market trends. It's trustworthy due to its focus on real-world examples and successful companies. Startups can use this knowledge to choose a revenue model that aligns with their business goals.

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The 8 Most Successful Business Models In Today's Digital World

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Online Business Models Which One Fits You (Podcast)

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Online Business Models Which One Fits You (Podcast)

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This podcast discusses various online business models and helps listeners identify the best fit for their ventures. It’s reliable because experienced entrepreneurs share practical insights. Startups can leverage this guidance to select a sustainable business model.

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Online Business Models Which One Fits You | Podcast

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Marketing Basics – Understanding Revenue Streams & Marketing Tools (Article)

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Marketing Basics – Understanding Revenue Streams & Marketing Tools (Article)

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This article explains revenue streams and introduces marketing tools that drive business success. It’s credible because LearnWorlds is a respected e-learning platform. Startups can use this resource to implement effective marketing and revenue strategies.

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Mastering the Basics: Understanding Revenue Streams & Marketing Tools to Drive Your Success

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Understand the key definitions of revenue streams and marketing tools, and how integrating them can unlock growth and success for your online business. Dive into the essentials!

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Revenue Streams | Corporate Finance Institute (CFI) (Article)

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Revenue Streams | Corporate Finance Institute (CFI) (Article)

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This article details different types of revenue streams with practical examples. It’s trustworthy as CFI is a globally recognized financial education provider. Startups can apply these concepts to diversify their income sources and ensure financial stability.

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Revenue Streams are the various sources from which a business earns money from the sale of goods or provision of services. The types of

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Understand key metrics like Customer Acquisition Cost (CAC) and Lifetime Value (LTV).
Use data to test and optimize your pricing structure.
Ensure your economics work at scale and support long-term profitability.

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How to Calculate Unit Economics for Startups (LTV, CAC & More)

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What are unit economics and why are they crucial for startups? Learn how to calculate CAC, LTV, and more to understand your business’s profitability and scalability.

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Learn how to find real problems worth solving through customer discovery.
Validate the urgency and frequency of the problem through interviews and surveys.
Ensure your solution addresses a true need, not just a nice-to-have.

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Startup Pain Points and How Entrepreneurs Can Resolve Them

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Are you an entrepreneur dealing with the inevitable challenges of managing your company? Here’s a guide to 7 startup pain points and how to resolve them.

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Introduction to Startups & Entrepreneurship

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Introduction to Startups & Entrepreneurship

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Explore what it means to launch a startup and how it differs from small businesses.
Learn about the entrepreneurial ecosystem and the stages of building a company.
Understand the mindset and risk-taking nature required to innovate and disrupt markets.

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Large companies may have distribution advantages, but they are often slow and lack conviction. Facebook’s success wasn’t due to a novel idea—similar platforms like Friendster and Myspace already existed. Despite having the talent and infrastructure, big companies failed to capitalize on social networking because they doubted new ideas. Initially, social media was dismissed as a fad or seen as unprofitable, delaying large companies' responses. By the time they recognized its potential, it was too late to compete effectively. Even when internal teams believed in the idea, decision-makers deprioritized it, adding bureaucratic hurdles that slowed progress. This hesitation—what Zuckerberg refers to as "sand in the gears"—prevents large companies from taking advantage of many opportunities. In fact, even when they have a clear advantage, they fumble about two-thirds of those opportunities. Some ideas succeed simply because they integrate seamlessly into existing distribution channels, making them “free” wins.

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Mark Zuckerberg explains why startups often beat big companies

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The Price Sensitivity Meter (PSM) is a market technique for determining consumer price preferences. It was introduced in 1976 by Dutch economist Peter van Westendorp.

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The traditional PSM approach asks four price-related questions, which are then evaluated as a series of four cumulative distributions, one distribution for each question. The standard question formats can vary, but generally take the following form:

At what price would you consider the product to be so expensive that you would not consider buying it? (Too expensive)

At what price would you consider the product to be priced so low that you would feel the quality couldn’t be very good? (Too cheap)

At what price would you consider the product starting to get expensive, so that it is not out of the question, but you would have to give some thought to buying it? (Expensive/High Side)

At what price would you consider the product to be a bargain—a great buy for the money? (Cheap/Good Value)

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What is Entrepreneurship? | 10 shared characteristics of entrepreneurs | From A Business Professor

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What is Entrepreneurship? | 10 shared characteristics of entrepreneurs | From A Business Professor

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Have you ever wondered what it takes to turn an idea into a successful business? The journey from concept to company is what we call entrepreneurship, and it’s one of the most exciting and challenging paths you can take in the business world. So what exactly is entrepreneurship? What characteristics are key to entrepreneurs? Are there some real-world examples? Why it is important for our society? In this video, I will discuss these questions with you.

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What is Entrepreneurship? | 10 shared characteristics of entrepreneurs | From A Business Professor

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The Entrepreneur Podcast improves your odds of entrepreneurial success by sharing the stories and lessons learned of world-class entrepreneurs.

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Becoming an entrepreneur is the road less travelled for good reason. It's often an uncharted territory full of potential pitfalls. But it doesn't have to be that way. The Ivey Entrepreneur Podcast improves your odds of entrepreneurial success by sharing the stories and lessons learned of world-class entrepreneurs.

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How To Start a Business: 11 Essential Steps (2025) | Shopify

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How To Start a Business: 11 Essential Steps (2025) | Shopify

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This resource has a step-by-step guide, that serves as a roadmap for individuals looking to navigate the complexities of starting a new business.

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Being your own boss starts with launching a business.

Entrepreneurship is one of the most exciting, potentially life-changing things you can do. But how do you start?

Maybe you already have a brilliant product you want to sell online. Perhaps you've built an engaged audience on social media. Or, you could be looking for that first business idea. Wherever you are in your business journey, this guide walks you through the 11 essential steps anyone needs to consider.

Ahead, find out how to refine your business plan, analyze the competition, register your business, and make your first sale. Then, keep growing with information on how to scale your business through marketing and funding.

How to start a business in 11 steps

Ready to start your business? Create your website today or learn more about Shopify's tools for selling online and in person.

1. Develop your business idea

Starting a business begins with an idea. What unique product, service, or solution can you offer?

A method many entrepreneurs use to develop business ideas is to identify a niche. A niche is a specialized market segment that may be underserved or overlooked by other businesses. For example, identifying niches in the pet supplies industry could inspire an organic pet food business or a store selling toys for large cats.

Alternatively, you could use the knowledge, skills, or crafts you already possess to find a business idea. For example, if you're a skilled carpenter, you could start a custom furniture business. Or if you're passionate about fitness, you could start a personal training service.

Learn more about coming up with a business idea.

Once you have an idea, watch this video for more insights on how to evaluate its profitability and sustainability:

Read more

If you're looking for an inspiring business idea, try these helpful lists:

2. Do market research

Starting a business involves more than a good idea. You need to conduct market research to see if there's demand for your product or service. This involves defining and understanding your target audience, the group of people most likely to buy your product, who will be the focus of your marketing and product development.

A popular way to find your target audience is to create buyer personas to identify their needs and preferences.

Market research can be conducted through surveys, focus groups, and interviews. A broader market analysis includes industry-wide insights from reports and other sources.

Understanding market trends involves studying your industry, competitors, and customer preferences. It's about identifying long-term trends, search volume for your product, emerging buyer trends, and potential market-impacting factors. Analyzing your competition helps you stand out and define your unique selling proposition, what sets your product apart from others.

You'll also want to estimate market size: your total addressable market and your expected market penetration rate.

Watch this video on how to conduct a competitive analysis to take a structured approach to market research.

Read more

Get serious with your market research by using these popular analysis formats:

3. Source your products

Once you've validated your business idea, the next step is to decide how to source your products. Depending on your business, you might make your own goods, collaborate with a producer, or buy from a wholesaler.

For making handmade items, set up a workspace at home or rent a studio. Check the legal requirements for home-based businesses, especially if you're making food or cosmetics.

If creating products isn't possible or appropriate, consider partnering with a print-on-demand service. They'll handle production and shipping. As you grow, you can work with a private label manufacturer to create unique branded products.

For products made in a third-party facility, you'll need to find a manufacturing partner. The right manufacturer will understand your industry and be a partner to your business.

Reseller businesses source products from private sellers, while retailers work with inventory suppliers, often via wholesale marketplaces. Alternatively, you can use a dropshipping model, where your supplier sends products directly to customers.

For more advice on finding and working with a manufacturer, watch this video:

Read more

Here are three regularly updated lists of product suppliers you can work with:

4. Create your business plan

With your business idea validated and product sourcing underway it's time to map out your strategy by creating a business plan. This document serves as a roadmap for structuring, running, and growing your business. It's a tool you'll use to convince others that investing in or working with your business is a wise decision.

Your business plan includes everything from your mission statement, which defines your business's purpose and values, to your financial projections, which outline your expected income, expenses, and profitability.

One key aspect of your business plan is your sales strategy. Will you sell online, in person, or both? Online sales could be through your own website, marketplaces like Amazon and Etsy, social media, or a combination of all.

Using Shopify, you can streamline your online sales by connecting your store to marketplaces.

Another important part of your plan is your business model. As part of your model, you'll specify whether your business will sell directly to consumers or to other businesses (B2B).

Follow these five tips to help you write a compelling business plan:

1. Know your audience: Understand who will be reading your plan and tailor the content to meet their needs and expectations.

2. Have a clear goal: Define what you want to achieve with your business and outline the steps you'll take to get there.

3. Invest time in research: Gather as much information as possible about your industry, competitors, and target market. This will help you make informed decisions and predictions.

4. Keep it concise: Your business plan should be clear and straightforward. Avoid unnecessary jargon and keep your sentences short and simple.

5. Maintain a consistent tone, style, and voice: This helps to make your business plan coherent and easy to read.

Finally, it can be helpful to look at other business plan examples for inspiration and to understand what a successful business plan looks like.

This video walks you through how to write a business plan:

Read more

It's important to understand the nuances of an industry before writing a business plan. Below, find tailored advice for popular industries:

Related article

Quickly and efficiently craft your business plan with our free business plan template. Learn what you should include for your business in 2024.

5. Choose your business name

Choosing a business name is a key step. The name you select should reflect your brand and resonate with your audience. Expert tips for naming a business include keeping the name short and memorable, and not so specific that it restricts your business from growing or evolving.

As you choose your name, also select a domain name. A domain is the address customers will type into a web browser to visit your website or online store. Ideally, your domain should match your business name for consistency.

Before finalizing, ensure your chosen business name isn't already in use and that the social media handles and domain are available. Once decided, secure it by setting up social profiles and registering the domain.

If you're stuck coming up with a name to represent your brand, try using a free business name generator.

This video teaches you a simple framework for creating a lasting brand name for your business:

Read more

Dive into more business naming resources:

How Headphones.com Secured a Priceless Domain

Andrew Lissimore started his headphone business after seeing the impressive profit margins in consumer electronics. He negotiated a deal to secure a domain name that would help his business get discovered.

6. Select a business structure

Selecting a business structure determines the foundation of your business. Your choice influences everything from operations and taxes to personal liability.

What structure is best depends on your business model, industry, funding sources, number of employees, and number of founding members. The simplest business structure is a sole proprietorship, in which you and the business are one and the same entity. While this means you receive all profits, it also means you're personally responsible for debts and liabilities.

If your business needs more protection, you might consider forming a limited liability company (LLC). LLCs combine elements of a sole proprietorship with those of a corporation, offering you protection from personal liability.

No matter your choice, it's important to clearly define ownership details, especially if you have a business partner. This includes roles, responsibilities, and ownership stakes. As your business evolves, so can your business structure.

Read more

Learn more about the main business types:

7. Funding your business

Even the smallest businesses require funding. While federal grants are unlikely to be available, you can use personal funds, find investors, or take out a business loan to launch your venture.

The Small Business Association also offers funding for specific groups like women, minorities, veterans, and rural businesses.

The cost to start a business varies, with many low-cost businesses able to launch on a budget of hundreds of dollars. Whatever the starting costs, most first-year expenses are reinvested into the business.

For most businesses, the largest costs will be tied to product sourcing and development. However, remember to account for all costs, no matter how trivial, including unexpected ones like insurance and taxes.

A break-even analysis is the process of determining at what point your business becomes profitable. It's a financial calculation used to determine the number of products you need to sell to cover your costs. Knowing this information will help you price your products to ensure a profit margin.

Typically, you can expect a lower profit margin if you're selling a high volume of goods, and a higher margin if you sell luxury products.

Knowing how to price your products can be difficult, but with a few basic calculations, you can confidently set prices that make sense. As you're setting your prices, consider common pricing strategies like competitive pricing, value-based pricing, or keystone pricing.

Setting up a business bank account keeps your personal finances separate. When choosing a bank, consider its reputation, fee structure, and how friendly it is to small businesses.

Managing cash flow is essential to the financial health of your new business. Using a small business accounting tool can help you keep on top of money flowing in and out. Professional accountants can also offer valuable advice.

Lastly, whether you should charge sales tax depends on several factors, including your business's location. If you need to charge sales tax, you'll need to get a sales tax permit and to set up tax collection in your store checkout.

For more information on cash flow management, watch this video:

Read more

Get your funding in order with these resources:

These founders turned $900 into an 8-figure brand

Skin care brand Bushbalm launched with a mere $900 investment from its three founders. They then funded their massive growth through crowdfunding and pitching investors.

Find out how

8. Register your business

Depending on where you do business, and your business structure, you may have a legal requirement to register your business with local and national governments. Check with your local authority to see what you need to do.

In some cases, you may not need to officially register your business. For example, sole proprietorships operating under the owner's name, making under a certain threshold in revenue, aren't required to officially register in many locations.

Business registration helps protect yourself and employees in the event of unexpected hardship and lets you obtain corporate services such as business insurance.

Depending on the business structure, you may be subject to personal liability in legal matters related to your business. Before you purchase an insurance policy, talk to a professional to see if personal liability protection is necessary.

Other types of business registration include registering a trademark or filing for a patent to legally protect intellectual property like an invention or your business name. You may need to register with the IRS or your country's tax body to collect and pay taxes.

Depending on the type of products and services you sell, you may also have a legal requirement to apply for a business license or permit.

In the US, licensing requirements vary by state and industry. If you do need a business license, be sure you have essential details like a business name, address, and employer identification number before starting your application.

Read more

Registering your business makes it easier to secure trademarks, insurance, and other business essentials.

How a vegan chef built a business on YouTube

Wil Yeung dabbled in everything from dropshipping violins to developing his own consumer goods. The serial entrepreneur and self-taught chef built his latest business with a YouTube content strategy. He now sells his recipes as books, ebooks, and online courses.

Read Wil's story

9. Develop a brand

Creating a brand is essential to attract and retain customers when competing against other businesses with similar offerings. Your brand is not just a name or logo. It tells the story of your business and ensures all products, content, and communications are associated with you.

Develop a style guide to keep your brand voice and visuals consistent. Your guide should contain specifications for your logo, fonts, and color scheme. Even without design skills, you can create a simple logo using a free online logo generator.

Product images and videos are crucial brand components for ecommerce businesses. Use clear, high-resolution photos to show the details of your products and lifestyle photos to inspire customers. If you're on a budget, you can take photos with a smartphone and basic lighting. Stock photos are also a good temporary solution.

Ensure your visual identity is consistent across all touchpoints, from your website to product packaging. A seamless experience reinforces your brand and builds customer loyalty.

Watch this video for an introduction to business branding:

Read more

Use these resources to infuse your brand into your business's images, copy, and packaging materials:

10. Launch your business website

When branding is set, launch your business website. If your business will sell products or services online, use an ecommerce website builder that will let you add selling features to your site.

When you use an ecommerce platform, designing your site is straightforward thanks to drag-and-drop tools and predesigned store themes. Simply choose a suitable theme, then customize it with your brand's fonts and colors.

Get inspired with these standout online stores created with Shopify:

Read more

Find more website creation help in these resources:

Build an online store now

Create your store in minutes with Shopify's drag-and-drop editor. Choose from mobile-ready themes designed for your industry and add extra features with apps.

11. Market your business

Marketing is reported as one of the most challenging aspects of running your own business-but it's also the area where you will spend much of your time and budget. A solid marketing strategy is essential to drive traffic to your store or website and convert visitors into buyers. Your business plan should include a marketing plan outlining your strategy for reaching your target audience.

For more, see these marketing plan examples.

Explore different marketing tactics to find the best way to reach your customers:

Appeal directly to customers by taking pre-orders, running giveaways, and offering discounts.

Consider content marketing formats like blogs, videos, and social media to capture organic interest.

Email marketing is effective for converting leads and encouraging repeat business.

Online ad platforms including Google Ads and Facebook ads expose your business to a large online audience.

Social media platforms like Instagram, TikTok, and Facebook offer ways to engage with your audience and sell products.

Social media features like Instagram Shopping and TikTok Shop enable businesses to create in-platform storefronts to sell directly to users.

Ensure your marketing efforts include strong calls to action, whether directing customers to shop directly or visit your website. Use tools like Google Analytics to track performance and refine your strategy. Understanding ecommerce metrics will help you optimize your marketing spend and focus on what works.

Read more

Learn more about how to market your business to consumers:

Gather customer feedback through surveys or analysis of support tickets. Conduct regular business reviews to evaluate financial health and market position. These steps will give you the confidence and clarity needed to make larger investments.

Seek additional funding

If you're looking to grow, consider additional funding options. Update your business plan with your vision for growth, gather financial statements, and refine your elevator pitch. A business mentor can be invaluable in preparing your pitch by offering advice and feedback.

Build your community

Community is an increasingly important factor in businesses' success, especially for those in niche markets. Whether you're serving breast cancer survivors, Indigenous communities, or any niche group, engage authentically: listen, reply, and ask for feedback as you grow.

Effective community management involves monitoring conversations, engaging with customers, moderating discussions, and measuring brand perception.

Expand your team

As you grow, focus on what tasks require your involvement, and which can be delegated to others. However, only hire employees when there's a clear need for a human solution that can't be automated or addressed in another way.

For instance, use apps to automate processes like customer support communication and financial reporting. For additional support, consider outsourcing one-off tasks to freelancers and virtual assistants.

Explore international markets

As you grow, consider introducing your business to comparable target markets in international markets. If you plan to ship internationally, ensure compliance with destination country laws and customs paperwork.

Consider making duties and taxes transparent at checkout to avoid surprises for your customers.

From first-time sellers to global retailers, Shopify works for everyone. See plans and pricing.

How to start a business FAQ

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How To Start a Business: 11 Essential Steps (2025) - Shopify Malaysia

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Whether you have a product to sell or are looking for a profitable idea, this guide walks you through starting a business, from pre-launch to first sale.

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Identify the qualities of a great co-founder and where to find them.
Learn how to build a complementary team with aligned vision and strong communication.
Understand team dynamics, equity distribution, and early-stage collaboration.

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Since this video was created, we've launched YC Co-Founder Matching. The advice in this video is still correct -- if you have an existing network to search for co-founders, that's a great place to look for a match. But many founders have also found success with our co-founder matching service, so we now recommend you try that in parallel.

YC Partner Harj Taggar shares advice on how to find the right co-founder for your startup. This lecture was filmed for the future founder track of Startup School 2020.

Transcript

Hi, I'm Harj Taggar, and I'm partner at Y Combinator. And today I'm going to be talking about what I think is arguably the most important part of starting a company, which is finding the right co-founder.

So let's start by talking about why should you have a co-founder at all. Well, I think there's three main reasons you really want a co-founder when you're starting a company. The first is productivity, you can get a lot more work done if you have someone to divide the work up with. And you can get much better work done if you have a co-founder who maybe has complementary skills, so they can do things that you can't. And there's someone you enjoy discussing ideas with. So you can brainstorm and come up with better ideas than you could alone, or have someone to talk you out of potentially bad ideas. So you get a lot of uplift in just the amount and quality of work you can do with a co-founder.

The second reason is moral support. Startups are an incredibly intense and taxing journey. And it's great to have someone you can lean on for support during the tough times. And what I've noticed about the best co-founder relationships is they have this dynamic where both co-founders kind of balance each other out. So if one founder is having a bad day, they're feeling a little down, despondent, and they've become a little pessimistic and feel like the startup is about to die, the other co-founder can just help bring them up a little bit, and keep them going and keep them motivated. And vice versa. Sometimes you get too carried away, you sign a customer and you think you're guaranteed the IPO. And you can use someone to just ground you and bring you back to reality a little bit. And so that's where I kind of find the best co-founding relationships can help kind of even out some of the highs and lows of the emotional rollercoaster that is a startup.

And while you can get sort of productivity increased by hiring people or bringing your own contractors, you don't get that same emotional support that you do from a co-founder. Because ultimately, anyone who's working for you, you're the boss, and they're not as invested in the success of the startup as you are. And you can't really be as open or honest with them about the company as you can be with a peer. And that's what you get from a co-founder.

The final reason I'd say to have a co-founder is pattern matching to success. If you look at a list of the most successful startups in history, think of Apple, Facebook, Google, Microsoft, they all had co-founders when they started. And now I think sometimes people forget this point. Because when you think of these great iconic companies, you associate them with a single person, usually the CEO, who's over time risen to become prominent, famous and a bit of celebrities. You know, when you think of Apple, you think of Steve Jobs, when you think of Microsoft, Bill Gates, and when you think of Facebook, Mark Zuckerberg, right? I think it's completely true that over time, and we're talking at this point decades, because that's how long successful startups are around for, over that time period, it's pretty common for one person to kind of really drive the company become the figurehead for it and stick out that company for a long period of time. And that's why we remember those people.

But we're talking about the earliest stages of starting a company. And in those days, all of these founders had co-founders that they lent on for all the reasons I just mentioned. So I think it's always important to remember that when you're starting a company, and wondering whether you should have a co-founder or not.

Okay, so hopefully, I've convinced you that you really do want a co-founder when you're starting a company. But what if you're really keen to get started in a company right now, and you don't have a co-founder that immediately available, or someone that you can bring on board? Should you wait to get a great co-founder before you start a company? Or should you just go ahead and get started? Well, I think the default answer is that you should wait because of all the reasons I just mentioned, all the benefits that you get from having a co-founder. But Y Combinator has funded single founders, and we have done so successfully. So I've noticed that there are some exceptions to this rule and they tend to follow a particular pattern. And that pattern is that the single founders, those who start company by themselves, has sort of two things that are true.

So one is they have an idea that they have incredibly high conviction about either because they're solving a personal problem for themselves. So there really no solution is necessary. Or they're a domain expert, they're working in a field where they know for sure the sort of technology that's missing, where the customers might be. So there's all of that because they have such conviction in the idea that they don't need a co-founder to convince them that this is a good idea to get started on. They're ready to go.

The second condition is that those single founders, they are able to make progress on that idea without a co-founder, in the short time at least. And that almost always means that they're technical, or at least technical enough to be able to build the first version of the product so they can show it to potential investors, or maybe even to potential co-founders who may want to join the company. And that second point is something I've noticed that the best single founders are also able to do is not only are they tremendously productive in building product and talking to users themselves, they're also able to run a great background search for co-founders and keep their eyes open. And if the opportunity arises, bring on a great co-founder. And I think the best example I can think of here would be Drew Houston of Dropbox.

So Drew applied Y Combinator way, way back now, in 2007. He had a really solid idea for building Dropbox, because he'd already felt the pain of losing his own files. So he knew for sure, there was a better solution to build. But he didn't have a co-founder. And so Paul Graham, the Y Combinator founder, messaged him back saying, "We love your application, you're great, the idea's great, but we really won't fund you without a co-founder. So come back to us when we have one." And Drew kind of went away, continued building the Dropbox prototype, while also looking for co-founders and found Arasha, who would be later the Dropbox CTO and his co-founder. And he applied again, and [inaudible 00:06:34] And now Dropbox is obviously a tremendously successful company.

So that's kind of what I'd ask you to bear in mind is, if you're really keen to get a startup right now, but you don't have a co-founder, ask yourself like, do you have absolute high conviction in this idea, you know sure that this is the idea that we want to work on? There's no other ideas that you'd be open to? And can you really make progress without having a co-founder? And if those things are true, sure. Go ahead and give it a shot. But if not, I'd really suggest you wait until you do have a co-founder to start a company.

So when you're thinking about bringing on a co-founder, what should you be looking for in them? Well, I actually think the single most important thing to know about someone before you start a company with them is how do they handle stress. Sort of second most important is how well are they going to help you handle stress. And the reason I say that is startups are very incredibly stressful, intense experience, as I mentioned before. And a great co-founder should be able to support you through those and help you through those. Because if you're determined and motivated, enjoy working together, you'll keep working on this startup for a long period of time. And that's usually what it takes to build a really successful company. So you really don't want to start a company with someone that you don't know particularly well. Because even if you've spent time with them in social events, or you hung out together a little bit, you don't really have insight into how they're going to respond to pressure and stress. And are they someone that's going to stick around when things are tough? And are they someone that's going to help you want to stick around when things are tough?

So the best people to start companies with are always people that you've got some sort of personal experiences, where you kind of know the character and how they're going to respond to those tough situations. And that usually means there's someone, a close friend, or someone that you've worked with, under stressful conditions. So I'd certainly recommend that you be on the lookout and think about that when you're considering co-founders. The second thing I think you really want to look for is understanding the goals and values someone has for starting a company or wanting to do a startup. And honestly, I think when I was younger, I used to think of some goals and values as being sort of fuzzy terms. I didn't need them too much. But over time, I realized, really what they mean is understanding the motivations someone has for doing what they do. And in this context, I think it's really important to talk with someone, even if you know them very well, about why they want to do a startup, what are they hoping for? And the kinds of things that can come out are avoiding conflicting goals, right.

So for example, let's say that you really want to build a high-growth, high-intensity, high-risk startup and you want to push forward, you want to raise venture capital, you want to hire a bunch of people, you want to just really go for it. And your goal is to take the company public and you're okay kind of taking lots of risks along the way to get that. That's a totally fine set of motivations, it's a very common set of motivations for startup founders. But let's say your co-founder prefers to take kind of a slow and steady approach. Maybe they're more motivated by building great software for a small group of people. And they will be totally fine if you just made enough revenue to pay yourselves good salaries and just grew a little bit every year. That's also a completely fine set of motivations for wanting to start a company. But the two motivations there aren't compatible with each other and they'll lead to inevitable conflict.

So what I'd suggest is make sure that you have this conversation. And it's not a perfect predictor, because people's goals and ambitions for a startup change over time. I've seen people start companies because, honestly, they just wanted to get rich. And their hope was that they would be able to sell the company in two to three years for a good amount to a bigger company. But they got two to three years into the company, and they loved it so much, they got so excited by the challenge that they kept working on it, and they're still working on it a decade later. So that's totally fine. I'm not saying that having this conversation means you're gonna know for sure whether your goals and values are aligned over the next decade, which is how long it usually takes if a startup is successful, but at least having the conversation gives you a better chance of finding a co-founder who you're aligned with around a high level important stuff.

Now, as you're probably wondering, I'm talking about what you should look for in co-founders, and I haven't mentioned the obvious thing, which is, what skills do they have. So it's obviously really important to have a co-founder who has the right sort of skills to help you grow the company. And usually that means someone who's got complementary set of skills to you, right? So if you're really great at sales, talking to users, getting customers, ideally, you'd have a co-founder who's really great at building product, and writing code, and building software, because the two of you can divide and conquer and get a lot done. Why do you think that's really important? I don't think it's one you should overly fixate it. All right. So more important than anything is just working with someone that you like working with and you trust. And so if sort of the person best fits that description doesn't necessarily have the perfect set of complementary skills, tools, I think that's fine, you should still bring them on as a co-founder. And then you can start hiring people as you need, and make enough progress in the company to get investment, you can hire people to kind of fill in the skills gaps, and that's okay.

Another point I'd just make on this is, when you are trying to see if someone's got complementary skills to you, don't go too much into the details of how well do their skills map onto this specific idea you're working on right now. So a common example of this we see sometimes is someone's considering bringing on a technical co-founder. And they want to build an iPhone app. But the co-founder, even though they know them, they trust them, they've worked with him before, that co-founder isn't necessarily an iPhone app developer, they haven't built iPhone apps in the past. That's not a reason to rule someone out as a co-founder, right. What does matter is that they're willing to learn what they need to learn. So if they're not an iPhone developer, they're willing to learn how to do that. And particularly, they're willing to learn things that maybe aren't glamorous, like startups are often just a grind of doing a lot of boring work to get the thing going. And so long as you have a co-founder who's okay with that, it's totally fine if they don't have the perfect set of skillsets. So don't rule someone out who's potentially a great co-founder because they don't have this checklist of specific skills you're looking for. But do make sure you count them in if it's someone that you trust, you like working with, you've got a good sense of how they're going to handle the stress and pressure of the startup journey.

So where should you look for to find co-founders? Well, the answer here is a little obvious. It's to start with the people you already know. So ideally, your friends and colleagues, and kind of ironically, the best time to find a co-founder are when you're not actually necessarily looking for a co-founder to start a company with right now. What I mean by that is, if I were going giving myself advice 10, 15 years ago, what I would say is, rather than sort of trying to pick a startup idea, and go and find co-founders to work on with it, I would suggest that I just look for people to do projects with. So if you're in school, look around, see who's in your class, who's in school, and like, identify people that you think would be cool to work on a project. And this project doesn't have to be a takeover the world idea of a company, just somebody you find interesting. Like maybe you're into games, and you want to build a cool game together. The thing that's awesome about projects is that it's much less scarier and asking for a far lower of commitment if you ask them to work on a project with you than it is to go straight into, "Hey, let's start a company together." Right? So you have sort of a higher chance of people saying yes, if you ask them for this.

And the other thing that's great about projects is you can work on different projects with different people and you can start developing a taste for who do you like? Well, what kinds of personalities? Like what kinds of skills are you actually good at as opposed to what you might think you're good at? And so what kind of complementary skills might you look for in a co-founder. And again, being in school or college is a really ideal time for this because you're surrounded by lots of people who usually have a decent chunk of spare time. And so you can start getting together to work on things that you think are fun. And, again, kind of ironically, although this is I'm suggesting you don't try and start a startup. Projects that you work on in your spare time often tend to be some of the greatest sources for actually finding great startup ideas and building huge companies. Facebook's an obvious example, something that started out as a project while Mark Zuckerberg was an undergrad at Harvard. And now it's turning into one of the biggest companies in the world. But that's not why I'm suggesting you do this. I'm suggesting you can look for people to work on projects with because that's a great way for you to get a sense of what kind of person do you enjoy working with, and what specific type of personality do you work well with.

And this advice also applies if you're not in college or school, maybe if you're working at a company, like look at your coworkers, like, keep a list of people that you think are particularly smart, particularly capable, who impresses you, and start getting to know them better. And ask them if they're up for working on things in the evenings or weekends. That's the kind of personality...the kind of person who is interested in working on evening and weekend projects is the kind of person that's likely to make a great co-founder. I actually remember years ago at Y Combinator startup school, when it was an in-person physical event, we had Phil Libin, the founder of Evernote, there. And he kind of gave a somewhat extreme version of his advice, which was that he sort of years and years before he started a company knew that he wanted to start a company someday. And so he would only make friends with people that he thought could someday be a co-founder. And now, while I think that advice is maybe a little extreme, if you don't just want to be around people who might be co-founders, there is truth to it. Right? So I think this is kind of the thing where if you make this of a conscious effort well before you start a company, it'll probably the best bet for finding a great co-founder.

But let's say you do know for sure that you want to start a company, and you're kind of ready to go, again, right now. How do you start finding co-founders? Well, again, you start in the same place, you start with people that you know. And what I've noticed is an issue people run into here is that they can be really reluctant to just ask people they know to start a company with them. And it's all kind of reasons, like maybe you're worried about how your relationship will change, like maybe you don't value the personal relationship more than the risks of working with someone. And those are fair concerns. But it's not the right optimization for starting a company, you have to make the ask.

So what I'd suggest, the pretty simple algorithm here for finding co-founders, it's make a list of the people that you know, you're closest to that you think would be great co-founders, and start from top to bottom, and ask every single person there to go grab a coffee and talk to them, and ask them if they'll start a company with you and be your co-founder. If they say no, that's totally fine. Say you understand. But like, who would they start a company with and make it very specific. Ask them, "If you were starting a company, who would be sort of your top three or four co-founders that you want to try and convince to work with you?" And ask them for an introduction to each of those people. So your list keeps growing now. You ask the people you know, if they say no, you at least get some more ideas for names. And then you meet with those people. And you ask them and you simply repeat, repeat the same algorithm, ask them if they'd be interested in being a co-founder with you along. And if they say no, ask them who'd they try to recruit. And so this way, you start growing the tree of potential co-founders beyond those people you immediately know, but at least they're still connected via people that you do know. So they're not just sort of completely random strangers.

The final sort of bit of advice, I'd say, for where to look is go out and try and meet people that just have similar interests to you. Right, it kind of sounds a little bit just like how to have a social life. But this is essentially what finding co-founders reduces to. So if you're an engineer, attend, like developer meetups or work on open source projects, or go to hackathons. Do things where others, engineers and builders are hanging out. And you're likely to find some meets. And if you're not technical, if you're interested in those things, you should totally attend those kinds of events too. But maybe also just attend or find people who are interested in the kinds of things you're interested in. Maybe you're interested in economics and finance, and that's kind of the pool of things, or is a pool of interests where you think you'll find a startup idea. Well, make a real effort to go out and meet people that have similar interests. And in these COVID times, there's lots of online groups and communities that you can join. But even in regular times, there's always ways to find people that have similar interests to you. And because if constantly on the lookout for people who might make co-founders, you have a high chance of finding someone who could be a good fit.

So once you found a potential co-founder, how do you test out and know for sure that you both want to start a company together before making the final commitment? Well, it's not a perfect process. And at some point, you just kind of have to make the leap and hope that it will work out. But one way to de-risk it is to allocate a chunk of time where you agreed to kind of work together. And set yourself a deadline by which time you want to have ideally, like a MVP, or a prototype of something built, or you at least want to have gone out and try it out, pitching some customers and convincing them to pay you if you did build a particular product. These are all things you'd usually do when you're signing up with a new company or testing out new idea anyhow. And do that together, and agree that at the end of the time that you've set aside, that you both have an honest conversation, decide, "Do we both enjoy working together on this? And if so, great, let's go ahead and make the leap." And if not, be honest and say, "Hey, let's go our own separate ways."

So making that a little bit more tangible. If you both have the no other commitments, you know, which is pretty uncommon, but sometimes happens if, say, you both graduated college and you didn't go and get a job because you want to start a company, then I'd say treat this like your full time job, right? Say that, "Hey, we're going to set aside a month or three months. And let's just pick idea we're excited about and get as much progress made as we can on building the first version of it, and going out and signing customers." Even if you can't do that full time because you have other commitments, but then do it on evenings and weekends, right. But you'll have to sacrifice some amount of time doing other things in order to actually spend time working together. But the more times, the more hours you can accumulate of working together on the idea, the better sense you'll have for sure if you want to start company or not. Right.

So once you've kind of done that, let's say you've decided that, "Hey, we do want to start the company, and we want to be co-founders," then I think there's two important points you want to make sure that you're in agreement on. First is the equity split, right, like who owns how much of the company. Now, I think the way to think about this is, your sort of default equity allocation should really be 50/50. That's where you want to start from, right, because assuming that nothing's been built yet, you're at the earliest stages of the company, you're both going to make equal contributions, you both want to be equally motivated to work super hard in the company. And all the work is years and years ahead of you. So there is not really too much reason to deviate from a 50/50 equity split early on. However, we have seen different equity arrangements, and they have been successful. And so I kind of think the underlying thing that you're solving for here is making sure that both of you are happy with what the equity arrangement is, and will be motivated to keep working on the company for a long period of time. Right.

And so, again, usually that means 50/50, but let's just say that you have been working on the company for a little bit longer, or you de-risked it somehow by yourself, and you're bringing on what is commonly called a later stage co-founder, then sometimes deviate from 50/50 might make sense. But the thing I would really encourage you to do is not optimize for the short term, right. So just because you made a little bit of progress and the idea by yourself, and you have a great co-founder, and you're sort of thinking, "Hey, maybe I should take 70% interest, just leave them 30%," because you've made progress in the last 6 months, I would encourage you not to do that. Startups are a really long-term game and you win by making the best decision long term. Right. So if you have a great potential co-founder, and even though you made a little bit of progress on the company yourself, if you know that they won't be all in and fully committed to the success of the company unless they're a 50/50 partner, you should do that. You should make them 50/50 equity partner so you can keep them as motivated and get as much out of them as possible.

The second thing I think you really want to decide is who's the CEO. Now, this can sometimes be an uncomfortable conversation. And to be honest, it's actually, I think, a bit of a red flag if it is uncomfortable conversation. And so as far as the actual title itself goes early on in the startup when it's just two or three co-founders, in terms of how it impacts your day to day and how you divide up responsibilities, the title doesn't actually matter. Like early on, you're all going to be doing a little bit of everything, there's like plenty of like unglamorous grunt work to go around. And just because you have a CEO title doesn't mean you get to sort of abscond from them. Right. So practically, it doesn't matter, like, in terms of who does what.

One exception to that might be, if you need to be doing sales, it usually might be good if the CEO is a person, where CEO title is the person talking to customers and users and convincing them because they might feel a little bit more flattered if the CEO is pitching them. And this kind of gets the point of where really the only impact the CEO title has. And that is externally, and I would say specifically for investors. So investors care about seeing that there is sort of a clear leader, and a clear final decision maker or a tiebreaker. And that person should be the CEO. So when you're pitching investors, it's usually better for whoever sort of does most of the talking, whoever is going to be leading those conversations, that that person is the CEO.

And now, where you run into problems, and a very, very common source of co-founder friction we see at Y Combinator is where two people really want to be the CEO. Right. And this can sort of...we can see this in Y Combinator interviews, where you end up with two people who kind of talk over each other, they interrupt each other, they can look at each other with a little bit of content when the other person's answering. These are all really, really bad signs, right. So be honest with yourselves, if you think it's really important to you to be the CEO, and you both feel that way, you're not good co-founders for each other. So just avoid all that pain and heartache and don't start a coming together. You ideally want to start a company with someone who doesn't care about that stuff if you do, or you're both indifferent to it and you'll find picking whoever you feel is best suited to the role for now, even if that changes sometime in the future.

So let's kind of wrap up everything we've talked about. Once you're sure you want a co-founder, which I hope I've convinced you to, once you run the process to find some good candidates to be a co-founder, and you've identified someone that you really do want to start a company with, because you spent a little bit of time working on projects together and testing each other out, so to speak, then you have the conversations around what's the equity split and who's going to be the CEO. Now you're ready to formalize things. And formalizing really means the legal act of incorporating a company, setting up a vesting agreement. This is really important. Vesting means that the shares in the company, we don't all get them at once. They vest over a period of time, and there's very standard templates and documents for this that you should really ensure that you have in place. And then you're pretty much good to go.

And you know, the when exactly should you sort of leap from, "Hey, we're hanging out, working together," to, "Hey, okay, let's like do some paperwork." Not a perfect answer to that, but it's just kind of up to you. Like once you've made the commitment to yourself and each other, that we're gonna make a real go of trying to build a company together, that's kind of the trigger for when you start making things real by getting sort of the legal, corporation and paperwork done. So, that's all the advice I have for how to think about finding the right co-founder and how to make it happen. I hope that helps and good luck.

Hi, I'm Harj Taggar, and I'm partner at Y Combinator. And today I'm going to be talking about what I think is arguably the most important part of starting a company, which is finding the right co-founder.

So let's start by talking about why should you have a co-founder at all. Well, I think there's three main reasons you really want a co-founder when you're starting a company. The first is productivity, you can get a lot more work done if you have someone to divide the work up with. And you can get much better work done if you have a co-founder who maybe has complementary skills, so they can do things that you can't. And there's someone you enjoy discussing ideas with. So you can brainstorm and come up with better ideas than you could alone, or have someone to talk you out of potentially bad ideas. So you get a lot of uplift in just the amount and quality of work you can do with a co-founder.

The second reason is moral support. Startups are an incredibly intense and taxing journey. And it's great to have someone you can lean on for support during the tough times. And what I've noticed about the best co-founder relationships is they have this dynamic where both co-founders kind of balance each other out. So if one founder is having a bad day, they're feeling a little down, despondent, and they've become a little pessimistic and feel like the startup is about to die, the other co-founder can just help bring them up a little bit, and keep them going and keep them motivated. And vice versa. Sometimes you get too carried away, you sign a customer and you think you're guaranteed the IPO. And you can use someone to just ground you and bring you back to reality a little bit. And so that's where I kind of find the best co-founding relationships can help kind of even out some of the highs and lows of the emotional rollercoaster that is a startup.

And while you can get sort of productivity increased by hiring people or bringing your own contractors, you don't get that same emotional support that you do from a co-founder. Because ultimately, anyone who's working for you, you're the boss, and they're not as invested in the success of the startup as you are. And you can't really be as open or honest with them about the company as you can be with a peer. And that's what you get from a co-founder.

The final reason I'd say to have a co-founder is pattern matching to success. If you look at a list of the most successful startups in history, think of Apple, Facebook, Google, Microsoft, they all had co-founders when they started. And now I think sometimes people forget this point. Because when you think of these great iconic companies, you associate them with a single person, usually the CEO, who's over time risen to become prominent, famous and a bit of celebrities. You know, when you think of Apple, you think of Steve Jobs, when you think of Microsoft, Bill Gates, and when you think of Facebook, Mark Zuckerberg, right? I think it's completely true that over time, and we're talking at this point decades, because that's how long successful startups are around for, over that time period, it's pretty common for one person to kind of really drive the company become the figurehead for it and stick out that company for a long period of time. And that's why we remember those people.

But we're talking about the earliest stages of starting a company. And in those days, all of these founders had co-founders that they lent on for all the reasons I just mentioned. So I think it's always important to remember that when you're starting a company, and wondering whether you should have a co-founder or not.

Okay, so hopefully, I've convinced you that you really do want a co-founder when you're starting a company. But what if you're really keen to get started in a company right now, and you don't have a co-founder that immediately available, or someone that you can bring on board? Should you wait to get a great co-founder before you start a company? Or should you just go ahead and get started? Well, I think the default answer is that you should wait because of all the reasons I just mentioned, all the benefits that you get from having a co-founder. But Y Combinator has funded single founders, and we have done so successfully. So I've noticed that there are some exceptions to this rule and they tend to follow a particular pattern. And that pattern is that the single founders, those who start company by themselves, has sort of two things that are true.

So one is they have an idea that they have incredibly high conviction about either because they're solving a personal problem for themselves. So there really no solution is necessary. Or they're a domain expert, they're working in a field where they know for sure the sort of technology that's missing, where the customers might be. So there's all of that because they have such conviction in the idea that they don't need a co-founder to convince them that this is a good idea to get started on. They're ready to go.

The second condition is that those single founders, they are able to make progress on that idea without a co-founder, in the short time at least. And that almost always means that they're technical, or at least technical enough to be able to build the first version of the product so they can show it to potential investors, or maybe even to potential co-founders who may want to join the company. And that second point is something I've noticed that the best single founders are also able to do is not only are they tremendously productive in building product and talking to users themselves, they're also able to run a great background search for co-founders and keep their eyes open. And if the opportunity arises, bring on a great co-founder. And I think the best example I can think of here would be Drew Houston of Dropbox.

So Drew applied Y Combinator way, way back now, in 2007. He had a really solid idea for building Dropbox, because he'd already felt the pain of losing his own files. So he knew for sure, there was a better solution to build. But he didn't have a co-founder. And so Paul Graham, the Y Combinator founder, messaged him back saying, "We love your application, you're great, the idea's great, but we really won't fund you without a co-founder. So come back to us when we have one." And Drew kind of went away, continued building the Dropbox prototype, while also looking for co-founders and found Arasha, who would be later the Dropbox CTO and his co-founder. And he applied again, and [inaudible 00:06:34] And now Dropbox is obviously a tremendously successful company.

So that's kind of what I'd ask you to bear in mind is, if you're really keen to get a startup right now, but you don't have a co-founder, ask yourself like, do you have absolute high conviction in this idea, you know sure that this is the idea that we want to work on? There's no other ideas that you'd be open to? And can you really make progress without having a co-founder? And if those things are true, sure. Go ahead and give it a shot. But if not, I'd really suggest you wait until you do have a co-founder to start a company.

So when you're thinking about bringing on a co-founder, what should you be looking for in them? Well, I actually think the single most important thing to know about someone before you start a company with them is how do they handle stress. Sort of second most important is how well are they going to help you handle stress. And the reason I say that is startups are very incredibly stressful, intense experience, as I mentioned before. And a great co-founder should be able to support you through those and help you through those. Because if you're determined and motivated, enjoy working together, you'll keep working on this startup for a long period of time. And that's usually what it takes to build a really successful company. So you really don't want to start a company with someone that you don't know particularly well. Because even if you've spent time with them in social events, or you hung out together a little bit, you don't really have insight into how they're going to respond to pressure and stress. And are they someone that's going to stick around when things are tough? And are they someone that's going to help you want to stick around when things are tough?

So the best people to start companies with are always people that you've got some sort of personal experiences, where you kind of know the character and how they're going to respond to those tough situations. And that usually means there's someone, a close friend, or someone that you've worked with, under stressful conditions. So I'd certainly recommend that you be on the lookout and think about that when you're considering co-founders. The second thing I think you really want to look for is understanding the goals and values someone has for starting a company or wanting to do a startup. And honestly, I think when I was younger, I used to think of some goals and values as being sort of fuzzy terms. I didn't need them too much. But over time, I realized, really what they mean is understanding the motivations someone has for doing what they do. And in this context, I think it's really important to talk with someone, even if you know them very well, about why they want to do a startup, what are they hoping for? And the kinds of things that can come out are avoiding conflicting goals, right.

So for example, let's say that you really want to build a high-growth, high-intensity, high-risk startup and you want to push forward, you want to raise venture capital, you want to hire a bunch of people, you want to just really go for it. And your goal is to take the company public and you're okay kind of taking lots of risks along the way to get that. That's a totally fine set of motivations, it's a very common set of motivations for startup founders. But let's say your co-founder prefers to take kind of a slow and steady approach. Maybe they're more motivated by building great software for a small group of people. And they will be totally fine if you just made enough revenue to pay yourselves good salaries and just grew a little bit every year. That's also a completely fine set of motivations for wanting to start a company. But the two motivations there aren't compatible with each other and they'll lead to inevitable conflict.

So what I'd suggest is make sure that you have this conversation. And it's not a perfect predictor, because people's goals and ambitions for a startup change over time. I've seen people start companies because, honestly, they just wanted to get rich. And their hope was that they would be able to sell the company in two to three years for a good amount to a bigger company. But they got two to three years into the company, and they loved it so much, they got so excited by the challenge that they kept working on it, and they're still working on it a decade later. So that's totally fine. I'm not saying that having this conversation means you're gonna know for sure whether your goals and values are aligned over the next decade, which is how long it usually takes if a startup is successful, but at least having the conversation gives you a better chance of finding a co-founder who you're aligned with around a high level important stuff.

Now, as you're probably wondering, I'm talking about what you should look for in co-founders, and I haven't mentioned the obvious thing, which is, what skills do they have. So it's obviously really important to have a co-founder who has the right sort of skills to help you grow the company. And usually that means someone who's got complementary set of skills to you, right? So if you're really great at sales, talking to users, getting customers, ideally, you'd have a co-founder who's really great at building product, and writing code, and building software, because the two of you can divide and conquer and get a lot done. Why do you think that's really important? I don't think it's one you should overly fixate it. All right. So more important than anything is just working with someone that you like working with and you trust. And so if sort of the person best fits that description doesn't necessarily have the perfect set of complementary skills, tools, I think that's fine, you should still bring them on as a co-founder. And then you can start hiring people as you need, and make enough progress in the company to get investment, you can hire people to kind of fill in the skills gaps, and that's okay.

Another point I'd just make on this is, when you are trying to see if someone's got complementary skills to you, don't go too much into the details of how well do their skills map onto this specific idea you're working on right now. So a common example of this we see sometimes is someone's considering bringing on a technical co-founder. And they want to build an iPhone app. But the co-founder, even though they know them, they trust them, they've worked with him before, that co-founder isn't necessarily an iPhone app developer, they haven't built iPhone apps in the past. That's not a reason to rule someone out as a co-founder, right. What does matter is that they're willing to learn what they need to learn. So if they're not an iPhone developer, they're willing to learn how to do that. And particularly, they're willing to learn things that maybe aren't glamorous, like startups are often just a grind of doing a lot of boring work to get the thing going. And so long as you have a co-founder who's okay with that, it's totally fine if they don't have the perfect set of skillsets. So don't rule someone out who's potentially a great co-founder because they don't have this checklist of specific skills you're looking for. But do make sure you count them in if it's someone that you trust, you like working with, you've got a good sense of how they're going to handle the stress and pressure of the startup journey.

So where should you look for to find co-founders? Well, the answer here is a little obvious. It's to start with the people you already know. So ideally, your friends and colleagues, and kind of ironically, the best time to find a co-founder are when you're not actually necessarily looking for a co-founder to start a company with right now. What I mean by that is, if I were going giving myself advice 10, 15 years ago, what I would say is, rather than sort of trying to pick a startup idea, and go and find co-founders to work on with it, I would suggest that I just look for people to do projects with. So if you're in school, look around, see who's in your class, who's in school, and like, identify people that you think would be cool to work on a project. And this project doesn't have to be a takeover the world idea of a company, just somebody you find interesting. Like maybe you're into games, and you want to build a cool game together. The thing that's awesome about projects is that it's much less scarier and asking for a far lower of commitment if you ask them to work on a project with you than it is to go straight into, "Hey, let's start a company together." Right? So you have sort of a higher chance of people saying yes, if you ask them for this.

And the other thing that's great about projects is you can work on different projects with different people and you can start developing a taste for who do you like? Well, what kinds of personalities? Like what kinds of skills are you actually good at as opposed to what you might think you're good at? And so what kind of complementary skills might you look for in a co-founder. And again, being in school or college is a really ideal time for this because you're surrounded by lots of people who usually have a decent chunk of spare time. And so you can start getting together to work on things that you think are fun. And, again, kind of ironically, although this is I'm suggesting you don't try and start a startup. Projects that you work on in your spare time often tend to be some of the greatest sources for actually finding great startup ideas and building huge companies. Facebook's an obvious example, something that started out as a project while Mark Zuckerberg was an undergrad at Harvard. And now it's turning into one of the biggest companies in the world. But that's not why I'm suggesting you do this. I'm suggesting you can look for people to work on projects with because that's a great way for you to get a sense of what kind of person do you enjoy working with, and what specific type of personality do you work well with.

And this advice also applies if you're not in college or school, maybe if you're working at a company, like look at your coworkers, like, keep a list of people that you think are particularly smart, particularly capable, who impresses you, and start getting to know them better. And ask them if they're up for working on things in the evenings or weekends. That's the kind of personality...the kind of person who is interested in working on evening and weekend projects is the kind of person that's likely to make a great co-founder. I actually remember years ago at Y Combinator startup school, when it was an in-person physical event, we had Phil Libin, the founder of Evernote, there. And he kind of gave a somewhat extreme version of his advice, which was that he sort of years and years before he started a company knew that he wanted to start a company someday. And so he would only make friends with people that he thought could someday be a co-founder. And now, while I think that advice is maybe a little extreme, if you don't just want to be around people who might be co-founders, there is truth to it. Right? So I think this is kind of the thing where if you make this of a conscious effort well before you start a company, it'll probably the best bet for finding a great co-founder.

But let's say you do know for sure that you want to start a company, and you're kind of ready to go, again, right now. How do you start finding co-founders? Well, again, you start in the same place, you start with people that you know. And what I've noticed is an issue people run into here is that they can be really reluctant to just ask people they know to start a company with them. And it's all kind of reasons, like maybe you're worried about how your relationship will change, like maybe you don't value the personal relationship more than the risks of working with someone. And those are fair concerns. But it's not the right optimization for starting a company, you have to make the ask.

So what I'd suggest, the pretty simple algorithm here for finding co-founders, it's make a list of the people that you know, you're closest to that you think would be great co-founders, and start from top to bottom, and ask every single person there to go grab a coffee and talk to them, and ask them if they'll start a company with you and be your co-founder. If they say no, that's totally fine. Say you understand. But like, who would they start a company with and make it very specific. Ask them, "If you were starting a company, who would be sort of your top three or four co-founders that you want to try and convince to work with you?" And ask them for an introduction to each of those people. So your list keeps growing now. You ask the people you know, if they say no, you at least get some more ideas for names. And then you meet with those people. And you ask them and you simply repeat, repeat the same algorithm, ask them if they'd be interested in being a co-founder with you along. And if they say no, ask them who'd they try to recruit. And so this way, you start growing the tree of potential co-founders beyond those people you immediately know, but at least they're still connected via people that you do know. So they're not just sort of completely random strangers.

The final sort of bit of advice, I'd say, for where to look is go out and try and meet people that just have similar interests to you. Right, it kind of sounds a little bit just like how to have a social life. But this is essentially what finding co-founders reduces to. So if you're an engineer, attend, like developer meetups or work on open source projects, or go to hackathons. Do things where others, engineers and builders are hanging out. And you're likely to find some meets. And if you're not technical, if you're interested in those things, you should totally attend those kinds of events too. But maybe also just attend or find people who are interested in the kinds of things you're interested in. Maybe you're interested in economics and finance, and that's kind of the pool of things, or is a pool of interests where you think you'll find a startup idea. Well, make a real effort to go out and meet people that have similar interests. And in these COVID times, there's lots of online groups and communities that you can join. But even in regular times, there's always ways to find people that have similar interests to you. And because if constantly on the lookout for people who might make co-founders, you have a high chance of finding someone who could be a good fit.

So once you found a potential co-founder, how do you test out and know for sure that you both want to start a company together before making the final commitment? Well, it's not a perfect process. And at some point, you just kind of have to make the leap and hope that it will work out. But one way to de-risk it is to allocate a chunk of time where you agreed to kind of work together. And set yourself a deadline by which time you want to have ideally, like a MVP, or a prototype of something built, or you at least want to have gone out and try it out, pitching some customers and convincing them to pay you if you did build a particular product. These are all things you'd usually do when you're signing up with a new company or testing out new idea anyhow. And do that together, and agree that at the end of the time that you've set aside, that you both have an honest conversation, decide, "Do we both enjoy working together on this? And if so, great, let's go ahead and make the leap." And if not, be honest and say, "Hey, let's go our own separate ways."

So making that a little bit more tangible. If you both have the no other commitments, you know, which is pretty uncommon, but sometimes happens if, say, you both graduated college and you didn't go and get a job because you want to start a company, then I'd say treat this like your full time job, right? Say that, "Hey, we're going to set aside a month or three months. And let's just pick idea we're excited about and get as much progress made as we can on building the first version of it, and going out and signing customers." Even if you can't do that full time because you have other commitments, but then do it on evenings and weekends, right. But you'll have to sacrifice some amount of time doing other things in order to actually spend time working together. But the more times, the more hours you can accumulate of working together on the idea, the better sense you'll have for sure if you want to start company or not. Right.

So once you've kind of done that, let's say you've decided that, "Hey, we do want to start the company, and we want to be co-founders," then I think there's two important points you want to make sure that you're in agreement on. First is the equity split, right, like who owns how much of the company. Now, I think the way to think about this is, your sort of default equity allocation should really be 50/50. That's where you want to start from, right, because assuming that nothing's been built yet, you're at the earliest stages of the company, you're both going to make equal contributions, you both want to be equally motivated to work super hard in the company. And all the work is years and years ahead of you. So there is not really too much reason to deviate from a 50/50 equity split early on. However, we have seen different equity arrangements, and they have been successful. And so I kind of think the underlying thing that you're solving for here is making sure that both of you are happy with what the equity arrangement is, and will be motivated to keep working on the company for a long period of time. Right.

And so, again, usually that means 50/50, but let's just say that you have been working on the company for a little bit longer, or you de-risked it somehow by yourself, and you're bringing on what is commonly called a later stage co-founder, then sometimes deviate from 50/50 might make sense. But the thing I would really encourage you to do is not optimize for the short term, right. So just because you made a little bit of progress and the idea by yourself, and you have a great co-founder, and you're sort of thinking, "Hey, maybe I should take 70% interest, just leave them 30%," because you've made progress in the last 6 months, I would encourage you not to do that. Startups are a really long-term game and you win by making the best decision long term. Right. So if you have a great potential co-founder, and even though you made a little bit of progress on the company yourself, if you know that they won't be all in and fully committed to the success of the company unless they're a 50/50 partner, you should do that. You should make them 50/50 equity partner so you can keep them as motivated and get as much out of them as possible.

The second thing I think you really want to decide is who's the CEO. Now, this can sometimes be an uncomfortable conversation. And to be honest, it's actually, I think, a bit of a red flag if it is uncomfortable conversation. And so as far as the actual title itself goes early on in the startup when it's just two or three co-founders, in terms of how it impacts your day to day and how you divide up responsibilities, the title doesn't actually matter. Like early on, you're all going to be doing a little bit of everything, there's like plenty of like unglamorous grunt work to go around. And just because you have a CEO title doesn't mean you get to sort of abscond from them. Right. So practically, it doesn't matter, like, in terms of who does what.

One exception to that might be, if you need to be doing sales, it usually might be good if the CEO is a person, where CEO title is the person talking to customers and users and convincing them because they might feel a little bit more flattered if the CEO is pitching them. And this kind of gets the point of where really the only impact the CEO title has. And that is externally, and I would say specifically for investors. So investors care about seeing that there is sort of a clear leader, and a clear final decision maker or a tiebreaker. And that person should be the CEO. So when you're pitching investors, it's usually better for whoever sort of does most of the talking, whoever is going to be leading those conversations, that that person is the CEO.

And now, where you run into problems, and a very, very common source of co-founder friction we see at Y Combinator is where two people really want to be the CEO. Right. And this can sort of...we can see this in Y Combinator interviews, where you end up with two people who kind of talk over each other, they interrupt each other, they can look at each other with a little bit of content when the other person's answering. These are all really, really bad signs, right. So be honest with yourselves, if you think it's really important to you to be the CEO, and you both feel that way, you're not good co-founders for each other. So just avoid all that pain and heartache and don't start a coming together. You ideally want to start a company with someone who doesn't care about that stuff if you do, or you're both indifferent to it and you'll find picking whoever you feel is best suited to the role for now, even if that changes sometime in the future.

So let's kind of wrap up everything we've talked about. Once you're sure you want a co-founder, which I hope I've convinced you to, once you run the process to find some good candidates to be a co-founder, and you've identified someone that you really do want to start a company with, because you spent a little bit of time working on projects together and testing each other out, so to speak, then you have the conversations around what's the equity split and who's going to be the CEO. Now you're ready to formalize things. And formalizing really means the legal act of incorporating a company, setting up a vesting agreement. This is really important. Vesting means that the shares in the company, we don't all get them at once. They vest over a period of time, and there's very standard templates and documents for this that you should really ensure that you have in place. And then you're pretty much good to go.

And you know, the when exactly should you sort of leap from, "Hey, we're hanging out, working together," to, "Hey, okay, let's like do some paperwork." Not a perfect answer to that, but it's just kind of up to you. Like once you've made the commitment to yourself and each other, that we're gonna make a real go of trying to build a company together, that's kind of the trigger for when you start making things real by getting sort of the legal, corporation and paperwork done. So, that's all the advice I have for how to think about finding the right co-founder and how to make it happen. I hope that helps and good luck.

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How to Find the Right Co-Founder: Co-Founders, Becoming a Founder | Y Combinator

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Since this video was created, we've launched YC Co-Founder Matching. The advice in this video is still correct -- if you have an existing network to search for co-founders, that's a great place to look for a match. But many founders have also found success with our co-founder matching service, so we now recommend you try that in parallel.

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Meeting Co-Founders: What to look for & where to find them | Antler Academy

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Launching a new enterprise-whether it's a tech start-up, a small business, or an initiative within a large corporation-has always been a hit-or-miss proposition. According to the decades-old formula, you write a business plan, pitch it to investors, assemble a team, introduce a product, and start selling as hard as you can. And somewhere in this sequence of events, you'll probably suffer a fatal setback. The odds are not with you: As new research by Harvard Business School's Shikhar Ghosh shows, 75% of all start-ups fail.

But recently an important countervailing force has emerged, one that can make the process of starting a company less risky. It's a methodology called the "lean start-up," and it favors experimentation over elaborate planning, customer feedback over intuition, and iterative design over traditional "big design up front" development. Although the methodology is just a few years old, its concepts-such as "minimum viable product" and "pivoting"-have quickly taken root in the start-up world, and business schools have already begun adapting their curricula to teach them.

The lean start-up movement hasn't gone totally mainstream, however, and we have yet to feel its full impact. In many ways it is roughly where the big data movement was five years ago-consisting mainly of a buzzword that's not yet widely understood, whose implications companies are just beginning to grasp. But as its practices spread, they're turning the conventional wisdom about entrepreneurship on its head. New ventures of all kinds are attempting to improve their chances of success by following its principles of failing fast and continually learning. And despite the methodology's name, in the long term some of its biggest payoffs may be gained by the large companies that embrace it.

In this article I'll offer a brief overview of lean start-up techniques and how they've evolved. Most important, I'll explain how, in combination with other business trends, they could ignite a new entrepreneurial economy.

The Fallacy of the Perfect Business Plan

According to conventional wisdom, the first thing every founder must do is create a business plan-a static document that describes the size of an opportunity, the problem to be solved, and the solution that the new venture will provide. Typically it includes a five-year forecast for income, profits, and cash flow. A business plan is essentially a research exercise written in isolation at a desk before an entrepreneur has even begun to build a product. The assumption is that it's possible to figure out most of the unknowns of a business in advance, before you raise money and actually execute the idea.

Once an entrepreneur with a convincing business plan obtains money from investors, he or she begins developing the product in a similarly insular fashion. Developers invest thousands of man-hours to get it ready for launch, with little if any customer input. Only after building and launching the product does the venture get substantial feedback from customers-when the sales force attempts to sell it. And too often, after months or even years of development, entrepreneurs learn the hard way that customers do not need or want most of the product's features.

The business model canvas lets you look at all nine building blocks of your business on one page. Each component of the business model contains a series of hypotheses that you need to test.

After decades of watching thousands of start-ups follow this standard regimen, we've now learned at least three things:

1. Business plans rarely survive first contact with customers. As the boxer Mike Tyson once said about his opponents' prefight strategies: "Everybody has a plan until they get punched in the mouth."

2. No one besides venture capitalists and the late Soviet Union requires five-year plans to forecast complete unknowns. These plans are generally fiction, and dreaming them up is almost always a waste of time.

3. Start-ups are not smaller versions of large companies. They do not unfold in accordance with master plans. The ones that ultimately succeed go quickly from failure to failure, all the while adapting, iterating on, and improving their initial ideas as they continually learn from customers.

One of the critical differences is that while existing companies execute a business model, start-ups look for one. This distinction is at the heart of the lean start-up approach. It shapes the lean definition of a start-up: a temporary organization designed to search for a repeatable and scalable business model.

The lean method has three key principles:

First, rather than engaging in months of planning and research, entrepreneurs accept that all they have on day one is a series of untested hypotheses-basically, good guesses. So instead of writing an intricate business plan, founders summarize their hypotheses in a framework called a business model canvas. Essentially, this is a diagram of how a company creates value for itself and its customers.

During customer development, a start-up searches for a business model that works. If customer feedback reveals that its business hypotheses are wrong, it either revises them or "pivots" to new hypotheses. Once a model is proven, the start-up starts executing, building a formal organization. Each stage of customer development is iterative: A start-up will probably fail several times before finding the right approach.

1. Founders translate company ideas into business model hypotheses, test assumptions about customers' needs, and then create a "minimum viable product" to try out their proposed solution on customers.

2. Start-up continues to test all other hypotheses and tries to validate customers' interest through early orders or product usage. If there's no interest, the start-up can "pivot" by changing one or more hypotheses.

3. The product is refined enough to sell. Using its proven hypotheses, the start-up builds demand by rapidly ramping up marketing and sales spending, and scales up the business.

4. Business transitions from start-up mode, with a customer development team searching for answers, to functional departments executing its model.

Third, lean start-ups practice something called agile development, which originated in the software industry. Agile development works hand-in-hand with customer development. Unlike typical yearlong product development cycles that presuppose knowledge of customers' problems and product needs, agile development eliminates wasted time and resources by developing the product iteratively and incrementally. It's the process by which start-ups create the minimum viable products they test.

In contrast to traditional product development, in which each stage occurs in linear order and lasts for months, agile development builds products in short, repeated cycles. A start-up produces a "minimum viable product"-containing only critical features-gathers feedback on it from customers, and then starts over with a revised minimum viable product.

When Jorge Heraud and Lee Redden started Blue River Technology, they were students in my class at Stanford. They had a vision of building robotic lawn mowers for commercial spaces. After talking to over 100 customers in 10 weeks, they learned their initial customer target-golf courses-didn't value their solution. But then they began to talk to farmers and found a huge demand for an automated way to kill weeds without chemicals. Filling it became their new product focus, and within 10 weeks Blue River had built and tested a prototype. Nine months later the start-up had obtained more than $3 million in venture funding. The team expected to have a commercial product ready just nine months after that.

Stealth Mode's Declining Popularity

Lean methods are changing the language start-ups use to describe their work. During the dot-com boom, start-ups often operated in "stealth mode" (to avoid alerting potential competitors to a market opportunity), exposing prototypes to customers only during highly orchestrated "beta" tests. The lean start-up methodology makes those concepts obsolete because it holds that in most industries customer feedback matters more than secrecy and that constant feedback yields better results than cadenced unveilings.

Those two fundamental precepts crystallized for me during my career as an entrepreneur. (I've been involved with eight high-tech start-ups, as either a founder or an early employee.) When I shifted into teaching, a decade ago, I came up with the formula for customer development described earlier. By 2003 I was outlining this process in a course at the Haas School of Business at the University of California at Berkeley.

In 2004, I invested in a start-up founded by Eric Ries and Will Harvey and, as a condition of my investment, insisted that they take my course. Eric quickly recognized that waterfall development, the tech industry's traditional, linear product development approach, should be replaced by iterative agile techniques. He also saw similarities between this emerging set of start-up disciplines and the Toyota Production System, which had become known as "lean manufacturing." Eric dubbed the combination of customer development and agile practices the "lean start-up."

The tools were popularized by a series of successful books. In 2003, I wrote The Four Steps to the Epiphany, articulating for the first time that start-ups were not smaller versions of large companies and laying out the customer development process in detail. In 2010, Alexander Osterwalder and Yves Pigneur gave entrepreneurs the standard framework for business model canvases in Business Model Generation. In 2011 Eric published an overview in The Lean Startup. And in 2012 Bob Dorf and I summarized what we'd learned about lean techniques in a step-by-step handbook called The Startup Owner's Manual.

The lean start-up method is now being taught at more than 25 universities and through a popular online course at Udacity.com. In addition, in almost every city around world, you'll find organizations like Startup Weekend introducing the lean method to hundreds of prospective entrepreneurs at a time. At such gatherings a roomful of start-up teams can cycle through half a dozen potential product ideas in a matter of hours. Although it sounds incredible to people who haven't been to one, at these events some businesses are formed on a Friday evening and are generating actual revenue by Sunday afternoon.

Creating an Entrepreneurial, Innovation-Based Economy

While some adherents claim that the lean process can make individual start-ups more successful, I believe that claim is too grandiose. Success is predicated on too many factors for one methodology to guarantee that any single start-up will be a winner. But on the basis of what I've seen at hundreds of start-ups, at programs that teach lean principles, and at established companies that practice them, I can make a more important claim: Using lean methods across a portfolio of start-ups will result in fewer failures than using traditional methods.

The founders of lean start-ups don't begin with a business plan; they begin with the search for a business model. Only after quick rounds of experimentation and feedback reveal a model that works do lean founders focus on execution.

A lower start-up failure rate could have profound economic consequences. Today the forces of disruption, globalization, and regulation are buffeting the economies of every country. Established industries are rapidly shedding jobs, many of which will never return. Employment growth in the 21st century will have to come from new ventures, so we all have a vested interest in fostering an environment that helps them succeed, grow, and hire more workers. The creation of an innovation economy that's driven by the rapid expansion of start-ups has never been more imperative.

In the past, growth in the number of start-ups was constrained by five factors in addition to the failure rate:

1. The high cost of getting the first customer and the even higher cost of getting the product wrong.

2. Long technology development cycles.

3. The limited number of people with an appetite for the risks inherent in founding or working at a start-up.

4. The structure of the venture capital industry, in which a small number of firms each needed to invest big sums in a handful of start-ups to have a chance at significant returns.

5. The concentration of real expertise in how to build start-ups, which in the United States was mostly found in pockets on the East and West coasts. (This is less an issue in Europe and other parts of the world, but even overseas there are geographic entrepreneurial hot spots.)

The lean approach reduces the first two constraints by helping new ventures launch products that customers actually want, far more quickly and cheaply than traditional methods, and the third by making start-ups less risky. And it has emerged at a time when other business and technology trends are likewise breaking down the barriers to start-up formation. The combination of all these forces is altering the entrepreneurial landscape.

Today open source software, like GitHub, and cloud services, such as Amazon Web Services, have slashed the cost of software development from millions of dollars to thousands. Hardware start-ups no longer have to build their own factories, since offshore manufacturers are so easily accessible. Indeed, it's become quite common to see young tech companies that practice the lean start-up methodology offer software products that are simply "bits" delivered over the web or hardware that's built in China within weeks of being formed. Consider Roominate, a start-up designed to inspire girls' confidence and interest in science, technology, engineering, and math. Once its founders had finished testing and iterating on the design of their wired dollhouse kit, they sent the specs off to a contract manufacturer in China. Three weeks later the first products arrived.

Another important trend is the decentralization of access to financing. Venture capital used to be a tight club of formal firms clustered near Silicon Valley, Boston, and New York. In today's entrepreneurial ecosystem, new super angel funds, smaller than the traditional hundred-million-dollar-sized VC fund, can make early-stage investments. Worldwide, hundreds of accelerators, like Y Combinator and TechStars, have begun to formalize seed investments. And crowdsourcing sites like Kickstarter provide another, more democratic method of financing start-ups.

The instantaneous availability of information is also a boon to today's new ventures. Before the internet, new company founders got advice only as often as they could have coffee with experienced investors or entrepreneurs. Today the biggest challenge is sorting through the overwhelming amount of start-up advice they get. The lean concepts provide a framework that helps you differentiate the good from the bad.

Lean start-up techniques were initially designed to create fast-growing tech ventures. But I believe the concepts are equally valid for creating the Main Street small businesses that make up the bulk of the economy. If the entire universe of small business embraced them, I strongly suspect it would increase growth and efficiency, and have a direct and immediate impact on GDP and employment.

There are signs that this may in fact happen. In 2011 the U.S. National Science Foundation began using lean methods to commercialize basic science research in a program called the Innovation Corps. Eleven universities now teach the methods to hundreds of teams of senior research scientists across the United States.

MBA programs are adopting these techniques, too. For years they taught students to apply large-company approaches-such as accounting methods for tracking revenue and cash flow, and organizational theories about managing-to start-ups. Yet start-ups face completely different issues. Now business schools are realizing that new ventures need their own management tools.

As business schools embrace the distinction between management execution and searching for a business model, they're abandoning the business plan as the template for entrepreneurial education. And the business plan competitions that have been a celebrated part of the MBA experience for over a decade are being replaced by business model competitions. (Harvard Business School became the latest to make this switch, in 2012.) Stanford, Harvard, Berkeley, and Columbia are leading the charge and embracing the lean start-up curriculum. My Lean LaunchPad course for educators is now training over 250 college and university instructors a year.

A New Strategy for the 21st-Century Corporation

It's already becoming clear that lean start-up practices are not just for young tech ventures.

Corporations have spent the past 20 years increasing their efficiency by driving down costs. But simply focusing on improving existing business models is not enough anymore. Almost every large company understands that it also needs to deal with ever-increasing external threats by continually innovating. To ensure their survival and growth, corporations need to keep inventing new business models. This challenge requires entirely new organizational structures and skills.

Over the years managerial experts such as Clayton Christensen, Rita McGrath, Vijay Govindarajan, Henry Chesbrough, Ian MacMillan, Alexander Osterwalder, and Eric von Hippel have advanced the thinking on how large companies can improve their innovation processes. During the past three years, however, we have seen large companies, including General Electric, Qualcomm, and Intuit, begin to implement the lean start-up methodology.

GE's Energy Storage division, for instance, is using the approach to transform the way it innovates. In 2010 Prescott Logan, the general manager of the division, recognized that a new battery developed by the unit had the potential to disrupt the industry. Instead of preparing to build a factory, scale up production, and launch the new offering (ultimately named Durathon) as a traditional product extension, Logan applied lean techniques. He started searching for a business model and engaging in customer discovery. He and his team met face-to-face with dozens of global prospects to explore potential new markets and applications. These weren't sales calls: The team members left their PowerPoint slides behind and listened to customers' issues and frustrations with the battery status quo. They dug deep to learn how customers bought industrial batteries, how often they used them, and the operating conditions. With this feedback, they made a major shift in their customer focus. They eliminated one of their initial target segments, data centers, and discovered a new one-utilities. In addition, they narrowed the broad customer segment of "telecom" to cell phone providers in developing countries with unreliable electric grids. Eventually GE invested $100 million to build a world-class battery manufacturing facility in Schenectady, New York, which it opened in 2012. According to press reports, demand for the new batteries is so high that GE is already running a backlog of orders.The first hundred years of management education focused on building strategies and tools that formalized execution and efficiency for existing businesses. Now, we have the first set of tools for searching for new business models as we launch start-up ventures. It also happens to have arrived just in time to help existing companies deal with the forces of continual disruption. In the 21st century those forces will make people in every kind of organization-start-ups, small businesses, corporations, and government-feel the pressure of rapid change. The lean start-up approach will help them meet it head-on, innovate rapidly, and transform business as we know it.

A version of this article appeared in the May 2013 issue of Harvard Business Review.

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Why the Lean Start-Up Changes Everything

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In the past few years, a new methodology for launching companies, called "the lean start-up," has begun to replace the old regimen. Traditionally, a venture's founders would write a business plan, complete with a five-year forecast, use it to raise money, and then go into "stealth mode" to develop their offerings, all without getting much feedback from the people they intended to sell to.

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This article delves into the Lean Startup approach, focusing on strategies to test and validate business assumptions efficiently without extensive resource expenditure.

Provides practical methods for identifying and testing key business assumptions early in the startup journey.

Highlights techniques for gathering actionable feedback from early adopters to inform decision-making.

It guides entrepreneurs in conducting low-cost experiments to validate hypotheses and reduce risks.

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Lean startup: How to test and validate your assumptions with minimal resources - FasterCapital

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In this section, we will delve into the core principles and concepts of the Lean Startup Methodology. This approach, popularized by Eric Ries, aims to help entrepreneurs and startups validate their assumptions and build successful businesses with limited resources. 1. Customer-Centric Approach: At…

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This article explores the concepts of value and growth hypotheses within the Lean Startup framework, offering insights into validating startup ideas effectively.

Clarifies the distinction between value hypothesis (ensuring the product delivers value to customers) and growth hypothesis (strategies for scaling the business).

Provides recommendations and questions for creating and testing robust hypotheses.

Assists founders in focusing on critical aspects of their business models to ensure viability and scalability.

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Value Hypothesis & Growth Hypothesis: lean startup validation

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What are the value hypothesis and growth hypothesis? We will dig into Lean Startup Validation process and review value & growth assumptions

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SEMAFOR: What is a Semaform, anyway? And why should you care?

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SEMAFOR: What is a Semaform, anyway? And why should you care?

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What is a Semaform, anyway? And why should you care?

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Semafor is redesigning the atomic unit of written news — the article — to bring more transparency, broader viewpoints, and distilled insights to readers.

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How to Identify Customer Pain Points and Address Them to Product Growth (Article)

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How to Identify Customer Pain Points and Address Them to Product Growth (Article)

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This industry blog explores methods for identifying customer pain points, such as in-app surveys, interviews, and analyzing customer journeys. Userpilot is a trusted platform specializing in user experience and product adoption, making this source reliable. Startups can use these strategies to gather real-time customer feedback, refine their products, and enhance user experience based on direct customer concerns.

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Thoughts about Product Adoption, User Onboarding and Good UX | Userpilot Blog

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How to Identify Customer Pain Points and Adress Them to Product Growth

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Frustrated customers? This guide explores how to identify customer pain points to create a product that solves real problems.

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Salesforce - Customer Pain Points: How to Identify and Address Them (Blog)

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Salesforce - Customer Pain Points: How to Identify and Address Them (Blog)

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This corporate blog introduces the ‘Four Fs’ framework, emphasizing empathy in understanding and addressing customer pain points. As a leading CRM company, Salesforce is a highly credible source in customer relations and business strategy. Startups can use this structured approach to build strong customer relationships, enhance customer satisfaction, and tailor solutions to meet customer needs effectively.

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Customer Pain Points: How to Identify and Address Them

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Customer pain points happen when a customer is frustrated. Explore strategies to overcome them and deliver great buying experiences.

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WordStream - Pain Points: How to Find & Solve Customer Problems" (Article)

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WordStream - Pain Points: How to Find & Solve Customer Problems" (Article)

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This article provides an in-depth understanding of customer pain points, including real-world examples and strategies for positioning a business as a solution. WordStream is a well-known digital marketing platform that offers data-driven insights, ensuring credibility. Startups can use this information to develop effective marketing strategies, position their offerings as problem solvers, and improve customer engagement.

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Pain Points: How to Find & Solve Customer Problems

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Marketers always seem to be talking about pain points - but what are they? Learn everything you need to know about discovering your customer pain points and putting them to work.

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Sam Altman: “Most people give up on things way too early”

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Sam Altman: “Most people give up on things way too early”

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Curated the top 1% of startup advice from the world’s best founders and investors.

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Sam Altman: “Most people give up on things way too early”

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I'm going to start by acknowledging that I've been wrong about something for years. For two decades, I've said, "We need to understand emotion so we can recognize it in ourselves and others." Without exaggeration, I've said this thousands of times, and I've heard it from other researchers at least that much. Well, let me go on the record right now: I no longer believe that we can recognize emotion in other people, regardless of how well we understand human emotion and experience or how much language we have.

Why have I stopped believing that we can recognize emotion in other people? Two reasons:

Too many emotions and experiences present the exact same way. There's no way to know through observation if your tears come from grief, despair, hopelessness, or resentment, just to name a few. Absolutely no way.

While research shows that there are some universal facial expressions for a small number of emotions, how we express what we're feeling and experiencing can be as unique as we are.

So how do we know what other people are feeling? We ask them. It's only then that we are able to connect with the grounded confidence to engage and the courage to walk alongside. When they tell us what they're feeling, what happened, what they fear or desire, we listen and we become trusted stewards of their stories.

Story stewardship means honoring the sacred nature of story-the ones we share and the ones we hear-and knowing that we've been entrusted with something valuable or that we have something valuable that we should treat with respect and care. We are good stewards of the stories we tell by trusting them to people who have earned the right to hear them, and telling them only when we are ready. We are good stewards of the stories we hear by listening, being curious, affirming, and believing people when they tell us how they experienced something.

This is a good moment to pause and introduce the Buddhist concept of the near enemy. University of Texas researcher Kristin Neff writes that the concept refers to "a state of mind that appears similar to the desired state-hence it is 'near'-but actually undermines it, which is why it's an enemy." "Far enemies," on the other hand, are the opposite of emotions or experiences. What's interesting is that near enemies are often greater threats than far enemies because they're more difficult to recognize.

The near enemy of practicing story stewardship is performing connection while driving disconnection. Performative connection means that we're acting interested or invested, but there's more going on under the surface that's really driving disconnection and separation. The issues that most of us struggle with are being the knower, advice-giving, and problem-solving. Problem-solving is tough because some people do want help. The best story stewardship in these moments is just to say, "I'm grateful that you're sharing this with me. What does support look like? I can listen and be with you, I can help problem-solve, or whatever else you need. You tell me."

The greatest threats to story stewardship are the two near enemies of building narrative trust: narrative tap-out and narrative takeover. Rather than building trust by acknowledging, affirming, and believing, we shut people down when we experience discomfort or disinterest, or when we take over the narrative and make it about us or our perception of what happened.

Narrative tap-outs can range from subtle disinterest to complete shutdowns. If we had thought bubbles, they'd say, "This is too uncomfortable," or "I don't care enough about you to care about this," or "I can't take this on right now." If the reason we're tapping out is the latter, it's so much better to say that than to diminish someone's story.

It sounds weird, but we can tap out of sharing our own stories too. Often this is about a lack of grounded confidence that our stories matter or a lack of self-trust about when and how we share them. Tapping out of stewarding someone's story can feel like betrayal, and tapping out of sharing our own story feels like betraying ourselves.

Narrative takeover is a huge problem in our world. It impacts one-on-one conversations and cultural conversations. Rather than being good stewards of a story, we hijack the story and center ourselves. That centering takes many different shapes, including shifting the focus to us, questioning or not believing what someone is sharing because it's different than our lived experience, or diminishing the importance of an experience because it makes us feel uncomfortable or, worse, complicit.

When we reject the truth of someone's story-the ultimate failure of story stewardship-it's often because we've stealthily centered ourselves in their story, and the narrative takeover is about protecting our ego, behavior, or privilege. The less diverse our lived experiences, the more likely we are to find ourselves struggling with narrative takeover or narrative tap-out.

A cultural example of narrative takeover is the Black Lives Matter movement. This is a life-affirming accountability movement to call attention to the violence being perpetrated against Black people. But rather than listening, learning, and believing the stories of injustice, systemic racism, and pain, groups of white people centered themselves with "all lives matter" and "blue lives matter." There was never a narrative of "white lives and police lives don't matter" in this movement. This was an attempt to, once again, decenter Black lives and take over the narrative.

Like empathy, story stewardship is not walking in someone else's shoes, it's being curious and building narrative trust as they tell you about the experience of being in their own shoes. It's about believing people when they tell you what an experience meant to them. The far enemy of narrative trust is fueling narrative distrust and diminishing the humanity of others and ourselves. Why ourselves? Because when we are reckless with people's stories, we diminish our own humanity.

Stay awkward, brave, and kind.

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I'm going to start by acknowledging that I've been wrong about something for years. For two decades, I've said, "We need to understand emotion so we can recognize it in ourselves and others." Without exaggeration, I've said this thousands of times, and I've heard it from other researchers at least that much.

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The $1 hotdog that gave this very fancy restaurant a new true north.

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The Secret Ingredients of Great Hospitality | TED Talk

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The Secret Ingredients of Great Hospitality | TED Talk

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In business, we often believe success comes from efficiency, strategy, and innovation. While all of those matter, what if I told you that a $1 hotdog helped turn a restaurant into the #1 in the world?

Let me introduce you to unreasonable hospitality, the principle that transforms ordinary transactions into extraordinary experiences.

A lesson from Eleven Madison Park

Will Guidara, former co-owner of Eleven Madison Park, took a struggling NYC brasserie and turned it into the world’s best restaurant. It wasn’t just the flawless service or the meticulously plated dishes, it was something far deeper.

One afternoon, during a packed lunch service, Guidara was helping clear plates when he overheard a table of four foodies reminiscing about their New York trip. They had dined at all the top restaurants, but one regret lingered:

"The only thing we didn’t get to try was a New York City hotdog."

At that moment, a light bulb went off.

Guidara ran out of the restaurant, down the street, and bought a hotdog from a cart. Then, he rushed back to the kitchen and convinced the chef—who thought he had lost his mind—to plate it as elegantly as any fine-dining dish. The hotdog was sliced into four perfect pieces, garnished with swirls of mustard, ketchup, and delicate quenelles of sauerkraut and relish.

Before serving their final luxurious duck course, the waiter placed the hotdog in front of them.

"To make sure you don’t leave New York with any culinary regrets, a New York City hotdog."

They lost their minds.

Why it matters for you

That $1 hotdog created a $1,000 experience. It wasn’t about cost, it was about care, creativity, and connection.

Guidara called this approach unreasonable hospitality—the idea that going above and beyond in unexpected ways builds unshakable customer loyalty, brand differentiation, and long-term success.

Whether you’re launching a startup, growing a brand, or refining a service, ask yourself:

Are you just meeting expectations, or are you creating moments that people will never forget?

The businesses that succeed aren’t just the ones with the best products. They’re the ones that make people feel something.

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The Secret Ingredients of Great Hospitality | Will Guidara | TED

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Study your market size, growth trends, and customer behavior.
Analyze competitors to uncover gaps and unique positioning opportunities.
Use SWOT and other tools to assess your competitive advantage.

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Market research blends consumer behavior and economic trends to confirm and improve your business idea.

It's crucial to understand your consumer base from the outset. Market research lets you reduce risks even while your business is still just a gleam in your eye.

Gather demographic information to better understand opportunities and limitations for gaining customers. This could include population data on age, wealth, family, interests, or anything else that's relevant for your business.

Then answer the following questions to get a good sense of your market:

Demand: Is there a desire for your product or service?

Market size: How many people would be interested in your offering?

Economic indicators: What is the income range and employment rate?

Location: Where do your customers live and where can your business reach?

Market saturation: How many similar options are already available to consumers?

Pricing: What do potential customers pay for these alternatives?

You'll also want to keep up with the latest small business trends. It's important to gain a sense of the specific market share that will impact your profits.

You can do market research using existing sources, or you can do the research yourself and go direct to consumers.

Existing sources can save you a lot of time and energy, but the information might not be as specific to your audience as you'd like. Use it to answer questions that are both general and quantifiable, like industry trends, demographics, and household incomes. Check online or start with our list of market research resources.

Asking consumers yourself can give you a nuanced understanding of your specific target audience. But, direct research can be time consuming and expensive. Use it to answer questions about your specific business or customers, like reactions to your logo, improvements you could make to buying experience, and where customers might go instead of your business.

Here are a few methods you can use to do direct research:

For guidance on deciding which methods are worthwhile for your small business, the U.S. Small Business Administration (SBA) provides counseling services through our resource partner network.

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Market research and competitive analysis

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Market research blends consumer behavior and economic trends to confirm and improve your business idea. It's crucial to understand your consumer base from the outset. Market research lets you reduce risks even while your business is still just a gleam in your eye. Gather demographic information to better understand opportunities and limitations for gaining customers.

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Harvard Business School Online – “How to Do Market Research for a Startup”

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Harvard Business School Online – “How to Do Market Research for a Startup”

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Harvard Business School Online is a respected educational resource, and this article provides a detailed, practical approach to market research for startups. It is beneficial because it is written by business experts and offers actionable steps to understand the target market, which is essential for any new business trying to compete effectively.

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With every innovative product idea comes the pressing question: "Will people want to buy it?"

As an entrepreneur with a big idea, what's the best way to determine how potential customers will react to your product? Conducting market research can provide the data needed to decide whether your product fits your target market.

Before launching a new venture, you should understand market research. Here's how to conduct market research for a startup and why it's important.

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What Is Market Research?

Market research is the process of gathering information about customers and the market as a whole to determine a product or service's viability. Market research includes interviews, surveys, focus groups, and industry data analyses.

The goal of market research is to better understand potential customers, how well your product or service fits their needs, and how it compares to competitors' offerings.

There are two types of research you can conduct: primary and secondary.

Primary research requires collecting data to learn about your specific customers or target market segment. It's useful for creating buyer personas, segmenting your market, and improving your product to cater to customers' needs.

Secondary research is conducted using data you didn't collect yourself. Industry reports, public databases, and other companies' proprietary data can be used to gain insights into your target market segment and industry.

Why Is Market Research Important for Entrepreneurs?

Before launching your venture, it's wise to conduct market research to ensure your product or service will be well received. Feedback from people who fall into your target demographics can be invaluable as you iterate on and improve your product.

Performing market research can also help you determine a pricing strategy by gauging customers' willingness to pay for your product. Additionally, it can improve the user experience by revealing what features matter most to potential customers.

When assessing which startups to fund, investors place heavy importance on thorough market research that indicates promising potential. Providing tangible proof that your product fulfills a market need and demonstrating you've taken the time to iterate on and improve it signal that your startup could be a worthwhile investment.

How to Talk to Potential Investors: 5 Tips

How to Do Market Research for a Startup

1. Form Hypotheses

What questions do you aim to answer through market research? Using those questions, you can make predictions called hypotheses. Defining your hypotheses upfront can help guide your approach to selecting subjects, researching questions, and testing designs.

An example question you may ask is: "How much are people in my target demographic willing to pay for the current version of my product?" Your hypothesis could be: "If my product contains all its current features, customers will be willing to pay $500 for it."

Another example question you may ask is: "What's the user's biggest pain point, and is my product meeting their needs?" Your hypothesis could be: "I believe the user's biggest pain point is needing an easy, unintimidating way to learn basic car maintenance, and I predict that my product meets that need."

You can and should test multiple hypotheses, but try to select no more than a few per test, so the research stays focused.

A Beginner's Guide to Hypothesis Testing in Business

2. Select the Type of Research Needed to Test Hypotheses

Once you've formed your hypotheses, determine which type of research to conduct.

If your hypotheses focus on determining your startup's place in the broader market, start with secondary research. This can include using existing data to determine market size, how much of that market your startup could reasonably own, who your biggest competitors are, and how your brand and product compare to theirs.

If your hypotheses require primary research, decide which data collection method best fits your needs. These can include one-on-one interviews, surveys, focus groups, and polls. Primary research allows you to gather insights into customer satisfaction and loyalty, brand awareness and perception, and real-time product usability.

3. Identify Target Demographics and Recruit Subjects

To gather meaningful insights, you need to understand your target demographic. Do you aim to cater to working parents, young athletes, or pet owners? Determine the type of person who can benefit from your product.

If you conduct primary research, you need to recruit subjects. This can be done in several ways, including:

Word of mouth: The simplest but least reliable way to recruit participants is by word of mouth. Ask people you know to refer others to be research subjects, then screen them to confirm they fit your target demographic.

Promoting the study on social media: Many social media platforms enable you to show an ad to people who fall into specific demographic categories or have certain interests. This allows you to get the word out to a large number of people who qualify.

Hiring a third-party market research company: Some companies provide full market research services and recruit participants and conduct research on your behalf.

However you recruit subjects, ensure they take a screener survey beforehand, which allows you to determine whether they fit the specific demographic you want to study or have a trait that eliminates them from the research pool. It also provides demographic data-such as age and race-that enables you to select a diverse subset of your target demographic.

In addition, you can offer compensation to boost participation, such as money, meal vouchers, gift cards, or early access to your product. Make it clear that compensation is in appreciation for subjects' time and honest feedback.

4. Conduct the Research

Once you've determined the type of research and target demographic necessary to test your hypotheses, conduct your research. To reduce bias, enlist someone unfamiliar with your hypotheses to perform interviews or lead focus groups.

Ask questions based on your audience and hypotheses. For instance, if you're aiming to test existing customers' purchase motivations, you may ask: "What challenge were you trying to solve when you first bought the product?"

If examining brand perception, your audience should consist of potential customers who don't yet know your brand. Present them with a list of competitor logos-with yours in the mix-and ask them to rank the brands by perceived reliability.

While the questions you ask are vehicles to prove or disprove hypotheses, ensure they don't lead subjects in one direction. To craft unbiased research questions, use neutral language and vary the order of options in multiple-choice questions. This can keep subjects from selecting the same option each time if they sense the third option is always mapped to a certain outcome. It also helps account for primacy bias (the tendency to select the first option in a list) and recency bias (the tendency to select the final option in a list).

Once you've collected data, ensure it's organized efficiently and securely so you can protect subjects' identities.

3 Examples of Bad Survey Questions and How to Fix Them

5. Gather Insights and Determine Action Items

After you've organized your data, analyze it to extract actionable insights. While some of the data will be qualitative rather than quantitative, you can detect patterns in responses to make it quantifiable. For instance, noting that 15 of 20 subjects mentioned feeling overwhelmed when attempting to assemble your product.

Once you've analyzed the data and communicated emerging trends using data visualizations, outline action items.

If the majority of users in your target demographic reported feeling overwhelmed while assembling your product, action items might include:

Creating different versions of assembly instructions to test with other groups, varying diagrams and instructional language

Researching instruction manual best practices

Each round of market research can offer more information about how your product is perceived and experienced by potential users.

Market Research as an Ongoing Endeavor

While it's useful to conduct market research before launching your product, you should revisit your hypotheses and form new ones over the course of building your venture.

By conducting market research with each version of your product, you can gradually improve it and ensure it continues to fit target customers' needs.
Are you interested in bolstering your entrepreneurship skills? Explore our four-week online course Entrepreneurship Essentials and our other entrepreneurship and innovation courses to learn to speak the language of the startup world.

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Segment your market into specific groups based on needs, behavior, and demographics.
Tailor messaging and features for each segment’s unique problems.
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Customer segmentation is one of the best ways to reach different sections of your customers at the right time and with the right information.

Done well, this helps you to understand your customers better, meet their unique needs, and grow your business.

In this post, you'll learn about customer segmentation and how you can use it to improve your business.

Jump to:

You're probably already familiar with customer segmentation in your personal life. For example, you might tell everyone in your family about a promotion with a group text before you email your co-workers.

The same goes for your customers. They each have unique needs, traits, pain points, and expectations for your business.

And, sometimes, the most effective way to communicate with your target customers is by making them part of a group.

Why segment customers?

Segmenting customers goes beyond putting people into categories. When you segment customers, you learn about them deeply and use that info to create content for each segment's unique needs and challenges.

Segmenting can improve your customer service and support efforts and help internal teams prepare for challenges different groups are likely to experience.

It also allows you to communicate with segments of customers through preferred channels or platforms, and help you find new opportunities for products, support, and service efficiently.

Let's go over some common benefits of customer segmentation.

1. Get a competitive marketing edge.

"If you deliver a personalized customer experience via email or CRM, you'll always have an edge over competitors that use a one-size-fits-all approach," says Michael Maximoff, Co-Founder at Belkins.

"Take Driveline, for example. This is a retail brand that we helped generate leads. To get the best leads, we split Driveline's ideal customers into two segments. The first: retailers. The second: brands."

He continues, "We then drilled down again and divided each segment into previous and new clients before sending them customized messages. The outcome of this customer segmentation process was the closing of a $1.5M deal."

2. Target customers better with paid campaigns.

Whether you're running PPC, LinkedIn, or Facebook ads, optimizing your campaign gets you a better return on your ad spend. This is one area where customer segmentation shines.

"With paid marketing on social media, we've realized that we need to know our audience demographic and their interests. By segmenting customers into different groups, we can identify the unique needs, preferences, and behaviors of each segment," says Adam Wright, Founder of Human Tonik.

Segmentation lets you engage the right customers with relevant ads, which can lead to higher click-through rates, conversions, and sales. This also ensures you spend more effort on customers that provide a high return while lowering your ad spend for less profitable customer segments.

3. Improve your email nurture campaigns.

What appeals to Gen Z might be unappealing to millennials. The same applies to entry-level workers versus directors in the same field. These are all different segments of people with unique ways of thinking and know-how.

Understanding these customers lets you segment them in your email list so you can send relevant nurture emails that endear them to your brand.

Corey Donovan, President of Alta Technologies, says this shows customers you want to cater to their needs rather than clutter their inboxes.

Now that you understand what customer segmentation is and why it's a process worth investing time in, let's cover the most common types of segmentation.

Although this list doesn't cover every type of customer segmentation, you should have a good starting point to establish your customer segmentation model.

1. Demographic Segmentation

Demographic segmentation divides customers into groups based on major life circumstances. Examples of segmentation by demographic include age, gender, income, education, and marital status.

Ecommerce and fashion are two popular industries where demographic segmentation holds sway.

For instance, if a fashion business owner sells to people in the straight and LGBTQ communities, segmenting customers by gender will help them send relevant product recommendations and messages to each group.

Done right, this helps you get more loyal customers who'd stick with you for a long time.

2. Geographic Segmentation

Segmentation by geography divides customers based on location, including country, state, city, and town.

This segmentation makes sense when you run a business with at least two locations in the same town, city, state, or country, or if you ship goods to customers in different geographical regions.

Segmenting customers based on their geography lets you tailor your messaging so you speak like them and speak to them.

By using their slang or stating things they relate with in their locality, they see the thought you put into your content and instantly know that your message is specifically for them.

3. Psychographic Segmentation

Examples of segmentation by psychographics include personality, attitude, values, and interests. You can use this segmentation model if you offer multiple services.

For instance, a marketer who writes content about SEO, content strategy, and copywriting could segment their audience based on these interests.

4. Technographic Segmentation

Examples of segmentation by technographics include mobile use, desktop use, apps, and software.

What technology people use is helpful to know, whether it's just for your online marketing or for SaaS businesses that rely entirely on technology to deliver their service.

An excellent example is the Hubspot software. When users subscribe to our products - Marketing, Sales, Customer Service, CMS, and Operations - we instantly know their priorities and can send them relevant offers and content.

5. Behavioral Segmentation

Behavioral segmentation focuses on customer behaviors in relation to your brand.

Examples of segmentation by customer behavior include tendencies and frequent actions, feature or product use, and habits.

This segmentation model is highly relevant when you're running PPC or YouTube ads. It ensures you don't consume your ad spend on customer segments that aren't a fit.

6. Needs-based Segmentation

Examples of segmentation by customer needs include product or service must-haves and needs of specific customer groups. Take a company like AppSumo, for example. They don't only sell software. They market courses.

While a founder may need software, a copywriter may not. Meaning, if AppSumo sends the same email to both a founder and a copywriter, it might not resonate with one group because their needs differ.

7. Value-based Segmentation

Examples of segmentation by customer values include the economic value of specific customer groups for the business. Use this customer segmentation model if you sell products or services with high and low pricing.

Let's look at some customer segmentation examples to show how you can apply these models to your segmentation strategy.

Demographic Customer Segmentation

1. Gender

Many businesses start with gender segments when building a customer segmentation program. While this is a quick way to start, ensure this segment is inclusive. Have plenty of gender categories to ensure you accurately segment customers into groups where they feel comfortable.

2. Age

Age is another common factor that businesses use to segment customers. After all, age tells you a lot about the person interacting with your business. For example, a 30-year-old single person living in Boston won't have the same budgets and interests as a 70-year-old retiree in Oklahoma.

3. Occupation

Occupation can reveal a lot about customers' interests and availability. It can also give you an idea of their budget and annual income - especially if they don't share this information with you directly.

4. Household Income

Household income gives you an idea of how much money a customer can potentially spend with your business. Keep in mind that income isn't the only factor at play here. Location, occupation, family structure, and more will also influence a customer's budget.

5. Marital Status

If marital status is important for understanding your customer base, then you can segment buyers in a few different ways: whether they have a spouse, are in a relationship, or otherwise.

Collecting this data will vary based on your organization's marketing strategy.

Geographic Customer Segmentation

6. Location

Location is important to make your marketing strategy feel more personalized by region. First, it tells you where your customers are and how you can find them.

This data also tells you how you should approach certain segments if they live in different areas. For example, how you market to people in New York City will likely differ from how you market to people from Walla Walla, Washington.

7. Preferred Language

It's important to know the language that your customers prefer to speak. This allows you to communicate more clearly and makes it easier for customers to interact with your business.

8. Transportation

Out-of-home advertising is getting more and more advanced. Transportation, for instance, can also present a valuable marketing opportunity for your business.

For instance, if your customers take the subway to work, you can buy ad space on trains and popular subway stations, as well as digital billboards throughout cities.

9. Workspace

Understanding how and where your customers work can be valuable insights depending on your line of business.

Behavioral Customer Segmentation

10. Life Cycle Stage

Life cycle stage attempts to clarify which part of the customer journey a particular buyer is in. Are they a new lead who is ready for a sales conversation? Or are they a loyal customer who's willing to advocate on your business's behalf?

Knowing where the relationship stands between you and your customers can help you form a more effective marketing strategy.

11. Website Activity

Website activity tracks anything your customers do while engaging with your website.

For example, you could segment customers based on the first page they interact with. Or you could segment them based on how many times they've visited your home page or clicked on a certain page element - like a call-to-action.

12. Last Customer Engagement

You can learn a lot about customer relations from the last interaction a customer has with your business. If it was a positive interaction, they might be ready for a specific promotion based on when they are in the buyer journey.

If the interaction was negative, you might want to ping your customer service or success teams to strengthen the relationship.

13. Ecommerce Activity

Like website activity, ecommerce activity refers to actions customers take in your online store.

For instance, abandoned carts are a common customer segmentation choice. You can also segment customers based on the products they've purchased or product pages they've seen but haven't converted on.

Psychographic Customer Segmentation

14. Values

Values are usually harder to identify than demographic information, like age or location. To determine a customer's values, you need to understand their needs thoroughly, possibly through one-to-one interviews or surveys.

From there, you can use this information to empathize with the roadblocks they face when trying to achieve goals. When you can align with the customer in this way, it's easier to see what they value most in a product, service, or brand.

15. Interests

Values are characteristics and actions that customers admire the most. But interests are things that customers enjoy that may not relate to your business.

For example, your customers might have an interest in dogs, so you could partner with a local pet store and run a cross-promotional campaign.

As a bonus, you can foster relationships with adjacent businesses. This lets you reach customers in places you might not have thought about before.

16. Personality

Personality can be hard to sum up in one phrase or sentence. But you can segment customers based on unique personality traits.

Are they outgoing? Introverted? Comical? Serious? You get the point. The more you know about their personality, the more you can adapt your marketing to fit your audience.

Technographic Customer Segmentation

17. Device Type

Device type segments users based on the type of device they're using to interact with your website, whether that's a phone, tablet, or computer.

For instance, if most of your website visitors are using smartphones, then you know mobile responsiveness is compulsory for your site.

Or, you might consider building a mobile app to capitalize on users who are interacting with your brand while on the go.

18. Browser Type

Browser type refers to the internet browser that a customer is using. For example, are they using Google Chrome, Safari, DuckDuckGo, or Mozilla Firefox?

With dozens of internet browsers available, each displays your website, emails, and apps differently.

This makes it important to understand what your customers are using so you can test whether your marketing content displays properly on those browsers.

19. Original Source

Original source is a segment that helps you understand where your website visitors are coming from.

This lets you know if people are discovering your site with search engines like Google. It also shows you if they're coming to your pages from social media, email, or a referral from another site.

Once you know how your customers are finding you, you can optimize this conversion path. This can help make it easier for more people to locate your site.

Value-based Customer Segmentation

20. Customer Satisfaction Scores

Whether you use CSAT or NPS,customer satisfaction scores tell you a lot about recent service interactions. Higher scores mean customers are happy with your service. Lower scores show a risk of churn.

Segmenting customers into promoters and detractors can help you increase the value of your most loyal customers. It can also help you make sure that unhappy customers get the support they need.

21. Number of Purchases

The number of purchases that a customer makes is a primary factor in determining customer value. The more purchases they make, the more valuable they are to your business.

22. Average Purchase Value

The higher the average purchase value is, the more overall value the customer offers to your business.

Those customers who make repeat or regular purchases from your business are invaluable. One tactic to consider is rewarding them with exclusive offers or promotions.

Needs-based Customer Segmentation

23. Product Attributes

Some groups of customers need specific features from your products to use them.

For example, if your website isn't web-accessible, you could be inadvertently alienating individuals with disabilities. Make sure you're aware of customers with these needs so that your website is as inclusive as possible.

24. Service Needs

Service needs are the services that customers require when interacting with your business. Let's take HubSpot as our example.

If you're a new HubSpot user, you might want to go through an onboarding process to learn how to use our products. Should you already have experience with HubSpot in the past, you might decide to opt out of this service.

Finding these needs will ensure you properly support your customers.

25. Delivery Method

Your product isn't useful to your customers if you don't deliver it at the right time or in the right way. This segmentation option allows you to categorize individuals who have specific shipping or delivery needs.

Your business goals should inform your customer segmentation strategy. By thinking about what you plan to achieve company-wide, you can create a customer segmentation strategy that can help you:

Organize your customer base.

Easily manage targeted communications.

Choose top sales prospects.

While you can segment your users and clients in many ways, these steps can help your team avoid some pitfalls along the way.

1. Determine your customer segmentation goals and variables.

Your business may already use buyer personas. If you run a small business without one, consider developing buyer personas because they can help with customer segmentation.

With personas, you have a sense of your customers' demographic, geographic, and technographic details. This info can help you match buyer personas to specific goals.

Goals

For instance, if you have three buyer personas like this:

Jane - a small business owner.

Katherine - a mid-level business owner.

Peter - CEO of an enterprise company.

You could have conversion goals of 10% for Jane's persona, 5% for Katherine's persona, and 2% for Peter's persona. This simple analogy works when you have products and pricing levels that suit each persona.

You could have conversion goals of 10% for Jane's persona, 5% for Katherine's persona, and 2% for Peter's persona. This simple analogy works when you have products and pricing levels that suit each persona.

Segmenting may get complex when using customer segments to solve specific business problems. You may not have enough data or the right data to deliver the best customer experience.

Here, use demographic or psychographic segmentation to grow the top of the funnel.Start by thinking about what makes a customer valuable to your business:

Is product fit or profitability more important?

Do they make repeat purchases?

Are they active in communities online?

Where do they drop off during the buyer journey?

As you continue this process, include important team members from across the organization. By leveraging their unique experience and viewpoint, you can create more useful customer segments.

Variables

Before you move to the next step, you'll also want to look at variables within each target segment.

For example, say one of your customer segments is mothers between the ages of 30 to 35. Data shows that about half of this segment buys at the end of November.

But do you know whether they're buying your product as a gift or to use at home?

This variable seems small, but it can make a big difference in marketing and sales messaging for this segment.

2. Set up and prioritize customer segmentation goals.

Once you have a clear picture of your goals, it's time to prioritize, as your data will probably increase.

Often, this increase in data can be overwhelming, causing some companies to go through the effort of segmenting only to continue to send the same message to every customer.

One way to approach this is by organizing the largest segments first and proceeding from there. That way, you have large groups of people to communicate with or market to immediately.

Another option is to rank segment projects by performance, like purchase value. With the order set, it's time to set up each project.

Step 1: Set an objective.

Each customer segment project should have a SMART framework.

For example, your goal may be to create a customer segment for a new product release.

You'll want to see which customers on your current mailing list may be a fit for this new product. You'll also want to decide how to connect with the right new prospects.

A SMART framework can help you define your objective before you get to work. This will help you answer questions like:

How will you measure success for your new segment?

Is there enough demand for this group to be a useful customer segment?

How long will it take to build and define this group before product launch?

What is the deadline?

Step 2: Involve stakeholders.

Stakeholders for your segmentation project will usually include internal teams and employees. Other stakeholders might be:

Current customers

Local businesses

Vendors

Contract employees, like freelancers

Segmentation projects can sometimes get siloed. This can create a situation where the people who can get the most use of the information don't get what they need.

To avoid these issues, talk to stakeholders about their role in the project in advance. It's also a good idea to figure out how involved they would like to be in the process.

Step 3: Define project scope.

Defining the scope of each project can help you avoid overlaps and confusion later on.

Set clear boundaries for target market segmentation. This could include:

The total number of segments

Data sources

Stakeholder expectations

Resources and budget

Step 4: Define project deliverables.

Lastly, you'll want to clarify what the results of your project will be.

Final customer segmentation deliverables might include:

An outline of your process

Tenets that define the scope of each target segment

Workflow wireframes

Segment profiles

3. Collect and organize your customer data.

To collect customer data, you can use platforms like your CRM. After exporting the data, analyze it to find common themes.

For instance:

Are you seeing lots of customers from a specific region?

Does a particular age range come up frequently?

Do you see an equal mix of males and females on your list?

These questions will help you figure out the different segments you can create.

While some customer data is readily available for customer segmentation, other data may take more time to pull together.

This guide can help you find the right customer data types for your new market segmentation.

As you collect your data, think about the information you need to create a useful segment.

Anecdotes can sometimes offer a clearer picture than empirical data. They can also offer talking points and insights to better target your new segments.

Check out these ideas for anecdotal customer data collection:

4. Segment your customers into groups of your choice.

After pulling the customer data you need, it's time to build your segments.

To get the best results from customer segmentation, approach them with a few ideas in mind.

Tip 1: Make segments easy to use.

While the segments might be complex to compile, they need to be easy to use by other team members.

For instance, a local grocer segments their in-town shoppers from out-of-town shoppers, which can help with more personalized outreach.

But these segments make little sense for a multinational sporting goods store. What defines "out of town" simply doesn't apply.

Tip 2: Use machine learning.

Applying automation powered by machine learning in order to build your customer segmentation can be a huge time saver for your team.

This helpful article outlines how you can use HubSpot to segment contact lists and create communication workflows for subsets of customers.

Tip 3: Make customer segments the right size.

Don't go too narrow in your segments. In other words, ensure you create useful segments that are still large enough to cause a measurable impact on profit.

Tip 4: Make them easy to access.

Your customer segmentation should start with your marketing strategy. Each segment should be well-aligned with your marketing and sales channels.

For example, say your marketing strategy focuses on email and Facebook, but you're creating a Gen Z segment. Of this group, 62% are on Instagram, but only 34% are on Facebook.

So, while this segment may be a fit for your business, you might have trouble reaching them.

Tip 5: Create stable segments.

Great customer segmentation takes time. So, the value of your segment has to last long enough for your team to connect and engage in a measurable way.

Behavioral and psychographic data can change quickly. Depending on your products, you may want to use these points less than other qualities that are more stable.

Tip 6: Make segments profitable.

It doesn't matter how clearly you define a segment of your target audience if they won't impact your profits.

Each segment should come from an existing product or service that your business offers. And each B2B segment should have a clear set of unique needs that align with business goals.

Tip 7: Understand how different models overlap.

Behavioral and demographic models are usually more useful together than they are alone.

For example, say you sell popular tennis shoes to men. You can create a segment based on ecommerce activity and purchase value.

But it could be tough to base a marketing campaign on these factors. And what if these buyers are also break dancers from suburban neighborhoods?

You might miss an opportunity to connect with this group. Combining several models gives you a chance to make your brand more diverse and inclusive. It also offers more opportunities to improve your products for your target audience.

Tip 8: Find your loyal customers.

In the rush to find new customers, it's easy to miss creating segments for customers who are already a part of your ecosystem.

By maximizing your interactions with current customers, you can optimize the average purchase price or the number of purchases a customer may make regularly.

5. Target and market to your client and user segments.

Having customer segments isn't enough. You need a plan to put segments into action.

According to a 2022 Forrester study, 76% of businesses say their customers are engaging less with digital marketing than they were a year ago. This makes effective segment outreach essential.

Here are a couple simple ways you can make the most of your customer segmentation.

Make communication customer-centric.

Use segment information to decide which messages, content, and products will bring the most value to your clients. Then, craft a strategy that authentically engages with each segment.

You want your customers to feel you understand them, and that you're connecting to help, not just sell.

Create a plan for each segment.

You won't get the best outcomes by sending slight variations of the same content to each segment. Instead, create a unique plan for each segment.

You can use segment data to:

Enhance each experience.

Create more meaningful landing pages.

Personalize emails.

Qualify and delight leads.

Figure out the best timing for outreach.

Anticipate support needs.

Create new targeted content.

Solve issues faster.

6. Run regular customer segmentation analysis.

Finally, while you develop your segmentation to last, you will need to put in the work to make sure they stay useful.

In the end, change is the only constant. While machine learning and automation can help you see how your data is changing, data needs analysis.

It's up to your business to create a regular cadence to review your segments so that they keep performing.

Customer Segmentation Analysis

Once you've got those segments set up, it's important to go back and revisit them from time to time.

Not only can you confirm these segments are necessary, but you can also analyze whether particular segments are helping you reach your goals.

You can use this process to assess resources, use customer feedback, and get a long-term view of your customer base.

Benefits of Analyzing Your Customer Segmentation

Segmentation analysis can seem like a time-consuming process. But there are many reasons you'll want to analyze your segments consistently.

Customer segmentation can help your business:

Improve product delivery.

Boost process efficiency.

Help you target content marketing and sales outreach.

Update pricing, plans, and strategies.

Improve customer relationships.

Create new offers, products, and services.

Improve brand awareness.

Stay ahead of competitors.

Track product sentiment.

With consistent analysis, your business will be more aware of changes in customer sentiment. This approach can also help you innovate in a customer-centric way. It puts the latest customer ideas at the center of any new business plan.

How to Do Customer Segmentation Analysis

Segmentation analysis isn't as time-consuming as creating new customer segments. But each step below is important to make sure that your customer segments are effective for your business.

1. Review customer segments for accuracy.

Changes in software, products, pricing, and more can skew data. You'll want to make sure that the data used to build each segment is still accurate, especially if they're used across multiple channels.

For example, say you collect behavioral data through your email marketing software, but not on social media.

Your first step might be to compare analytics between the two platforms. This can help you see if customer responses within the same segment have changed.

You may also need to repeat anecdotal data collection to update your segments. Have company goals, pricing, or brand reputation changed since you created your segments? If yes, you'll want to update your data.

2. Compare customer segment performance against business goals.

If you haven't already, review your key performance indicators (KPIs) for each of your customer segments. Then, compare how well those segments are doing in comparison to your overall business performance.

Are some segments doing better than others? Are some underperforming?

It may also help to review segment changes alongside current events and cultural shifts that impact demographics.

For example, over 180,000 people moved away from California in 2020, and almost 118,000 left in 2021.

During this same period, more people were moving away from dense cities like San Francisco and Los Angeles to more open inland communities.

Because these shifts impact transportation and development, they can create other changes in customer needs.

Businesses that watch these shifts can better meet customer expectations than those that miss these details.

3. Check with internal teams for segmentation feedback.

Customer segmentation is only useful if it's used consistently. When you're analyzing your segments, be sure to loop in all relevant internal stakeholders.

It's also a good idea to connect with key stakeholders. This can help you make sure that company-wide decisions factor in customer segment changes.

These are a few strategies you can use to quickly collect feedback from your peers and leaders:

Send email surveys.

Add targeted feedback forms to employee newsletters.

Organize a committee or focus group.

Create a Slack channel for informal feedback.

Offer project-specific incentives.

4. Collect feedback from your customers.

You may want to supplement your anecdotal research with feedback from a wider group of customers. These strategies for gathering customer feedback can help you improve your response rate.

You might also want to vary the type of outreach by segment.

For example, busy B2B customers might respond well to an in-app survey, while loyalty club members may be open to a customer interview.

Here are some other suggestions to gather customer feedback:

Website feedback widgets

Long form-based surveys

Suggestion boards

Newsletter requests

Survey incentives

Live chat prompts

Social listening

Customer support outreach

5. Put segmentation analysis results into action.

It's often easier to start something new than to change. Once you've updated your customer segmentation, it's important to put those updates into action.

You may need leadership support to revise employee habits. Marketing, sales, and service plans may need to change to align with new customer needs and expectations.

There are many ways that you can help your team understand the value of your updated segments. These might include:

Presenting your findings to the team.

Collaborating to update action plans.

Partnering with managers to address employee feedback.

If you face any resistance, it may help to separate your analysis into separate projects for short-, medium-, or long-term changes.

This can help your business figure out what resources you need to make these changes. It can also help different departments understand what they need to update.

Now, what about a tool to support you while you work through the strategy and analysis steps we just covered?

Customer Segmentation Software

There are many choices when it comes to customer segmentation software. Here are five of the most popular to help you get started.

HubSpot offers the ability to segment your customers with static and active contact lists. From there, you can set up contact scoring to use lists to segment your contacts and customers.

The software also offers an option for event-based segmentation. For example, if your company is holding a daylong workshop in Seattle, you could use event-based segmentation to help you locate and inform your customers in the area.

Then, once the workshop is complete, you can use details obtained from attendees to segment your customers for your future events.

These customer segmentation features, among others, are automatically included in HubSpot's (free) CRM, CMS, Marketing Hub, Sales Hub, and Service Hub(the specific segmentation features within each of these tools are listed here).

Learn how to create a contact management and segmentation strategy with HubSpot.

Experian's customer segmentation software has multiple functions so you can build, view, and manage your segments to meet your business needs.

You can focus on lifestyle segmentation to hone in on the habits and preferences of your customers. You can also find your most economically-valuable groups so you can add those details to your profitable-customer contact portfolio.
Image source
Sprout Social makes it easier to reach specific segments when creating and sharing messages on both Facebook and LinkedIn. Their Audience Targeting feature is a marketing-focused customer segmentation tool.

On Facebook, the tool lets you segment and target customers by interests, gender, age, location, relationship status, education, and age. Meanwhile, LinkedIn allows you to segment and target customers by business size, industry, location, and seniority.

(Note: Sprout Social integrates with your HubSpot CRM.)
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Qualtrics is a customer segmentation software that offers segmentation tools for your customers and products.

You can build studies, organize groups of customers, and analyze the way you segment your customers. You can determine the right type of communication for each of your segments in the tool.

Qualtrics also has machine learning and artificial intelligence (AI) capabilities to help you learn new ways to segment your customers.

Mailchimp includes a customer segmentation tool. Organize and manage segmented email marketing campaigns to target groups of your contacts and customers.
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This lets you send messages that are customized and tailored to each segment's needs. You can filter between one and five criteria to communicate with your specific group of choice.

(Note: Mailchimp integrates with your HubSpot CRM.)

Segment Customers to Grow Better

Customer segmentation helps you boost conversions by providing more relevant information to your audience. It also helps streamline cross-team and communication efforts so that you can meet customers' specific needs.

Start working on your customer segmentation strategy and use these tools for support along the way. You have everything you need to exceed customer expectations.
Image source Editor's note: This post was originally published in February 2020 and has been updated for comprehensiveness.

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Customer Segmentation: How to Segment Users & Clients Effectively

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Learn how to use customer segmentation to reach different customers at the right time with the right information to grow your business and meet their needs.

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7 Customer Segmentation Models for Digital Marketing

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7 Customer Segmentation Models for Digital Marketing

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video introduces seven effective customer segmentation models tailored for digital marketing, offering insights into targeting the right audience to enhance marketing strategies.

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7 Customer Segmentation Models for Digital Marketing

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Customer Segmentation: Analysis, Models & Examples | Fullstory

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Customer Segmentation: Analysis, Models & Examples | Fullstory

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is blog post delves into the strategic process of categorizing customers based on shared characteristics, providing models and real-world examples to illustrate effective segmentation.

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Customer Segmentation: Analysis, Models & Examples | Fullstory

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Customer segmentation breaks your customer base into smaller groups for better targeting. Find out why it is important and how you should use it.

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Customer Discovery Basics| Harvard Business School

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Customer Discovery Basics| Harvard Business School

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This guide emphasizes the importance of interviewing target personas to validate assumptions about pain points. It provides strategies for defining and prioritizing personas and highlights interviewing as a critical aspect of the discovery process.

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Create detailed user personas representing your ideal customers.
Include goals, frustrations, behaviors, and motivations in each persona.
Use personas to guide design, marketing, and product development decisions.

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A 5-Step Guide to Building Your Own User Personas (Complete with Examples)

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If you could describe your typical users, who would they be? Learn how to create user personas that will guide your product teams toward the right customers. User personas examples and template included!

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How to Transform Your Pricing Strategy with Dan Balcauski (Podcast)

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How to Transform Your Pricing Strategy with Dan Balcauski (Podcast)

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This podcast highlights how startups can optimize pricing through value-based conversations. It’s trustworthy because Dan Balcauski is an industry expert in pricing. Startups can refine their pricing strategies to increase customer satisfaction and revenue.

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Hello everybody. This is Randy Wootton, CEO of Maxio, and your host of SaaS Expert Voices, where we bring the experts to you to talk about what's happening at SaaS today and what we foresee coming in the months and years to come. I am super excited to have Dan Balcauski. Did I say that right, Dan?
Dan Balcauski (00:23):
You did. Beautiful job.
Randy Wootton (00:24):
Awesome. As someone who has a horrible last name for pronunciation as Wootton, I'm always anxious about that. But no, it's great to have you, Dan. What an incredible background you've had. We'll get into that in a second, but primarily, I think we're going to talk mostly about pricing and all the dimensions of pricing that you've experienced in your most recent role as founder and chief pricing officer. But before we get there, just going to your background, you started off in software.
Dan Balcauski (00:49):
That's correct. Yes. I've been in software my entire career. But yes, I think specifically I started out actually writing code, which is a little bit different from what I've done.
Randy Wootton (00:57):
Right, as a software engineer. You started off as a software engineer, moved to product management, took a sabbatical, which we're going to talk about in a second, and then you spent some time at Kellogg, so you were in academic [inaudible 00:01:09] for a while, and then you spun out and started your own gig. So you certainly have had an interesting background, so we'll spend a little bit more time on that in a second. But yeah, let's go there. Let's talk about, so you started off software engineer and you moved to product management. What was the catalyst for that transition?
Dan Balcauski (01:23):
Yeah, well, like I said, I spent my entire 20 year career so far in software and started out more on the value creation side, building products. Ultimately, I became a lot more fascinated by how the products that we were building created value for customers and then how did those turn into dollars and cents for business, and ultimately that led me to pursue an MBA. Multiple times, intersections with Kellogg, it's where I got my degree, and then now I also help teach there in their product strategy course. But when I was there, I was very lucky, got some of my foundational courses there in pricing, but also many other functions as you imagine a general MBA would be. And during my internship during a two year MBA, I worked for a very successful Silicon Valley startup on the B2C side and got thrown into the pricing world kind of off the bat with them where one of the questions on the CEO's desk when I showed up was should they do a freemium approach? And so I didn't know anything about that.
(02:28):
I spent part of the summer on several things I did working on with them, I gave them a recommendation, a TL;DR. I do not like freemium, I do not recommend it in general, but that kind of gave me my first taste of real world pricing exercise there. And then post MBA, went into product management, product strategy world. So still very focused on how do we create more value for customers? How do we understand the value we deliver for customers? Product management in general, I think this applies to many companies, didn't own pricing and packaging that was owned by our product marketing department, but I have a strong view that product marketing and product management should be very close to the hip. They're sort of dynamic duo, Batman and Robin, they're a tag team, not one better than the other, but they just have different areas of focus in order to successfully bring, especially B2B software products, to market.
(03:20):
And they would get asked to do these pricing exercises for our products that they were looking at. They're like, "I don't know how to do this. Hey Dan, you've got an MBA, can you come help with this?" And so I got a lot of lessons learned. I tried to apply some more theoretical practices I learned of like, "Hey, if you were the brand manager for Minute Maid orange juice and you're selling in a grocery store, how do you price that?" I realized very quickly some of those theoretical foundations don't work quite as well at B2B software. So learned those lessons and yeah, went off on my own about five years ago now after the sabbatical you mentioned and decided to start a consulting firm and now I do all day is help B2B SaaS CEOs and their teams try to build profitable companies and get their product into the hands of as many customers as possible. So that's the privilege I have today.
Randy Wootton (04:12):
That's great, Dan. And from my background, I went to business school as well, and I remember going into product management initially and hadn't had any courses in product management at business school. So I went and took a course, pragmatic marketing, which I think is a wonderful course. It's grown and evolved since I took it 25 years ago. It has a great schematic and way of thinking about all the activities you need to do across product management and product marketing to bringing a product to market. And my first role as a product manager actually included product marketing as well. So it was a holistic role and you just kind of ticked through those different components and one of them was, to your point, around pricing and packaging. I had no idea what I was doing. But it has become such a valuable skill or perspective to have, especially in this market where you have contracting demand and increasing competition and everyone trying to figure out how to increase pricing.
(05:08):
I know broadly in the market we've seen data saying that SaaS solution providers have just used a blunt instrument raising their prices by 9%. I think Salesforce is the one that led the way and then everyone else has followed behind that to try to increase the revenue, but not doing it in a disciplined and focused way, feeling it just more like a blunt instrument, no matter who you are, you can get a price increase. So maybe we can use that as a starting point. I'm going to come back to the sabbatical because it's super cool, but since we're already getting deep into the pricing, maybe spend a little bit about some of the pricing. On your LinkedIn profile, you say, "I dispel B2B pricing illusions." So what are some of the top two or three? You mentioned freemium, if we could go down that path for a little bit and maybe a couple other ones. What are the biggest B2B pricing illusions that you have encountered that you try to dispel?
Dan Balcauski (06:00):
Oh man. Well, this is a great setup because I could probably talk for the rest of our time on what are the different misconceptions people have about pricing. I'll spare you though. I'll name a couple and we'll see if we want to dive into any of them with any particular vigor. I think the first one is, when I tell... I was actually having lunch last week with a business school colleague of mine. He's the CEO of a company, very successful. It's more in the services business, but he's got a company about 150 people now. And we're sitting down, he's super sharp and he's like, "Hey, so you do pricing. Is that a lot of elasticity analysis?" I was like, "No." I was like, "It's funny you say that because this is exactly what I run into every time someone hears that I do pricing." It has almost nothing to do with elasticity analysis.
(06:46):
In fact, when it comes to SaaS pricing, most executives think that what you charge determines your success. They're really focused on the number. In fact, who and how you charge determines your success. So most of the work I do is really helping people figure out what the price tag should go on and not the number that actually goes on the price tag. So I think that's sort of the first major mischaracterization or thing that people get wrong about pricing. I think the second is there's this really pernicious myth out there in the world that you can't talk to customers about pricing, that you're just not going to get useful information. And I just don't think that's true. If there is one thing that's true, it says you don't have a choice about whether you will have a conversation with your customers about pricing, you only really get to decide about when.
(07:39):
So usually when folks are putting that logic forward, it's, "Well, we're not going to be able to talk to our customer about pricing, so we're going to make the first time we have a conversation with pricing when our poor sales guy is on the phone and we just launched this thing and they're trying to sell it to a customer, that's when we're going to have the pricing conversation." And I got to imagine, people don't think that's a great idea. So look, should you ask your customer, "How much will you pay for this?" No. And we've known that's a bad pricing question for 60 years, and we've had really, really smart people, smarter people than I dedicate their entire academic and commercial careers to figuring out better ways to ask pricing questions to get reliable information, and so there's much better ways to go about that, but I feel like that's just definitely a mindset that folks have out there that it's just not true and I'm having to come back constantly.
Randy Wootton (08:29):
Great. Well, we can come back to number one in a second, but just stay on that. When we were talking about this earlier, don't be afraid about talking about pricing. I thought of talking with my teenage boys about sex and drugs. You're going to have the conversation, you get to choose when to have the conversation because it's going to come up or it's going to be part of the reality at some point. So what are some of the questions you would coach CEOs or chief customer officers without hiring a professional to, what are some of the questions that you would encourage them to think about asking their customers or framing if they're going to have a conversation about price?
Dan Balcauski (09:05):
So I think there's a few different things to keep in mind. So I'll ask sort of the price framing question, but I think one, if I've been having a conversation with a CEO or executive team, like any research, you should have a defined objective. And usually with pricing, the first thing I find is that nobody is really aligned on objective because I can go out and ask a bunch of questions and get you a bunch of data, but if we don't really know what our final aim is, it's going to be really difficult to interpret or use that right? We're going to probably ask the wrong questions, we're not going to model it the right way. What do I mean by that? It's like, are you as the CEO, and when I say CEO, I'm broadly referring to the entire senior executive team and the board, are you trying to maximize revenue? Are you trying to maximize profit? Over what timeframe? Are you trying to increase net revenue retention? Are you trying to increase your customer lifetime value? Your average revenue per account?
(10:01):
What is the metric that we're really looking at? Because overall, let me say one thing first is that when we think about pricing and the price level, we're almost always dealing with ranges, right? So I think that's the first misconception I want folks to step away from is there's rarely sort of one number that is the answer. I'm a super math nerd and I would love it if there was just a system of equations that we could just plug in and then out pop the number. But usually it's something like, hey, we did this research. Customers would generally pay between $49 and $99 per user per month or per year, whatever it might be, and so now we've got a decision to make based upon what that market data. Do we price the lower of the range, the high end of the range, what are the different strategic considerations we want to take into account? What would it mean if we were at one end of the spectrum versus the other factors we might bring into bear? So that's the first thing I want to just lay out there.
(10:56):
So the second thing is, there are many different ways that you can go have pricing conversations. I think in a B2B context, another misconception, something that I really work a lot with, is to help people understand the concept of value. And so when I'm thinking about what maybe folks would think of as pricing conversations, usually I want to term those in terms of a value conversation with the customer. So I want to frame that as a value conversation. Like, "Hey, I want to understand why you're making the decisions you are. What is it about your organization or your situation, your context that's causing you to look for a solution? What are those triggers? What are the other competitive alternatives you're looking at? What does a product like this do? How does it fit into your operations and how does it actually help you increase the value of your organization? Does it help you increase revenue, decrease costs? Do you have a sense of how that is?
(11:54):
At the end of that, I might have a series of price-specific conversations, but I would say it's going to be more like 75% of the conversation with the customer. It's going to be focused on the value they get out of it and really understanding deeply their situation and their context before I get to understanding price because one of the most valuable things is not even the number I come up with, but having a really deep understanding of what is the mental model? Why does someone give me a number that they do because they're comparing against a certain situation in a certain context? Value is subjective, it's relative and it's contextual, and so we really need to keep that in mind when we're having these conversations. When it comes to very specific sort of price level tactics, there's two general or broad categories that I would refer to. One is what we generally refer as direct questioning. So that's where I'm asking you a question like, how much would you pay for this product? So prices directly in the line of question.
(12:47):
The other is indirect. So folks have heard of methods like conjoin or discrete choice. These are methods where pricing is the price of the option I'm asking someone to consider whether the purchase is tied directly to other features that are in a bundle that I'm offering them options to choose among. So therefore, price is just one of several different variables I'm asking them to make trades around. So in general, folks want some tactical, how do I go have a pricing conversation? There's a pretty well-known methodology called Van Westerndorp Price Sensitivity Meter is named after a Dutch economist back in the seventies who invented it. It's four questions. First one is, what price would be so cheap that you would doubt the quality of this product and wouldn't buy it? Two is, at what price would this product be you consider this product a bargain and you would buy it? Third, at what price would this product be you'd consider it to be getting expensive, but you would still buy it? And four, what price would this product be prohibitively expensive and you wouldn't buy it?
(13:43):
So why is that better than asking just the, "Hey, what would you pay for this?" Again, going back to this idea of prices as ranges. If I ask you how much would you pay for this thing, I have no idea if you're giving me a high answer, a low answer, as well as when... In these conversations, I also, more importantly than the number they give me back, I usually want to ask why. "Hey, you said too cheap below this price." "Oh, $10 a user per month. That would be too cheap. I wouldn't buy." "Oh, because I bought another product that was like that and it fell over and I would never buy that again." Whatever. "They couldn't support us and if we call up, they never answer our support tickets." Whatever it might be, getting that customer's mental model is very important. So we could have an entire conversation just on pricing analysis methods, but hopefully that gives your listeners enough practical tidbits to start the journey forward.
Randy Wootton (14:31):
Yeah, I think that was a lot. So maybe even backing up just a little bit to defining the objectives we were talking about, being clear on that, and that the primary ones are maximize revenue, maximize profit over what period of time. When I'm talking to the board, they say do both and as fast as possible. Do you find people able to be more explicit about one or the other of maximizing revenue or maximizing profit? How does that play out for you when you're engaging people and they're like me, like, "I got to do all of it."?
Dan Balcauski (15:05):
Well, we could get into these simple economics and say that there is no simultaneous number that both maximizes revenue and maximize profit, assuming that your marginal costs are greater than zero. So as soon as you have marginal costs, that's just math. So if someone ask you to do both, you haven't walked them through the realities of a financial situation. One way that companies do approach it... It does happen. So I think one thing is, if I'm working with an executive team, it's important to bring that conversation to the front because everyone may be thinking about optimizing something a different metric, and so you want to bring that conversation up and make sure that everyone, at least in that seat, either boardroom or executive suite, is on the same page for what you're trying to optimize. I'm sure given your background, you're very familiar with something like the Rule of 40. Well, Rule of 40 is one of these compound metrics and does bring these two together.
(16:11):
And I know there's been a lot of, say, innovation around the Rule of 40 or conversation at least in the last 12 months where people are talking about weighting those things differently. And look, for any optimization problems, you can say, hey, we want to balance, but we're going to weight revenue growth more. And so how that comes about when you're then choosing the price point allows you to build your models and choose your range more in line with those goals. But yes, it is something that you at least want to have the active conversation about it. You don't want to end up accidentally at the end just being like, oh wait, what were we actually trying to accomplish? That's not going to be a good choice.
Randy Wootton (16:47):
And I think this plays out maybe two different conversations. One is, how do you want to price for prospects versus how do you want to price for customers? And you can use a table or some way of having a broad set of ranges, to your point. But I think for current customers, the tension is often between gross retention and net retention and what's the price that they have and the value that they're receiving today with the product, and you go through a negotiation, especially in a world where everyone's saying cut back on software spending. So everyone is having what I call contested renewals. People are coming in and saying, "Hey, I need to pay less." And then you have to think about, as a company, well, are you going to preserve that customer even if there may be a contraction? Versus, you're trying to drive NRR through either selling features or across divisions or adoption of new modules, or for us, our pricing model is based on the trailing 12 months of revenue. It's, well, do you introduce a new tier, a new increase in price?
(17:50):
So that NRR versus gross retention I think leads you maybe to think about customers in different segments, in different cohorts in terms of those that are under priced compared to market, how are you going to bring them up to market? Those that are overpriced, are you going to back off a little bit in terms of your expectations? So I think that's where we have the conversation, at least that I know at the board meeting is, if you want me to drive NRR and I'm going to go out with new aggressive pricing, that may have an impact on gross retention, and let's be really clear about that. So how do you isolate the experiments to get data to inform your strategy?
Dan Balcauski (18:24):
Yeah, a hundred percent. And segmentation falls heavily into the methods that I work with because you're absolutely right. Your existing customers, their realized value and their perceived value is going to be very different than a net new customer, and how do we manage existing customers versus net new customers with a price change, with a price increase? Those are very important questions and we think about handling those in different ways, so I definitely approve of that way of thinking about it.
Randy Wootton (18:53):
And then just, you were talking a little bit about rule of 40 versus rule of X, or the new way of thinking about rule of 40. I think Bessemer came out in January with their rule of X, which gives you a multiple on top of your growth rate. So your ARR growth rate versus your EBITDA margin. The rule of 40, for those who don't know, you can go find a bunch of information on the internet, but it's the combination of those two factors, how fast are you growing and how much margin are you churning off at the EBITDA level? And that should equal 40. So if you have 10% growth and you need 30% EBITDA, if you have 40% growth and you need 0% EBITDA. So it's a broad tool and I've had a lot of debate about what size company it's relevant for, et cetera, and there's a bunch of research. But Bessemer actually showed that the driver of value in terms of shareholder value is tied more to the ARR growth rate and they have a new way of thinking about it.
(19:45):
So I do think, again, thinking about, are you driving for growth? So maximizing revenue or maximizing profit for B2B SaaS companies, series A through series D should probably mostly be focused on maximizing ARR, which then drives shareholder value. You can see it in all the multiples, et cetera. But it's a robust conversation. I know with our board, one of the things we've done is we said, hey, what do we want to be in terms of size of company in the next three to five years? We're effectively owned by a PE firm. Well, it's Battery Ventures, but within their PE discipline, and there's an expectation in terms of the return on the money they invested in the company. And so how do you structure your business to deliver on that profile? Then comes down, at some level, down to a pricing conversation. How many customers can you get at this price and does that price cover your costs or what's the profitability assumption if you're trying to drive EBITDA? So all of those big conversations about ultimate transaction resolve down at some level to a pricing conversation.
Dan Balcauski (20:49):
Yeah, I could not agree more. Happy to explore any direction of that.
Randy Wootton (20:56):
Well, good. So that was just bucket number one around defining objectives, getting aligned with the board, the different tensions you have and making sure everyone's driving against the same vector. The other one I think that you were talking about is this idea of framing value, transforming the pricing conversation to a value conversation. That feels to me like that's something that the best salespeople do in the actual sales motions. So when they're doing the discovery calls, they go out and try to figure out the pain, what are they trying to solve, the opportunity, if there's specific events that are triggering it, what are the alternatives that someone would be evaluating? I know with our product in particular, people are comfortable. If they're using rev rec, they might be doing that in an Excel file versus moving over to a Maxio system that gives you the rev rec and the reporting.
(21:44):
How do you think about the understanding of value for prospects and customers and leveraging sales teams to get that input? Because you're one person going out and doing the interviews, but if you can get the input from the sales team, 10, 20, 30 salespeople that are having these discovery calls, what would be a recommendation, if you have one, for ingesting the data broadly?
Dan Balcauski (22:08):
Yeah. So this is a great question because there's often a... I mean, one of the things that I am dealing with in a lot of client situations is just a lack of general process or ownership. One thing that you said is really important, which is, every day those sales folks are having to have a value in price conversation. The question is, are they having to start from scratch because the rest of the business hasn't supported them in a structured way? So we could have a longer conversation around who should own pricing overall. I generally don't believe it should be sales. There's many reasons for that. It's sort of like putting a Dracula in charge of the blood bank. But if I was to say that... Look, they are an incredibly important stakeholder and they have a lot of experience, just like you might go through some baseline sort of ROI calculation or your product management team might do some sort of risk reward, total addressable market analysis, but at the end of the day, you also trust your product team that they have some sort of spidey sense, they've talked to enough customers, they really know what's important even if they can't sort of finally justify every last bit of it.
(23:26):
Sales and pricing is the same way. They've just had so many of these conversations, they just have a spidey sense of how customers may react, how customers describe the situations that they're in. So you want to make sure to definitely bring them in. And for any pricing engagement, sales should definitely be in the room, should be in the core team who is looking at it. Should they own the final decision, should they own have full legitimacy up to a hundred percent, no questions asked discounts on any deal? We could have those conversations. Generally, I don't think that's best practice, but absolutely, you want to make sure that they are brought in and that everything from what are the competitive alternatives? Do our arguments against how we have differentiated value over the competition, do those make sense? Do customers buy them? Do we support them effectively? Do they resonate? Or do we say it and every time the sales guy says it, he gets laughed out of the room and they're like, "Yeah, the last 10 guys told me that. Prove it."?
(24:31):
And then they're stuck and all they're left with is a discount lever, and you don't want that to happen either. So I absolutely think you should bring them in. I think the more that you can make sure there's a consistent conversation happening between... Sometimes, depending on the organization, but sometimes it might be the product marketing team that maybe owns the strategic pricing levers, they're having regular one-on-one conversations with sales folks, sometimes it might be at the level of the strategic pricing committee where there's sales representation and then maybe there's a deal desk, so that deal desk focus seeing every sort of deal come through and requests for discounts by customers in different segments or different geos or different special situations. And so we're making sure that we're bringing that back into the organization. There's an entire process element. It doesn't necessarily get me out of bed in the morning, but actually the larger you get, the more important it is for this because pricing is painfully cross-functional.
(25:22):
You can't just have a single product manager or product marketer or the CEO just go into a room and say, "Hey, here's what we're doing." It's going to affect everyone in the business. And so yeah, setting up those information flows back from the front lines into that strategic planning is incredibly important.
Randy Wootton (25:39):
Yeah. That was actually the third bucket of best practices when we did our pre-brief. The first one, which we might come back a little bit because I think we glossed over it, was the, it's not about what you charge, it's about who and how you charge. Number two was, don't be afraid to talk about pricing, which we went down the path. And number three was be deliberate about pricing governance and answering the question, who owns it? What is the forum for the conversation? I know in our experience, I remember when I came on board again because our pricing and our model is tied to revenue, our customer's revenue, and we have two different types of products, we have a billings tool primarily, and then we have a rev rec reporting tool. Well, how does that pricing work and what's the value if it's not tied to number of invoices being sent? The general partner, Chelsea Stoner, said to me when I first started, "Randy, one of the things they find across their port cos is that people don't get pricing right."
(26:34):
And so when they buy a company, it's a major area of focus over the first year or two is to redefine the pricing. And honestly, even in the first three months we launched new pricing, we were trying to do an integrated pricing model. Classic Salesforce where I had been before was you had your bronze, silver, gold packages and you would graduate people up, and I was all about making that happen, and we launched it and it didn't work. It didn't resonate in the marketplace, and so we had to bring that back in. And for our initial pricing work, we had used a consultant, we actually used two to come in and help evaluate the market, give recommendations on what the competition was doing, go do the interviews for processing customers and how they wanted the pricing. So we had had professional feedback, but I personally didn't have enough experience in this market to be able to apply judgment to it, and I think we missed.
(27:28):
But then it came back and Chelsea was like, look, in their experience, they like consultants to come in and provide advice on a periodic basis, but there needs to be a commitment in the ELT in particular, to your point, about cross-functional alignment on pricing, and the team needs to build the muscle of pricing. So we've started a pricing council which meets once a month, and it is to bring together the information across multiple products and situations for both prospects and customers on what's working, what's not, how do we want to rev it? Because every time you rev it, you've got to train your team, you got to get instantiated in Salesforce, you have the tracking and reporting. So it's a major lift if you're going to be instantiating the pricing construct versus just experimenting. So I think to your point, having a pricing council where it's the executive team owning it, it's often the CFO who, at the end of the day, I think...
(28:24):
CEO owns it at the highest level, but CFO has to own it because there are business model implications, back implications, back to your point around are you solving for revenue or profit? If you understand our unit economics, are you willing to price and subsidize customers early on because of lifetime value over time, you're going to have price? So I think the CFO has to chair the pricing council. We've ended up getting a wonderful gentleman join the company, one of the, call them operating partners, executive in residence of Battery who has a deep background in monetization, and he's come on board and has started a whole nother set of conversation, the segment approach that we talked about, the different products that we have, what are some of the recommendations? And it's been a really fabulous to have someone embedded who has background and experience in pricing and monetization to help inform the conversation we're having as an executive team.
Dan Balcauski (29:18):
Yeah. There's so many threads you open up there. So one, I want to go back to something you said at the beginning of that, which was, Chelsea is absolutely right. I haven't met her, but I like her already. One of the major tools in the private equity playbook is pricing. It's one of the first things that they do. And why is that? It's because it's an untapped lever for growth and everyone's afraid to touch it. Look, there's only three ways to grow a SaaS business, acquisition, monetization, retention. And sorry, all the oxygen gets sucked out of the room with acquisition. It's just like, how can we drive more leads? How can we close more deals? And look, for a certain amount of the company lifecycle, those balances are going to shift, but I see way too much attention spread over too long just on the acquisition bucket. Obviously retention, once you get maturity, if you're a seed stage company, there's very few customers to retain, so it's not going to have that much impact even if you move that percentage wise.
(30:15):
So I think that that's important. And even with the little bit of your tale of woe, you launched it, it didn't go well, but the world didn't end, Maxio didn't go out of business. And so I think that's a beautiful story because you got pushed to change it, you changed it, it didn't work, and then you tried something else. And I think people really have this fear that, oh my God, if we don't know how to do it perfectly, we're going to break it. Everything's going to go to hell, and, I don't know, I'm going to get put on the front page of the Wall Street Journal as the world's worst CEO. I don't know what the story is they tell in their heads, but basically it's some version of that that says if it ain't broke, don't fix it, and therefore we're not even going to try to learn. And that's not how you do anything else in business, right? I'm sure as a CEO, the job of being the CEO is you get to do something every day you're terrible at.
(31:11):
So today I'm terrible, and in a year, if I do it every day, I'm going to be less terrible. That's the way things go. I'm going to build that skillset over time. But if you just ignore it, right? It's a dragon that sits in the closet, it's just going to be something you ignore, ignore, ignore. And the private equity folks realize this, they acquire a company and one of the first things they choose because everyone decides to ignore it. So if there's one thing for your listeners, I would say. It's a huge opportunity and the world's not going to end if you screw it up, you can always roll it back and apologize. There's better and worse ways to do it. Sometimes there are pricing changes that ended up on the front page of the New York Times, you don't want to be that person, but those are very rare from what I see.
Randy Wootton (31:46):
Yeah, I think there's something to that, and this idea of, as much energy and effort you put against product innovation, pricing innovation. So to that point, one of the areas we were going to talk a little bit about was pricing for AI product extension. AI is the buzzword. Everyone's talking about it. What are you seeing in terms of how are things evolving? What are some of the best practices and what are some of the things to watch out for if you're thinking about taking AI for your corpus of data and coming out with an AI product either as your core offering or as an extension to what you're currently offering?
Dan Balcauski (32:19):
Yeah, there's a whole bunch there. And so let me see if I can just give some highlights or some mile markers so folks don't get too lost because when we start talking about AI, it can mean a lot of things to a lot of people. There's sort of generally what we'd call AI as a service, and these would be your foundational model companies, your Google, Meta. Actually, Meta is just open sourcing their LAMA models, but like Anthropic and Open AI, they're selling sort of foundational access to these what are now large language models where they're increasingly going multimodal. I think most folks are not in that camp. There's also another camp when folks talk about AI, and especially in the AI and pricing, there's been companies for well over a decade now, probably 15, 20 years. Pros, Van Dabo, Price Effects, Zilliant, who's actually based here in Austin where I'm at, and they've been applying artificial intelligence for more B2B industrial type use cases to manage their pricing.
(33:18):
And so that is your traditional machine learning models, they're doing a bunch of different market modeling exercises to do pricing generation, much like the airlines, the hotel companies do, that type of generation. So I don't think most folks in your world are thinking about that. What we are seeing is a lot of folks these days who are embedding the technologies coming from Google, from Open AI, from Anthropic into their platforms. And so it's still early days. I haven't seen one model that's absolutely the way to go. I think there's a couple of things I would keep in mind for folks. One is, don't make the mistake the Web3 crypto folks made by saying, "Hey, now we got blockchain, so our product is better because it has blockchain," Because mostly customers didn't care. The blockchain case made a lot of value worse, but we'll leave that to another day.
(34:16):
Telling people you have AI, I think a lot of people are getting swept up in the craze of like, "I need to tell my board, I need to tell my investors that I have AI because they're asking me." But a lot of the customers have no idea what to do with this. I'm very sort of leading edge and I'm using AI tools all day, but I'm also a weird pricing guy who's been in software for 20 years and used to be an engineer. I'm not your standard customer. So most folks, at the end of the day, we really need to care about what is the use cases? What is the value that we're unlocking for folks? And get the focus on that. And so what does this mean? I think one interesting example that we're seeing is Intercom. So Intercom, they're the little icon that pops up in the corner of every website, says, "Hey, how are you doing? Can you answer any questions?" So sometimes sales, sometimes customer support, they have different use cases.
(35:06):
On their customer support, they have released several different AI capabilities. And what's interesting about that is they've actually split it into two different domains. In the customer support domain, they've got AI capabilities like, "Hey, summarize all the account history for this client." "Suggest a message I should send to them." So it's capabilities that enable and enhance the capabilities of existing customer support agents on the front line. That's different than what they've created from their autonomous agent, which they call Fin AI. Fin AI is, hey, the customer comes to your website, starts asking questions, and the Fin AI agent, if it can actually go through the entire support process and resolve that customer's case without ever involving a human. They have two separate pricing models. So the first one that I was referring to where it's enabling, making your existing agents better, faster, more effective, there it's just an ingredient in the product. They're talking about things like everyone else is talking about, "Hey, it was summarization or help you compose emails faster," But it's just included with your user license at the different sort of good, better, best tiers.
(36:28):
Versus the Finn AI capability, they're actually doing outcome-based pricing and they're charging like 99 cents per successfully resolved case. So I think what's interesting about that is that it's made a very clear distinction between, is this just an ingredient to enhance existing value drivers or are we creating entirely net new capabilities like this agentic robot that will act on your behalf to replace a human? Because why is that relevant? For the Intercom base pricing, they price per user. Obviously they don't need a user if the AI is doing everything for you. And so they're able to effectively sort of play both sides of this. I would also note, a couple of things I've seen folks do that I really do not like and would caution against is there's two major things happening with this shift to AI. There's really a lot of ambiguity on two sides of the equation that are intricately related to pricing. What is on the value side? What is this thing? How are we going to use it? What is the actual incremental benefit we're going to get out of it? So all those questions on the value side are existing.
(37:41):
And there's a lot of new questions on the cost side, which B2B SaaS companies haven't really had to deal with for a while. If you look at a P&L, the marginal cost of an additional customer has been relatively small. You've got some compute, you've got some network, you've got some storage, you've got very marginal costs there, but if you're paying for one of these AI as a service companies, that cost equation is going up. And so the thing I'm seeing companies do is, we really don't understand value, but we really understand our costs, and so what we're going to do is we're going to say, "Hey, it's $25 per user per month, and each of those users gets 2,500 credits or tokens." And now what you've done is you've taken your cost model and forced your customer to understand it.
(38:30):
I've talked to a couple of startups that have gone down this road and they're just like, yeah, now every time my sales guy's on the phone, he's got to explain what a credit or a token is, and your customer doesn't care about it and your salespeople shouldn't have to care about it because at the end of the day, you're just helping the customer get their job done, and now you're forcing them... Especially when the value side is so uncertain because you don't know how you're going to use it or if it's going to deliver the value, and now you're making people like, "Whoa, what is a token? How many am I going to need?" And all of a sudden it's just going to gum up the works in your buying cycle. I think following the model like Intercom, it really is something that nicely addresses that friction that I'm seeing some folks fall into.
Randy Wootton (39:08):
Yeah. Clearly the through line through our conversation has been around value and pricing being associated with it, and so then your uber point around the AI product extension is no different. It's getting clear around the output of the result that you're driving, and the Intercom one is a great one, so if you can define something like a resolved case, a successful resolve of your case, then you can track. Then to your point around the cost, you as the supplier of that solution need to figure out what your cost structure is behind that in a package or in an offer with a price associated with the value. And then you get out of, to your point, you're just pushing on costs that you don't really understand, but as you're looking at your P&L, you're freaked because the variable cost is going up and you're not sure if you're monetizing it correctly.
(39:58):
So then, going back to your opening comment around your whole background and experiences around trying to find value, deliver value, price value, monetize value, AI is just making it a little bit more complicated because now you're playing on both sides of the P&L.
Dan Balcauski (40:14):
Well, and I think it's forcing a more discipline on the pricing side than companies, B2B SaaS companies have had to deal with in a while. So if that is the move to get folks to think more about pricing in their P&L a little bit more rigorously when they're building features, I'm for it.
Randy Wootton (40:31):
And we like complexity on our side because then you need sophisticated systems to help you do that pricing catalog and then the actual billing and invoicing and monitoring and metering, et cetera. All right, Dan, well, this has been great. We're almost up against time, but I'd love doing the speed round. So with our speed round, three questions. What's your favorite metric and why? What's your favorite book? It doesn't have to be a business book, it could be any book that you found inspirational recently, and then your favorite influencer. So this is someone who you spend the time reading their emails or listening to their podcasts, you think that they're actually adding to the conversation versus just in the echo chamber bouncing around ideas you're hearing everyplace else. So favorite metric and why?
Dan Balcauski (41:13):
Favorite metric and why. I think probably would go with net revenue retention. It's probably the most important metric for pricing.
Randy Wootton (41:20):
Fair with the caveat of pricing, right? Because where you're driving the pricing. Okay, got it. Favorite book?
Dan Balcauski (41:26):
Favorite book. I'll say a series. I've got this entire bookshelf behind me and one entire shelf was taken up by the Wheel of Time series.
Randy Wootton (41:35):
Oh. Yep, yep. Have you read all of them? There's a lot of them.
Dan Balcauski (41:39):
I've read all of them several times because I started reading them in eighth grade. And much like the folks with the Song of Ice and Fire, he did not finish in time, so three years between books trying to catch up, so I'd have to reread them in order to understand the newest one that came out.
Randy Wootton (41:57):
Oh, got it. Yeah, I've read that. I don't think I've read them all. I've read several of them, but they were definitely a great impact on me personally. And then favorite influencers, someone that you're reading or listening to that you think has interesting ideas that you would recommend for our audience?
Dan Balcauski (42:09):
Well, I would say two in two different domains. I would say just in general, I'm a really big fan of Sam Harris and his Making Sense podcast. I've bought Waking Up subscriptions for friends and family. I'm really big into meditation. I think he's doing a really good job of touching, going in depth on a bunch of topics in our world that other folks are not touching as deeply. So I think that's really valuable. In terms of just general influencers, I really like this gentleman, Roger R. Martin. He was a dean of the Rotman School up in Canada for a while, and he co-wrote a book with A.G Lafley called Playing to Win, who is the CEO of Procter and Gamble. So if you're really interested in learning about strategy, Roger's blog is really good. I think his blog is called Playing to Win, Practitioner's Insights, something like that. Sorry, Roger. But I highly recommend that if folks are into the strategy world.
Randy Wootton (43:05):
Oh, yeah. Playing to Win is one of my favorite books. I didn't even think about going to listen to his podcast or read his blog, but absolutely introducing that idea of how do you win strategy. A gentleman, when I was at Salesforce, a guy named Pablo Zamita Ramirez, who was my boss, who had worked on that initial framework, theoretical construct when he was at Monitor, brought it to Salesforce, and we used it as Salesforce, and I've used it at three different companies. I find it to be one of the best strategic frameworks, approachable, understandable, but super robust in terms of how do you align along those five different variables of the strategy, so great recommendation. Well, Dan, as always, I've enjoyed our conversations. I always learn something, and appreciate you spending some time with us today.
Dan Balcauski (43:47):
I really appreciate the opportunity, Randy. It was a blast.

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How to Transform Your Pricing Strategy with the Power of Value Conversations - Maxio

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Randy and Dan explore the nuances of pricing from multiple angles and unravel the intricacies of how to structure effective pricing strategies that align with company objectives to drive both revenue and profitability.

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Unit Economics for Startups | eCommerce, Software & Hardware (Video)

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Unit Economics for Startups | eCommerce, Software & Hardware (Video)

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This video explains unit economics and how startups can calculate costs and profits effectively. It’s reliable as it offers real-life examples across various sectors. Startups can use this information to evaluate profitability and make informed financial decisions.

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Unit Economics for Startups | eCommerce, Software & Hardware

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Pricing Strategy for Startups | (a16z Crypto Podcast)

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Pricing Strategy for Startups | (a16z Crypto Podcast)

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This podcast covers different pricing models and highlights common mistakes to avoid. It’s credible due to the expertise of Andreessen Horowitz (a16z), a leading VC firm. Startups can apply these insights to develop effective pricing strategies.

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This episode of web3 with a16z is all about pricing strategy. We dive into insights from traditional and web2 businesses and apply them - plus brand new approaches - to startups using crypto and blockchains. Topics of discussion include the importance of understanding consumer psychology, how to navigate pivots and avoid common mistakes, and what can be learned from real-world case studies, including Tesla, Nvidia, and others. Our experts include a16z crypto's Maggie Hsu, head of our go-to-market team; research partner and Harvard Business School professor of economics Scott Kominers; and tech veteran and head of our CSX startup accelerator Jason Rosenthal - the three of whom combine their different expertise around the theme of this episode to help you master pricing strategy.

Welcome to web3 with a16z, I'm Robert Hackett and today, we discuss pricing strategy for startups - from traditional businesses to web2 to web3.
Topics we cover include:

unit economics

understanding consumer psychology

using onchain data to inform pricing decisions

Common mistakes and how to avoid them

How to navigate a pricing pivot

And lessons from real world pricing case studies, including Tesla, Nvidia, and others

Our experts include a16z crypto The views expressed here are those of the individual AH Capital Management, L.L.C. ("a16z") personnel quoted and are not the views of a16z or its affiliates. Certain information contained in here has been obtained from third-party sources, including from portfolio companies of funds managed by a16z. While taken from sources believed to be reliable, a16z has not independently verified such information and makes no representations about the current or enduring accuracy of the information or its appropriateness for a given situation. In addition, this content may include third-party advertisements; a16z has not reviewed such advertisements and does not endorse any advertising content contained therein. This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by a16z. (An offering to invest in an a16z fund will be made only by the private placement memorandum, subscription agreement, and other relevant documentation of any such fund and should be read in their entirety.) Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by Andreessen Horowitz (excluding investments for which the issuer has not provided permission for a16z to disclose publicly as well as unannounced investments in publicly traded digital assets) is available at https://a16z.com/investment-list/. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Please see https://a16z.com/disclosures/ for additional important information. 's Maggie Hsu, head of our go-to-market team; research partner and Harvard Business School professor of economics Scott Kominers; and head of our CSX startup accelerator Jason Rosenthal, who is a tech veteran having spent the last 25 years at various internet companies - the three combine all their different expertise around the theme of this episode.
***

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Pricing strategy for startups - a16z crypto

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Experts from a16z crypto discuss startup pricing strategy, consumer psychology, and business economics on web3 with a16z podcast.

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This video discusses how startups can use pricing to drive growth and profitability. It's trustworthy as it features expert insights backed by case studies. Startups can develop competitive, value-based pricing models to boost revenue.

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Unleashing the Power of Pricing | The Brainy Business podcast ep 356

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List out all potential features and prioritize those solving the core user problem.
Focus on delivering value quickly while avoiding feature bloat.

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What is a Feature Priority Matrix?

A feature priority matrix is a tool used in product management that can help teams determine which features should be developed first. By comparing the importance and implementation difficulty of each feature on a two-dimensional chart, we can create a clear, visual way to display the priority each feature should have. Here are the main components of the feature priority matrix.

1. Importance

This is one dimension of the matrix, usually represented by the vertical axis. This represents the importance of each feature in meeting user needs and achieving business goals.

2. Implementation Difficulty

This is another dimension of the matrix, usually represented by the horizontal axis. This represents the number of resources required to implement each feature, including time, money, manpower, etc.

3. Feature List

These are all the features or requirements you want to prioritize. They are placed on the matrix according to their importance and implementation difficulty.

In the matrix, features in the upper left corner (high importance, low implementation difficulty) should be implemented first, while features in the lower right corner (low importance, high implementation difficulty) may need to be postponed or reconsidered.

Why is it important to prioritize features?

1. Limited Resources

Whether it's time, funds, or human resources, they are all limited. By prioritizing, we can ensure that these precious resources are focused on the most important features.

2. Improve Customer Satisfaction

Understanding and developing the most valuable features for customers first can significantly improve customer satisfaction. Without priorities, you may fall into the trap of spending a lot of time developing features that customers don't care much about.

3. Reduce Risk

A feature may bring a high risk for various reasons (such as technical complexity, high cost, etc.). Prioritizing features can help us identify these risks and adjust our development plans accordingly.

4. Reach Market Faster

Usually, launching a product with core features earlier is more important than launching a product after finishing all planned features. Prioritization can help us determine which features should be developed first so that we can launch the product as soon as possible.

5. Boost Team Morale

Prioritizing features can provide clear direction and let team members understand how their work creates value for the product or service. This not only improves work efficiency but also boosts team morale.

Overall, prioritizing features can help us develop effective development plans in a resource-limited and competitive environment and ensure our success in meeting customer needs, reducing risk, and improving efficiency.

How do you determine feature priority?

Determining feature priority is a key step in product management. Here are some commonly used steps.

1. Understand Customer Needs

First, you need to understand the needs of your customers. Through market research, interviews, user feedback, and other methods, understand what your target user group cares about and needs.

2. Evaluate Impact

Next, evaluate the impact of each feature on the overall effect of the product. Ask yourself, what impact does this feature have on the long-term development of the product? How will it improve user experience?

3. Consider Implementation Difficulty

Consider the implementation difficulty of each feature. How long does it take to develop this feature? How many resources are needed? At the same time, consider any technical challenges that this feature may bring.

4. Sort Priorities

Finally, sort each feature based on the above factors. In many cases, trade-offs may be necessary. For example, one feature may be very important but also difficult to implement. Conversely, another feature may be easier to implement but might have a smaller overall impact on the product.

Remember that determining feature priority is not set in stone; it should be adjusted with changes in market trends, user needs and business goals.

Examples of Feature Priority Matrix in Practice

The feature priority matrix is a powerful tool to help you determine which features to prioritize during the development process. Here are some examples of feature priority matrices in practice.

1. RICE Scoring Model

The RICE scoring model is a feature prioritization method proposed by Intercom, mainly considering four factors: Reach, Impact, Confidence, and Effort.

Reach measures how many users this feature will affect in a given period; Impact is a prediction of how much impact this feature will have on each user; Confidence is the credibility of the above two evaluations; Effort is the workload required to complete this feature.

Multiplying these four factors can give each feature's RICE score for sorting.

2. 2x2 Matrix Based on Value and Complexity

This is a simple but very effective method. The core idea is to place each feature in a 2x2 matrix according to its expected value and implementation complexity.

The four quadrants of the matrix represent "high value, low complexity", "high value, high complexity", "low value, low complexity" and "low value, high complexity". In this way, it can be seen which features should be prioritized.

3. Importance-Urgency Matrix

This matrix is also known as the Eisenhower Matrix, which classifies tasks based on their importance and urgency. According to this division, tasks can be divided into "important and urgent", "important but not urgent", "not important but urgent" and "not important and not urgent".

For the priority of features, consider "important and urgent" features first, then "important but not urgent" features, "not important but urgent" features rank third, and finally consider "not important and not urgent" features.

4. Kano Model

The Kano model helps determine its priority by categorizing features. These categories include basic features (basic functions consumers expect), performance features (the more the better or less good), and excitement features (consumers may not think about it, but it will surprise them).

Basic features need to be implemented first, followed by performance characteristics, and finally excitement characteristics.

The above are useful examples of feature priority matrices. Choose the one that suits you best according to your specific needs. Next, let's look at how to apply Prioritize Features in specific case practices.

How to Prioritize Features for a Product Roadmap

Creating a product roadmap and prioritizing its features is a strategic decision-making process. Here are some steps to help you prioritize features.

1. Clarify Your Product Vision and Strategy

Before starting to plan your product roadmap, you must first clearly understand your product vision and strategy. This should include the goals you hope the product will achieve in the future, and how you plan to achieve these goals.

2. Understand User Needs

Understand deeply who your users are, their needs, and what their pain points are. You can collect this information through user interviews, feedback, surveys, etc.

3. Collect and List All Possible Features

Collect all possible features with your team (such as product management, design, engineering, sales, etc.). At this stage, feasibility should not be overly considered; any idea should be taken into account.

4. Evaluate Features

Each feature should be evaluated based on its expected impact (such as potential revenue generated, improved user experience, etc.), and the difficulty of implementing the feature.

5. Use a Priority Model

Using a priority model such as RICE or weighted scoring can help you quantitatively rank each feature based on pre-set criteria.

6. Create Your Roadmap

Based on your ranking, you can start creating your product roadmap. This should include which features will be developed in the coming period and expected completion times.

7. Continually Check and Update Your Roadmap

The product roadmap is not set in stone; it should be updated according to market changes, new user feedback resource availability, etc.

Each of these steps requires close collaboration with your team and meticulous work. However, if done correctly, prioritizing features can greatly assist in determining the direction of product development and ensuring resources are used effectively.

How to Prioritize Features in a Product Backlog

Prioritizing features in a product backlog is a key part of product management. This requires balancing factors such as user needs, team capabilities, and business goals. Here are the basic steps for sorting.

1. Collect All Features and Requirements

Before you start prioritizing, you need to have a complete list of requirements. This can come from various sources such as customer feedback, market research, team suggestions, etc.

2. Define Evaluation Criteria

You need a method to determine the importance of features. This may involve many factors such as the urgency of customer needs, the workload required to implement specific features, or its impact on your business goals.

3. Score Each Feature

Using your defined criteria, score each feature. For example, you might rate each feature based on the urgency of customer needs, impact, workload, and risk.

4. Sort by Score

Sort features by a score from high to low. The highest score should be the highest priority task.

5. Regularly Review and Update Sorting

Priority is not determined once but should be an ongoing process. As market conditions, team capabilities, and customer needs change, you should regularly review and adjust your sorting.

Remember that prioritizing a product backlog requires flexibility and adaptability. The sorting process is not absolute but is a process of balance and adjustment to maximize product value.

How to Prioritize Features in Agile Development

In agile development, the priority of features is very important. Here are some methods that can help determine which features to develop first.

1. Value and Workload

Determine the value and workload of each feature. Features with high value and low workload should be developed first.

2. Agile Story Mapping

Agile story mapping is a method that helps understand user experiences and prioritize features accordingly. With this method, you can create a visual map to understand how users use the product and determine which features are most important for the user experience.

3. MOSCOW Rule

The MOSCOW rule is a commonly used feature priority method, divided into four categories: Must have, Should have, Could have, and Won't have. This can help the team clarify which features are crucial for product success, and which ones can be postponed or omitted.

4. Determine Priority with RICE Scoring Method

RICE stands for Reach, Impact, Confidence, and Effort. Each feature will get a total score based on these four factors, with the highest-scoring features developed first.

5. User Voting

Having your users or customers vote on features is also a common method. This not only helps the team understand what users want but also makes users feel their impact on the product.

With these methods, you can more effectively determine which features should be prioritized for development to better meet user needs and achieve business goals during agile development.

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Embark on a journey to master the art of feature prioritization with this comprehensive guide. Learn practical strategies to determine feature priority, enriched by real-world examples of the Feature Prioritization Matrix. This guide also provides insights on how to effectively prioritize features for a product roadmap, in a product backlog, and within agile methodologies.

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Product prioritization is what keeps most of our product management community up at night.

Ultimately, our aim is to build successful products that solve our user’s problems.

All while trying to answer three seemingly simple questions: What to build, when and why.

But make no mistake, prioritization is much more than coming up with a list of features or initiatives and assigning it to a roadmap.

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Learn to structure a repeatable process to build outstanding products. Try these proven strategies to uncover insights and feedback, as well as how to select the right prioritization framework and put it in place to make the best decisions.

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Designing Usable Categories- Card Sorting

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Website Taxonomy: Definition, Types and Examples

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Have you ever wondered how websites get discovered on Google? Search engine optimization and paid ads can put your content on top, but it boils down to having a well-organized taxonomy.

Website taxonomy may seem too technical, but it is less complicated than it sounds. It simplifies your website structure and content, optimizes the user experience, and increases brand awareness.

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Website Taxonomy: Definition, Types and Examples

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Homepage & Navigation UX Best Practices 2024 – Baymard

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Baymard’s 2024 Homepage & Category Navigation e-commerce UX benchmark contains 13,000+ Homepage and Category Navigation UX elements manually reviewed and scored by Baymard’s team of UX researchers (benchmark embedded below).

This article analyzes a portion of our large-scale Baymard Premium research findings to provide you with the current state of Homepage and Category Navigation e-commerce UX, while suggesting 12 common pitfalls to avoid.

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Homepage & Navigation UX Best Practices 2024 – Baymard

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Our latest Homepage & Category Navigation UX benchmark reveals that the desktop performance for 76% of leading US and European sites is still “poor”. Here are 12 UX pitfalls to avoid.

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Build a simple version of your product using no-code or low-code tools.
Test assumptions with clickable prototypes, mockups, or basic service models.
Spend minimally to learn maximally in the shortest time possible.

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TOPDEVS - We help you transform your business by building innovative software

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Key Difference Between a Prototype and an MVP - TopDevs Blog

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MVP vs Prototype? How to make sure about your app idea will be a real product-market fit? It’s the time when Prototype and MVP come into play. Let`s find out!

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MVP or Prototype? A Guide to Choosing the Right Approach for Your Idea | HatchWorks AI

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MVP or Prototype? A Guide to Choosing the Right Approach for Your Idea | HatchWorks AI

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When it comes to bringing a new product to market, it’s important to test your idea to ensure its success. One way to do this is by using prototypes and minimum viable products (MVPs). Both prototypes and MVPs can be useful tools in the product development process, but it’s important to understand the key differences between the two and how to choose the right approach for your product.

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Cost-Effective MVP Development: Maximize Resources | Flexum • Flexum Foundry

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The MVP approach helps startups to test, iterate, and refine their product ideas without investing significant resources into full-scale product development. This strategy is especially beneficial for startups operating with limited budgets, as it focuses on the core functionalities necessary to meet the market demand and receive valuable user feedback.

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No-code and low-code MVP development allows you to validate ideas without needing expensive development teams or advanced technical infrastructure.

By 2025, approximately half of IT leaders are expected to implement low-code or no-code technologies.

The global low/no-code platform market, valued at $12.62 billion in 2023, is projected to reach $51.25 billion by 2028.

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Building an MVP (Minimum Viable Product) in 2025 costs anywhere from $5,000 to $150,000, depending on factors like team structure, project complexity, and location. Here’s a comprehensive breakdown of what you need to know:

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MVP Development Cost Guide for Startups 2025

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Running Early User Tests & Gathering Feedback

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Running Early User Tests & Gathering Feedback

# data[].attributes.body
Conduct usability tests, interviews, and surveys with your target users.
Observe how users interact with your solution and where they struggle.
Collect honest feedback to uncover gaps and improvement areas.

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Summary: UX researchers use this popular observational methodology to uncover problems and opportunities in designs.

Usability testing is a popular UX research methodology.

Definition: In a usability-testing session, a researcher (called a "facilitator" or a "moderator") asks a participant to perform tasks, usually using one or more specific user interfaces. While the participant completes each task, the researcher observes the participant's behavior and listens for feedback.

The phrase "usability testing" is often used interchangeably with "user testing."

Why Usability Test?

The goals of usability testing vary by study, but they usually include:

Identifying problems in the design of the product or service

Uncovering opportunities to improve

Learning about the target user's behavior and preferences

Why do we need to do usability testing? Won't a good professional UX designer know how to design a great user interface? Even the best UX designers can't design a perfect - or even good enough - user experience without iterative design driven by observations of real users and of their interactions with the design.

There are many variables in designing a modern user interface and there are even more variables in the human brain. The total number of combinations is huge. The only way to get UX design right is to test it.

Elements of Usability Testing

There are many different types of usability testing, but the core elements in most usability tests are the facilitator, the tasks, and the participant.

The facilitator administers tasks to the participant. As the participant performs these tasks, the facilitator observes the participant's behavior and listens for feedback. The facilitator may also ask followup questions to elicit detail from the participant.

Facilitator

The facilitator guides the participant through the test process. She gives instructions, answers the participant's questions, and asks followup questions.

The facilitator works to ensure that the test results in high-quality, valid data, without accidentally influencing the participant's behavior. Achieving this balance is difficult and requires training.

(In one form of remote usability testing, called remote unmoderated testing, an application may perform some of the facilitator's roles.)

Tasks

The tasks in a usability test are realistic activities that the participant might perform in real life. They can be very specific or very open-ended, depending on the research questions and the type of usability testing.

Examples of tasks from real usability studies:

Your printer is showing "Error 5200". How can you get rid of the error message? You're considering opening a new credit card with Wells Fargo. Please visit wellsfargo.com and decide which credit card you might want to open, if any. You've been told you need to speak to Tyler Smith from the Project Management department. Use the intranet to find out where they are located. Tell the researcher your answer.

Task wording is very important in usability testing. Small errors in the phrasing of a task can cause the participant to misunderstand what they're asked to do or can influence how participants perform the task (a psychological phenomenon called priming).

Task instructions can be delivered to the participant verbally (the facilitator might read them) or can be handed to a participant written on task sheets. We often ask participants to read the task instructions out loud. This helps ensure that the participant reads the instructions completely, and helps the researchers with their notetaking, because they always know which task the user is performing.

Participant

The participant should be a realistic user of the product or service being studied. That might mean that the user is already using the product or service in real life. Alternatively, in some cases, the participant might just have a similar background to the target user group, or might have the same needs, even if he isn't already a user of the product.

Participants are often asked to think out loud during usability testing (called the "think-aloud method"). The facilitator might ask the participants to narrate their actions and thoughts as they perform tasks. The goal of this approach is to understand participants' behaviors, goals, thoughts, and motivations.

Types of Usability Testing

Qualitative vs. Quantitative

Usability testing can be either qualitative or quantitative.

Qualitative usability testing focuses on collecting insights, findings, and anecdotes about how people use the product or service. Qualitative usability testing is best for discovering problems in the user experience. This form of usability testing is more common than quantitative usability testing.

Quantitative usability testing focuses on collecting metrics that describe the user experience. Two of the metrics most commonly collected in quantitative usability testing are task success and time on task. Quantitative usability testing is best for collecting benchmarks.

The number of participants needed for a usability test varies depending on the type of study. For a typical qualitative usability study of a single user group, we recommend using five participants to uncover the majority of the most common problems in the product.

Remote vs. In-Person Testing

Remote usability tests are popular because they often require less time and money than in-person studies. There are two types of remote usability testing: moderated and unmoderated.

Remote moderated usability tests work very similarly to in-person studies. The facilitator still interacts with the participant and asks her to perform tasks. However, the facilitator and participant are in different physical locations. Usually, moderated tests can be performed using screen-sharing software like Skype or GoToMeeting.

Remote unmoderated remote usability tests do not have the same facilitator-participant interaction as an in-person or moderated tests. The researcher uses a dedicated online remote-testing tool to set up written tasks for the participant. Then, the participant completes those tasks alone on her own time. The testing tool delivers the task instructions and any followup questions. After the participant completes her test, the researcher receives a recording of the session, along with metrics like task success.

Cost of Usability Testing

Simple, "discount" usability studies can be inexpensive, though you usually must pay a few hundred dollars as incentives to participants. The testing session can take place in a conference room, and the simplest study will take 3 days of your time (assuming that you have already learned how to do it, and you have access to participants):

Day 1: Plan the study

Day 2: Test the 5 users

Day 3: Analyze the findings and convert them into redesign recommendations for the next iteration

On the other hand, more-expensive research is sometimes required, and the cost can run into several hundred thousand dollars for the most elaborate studies.

Things that add cost include:

The return on investment (ROI) for advanced studies can still be high, though usually not as high as that for simple studies.

NN/g Resources for Usability Testing

Facilitating a Usability Test

For hands-on training and help honing your facilitation skills, check out our full-day course on usability testing.

Recruiting Participants

Remote Usability Testing

For detailed help planning, conducting, and analyzing remote user testing, check out our full-day seminar: Remote Usability Testing.

Special Usability Testing Studies or User Groups

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UX researchers use this popular observational methodology to uncover problems and opportunities in designs.

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Learn the essentials of business formation, contracts, and IP protection.
Understand data privacy, employment laws, and industry regulations.
Work with legal experts to prevent costly mistakes early on.

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Globally, the startup ecosystem is growing in a rapid manner. Yet, not every startup is achieving long-term growth and success. In the current business world, several small businesses are facing challenges. These include non-regulatory legal fines and business disruptions. They either shut down their business or pay hefty fines due to regulatory scrutiny. Most often, these failures correspond to their non-compliant business culture. This is why compliance for startups is mandatory in the contemporary regulatory landscape.

In general, compliance is adhering to legal and regulatory requirements relevant to a particular industry or jurisdiction. E.g., SOC 2, ISO 27001 and GDPR. In other words, it is a process of following a set of rules and regulations in your business operations to manage risks and minimize errors. Further, it helps in avoiding legal struggles, building trust and maintaining a good reputation. Every business, regardless of size, should be compliant. This ensures their organizational efficiency. Let's explore why startup compliance is crucial for businesses in 2025.

Concern: In the age of a complex regulatory environment, startups often fail to prioritize their need to ensure a comprehensive compliance program. But startup compliance is the foundation of long-term success and sustainable growth.

Overview: Compliance is a resource-intensive process. Therefore, startup companies find challenges to achieve. But non-compliance often leads to legal penalties, business disruptions and loss of reputation.

Solution: Following a robust compliance program with a proper plan and commitment is required. Startups should invest and be involved in this strategic process. Thereby, they can ensure regulatory adherence and build a reputation among customers and clients.

WHY STARTUPS NEED COMPLIANCE IN 2025

Even though startups are budding businesses with minimal resources, they can't neglect the fact that they should comply with certain compliance legal requirements and regulatory obligations. However, neglecting these legal requirements will lead to consequences such as legal penalties, loss of investor confidence, and security breaches. Also, currently most startups are cloud-based and engaged in data-driven businesses. Thus, it's their moral duty to ensure that their business operations and associated assets are safe and free from threats.

Additionally, in this era of business interdependence, compliance for small companies helps them gain an edge in growth opportunities. For instance, most MNCs and corporates expect their third-party vendors (startups) to follow a secure governance framework.
Some of the key factors reinforcing the significance of compliance for startups are as follows:
Regulatory Adherence: The regulatory landscape is becoming more strict and complex for startups. Further, regulators are not providing any excuse for these small companies for being non-compliant in their early stages. Moreover, non-compliance can be disastrous for these businesses if faced with legal cases and hefty fines.

Trust Among Investors: Potential investments and funding are important for startups. Also, most investors and venture capitalists check for robust compliance credentials in organizations they wish to fund. Therefore, it is essential for startups to establish a comprehensive compliance program to reduce investment risks.

Reputation Among Customers: Compliance for startups helps in ensuring data protection and privacy in their business. Thereby earning a reputation among the customers and clients. Given the surge in alarming cyber threats and regulations, comprehensive compliance measures are crucial to demonstrate their commitment to protecting customer data.

Market Accessibility: Compliance for startups provides them with a competitive advantage in accessing the markets and potential business opportunities. Thus, startups need to build a strong compliance foundation right from the beginning stage.

MOST COMMON FRAMEWORKS IN COMPLIANCE FOR STARTUPS

Here below we are discussing the 6 common compliance frameworks relevant to the startups 1. Data Security and Privacy-Related Compliance for Startups:
In the age of rigid data protection laws, data privacy compliance is important for startups. E.g., GDPR, SOC 2, ISO 27001, and CCPA.

2. GDPR (General Data Protection Regulations): It is the EU's comprehensive data protection law. It is mandatory for startups to process the European Union's resident data, regardless of where the organization is located. It works on the core principles of lawfulness, fairness and transparency.

3. SOC 2 (System and Organization Controls 2): The American Institute of Certified Public Accountants (AICPA) established this security compliance framework. It evaluates how safely organizations manage and process customer data based on specific trust services criteria: security, availability, processing integrity, confidentiality, and privacy. Startups dealing with data and cloud-based applications should consider SOC 2.

4. CCPA (California Consumer Protection Act): Often called California's GDPR, it is a comprehensive data protection law for safeguarding California residents. It provides the residents with significant control over their data and personal information.

5. ISO 27001: The International Standardization Organization (ISO) established it. It serves as a comprehensive framework for Information Security Management Systems (ISMS). Startups focusing on protecting their information assets should consider implementing ISO 27001 frameworks.
Industry-specific Compliance for Startups:
1. PCI DSS (Payment Card Industry Data Security Standard): It is a set of security frameworks that organizations handling cardholder data and information must adhere to. Therefore, financial startups dealing with payment processes and credit card information should comply with PCI DSS and KYC (Know Your Customer) requirements.

2. HIPAA (Health Insurance Portability and Accountability Act): It's a federal law enacted to protect patients' sensitive information. Startups dealing with protected health information should ensure their compliance with HIPAA regulations.

BEST PRACTICES FOR COMPLIANCE-FOCUSED STARTUPS

The strategic importance of compliance for startups in the current business world is growing manifold. As a result, startups should follow some of the best practices to achieve it.
Commitment: The founders of the startup should demonstrate a visible commitment to compliance culture. They should establish a clear governance structure and make compliance programs an integral part of their business from the beginning stage. This commitment can be seen in the allocation of resources and making swift decisions in their compliance journey.

Documentation: Startups should follow effective documentation and policy management. Accordingly, clear policies and procedures should be developed to address the key regulatory requirements and business risks. Regular reviews and updates are necessary to meet the evolving compliance legal requirements.

Technology: Startups should embrace emerging tools and technologies to thrive in modern compliance management. In particular, they should leverage compliance automation tools to automate routine tasks, maintain documentation, and monitor their ongoing compliance activities.

Training: Employee training and awareness are significant in compliance programs. Therefore, startups should conduct regular training sessions for their employees. This further ensures that they are aware of their responsibilities in maintaining regulatory standards.

Third-party Management: As startups rely more on vendors and partners, it is essential to follow an effective third-party risk management plan. Therefore, it is important that startups practice thorough due diligence before engaging with third parties.

COMPLIANCE FOR STARTUPS-RELATED CHALLENGES

Given the rapidly evolving business landscape, compliance for small companies is a daunting task. They are faced with unique challenges that impact their business growth and operational effectiveness. In particular, they find it hard to balance their innovation and market expansion with rigid compliance legal requirements. Now, let's discuss a few challenges faced by startups.

Complex Frameworks: One of the primary challenges in compliance for startups is the complexity of regulatory frameworks across different regions. With businesses expanding globally, they need to navigate the various compliance requirements and data-protection laws. Therefore, startups operating in heavily regulated industries like finance and healthcare are finding it challenging to comply with them.

Resource Constraints: Another major challenge is the lack of resources. To clarify, startups often work with limited budgets and funds, making it difficult to allocate sufficient resources to compliance initiatives. The costs of establishing a compliance program for startups are high while they simultaneously invest in business operations.

Expertise: In addition, lack of expertise is also a major challenge for these startups. For instance, large corporations have the privilege of a well-established compliance team and external consultants. However, these startups often struggle to get expert guidance and advice on compliance programs.

COMPLIANCE FOR STARTUPS - THE FUTURE TRENDS

In the future, emerging small companies should focus on building startups that are not only durable on the business front. But they should also focus on building effective governance for all its business operations. To add on, a comprehensive compliance program will ensure ethical practices, thereby upholding their business integrity.
With evolving compliance regulations, startups must embrace the following trends to stay ahead of the market.

AI and machine learning

Blockchain technology

CaaS

Artificial intelligence and machine learning are transforming the compliance management of startups. The AI-powered compliance systems possess automation and predictive capabilities. Further, this helps in analyzing vast amounts of data and predicting potential risks and compliance violations before they escalate.

The integration of blockchain technology in compliance programs is enhancing the documentation and verification process. Its ability to maintain tamper-proof digital record systems eases the process of regulatory adherence. Moreover, its smart contract capability (the ability to automate and execute a process that is agreed upon outside the chain) is automating the compliance process and safeguarding business transactions. This includes processes such as KYC and anti-money laundering.

CaaS (Compliance as a Service) is a great option for startups looking to achieve their compliance legal requirements. They can collaborate with firms offering CaaS services to get access to advanced compliance tools and expert guidance. Further, CaaS providers offer flexible, industry-specific solutions to address the startup's regulatory requirements.

To conclude, comprehensive compliance for startups will ensure their reputation and business growth. Further, it also showcases their commitment to data security and customer trust. By following ethical business practices, startups also demonstrate their business integrity and benefits to society at large.

Not only that, choosing the right partner is also crucial in compliance for startups. Here comes CertPro as your right partner for comprehensive compliance management. With a team of dedicated experts and top-notch services, we offer startups scalable and cost-efficient compliance services.

What is a startup compliance checklist?

A startup compliance checklist is a list of legal and regulatory requirements that businesses must implement and follow. This ensures their adherence to international standards and regulations.

What are the risks of non-compliance for startups?

Non-compliance can lead to legal penalties, reputational damage, financial losses, and loss of business opportunities, which can harm a startup's growth.

What is the role of a compliance officer in a startup?

A compliance officer ensures that the startup adheres to all relevant regulations, develops compliance policies, and trains employees on legal and ethical standards.

Why is regulatory compliance important for startups?

Regulatory compliance is essential for startups to build trust with customers, avoid legal issues, protect their reputation, and ensure long-term business success.

How often should a startup update its compliance checklist?

A startup should update its compliance checklist regularly, especially when there are changes in laws or regulations that affect its industry or operations.

Abhijith Rajesh

Abhijith Rajesh is an Executive Team Lead at CertPro, specializing in ISO 27001, SOC2, GDPR, and other Information Security Compliance standards. He leads a dedicated team, ensuring the delivery of top-tier information security solutions. Abhijith excels in managing projects, optimizing security frameworks, and guiding clients through the complexities of the ever-evolving threat landscape.

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Healthcare data breaches show how vital risk management is in the healthcare industry. Cyberattacks happen in many parts of healthcare companies, so risk management is essential for security. Changes made to clinical and administrative processes are part of risk...

read more

In today's business world, information is just as valuable as any other product. Cyberattacks and risks always happen, though, making it hard to gather and store information. Because of this, new cyber threats raise the risk to information security and leave the...

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Risk assessment helps businesses improve their security and see potential threats to their compliance systems. It also figures out how bad the risk is and how it can affect business processes. Risk assessment tools allow a group to look at and deal with risks. So, it...

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Personas are fictional characters, which you create based upon your research to represent the different user types that might use your service, product, site, or brand in a similar way. Creating personas will help you understand your users’ needs, experiences, behaviors and goals. Creating personas can help you step out of yourself. It can help you recognize that different people have different needs and expectations, and it can also help you identify with the user you’re designing for. Personas make the design task at hand less complex, they guide your ideation processes, and they can help you to achieve the goal of creating a good user experience for your target user group.

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Plan your budget to optimize spending and avoid premature scaling.

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Financial forecasting means predicting the performance of a startup business, usually over the first three years. Investors may want to see when revenues are predicted to equal expenses, and the company starts making a profit.

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Financial Projections for Startups – LivePlan

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Financial Projections for Startups – LivePlan

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LivePlan provides a comprehensive overview of creating financial projections, likening them to a roadmap for business success. It discusses forecasting over a three to five-year period, focusing on revenues, expenses, and overall financial health. The article is tailored for startups seeking to anticipate future financial performance

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Financial Projections for Startups | LivePlan

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Financial projections are not just wild guesses about how much money you’ll make. Instead, they are based on reliable data, market research, and sensible assumptions. They show potential investors that you’ve done your homework, that you understand the marketplace, and that you’re serious about making your business a success.

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Startup Financial Projections and Budgeting: Not The Same – Finro

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Startup Financial Projections and Budgeting: Not The Same – Finro

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This article distinguishes between financial projections and budgeting, highlighting their unique roles in startup financial planning. It advocates for maintaining separate documents to avoid confusion and enhance clarity. The piece offers best practices for effective financial management in startups.

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Startup Financial Projections and Budgeting: Not The Same | Finro Financial Consulting

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Explore the essentials of startup financial projections and budgeting to navigate growth, manage cash flow, and secure funding effectively.

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Financial Forecasting for Startups: A Step-by-Step Guide – Fuelfinance

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Financial Forecasting for Startups: A Step-by-Step Guide – Fuelfinance

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Fuelfinance presents a step-by-step guide to financial forecasting, emphasizing its role in predicting cash flow and securing success. The article covers key elements and provides a structured approach to creating accurate forecasts. It's designed to help startups identify potential risks and growth opportunities.

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Financial Forecasting for Startups: A Step-by-Step Guide

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Financial forecasting for startups: a step-by-step guide to unlocking your business’s potential and securing its success.

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How to Create Accurate Financial Projections and Budgets – Chore

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How to Create Accurate Financial Projections and Budgets – Chore

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This guide offers practical tips for startups to develop accurate financial projections and budgets. It underscores the importance of mastering financial planning to avoid challenges like cash flow shortages. The article serves as a valuable resource for startups aiming for financial stability.

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Understand different funding stages: bootstrapping, angels, VCs, and grants.
Learn how to approach the right investors and prepare key materials.
Recognize when and why to raise capital based on business needs.

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Why Raise Money - When to Raise Money - How Much to Raise? - Financing Options - Convertible Debt - Safe - Equity - Valuation - Investors

Crowdfunding - Meeting Investors - Closing the Deal - Negotiations - Documents You Need - Next - Appendix - Glossary - Sources

Introduction

Startup companies need to purchase equipment, rent offices, and hire staff. More importantly, they need to grow. In almost every case they will require outside capital to do these things.

The initial capital raised by a company is typically called "seed" capital. This brief guide is a summary of what startup founders need to know about raising the seed funds critical to getting their company off the ground.

This is not intended to be a complete guide to fundraising. It includes only the basic knowledge most founders will need. The information comes from my experiences working at startups, investing in startups, and advising startups at Y Combinator and Imagine K12. YC partners naturally gain a lot of fundraising experience and YC founder Paul Graham (PG) has written extensively on the topic 1, 2, 3, 4. His essays cover in more detail much of what is contained in this guide and are highly recommended reading.

Why Raise Money?

Without startup funding the vast majority of startups will die. The amount of money needed to take a startup to profitability is usually well beyond the ability of founders and their friends and family to finance. A startup here means a company that is built to grow fast 12. High growth companies almost always need to burn capital to sustain their growth prior to achieving profitability. A few startup companies do successfully bootstrap (self-fund) themselves, but they are the exception. Of course, there are lots of great companies that aren't startups. Managing capital needs for such companies is not covered herein.

Cash not only allows startups to live and grow, a war chest is also almost always a competitive advantage in all ways that matter: hiring key staff, public relations, marketing, and sales. Thus, most startups will almost certainly want to raise money. The good news is that there are lots of investors hoping to give the right startup money. The bad news is, "Fundraising is brutal" 1. The process of raising that money is often long, arduous, complex, and ego deflating. Nevertheless, it is a path almost all companies and founders must walk, but when is the time right to raise?

When to Raise Money

Investors write checks when the idea they hear is compelling, when they are persuaded that the team of founders can realize its vision, and that the opportunity described is real and sufficiently large. When founders are ready to tell this story, they can raise money. And usually when you can raise money, you should.

For some founders it is enough to have a story and a reputation. However, for most it will require an idea, a product, and some amount of customer adoption, a.k.a. traction. Luckily, the software development ecosystem today is such that a sophisticated web or mobile product can be built and delivered in a remarkably short period of time at very low cost. Even hardware can be rapidly prototyped and tested.

But investors also need persuading. Usually a product they can see, use, or touch will not be enough. They will want to know that there is product market fit and that the product is experiencing actual growth.

Therefore, founders should raise money when they have figured out what the market opportunity is and who the customer is, and when they have delivered a product that matches their needs and is being adopted at an interestingly rapid rate. How rapid is interesting? This depends, but a rate of 10% per week for several weeks is impressive. And to raise money founders need to impress. For founders who can convince investors without these things, congratulations. For everyone else, work on your product and talk to your users.

How Much to Raise?

Ideally, you should raise as much money as you need to reach profitability, so that you'll never have to raise money again. If you succeed in this, not only will you find it easier to raise money in the future, you'll be able to survive without new funding if the funding environment gets tight. That said, certain kinds of startups will need a follow-on round, such as those building hardware. Their goal should be to raise as much money as needed to get to their next "fundable" milestone, which will usually be 12 to 18 months later.

In choosing how much to raise you are trading off several variables, including how much progress that amount of money will purchase, credibility with investors, and dilution. If you can manage to give up as little as 10% of your company in your seed round, that is wonderful, but most rounds will require up to 20% dilution and you should try to avoid more than 25%. In any event, the amount you are asking for must be tied to a believable plan. That plan will buy you the credibility necessary to persuade investors that their money will have a chance to grow. It is usually a good idea to create multiple plans assuming different amounts raised and to carefully articulate your belief that the company will be successful whether you raise the full or some lesser amount. The difference will be how fast you can grow.

One way to look at the optimal amount to raise in your first round is to decide how many months of operation you want to fund. A rule of thumb is that an engineer (the most common early employee for Silicon Valley startups) costs all-in about $15k per month. So, if you would like to be funded for 18 months of operations with an average of five engineers, then you will need about 15k x 5 x 18 = $1.35mm. What if you are planning to hire for other positions as well? Don't worry about it! This is just an estimate and will be accurate enough for whatever mix you hire. And here you have a great answer to the question: "How much are you raising?" Simply answer that you are raising for N months (usually 12-18) and will thus need $X, where X will usually be between $500k and $1.5 million. As noted above, you should give multiple versions of N and a range for X, giving different possible growth scenarios based on how much you successfully raise.

There is enormous variation in the amount of money raised by companies. Here we are concerned with early raises, which usually range from a few hundreds of thousands of dollars up to two million dollars. Most first rounds seem to cluster around six hundred thousand dollars, but largely thanks to increased interest from investors in seed, these rounds have been increasing in size over the last several years.

Financing Options

Startup founders must understand the basic concepts behind venture financing. It would be nice if this was all very simple and could be explained in a single paragraph. Unfortunately, as with most legal matters, that's not possible. Here is a very high level summary, but it is worth your time to read more about the details and pros and cons of various types of financing and, importantly, the key terms of such deals that you need to be aware of, from preferences to option pools. The articles below are a decent start.

Venture Hacks / Babk Nivi: Should I Raise Debt or Equity

Fred Wilson: Financing Options

Mark Suster on Convertible Debt

Announcing the Safe
Venture financing usually takes place in "rounds," which have traditionally had names and a specific order. First comes a seed round, then a Series A, then a Series B, then a Series C, and so on to acquisition or IPO. None of these rounds are required and, for example, sometimes companies will start with a Series A financing (almost always an "equity round" as defined below). Recall that we are focusing here exclusively on seed, that very first venture round.

Most seed rounds, at least in Silicon Valley, are now structured as either convertible debt or simple agreements for future equity (safes) 17. Some early rounds are still done with equity, but in Silicon Valley they are now the exception.

Convertible Debt

Convertible debt is a loan an investor makes to a company using an instrument called a convertible note. That loan will have a principal amount (the amount of the investment), an interest rate (usually a minimum rate of 2% or so), and a maturity date (when the principal and interest must be repaid). The intention of this note is that it converts to equity (thus, "convertible") when the company does an equity financing. These notes will also usually have a "Cap" or "Target Valuation" and / or a discount. A Cap is the maximum effective valuation that the owner of the note will pay, regardless of the valuation of the round in which the note converts. The effect of the cap is that convertible note investors usually pay a lower price per share compared to other investors in the equity round. Similarly, a discount defines a lower effective valuation via a percentage off the round valuation. Investors see these as their seed "premium" and both of these terms are negotiable. Convertible debt may be called at maturity, at which time it must be repaid with earned interest, although investors are often willing to extend the maturity dates on notes.

Safe

Convertible debt has been almost completely replaced by the safe at YC and Imagine K12. A safe acts like convertible debt without the interest rate, maturity, and repayment requirement. The negotiable terms of a safe will almost always be simply the amount, the cap, and the discount, if any. There is a bit more complexity to any convertible security, and much of that is driven by what happens when conversion occurs. I strongly encourage you to read the safe primer 18, which is available on YC's site. The primer has several examples of what happens when a safe converts, which go a long way toward explaining how both convertible debt and safes work in practice.

Equity

An equity round means setting a valuation for your company (generally, the cap on the safes or notes is considered as a company's notional valuation, although notes and safes can also be uncapped) and thus a per-share price, and then issuing and selling new shares of the company to investors. This is always more complicated, expensive, and time consuming than a safe or convertible note and explains their popularity for early rounds. It is also why you will always want to hire a lawyer when planning to issue equity.

To understand what happens when new equity is issued, a simple example helps. Say you raise $1,000,000 on a $5,000,000 pre-money valuation. If you also have 10,000,000 shares outstanding then you are selling the shares at:

1. $5,000,000 / 10,000,000 = 50 cents per share
and you will thus sell...

2. 2,000,000 shares
resulting in a new share total of...

3. 10,000,000 + 2,000,000 = 12,000,000 shares
and a post-money valuation of...

4. $0.50 * 12,000,000 = $6,000,000
and dilution of...

5. 2,000,000 / 12,000,000 = 16.7%
Not 20%!

There are several important components of an equity round with which you must become familiar when your company does a priced round, including equity incentive plans (option pools), liquidation preferences, anti-dilution rights, protective provisions, and more. These components are all negotiable, but it is usually the case that if you have agreed upon a valuation with your investors (next section), then you are not too far apart, and there is a deal to be done. I won't say more about equity rounds, since they are so uncommon for seed rounds.

One final note: whatever form of financing you do, it is always best to use well-known financing documents like YC's safe. These documents are well understood by the investor community, and have been drafted to be fair, yet founder friendly.

Valuation: What is my company worth?

You are two hackers with an idea, a few months of hacking's worth of software, and several thousand users. What is your company worth? It should be obvious that no formula will give you an answer. There can only be the most notional sort of justification for any value at all. So, how do you set a value when talking to a potential investor? Why do some companies seem to be worth $20mm and some $4mm? Because investors were convinced that was what they were (or will be in the near future) worth. It is that simple. Therefore, it is best to let the market set your price and to find an investor to set the price or cap. The more investor interest your company generates, the higher your value will trend.

Still, it can be difficult in some circumstances to find an investor to tell you what you are worth. In this case you can choose a valuation, usually by looking at comparable companies who have valuations. Please remember that the important thing in choosing your valuation is not to over-optimize. The objective is to find a valuation with which you are comfortable, that will allow you to raise the amount you need to achieve your goals with acceptable dilution, and that investors will find reasonable and attractive enough to write you a check. Seed valuations tend to range from $2mm-$10mm, but keep in mind that the goal is not to achieve the best valuation, nor does a high valuation increase your likelihood of success.

Investors: Angels & Venture Capitalists

The difference between an angel and a VC is that angels are amateurs and VCs are pros. VCs invest other people's money and angels invest their own on their own terms. Although some angels are quite rigorous and act very much like the pros, for the most part they are much more like hobbyists. Their decision making process is usually much faster--they can make the call all on their own--and there is almost always a much larger component of emotion that goes into that decision.

VCs will usually require more time, more meetings, and will have multiple partners involved in the final decision. And remember, VCs see LOTS of deals and invest in very few, so you will have to stand out from a crowd.

The ecosystem for seed (early) financing is far more complex now than it was even five years ago. There are many new VC firms, sometimes called "super-angels," or "micro-VC's", which explicitly target brand new, very early stage companies. There are also several traditional VCs that will invest in seed rounds. And there are a large number of independent angels who will invest anywhere from $25k to $100k or more in individual companies. New fundraising options have also arisen. For example, AngelList Syndicates lets angels pool their resources and follow a single lead angel. FundersClub invests selectively like a traditional VC, but lets angels become LPs in their VC funds to expand connections available to its founders.

How does one meet and encourage the interest of investors? If you are about to present at a demo day, you are going to meet lots of investors. There are few such opportunities to meet a concentrated and motivated group of seed investors. Besides a demo day, by far the best way to meet a venture capitalist or an angel is via a warm introduction. Angels will also often introduce interesting companies to their own networks. Otherwise, find someone in your network to make an introduction to an angel or VC. If you have no other options, do research on VCs and angels and send as many as you can a brief, but compelling summary of your business and opportunity (see Documents You Need below).

Crowdfunding

There are a growing number of new vehicles to raise money, such as AngelList, Kickstarter, and Wefunder. These crowdfunding sites can be used to launch a product, run a pre-sales campaign, or find venture funding. In exceptional cases, founders have used these sites as their dominant fundraising source, or as clear evidence of demand. They usually are used to fill in rounds that are largely complete or, at times, to reanimate a round that is having difficulty getting off the ground. The ecosystem around investing is changing rapidly, but when and how to use these new sources of funds will usually be determined by your success raising through more traditional means.

Meeting Investors

If you are meeting investors at an investor day, remember that your goal is not to close--it is to get the next meeting. Investors will seldom choose to commit the first day they hear your pitch, regardless of how brilliant it is. So book lots of meetings. Keep in mind that the hardest part is to get the first money in the company. In other words, meet as many investors as possible but focus on those most likely to close. Always optimize for getting money soonest (in other words, be greedy) 2.

There are a few simple rules to follow when preparing to meet with investors. First, make sure you know your audience--do research on what they like to invest in and try to figure out why. Second, simplify your pitch to the essential--why this is a great product (demos are almost a requirement nowadays), why you are precisely the right team to build it, and why together you should all dream about creating the next gigantic company. Next make sure you listen carefully to what the investor has to say. If you can get the investor to talk more than you, your probability of a deal skyrockets. In the same vein, do what you can to connect with the investor. This is one of the main reasons to do research. An investment in a company is a long term commitment and most investors see lots of deals. Unless they like you and feel connected to your outcome, they will most certainly not write a check.

Who you are and how well you tell your story are most important when trying to convince investors to write that check. Investors are looking for compelling founders who have a believable dream and as much evidence as possible documenting the reality of that dream. Find a style that works for you, and then work as hard as necessary to get the pitch perfect. Pitching is difficult and often unnatural for founders, especially technical founders who are more comfortable in front of a screen than a crowd. But anyone will improve with practice, and there is no substitute for an extraordinary amount of practice. Incidentally, this is true whether you are preparing for a demo day or an investor meeting.

During your meeting, try to strike a balance between confidence and humility. Never cross over into arrogance, avoid defensiveness, but also don't be a pushover. Be open to intelligent counterpoints, but stand up for what you believe and whether or not you persuade the investor just then, you'll have made a good impression and will probably get another shot.

Lastly, make sure you don't leave an investor meeting without an attempted close or at very minimum absolute clarity on next steps. Do not just walk out leaving things ambiguous.

Negotiating and Closing the Deal

A seed investment can usually be closed rapidly. As noted above, it is an advantage to use standard documents with consistent terms, such as YC's safe. Negotiation, and often there is none at all, can then proceed on one or two variables, such as the valuation/cap and possibly a discount.

Deals have momentum and there is no recipe towards building momentum behind your deal other than by telling a great story, persistence, and legwork. You may have to meet with dozens of investors before you get that close. But to get started you just need to convince 5 one of them. Once the first money is in, each subsequent close will get faster and easier 6.

Once an investor says that they are in, you are almost done. This is where you should rapidly close using a handshake protocol 19. If you fail at negotiating from this point on, it is probably your fault.

Negotiations

When you enter into a negotiation with a VC or an angel, remember that they are usually more experienced at it than you are, so it is almost always better not to try to negotiate in real-time. Take requests away with you, and get help from YC or Imagine K12 partners, advisors, or legal counsel. But also remember that although certain requested terms can be egregious, the majority of things credible VCs and angels will ask for tend to be reasonable. Do not hesitate to ask them to explain precisely what they are asking for and why. If the negotiation is around valuation (or cap) there are, naturally, plenty of considerations, e.g. other deals you have already closed. However, it is important to remember that the valuation you choose at this early round will seldom matter to the success or failure of the company. Get the best deal you can get--but get the deal! Finally, once you get to yes, don't wait around. Get the investor's signature and cash as soon as possible. One reason safes are popular is because the closing mechanics are as simple as signing a document and then transferring funds. Once an investor has decided to invest, it should take no longer than a few minutes to exchange signed documents online (for example via Clerky or Ironclad) and execute a wire or send a check.

Documents You Need

Do not spend too much time developing diligence documents for a seed round. If an investor is asking for too much due diligence or financials, they are almost certainly someone to avoid. You will probably want an executive summary and a slide deck you can walk investors through and, potentially, leave behind so VCs can show to other partners.

The executive summary should be one or two pages (one is better) and should include vision, product, team (location, contact info), traction, market size, and minimum financials (revenue, if any, and fundraising prior and current).

Generally make sure the slide deck is a coherent leave-behind. Graphics, charts, screenshots are more powerful than lots of words. Consider it a framework around which you will hang a more detailed version of your story. There is no fixed format or order, but the following parts are usually present. Create the pitch that matches you, how you present, and how you want to represent your company. Also note that like the executive summary, there are lots of similar templates online if you don't like this one.

1. Your company / Logo / Tag Line

2. Your Vision - Your most expansive take on why your new company exists.

3. The Problem - What are you solving for the customer--where is their pain?

4. The Customer - Who are they and perhaps how will you reach them?

5. The Solution - What you have created and why now is the right time.

6. The (huge) Market you are addressing - Total Available Market (TAM) >$1B if possible. Include the most persuasive evidence you have that this is real.

7. Market Landscape - including competition, macro trends, etc. Is there any insight you have that others do not?

8. Current Traction - list key stats / plans for scaling and future customer acquisition.

9. Business model - how users translate to revenue. Actuals, plans, hopes.

10. Team - who you are, where you come from and why you have what it takes to succeed. Pics and bios okay. Specify roles.

11. Summary - 3-5 key takeaways (market size, key product insight, traction)

12. Fundraising - Include what you have already raised and what you are planning to raise now. Any financial projections may go here as well. You can optionally include a summary product roadmap (6 quarters max) indicating what an investment buys.

Next

It is worth pointing out that startup investing is rapidly evolving and it is likely that certain elements of this guide will at some point become obsolete, so make sure to check for updates or future posts. There is now an extraordinary amount of information available on raising venture money. Several sources are referenced and more are listed at the end of this document.

Fundraising is a necessary, and sometimes painful task most startups must periodically endure. A founder's goal should always be to raise as quickly as possible and this guide will hopefully help founders successfully raise their first round of venture financing. Often that will seem like a nearly impossible task and when it is complete, it will feel as though you have climbed a very steep mountain. But you have been distracted by the brutality of fundraising and once you turn your attention back to the future you will realize it was only a small foothill on the real climb in front of you. It is time to get back to work building your company.
Many thanks to those whose knowledge or work have contributed to this document. Of course, any errors are all mine. Please send any comments or questions to geoff@yahoo.com.
Appendix
Fundraising Rules to Follow

Get fundraising over as soon as possible, and get back to building your product and company, but also...

Don't stop raising money too soon. If fundraising is difficult, keep fighting and stay alive.

When raising, be "greedy": breadth-first search weighted by expected value 2. This means talk to as many people as you can, prioritizing the ones that are likely to close.

Once someone says yes, don't delay. Get docs signed and the money in the bank as soon as possible.

Always hustle for leads. If you are the hottest deal of the hour, that's great, but everyone else needs to work like crazy to get angels and other venture investors interested.

Never screw anyone over. Hold yourself and others on your team to the highest ethical standards. The Valley is a very small place, and a bad reputation is difficult to repair. Play it straight and you will never regret it. You'll feel better for it, too.

Investors have a lot of different ways to say no. The hardest thing for an entrepreneur is understanding when they are being turned down and being okay with it. PG likes to say, "If the soda is empty, stop making that awful sucking sound with the straw." But remember that they might be a "yes" another time, so part on the best possible terms.

Develop a style that fits you and your company.

Stay organized. Co-founders should split tasks where possible. If necessary, use software like Asana to keep track of deals.

Have a thick skin but strike the right balance between confidence and humility. And never be arrogant.

What Not to Do While Communicating with Investors DON'T:

Be dishonest in any way

Be arrogant or unfriendly

Be overly aggressive

Seem indecisive - although it is okay to say you don't know yet.

Talk so much they cannot get a word in edgewise

Be slow to follow-up or close a deal

Break an agreement, verbal or written

Create detailed financials

Use ridiculous / silly market size numbers without clear justification

Claim you know something that you don't or be afraid to say you don't know

Spend time on the obvious

Get caught up in unimportant minutiae - don't let the meeting get away from you

Ask for an NDA

Try to play investors off each other when you are not a fundraising ninja

Try to negotiate in real-time

Over-optimize your valuation or worry too much about dilution

Take a "No" personally

A Brief Glossary of Key Terms

The term you are looking for is not here? Disagree with the definition? Go to Investopedia for a more authoritative source.

Angel Investor - A (usually) wealthy private investor in startup companies.

Cap / Target Valuation - The maximum effective valuation for an investor in a convertible note.

Convertible Note - This is a debt instrument that will convert into stock; usually preferred stock but sometimes common stock.

Common Stock - Capital stock typically issued to founders and employees, having the fewest, or no, rights, privileges and preferences.

Dilution - The percentage an ownership share is decreased via the issuance of new shares.

Discount - A percentage discount from the pre-money valuation to give safe or note holders an effectively lower price.

Equity Round - A financing round in which the investor purchases equity (stock) in the company.

Fully Diluted Shares - The total number of issued and outstanding shares of capital stock in the company, including outstanding warrants, option grants and other convertible securities.

IPO - Initial Public Offering - the first sale of stock by a private company to the public.

Lead Investor - Usually the first and largest investor in a round who brings others into the round.

Liquidation Preference - A legal provision in a company's charter that allows stockholders with preferred stock to get their money out of a company before the holders of common stock in the event of an exit.

Maturity Date - The date at which a promissory note becomes due (or at which it will automatically convert to stock in the case of a convertible note)

Equity Incentive Plan / Option Pool - The shares allocated and set aside for grants to employees and consultants.

Preferred Stock - Capital stock issued in a company that have specific rights, privileges and preferences compared to the common stock. Convertible into common stock, either automatically (e.g., in an IPO) or at the option of the preferred stockholder (e.g., an acquisition).

Pre-money Valuation - The value of a company prior to when investor money is added.

Pro-rata rights (aka pre-emptive rights) - Contractual rights that allow the holder to maintain their percentage ownership in subsequent financing rounds.

Protective Provisions - Provisions in a company's charter that give exclusive voting rights to holders of preferred stock. For example, the approval of these stockholders, voting separately from other stockholders, may be required for an acquisition.

Safe - Simple Agreement for Future Equity - Y Combinator's replacement for convertible debt.

TAM - Total Available Market. In pitches, this is the estimated total revenue available for the product(s) you are selling.

Venture Capitalist - A professional investor in companies, investing limited partners' funds.

Sources

1. Venture Hacks / Babk Nivi: Should I Raise Debt or Equity
Discussion of whether raising debt or equity is the best answer.

2. Fred Wilson: Financing Options
Another discussion of debt vs. equity

3. Mark Suster on Convertible Debt
An analysis of problems with convertible debt

4. Clerky Guide
Clerky docs and guides. A great place to start.

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A Guide to Seed Fundraising: Fundraising, Seed Round, Investors

# data[].attributes.attachment_link.description
Why Raise Money - When to Raise Money - How Much to Raise? - Financing Options - Convertible Debt - Safe - Equity - Valuation - Investors Crowdfunding - Meeting Investors - Closing the Deal - Negotiations - Documents You Need - Next - Appendix - Glossary - Sources Startup companies need to purchase equipment, rent offices, and hire staff.

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Carta's comprehensive guide delves into the basics of startup fundraising, discussing different funding stages and investor types. It emphasizes the importance of product-market fit and strategic planning. The piece is tailored for startups preparing to raise capital.

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Raising money for your startup is one of a founder’s most important jobs. Let our experts give you the roadmap to an easier and more efficient fundraising round.

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Startup Fundraising, Part 1: Fundraising 101 – Future Founders

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Startup Fundraising, Part 1: Fundraising 101 – Future Founders

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This article demystifies the fundraising process for early-career entrepreneurs. It offers insights into building investor relationships and understanding funding dynamics. The guide is designed to help startups navigate the complexities of raising capital.

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Future Founders | Every Youth Can Become an Entrepreneur

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Startup Fundraising, Part 1: Fundraising 101 | Future Founders

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Fundraising can be one of the most intimidating parts of the startup journey. In this first installment of our Think Like a Founder series, we’re diving into the startup fundraising process step by step!

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Fundraising for Startups: A Founder's Comprehensive Guide – McCracken Alliance

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Fundraising for Startups: A Founder's Comprehensive Guide – McCracken Alliance

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McCracken Alliance presents a detailed roadmap for startup fundraising, covering stages from assessing funding needs to negotiating terms. It emphasizes strategic planning and effective communication with investors. The article is a valuable resource for founders seeking to secure funding.​

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Fundraising for Startups: A Founder’s Comprehensive Guide - McCracken

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How founders can prepare for investment rounds, targeting the right investors, and understanding valuation methods used in fundraising.

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6 Essential (But Overlooked) Fundraising Tactics for Startups – Medium

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6 Essential (But Overlooked) Fundraising Tactics for Startups – Medium

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This piece highlights six often-overlooked tactics that can enhance a startup's fundraising efforts. It discusses strategies like qualifying investors and crafting compelling narratives. The article offers practical advice for startups aiming to stand out in the fundraising landscape.​

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6 Essential (But Overlooked) Fundraising Tactics for Startups

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Even with the dispersion that’s happened since COVID, there’s a lot of money in Silicon Valley — it remains far and away the epicenter of…

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Craft a compelling pitch deck that tells your startup’s story clearly.
Present your team, traction, business model, and growth strategy effectively.
Build trust with investors through transparency and consistent updates.

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Why Your Pitch Deck Isn’t Enough: Mastering Investor Communication to Secure Funding | M Accelerator

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In the fast-paced world of startups, securing investor interest is the lifeblood of growth. This article delves into the nuances of investor communication, revealing strategies that go beyond the pitch deck and into the realm of relationship-building and strategic messaging.

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How to Create a Pitch Deck for Investors – MaRS Discovery District

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How to Create a Pitch Deck for Investors – MaRS Discovery District

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MaRS provides a step-by-step guide to crafting an effective pitch deck. It covers essential elements like problem definition, solution, market size, and business model. The article serves as a practical tool for startups preparing investor presentations.​

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How to create a pitch deck for investors | Entrepreneur’s Toolkit

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How to create a pitch deck; the pitch deck (also known as a slide deck or pitch slide deck) is the first communication tool to help you raise money with an investor. Entrepreneur’s Toolkit - MaRS, Toronto

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What Investors Look For In a Pitch – Benjamin Ball Associates

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What Investors Look For In a Pitch – Benjamin Ball Associates

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This guide outlines key factors investors consider when evaluating pitch decks. It offers tips on storytelling, clarity, and addressing investor concerns. The article is designed to help startups create compelling and persuasive presentations.​

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Business Presentation Skills Coaching | Benjamin Ball Associates

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Are you a business looking to raise money? Are you writing an investor presentation for a successful business? What do investors look for in a pitch deck? What will investors ask you?

Pitching To Investors and Raising Investment is Hard

It's not easy securing investment for a business, even a tech business such as a highly sought-after AI business. The right investors are inundated with pitches, so it is essential that you deliver a compelling and well-structured pitch presentation. Understanding what investors look for will increase your chances of success.

At Benjamin Ball Associates, we have been helping businesses of all sizes pitch to investors for 15 years. We help them pitch to venture capitalists and to PE. We help them craft their investment story, create compelling investor pitch decks and coach the management team to impress investors.

Based on our experience, here's a guide to what investors look for in a pitch deck and the best way to craft a presentation that addresses the most important factors and resonates with potential investors.

What Investors Look For in Your Pitch

Let's look at each of these essential tips in more detail:

1. Have a Clear Problem Statement
What Investors Look For: A definition of the Issue
Investors want to know that your business addresses a real and significant problem. To increase investor interest, your pitch deck should articulate the problem clearly and succinctly. You should aim to teach the investor about your industry so that they clearly grasp the issues your clients face.
How to Present:
- Start with a compelling story or statistic that highlights the issue your product or service solves.

- Clearly outline why this problem matters and who is affected by it. Demonstrate a large market and use case studies.

2. Be Clear About Your Unique Value Proposition
What Investors Look For: What Sets You Apart
Your unique value proposition (UVP) explains how your solution stands out from the competition. Investors want to see that your tech business offers something that is not only innovative but also viable.
How to Present
- State what makes your product or service unique. This could be innovative technology, a superior user experience, or a disruptive business model.

- Use comparative analysis to show how your offering outperforms existing solutions.

Why Pick Benjamin Ball Associates for Your Coaching

At Benjamin Ball Associates, we've been coaching business people to improve their business communication skills for over 15 years. Our coaching is fast and effective. We work with individuals and with companies, one-to-one and in groups. Call us today to learn more.
"I honestly thought it was the most valuable 3 hours I've spent with anyone in a long time."
Mick May, CEO, Blue Sky

Our most popular training courses include:
Trusted by some of the most successful companies globally

Speak to Louise on +44 20 7018 0922 or email info@benjaminball.com to transform your speeches, pitches and presentations.
Get a free consultation about your coaching needs now

3. Define the Market Opportunity
What Investors Look For: Size and Growth Potential
Investors are interested in the market opportunity. They want to know the size of your target market and its growth potential.
How to Present
- Provide data on the current market size and projected growth rates. Use reputable sources and market research to back your claims.

- Segment your market and identify your ideal customer profile.

Example
As well as showing the usual TAM, SAM, SOM type statistics, you can add additional credibility by looking at the market in various ways. For example, what share of the current market do you have now? How fragmented is the market? What is a realistic goal you might reach? The better your potential investor understands your market, the more likely they'll believe your projections.

4. Outline Your Business Model
What Investors Look For: How You Make Money
A clear and scalable business model is crucial for attracting investment. Investors want to see how you generate revenue and achieve profitability. Show them what people pay, how often they need to make buying decisions, how loyal they are.
How to Present
- Describe your revenue streams, whether they're from subscriptions, licensing, or transactional sales.

- Include pricing strategies and your plans for additional monetisation.

- If appropriate, share standard metrics such as ARR, MRR, Churn, CAC etc

5. Show Traction and Milestones
Demonstrate Progress
Showing that your business is gaining traction can significantly bolster your presentation. Investors want evidence that your product/service is working, you have a strong track record and that numbers are moving in the right direction.
How to Present
- Share key milestones you have achieved, such as product development stages, user acquisition metrics, or revenue figures.

- Use charts and graphs to illustrate growth and progress visually.

6. Give an Analysis of the Competition
What Investors Look for: An Understanding the Landscape
Prospective investors want to see that you understand the competitive landscape and are clear why you stand out and have a competitive advantage vs the competition.
How to Present
- Provide a competitive analysis that outlines key players in your market, their strengths and weaknesses, and your differentiators. A 2×2 matrix can be a powerful way to show how you stand out from the competition.

- Highlight barriers to entry that protect your firm from competitors.

- Consider a table showing how your offer differs from the competition

7. Explain Your Sales, Marketing and Distribution Strategy
What Investors Look for: How You Reach Your Customers
A well-defined sales plan, marketing plan and distribution strategy shows investors how you reach your target customers and scale your business. Finding customers and persuading customers is the hardest part of any business. The more you can reassure investors that you really understand this part of the business is key.
How to Present
- Outline your marketing and sales strategies, including channels, tactics, and partnerships.

- Discuss any existing relationships with distributors or platforms that will help accelerate your market traction.

8. Demonstrate a Strong Team
Showcase Your Expertise
Investors often invest in teams as much as in ideas. A strong team with relevant experience will build confidence in your business.
How to Present
- Introduce your team members, highlighting their backgrounds and expertise, particularly in the tech industry.

- Include any notable achievements or experiences that position your team to succeed.

- Include relevant companies they have worked for that will add credibility.

Example

"Our team includes a former cybersecurity analyst from a leading firm, a software engineer with experience at a top tech company, and a marketing expert who has scaled startups in the tech space."

9. Be Clear How An Investment Will Be Used
What's Your Plan?
You want to demonstrate a clear plan for investment. That means showing where you are investing, when and what you expect to get from that investment. The more tangible your plans, the more credible they will appear.
How to Present
- Show a timeline of the areas in which you need to invest, what you want to achieve and when

- Be clear about the value investment will add to the business.

Example
Here's an extract from a recent high quality pitch we created for a client.

10. Don't Be Afraid of Discussing the Risks
Why Risk Matters
Every business has risks, and an investor's job is to properly understand and quantify those risks. If you say there are few risks, then it sounds as if you don't properly understand your business. A great way to impress is to be clear about the risks your business faces.
How to Present
- Identify the risks your business faces and describe what you are doing to mitigate those risks

- Quantify any particularly large risks and have to hand the numbers so you can ask questions.

11. Have Clear Financial Projections
The Numbers Matter
Investors will scrutinise your financial plan to assess the potential return on their investment. Don't just show financial statements; summarise your financial information and make it easy to understand.
How to Present
- Provide realistic and financial projections for the next three to five years, including market potential, revenue, expenses, and profit margins.

- Clearly explain your assumptions and how they align with market trends, your market share and your business strategy.

12. Have a Clear Call to Action
What You Want from Investors
At the end of your presentation, be clear about what you're asking for. Whether it's a specific amount of investment or an introduction to a potential partner, a strong call to action helps guide investors.
How to Present
- Clearly state the amount of funding you are seeking and how you plan to use it.

- Outline the benefits for investors, including projected returns or exit strategies.

13. Get Professional Help to Prepare Your Investor Pitch
Why You Need Help
As a management team, you are probably speaking to investors just a few times in your careers. Whereas professionals prepare management teams to speak to investors every day. Not taking expert advice during the process would be like a professional sportsperson refusing the advice of their coach.

Example of How to Impress Investors
When we support management teams who are pitching to prospective investors, we often help them with a three stage process.

Like this you can be fully prepared for investor meetings and can be sure the management team is ready to meet potential investors

How to Make Sure Your Pitch Works With Investors

If you are well-prepared, your investor presentation can confidently showcase your business's potential and position yourself for success with investors.

With the right approach, you can turn your investor pitch into a powerful tool that not only highlights your company's potential but also inspires confidence and action from those across the table.

Whether you're seeking a Series A round, expansion finance or engaging institutional investors, get in touch to discuss how we can help you.
For help with your investor presentation, call Louise Angus today on +44 207 018 0922 or info@benjaminball.com. Get a free consultation about your coaching needs now
Why Choose Us:
Transform your pitches and presentations with tailored coaching

We can help you present brilliantly. Thousands of people have benefitted from our tailored in-house coaching and advice - and we can help you too. For 15+ years we've been the trusted choice for leading businesses and executives throughout the UK, Europe and the Middle East to improve corporate presentations through presentation coaching, public speaking training and expert advice on pitching to investors. Some recent clients

"I honestly thought it was the most valuable 3 hours I've spent with anyone in a long time."
Mick May, CEO, Blue Sky

Speak to Louise on +44 20 7018 0922 or email info@benjaminball.com to transform your speeches, pitches and presentations. Get a free consultation about your coaching needs now
Unlock your full potential and take your presentations to the next level with Benjamin Ball Associates.

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What Investors Look For In An Investor Pitch - 13 Tips

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What Do Investors Want In Your Pitch? What Do Investors Look For in a Pitch? How Can You Make Your Pitch Stand Out? | Learn More >>

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The Role of Design in Investor Presentations and Pitch Decks – JDJ Creative

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The Role of Design in Investor Presentations and Pitch Decks – JDJ Creative

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JDJ Creative explains how professional design significantly improves pitch deck effectiveness and investor perception.
They highlight that clean visuals, branding consistency, and logical flow enhance credibility and clarity.
The article encourages startups to invest time in design to maximize their fundraising impact.

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The Role of design in investor presentations and pitch decks | JDJ Creative

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A well-designed pitch deck is essential to showcase your professionalism. Here’s how to build trust and credibility through powerful design.

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The 11 Slides You Need to Have in Your Pitch Deck – Sequoia Capital

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The 11 Slides You Need to Have in Your Pitch Deck – Sequoia Capital

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Sequoia outlines the 11 essential slides every pitch deck must include, from problem/solution to financials.
They emphasize being clear, concise, and focused on the big opportunity.
Their legendary template is a go-to standard for thousands of successful startups.

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Sequoia Capital’s original guide for how to write a business plan.

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Understanding Term Sheets and Cap Tables

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Understanding Term Sheets and Cap Tables

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Break down the key terms and clauses in an investment deal.
Learn how equity dilution, liquidation preferences, and ownership work.
Keep your cap table clean and transparent for future fundraising.

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Startup pricing 101 : YC Startup Library | Y Combinator

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YC’s Kevin Hale goes over the fundamentals of pricing and monetization, how it affects your customer acquisition strategy, and how to optimize it through a few rules of thumb.

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Cap tables for startups explained: What they are and how they work

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Cap tables for startups explained: What they are and how they work

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What’s in this article?

What is a cap table?

Why do startups need a cap table?

How to build a cap table from scratch

What should a startup cap table include?

How to use a cap table during funding rounds

How cap tables develop as your startup grows

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Cap tables for startups: What they are and how they work | Stripe

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Here’s a guide to what cap tables for startups are, how they work, and how they develop over time.

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The Simple Agreement for Future Equity (SAFE) is the most prevalent structure we see for early stage fundraising.

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It's also helpful to get advice from your lawyer! If they have experience with VC financings, they see a ton of SAFEs (both at the time of their signing and at their conversion) and can give some insight into what's happening in the market.

And be careful: Setting your Valuation Cap too low can cause dramatic, irreparable damage to your cap table in the future. Don't cave to the pressure from an investor on this before getting advice and understanding how the decision will affect future fundraising and founder dilution.

How do I set the Discount Rate?

First thing to know, if you have in mind to give a 20% discount on the SAFE, it is critical that you refer to it as a Discount Rate of 80%. The SAFE is not written with reference to the Discount you're offering (ex: 20%) but the Discount Rate you're applying to the valuation at the time of the future Preferred share financing (ex: 80%). If you enter 20% as the Discount Rate in the SAFE, the investor will actually receive an 80% Discount!
Typical Discounts range from 10%-20%.
Rule of thumb is set the Discount based on how far out you project the Preferred share financing. If it's far out (i.e. over a year), the higher end of that range. If it's closer to (i.e. within a year), the lower end of that range.

Even at the high end of that range though, we haven't seen any companies experience dramatic, irreparable damage by conceding that. That's more of a risk with getting the Valuation Cap wrong. The Discount stays tied to the future valuation, so it's naturally better protected from irreparable impact. Though, don't go higher than 20% without talking to your lawyer and advisors.

What types of SAFEs are there?

There are a number of versions of the SAFE you can find in market:

(a) Valuation Cap Only - converting at Valuation Cap only

(b) Discount Only - converting at Discount only

(c) Valuation Cap and Discount - converting at the better of the two

(d) Most Favoured Nation (MFN) - no Valuation Cap or Discount on conversion, but moves to better terms if offered to future investors

Typically, all of these SAFEs are the same in substance, apart from the terms that apply to the determination of equity entitlement held by the SAFE investor.

What is a Most Favoured Nation (MFN) SAFE?

A standard MFN SAFE has no Valuation Cap and no Discount. It converts on the same terms and valuation as the future equity financing that triggers SAFE conversion.

However, the MFN feature means that if the company issues any other SAFEs or convertibles in the future, the SAFE investor will have the right to switch their SAFE to those new terms if they are more favourable to the investor.

In our experience, these are most common in bridge-round scenarios where an equity financing is imminent, but a capital bridge is needed ahead of that closing.

Note that occasionally you will see an MFN feature added to a Valuation Cap / Discount SAFE. That is subject to negotiation but not a standard feature.

What's the difference between a Pre-Money SAFE and a Post-Money SAFE?

The original SAFE, introduced in 2013 by Y Combinator, is now referred to as a "Pre-Money SAFE".

In 2018, Y Combinator updated the SAFE to a "Post-Money SAFE", which has since become the market standard.

Pre-Money SAFEs are now uncommon.

The difference primarily relates to the conversion math, and the question of when the SAFE theoretically converts.

Pre-Money SAFE: Converts as if the SAFE investors are participating in the equity financing that is triggering the SAFE conversion. Their money gets treated as part of that financing and they dilute the new investors in the process. As a result, founders experience less dilution because the new investors have absorbed some of that.

Post-Money SAFE: Converts as if the SAFE investors invested in a stand-alone financing prior to the equity financing that is triggering the SAFE conversion (which, let's face it, is more consistent with the reality). Their money converts to shares immediately before the equity financing, which more heavily dilutes the founders. Then when the new money comes in on the equity financing, the SAFE investors get diluted, and the founders get further diluted.

While Pre-Money SAFEs are more favourable to founders in their dilution impact, the Post-Money SAFE is the standard. It more accurately reflects the reality that a SAFE financing is its own financing event, and that it shouldn't dilute future investors.

How do you tell whether it's a Pre-Money SAFE or Post- Money SAFE?

We've seen a lot of entrepreneurs take Pre-Money SAFEs and simply change the title of the agreement to "Post-Money" and add "Post-Money" before the Valuation Cap definition. This does not change a SAFE from being Pre-Money to Post-Money.

The change is primarily in the definition of " Company Capitalization " - the calculation that determines the point in time for which the conversion is to be calculated.

If in doubt, ask your lawyer. Most tech lawyers in Canada give away Canadianized Post-Money SAFEs for free that have been vetted by them, so there shouldn't be any reason for making this mistake.

What happens to a SAFE if you don't do a Preferred share financing?

In short, it remains a SAFE.

While that means the SAFE investor isn't a shareholder, the SAFE protects the investor's rights in a number of ways, including:

Ensuring that any dividends paid by the Company get paid to them also, as if they were a shareholder.

Ensuring priority repayment in the event of a dissolution.

Ensuring preference of repayment and participation in an acquisition or liquidation event as if they were a shareholder.

What happens to a SAFE if the Company fails or dissolves before it converts?

In a dissolution event, the typical distribution order of remaining proceeds is: (1) creditors, (2) Preferred shareholders, and (3) Common shareholders.

If the company fails and goes through a dissolution event, the SAFE investor is essentially treated as if they had become a Preferred shareholder immediately prior to that dissolution.

That puts them after creditors, but ahead of any Common shareholders in the distribution of those proceeds (which is where the Founders typically are). They are on par with other SAFE investors and Preferred shareholders, and share pro-rata with the SAFE investors and Preferred shareholders, up to their investment amount (i.e. to get their money back).

In other words, it puts them in the same place as they would be if they had already converted to Preferred shares.

What happens to a SAFE if the Company gets acquired before the SAFE converts?

The SAFE investor will essentially be entitled to the better of:

This gives the investor down-side protection and priority if the company is acquired at a low valuation, and up-side participation if the company is acquired at a high valuation.

How is a SAFE different from a Convertible Note?

In short, a SAFE is not written as or intended to be a debt instrument; whereas a Convertible Note is.

Both SAFEs and Convertible Notes have a lot of similar features otherwise - including the right to convert to shares.

However, Convertible Notes are not all created equal and don't have the same level of standardization as SAFEs do. There are as many versions of Convertible Notes as there are lawyers, and this makes them more involved to negotiate and align expectations. With that said, organizations like CVCA have established a standardized Convertible Note form for public use; however, it is for "Secured Debt", which should not in any event be considered without speaking with your lawyer.

Can I set different Valuation Caps for different investors?

Yes.

There's nothing in a SAFE that requires you to have the same terms for each investor. You could theoretically have each investor on different terms.

With that said, it looks very unorganized and might upset investors that are left behind on more favourable terms.

Best practice is to align all of the SAFEs on a single round to the same terms, so that you can group those participants together as a single round on your cap table and for future conversion. If any special terms are being offered to an investor because they are, for example, putting in more money than the others, you might see them get a Side Letter containing the special rights, but the SAFE itself would likely stay the same as the others.

A side letter is a side agreement between an individual investor and the company, which provides that investor with special rights that might not be more broadly offered to everyone else.

This may be expected if the investor is putting in a more significant cheque or if the investor is a venture capital fund, institutional investor or strategic investor.

Discuss side letters with your lawyer before putting one in place to ensure its use makes sense for your stage and for the investment size.

What might be in a Side Letter?

The basic Side Letter template offered by Y Combinator includes Pro Rata Rights only (i.e. a right to participate in future financings).

However, the bigger the cheque and more substantial the investor, the more extensive the requests may be for the Side Letter.

Side Letters can include things like:

If these are requested, discuss them with your lawyer before putting them in place to ensure they makes sense for your stage and for the investment size.

What approvals do I need before issuing SAFEs?

At minimum, you'll need Board approval.

You may additionally need shareholder / investor approvals in order to satisfy any special approval rights they might have.

Check with your lawyer what's needed in your case.

Can I raise using both SAFEs and Convertible Notes or Priced Equity at the same time?

Yes.

There's nothing in the SAFE that restricts you from concurrently raising capital under other structures.

However, it shows better organization and fundraising discipline if you're keeping the terms generally consistent on a given round for all investors. That tells a better fundraising story and will also make future SAFE conversion simpler.

How do SAFEs impact a Preferred share financing?

SAFEs convert into shares on a Preferred share financing, which means that the SAFEs and the SAFE investors are involved in that transaction.

The more SAFEs you have, the more people and conversions you need to deal with. And if you have multiple SAFEs on different terms, you'll have more complexity with the conversion calculations and paperwork. These things simply increase the work involved, and the legal fees, for closing the Preferred share financing.

Do SAFEs show up on my cap table?

SAFEs don't show up on your cap table in the same way that equity (whether shares or options) does.

Because SAFEs represent a future right to equity, there is no actual equity ownership today to represent. And until the actual conversion event, you don't yet know exactly how many shares each SAFE will convert into.

However, your investors and prospective investors still want to see your SAFEs (and other convertible securities) represented, as they can have a significant impact on your cap table down the road.

You can track SAFEs separately in a side schedule when preparing a present cap table. This will list each SAFE and the key details (i.e. Valuation Cap, Discount Rate) about them for calculating conversion when the time comes.

Additionally, most companies prepare pro forma cap tables, which don't just show today's cap table, but also model out the cap table immediately after a hypothetical Preferred share financing. In this kind of cap table, the SAFE investors would be represented with share ownership since this model provides all the information needed to calculate its conversion.

Can I buy back SAFEs or renegotiate terms later?

Short answer: yes - you can buy back SAFEs and you can renegotiate terms later - as long as the SAFE investor consents.

Ultimately, the SAFE is just a contract between two parties. So if the two parties agree to amend or change that contract in any way, then they have the right to do that. You would put together an Amending Agreement to outline the changes.

Before doing this though, ensure you're discussing the proposal with your lawyer. There may be approval requirements or restrictions around this that exist in your shareholders' agreement, articles / by-laws, or an investor rights agreement.

Can I convert SAFEs before a Preferred share financing?

Short answer: yes - you can early convert a SAFE prior to a Preferred share financing - as long as the SAFE investor consents.

Some companies work with their SAFE investors to initiate an early conversion of all the SAFEs issued by the Company in order to clean up the cap table prior to a Preferred share financing. Since an early conversion is essentially an override to the standard terms in a SAFE, this is done as an amendment to the SAFE.

The parties can agree to the terms for that early conversion, and can even agree to convert the SAFE to Common shares (instead of Preferred shares) and at a specified price.

Again, there's lots of room for flexibility around this, as long as the SAFE investor consents to the changes.

Before doing this though, ensure you're discussing the proposal with your lawyer. There may be approval requirements or restrictions around this that exist in your shareholders' agreement, articles / by-laws, or an investor rights agreement. Also, there are critical steps to take in a conversion scenario that need to be properly papered.

How do I educate my investors about SAFEs?

While SAFEs are widely used and the dominant form of early stage financing, it is not uncommon to run into angel investors or friends and family investors who don't understand them.

Here are some tips for how to educate your investors about SAFEs:

1. Start with the basics, and explain in simple terms what the SAFE is and how it works. Feel free to grab from this Primer when doing that, or pull from the many articles available online.

2. Explain the key terms applicable to the SAFE you're offering. With the basics covered, explain what terms (e.g. Valuation Cap and/or Discount) you've set for the SAFE offering, and what that means for the investor.

3. Build and share a Pro Forma Cap Table. Confusion and fear with SAFEs often come from the fact that the investor doesn't get shares immediately, and the number of shares they'll get in the future isn't yet known with certainty. To address this, consider building and sharing with them a Pro Forma Cap Table that models out a future equity financing, so that they can see how many shares they'd end up with as a result of this SAFE. You can work with your lawyer to prepare a Pro Forma Cap Table to share.

4. Prepare to answer FAQs. People have common questions about SAFEs (many of which are covered by this Primer), which would be good to prepare answers for. You can share this Primer, work with your lawyer in the communications, or recommend that they also get their own lawyer (though, in that recommendation, ensure their lawyer is one that works with high-growth companies and is familiar with SAFEs).

5. Share Resources. There are a lot of resources out there to help better understand SAFEs. You could start by sharing the resources available on Y Combinator's site, where the SAFE is made available (though their User Guide is very long and easy to get lost in if you're new to this topic).

How are currency differences handled with a SAFE?

If you expect differences in currency between any of the investment amount actually paid, the investment amount stated on the SAFE, the valuation cap stated on the SAFE, or the future valuation used for the Preferred share financing, then you should ensure that there is clarity written into the SAFE about how that should be handled.

The Standard SAFE assumes currency consistency with all variables and events.

Since most of the Preferred share financings we see are on USD, we recommend using USD on the SAFE also, and converting the CAD amounts invested on a SAFE to USD for ease of future conversion.

It might be worth adding a sentence like this to deal with that:

All dollar amounts referenced herein are in lawful currency of the United States of America unless otherwise expressly stated. For purposes of this Safe, the value of the Purchase Amount shall be deemed to be the United States dollar equivalent of the consideration received, and in the case of Canadian dollars received, shall be deemed to be exchanged based on the Bank of Canada indicative rate on the date of _____________, which is _____________.

How do I properly fill out a SAFE?

Quick checklist based on common mistakes we've seen (though - chat to your lawyer to make sure it's been done properly in your case):

Ensure you're using the latest and Canadian version of the Post-Money SAFE. Most tech lawyers in Canada give away Canadianized Post-Money SAFEs for free that have been vetted by them.

Enter the full legal name of the investor (not a short version of the name).

Enter the investment amount and the currency.

Enter the date of the investment.

Collect the investor's signature, and wait to countersign it until you receive the actual investment.

Ensure that you have obtained all necessary approvals and that you have obtained from the investor any other paperwork that your lawyer recommends for securities compliance.

What are the tax implications of issuing a SAFE?

We can't give tax advice and would recommend this question be asked of your tax advisor.

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SAFEs are the most common form of early stage financing, but they are far from simple. This Primer covers many of the FAQs we receive as lawyers about the SAFE.

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Go-to-Market Strategy & Customer Acquisition

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Go-to-Market Strategy & Customer Acquisition

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Plan how to launch your product and attract your first users.
Choose acquisition channels based on your customer’s journey.
Measure early traction and adjust tactics as you grow.

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What is a go-to-market strategy? | Definition from TechTarget

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A go-to-market strategy outlines how a company plans to sell its products or services to customers. Examine the steps for creating a GTM strategy.

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How to create a go-to-market strategy (Asana)

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How to create a go-to-market strategy (Asana)

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This guide breaks down a GTM strategy into four critical pillars: defining your market, identifying your target audience, crafting your messaging, and choosing the right distribution channels. Asana emphasizes how clarity and alignment across teams are crucial. They provide templates to make your launch more structured and less chaotic.

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Summary

A go-to-market (GTM) strategy is a step-by-step plan for launching a new product or expanding into a new market. It helps you launch your product to the right audience, with the right messaging, at the right time. Learn how to craft a go-to-market strategy in nine steps and set your next product launch up for success.

When the Swedish company Oatly expanded into the US, oat milk wasn't top of mind for American consumers. But the brand had a trick up their sleeve-instead of investing in ads, they went straight to the coffee shops. Oatly teamed up with artisanal spots where customers tended to seek out dairy alternatives, and won patrons over with their product's creamy and latte-friendly consistency. After its launch in the US, the company's revenue grew ten-fold between 2017 to 2018, bringing a new oat-milk craze along with it.

Oatly went straight to their target audience at the exact moment customers were smelling the espresso and ready to buy. And you can bet this innovative go-to-market strategy was the key to their success.

What is a go-to-market strategy?

A go-to-market (GTM) strategy is a step-by-step plan for launching a new product or expanding an existing product into a new market. It sets your initiative up for success by answering the following questions:

What product are you selling, and what unique problem does it solve?

Who is your ideal customer, and what pain points do they experience?

Where will you sell your product? What markets do you want to pursue, and what does the demand and competition look like in those markets?

How will you reach your target customers and create demand?

Launching a product is a big investment. And no matter how cutting-edge it is, the way you market and sell your product can make or break its success. Creating a GTM strategy helps you ensure you're taking everything into account and avoid costly mistakes-like launching your product to the wrong audience or in a market that's already saturated with similar offerings.
Create a GTM strategy template
When do you need a go-to-market (GTM) strategy?

Whenever you bring a product or service to market, you need a go-to-market strategy. This includes:

Launching a new product in an existing market -for example, an established clothing brand launching a line of beauty products.

Bringing an existing product to a new market -for example, a local grocery chain expanding into a different state.

Testing a new product in a new market -for example, a tech startup launching their first app.

Even established companies need a go-to-market strategy when pioneering a new product or expanding into a new market. That's because competition and market forces can quickly change. Even if you've had success with a similar product launch in the past, that same strategy might not work as well now.
What is strategy implementation + 6 key steps to success
Go-to-market strategy vs. a marketing plan

A go-to-market strategy is specifically for launching a product or expanding to a new market. On the other hand, a marketing plan details how you'll execute your overall marketing strategy. Instead of being launch specific, a marketing plan is a long-term approach to help you achieve your marketing objectives-like an annual roadmap or an overarching digital marketing strategy. Your GTM strategy draws from your long-term marketing plan, but it's tailored to a specific launch.

Marketing plan example: Sephora's marketing plan leverages its loyalty program, which offers discounts and gifts to customers who spend a certain amount. This plan isn't specific to a product launch, rather it's a long-term approach to build customer loyalty over time.

Go-to-market plan example: Microsoft executed a go-to-market strategy when launching its third generation Surface tablet. Their strategy was specific to the tablet's launch and addressed a particular market problem-that existing tablets didn't have the functionality of a full-fledged computer.
Read: Strategy vs. tactics: What's the difference?
Organize your go-to-market strategy with a project management platform

Every GTM strategy involves lots of moving pieces, whether you're launching a new product or exploring new markets. The right project management tool can help you visualize your entire plan in one place-including the status, owners, and dependencies of each task. And as team members collaborate and execute your go-to-market strategy, you can see those updates in real-time.

9 steps to crafting your go-to-market strategy

So you've created an exciting new product or want to expand into a new market. You know you need a go-to-market strategy to make sure your initiative succeeds-but what exactly does that look like?

Step 1: Identify the problem

Every great product launch solves a specific problem. For example, Blackberry phones let business people answer emails on the go, Uber circumvents the cumbersome process of hailing or calling for a taxi, and Dawn detergent cuts through grease and makes washing dishes easier. Each of those products have a unique value proposition -a way they add value for customers by addressing their pain points. And most importantly-when those products launched, there was significant demand for solutions.

This concept is known as product-market fit -the degree to which a product satisfies a strong market demand. Understanding product-market fit is essential to gain a competitive advantage and make sure you're launching the right product to the right customers.

Step 2: Define the target audience

In order to have a successful GTM launch, you need to clearly understand your target audience. Start by asking yourself the following questions:

Who is experiencing the problem that your product solves?

What are the specific frustrations your product can alleviate?

How much is your audience willing to pay for a solution?

The two most common ways to define your target market are with an ideal customer profile (ICP) and buyer personas. These methods work together to narrow down your customer base and specify the types of people within your audience.

Ideal customer profile (ICP)

This approach defines your perfect customer-in other words, someone who experiences the frustrations your product solves. They're aware of the problem, already looking for a solution, and are able to buy your product. To create an ideal customer profile, consider the following characteristics:

Industry or demographic: If you're selling to businesses, identify the specific industry you're targeting-like financial, legal, or SaaS verticals. If you're selling to individuals, define specific demographics your ideal customer falls within. For example, a child-care service may target families with kids between the ages of 1 and 5.

Geography: Where do your ideal customers live? For example, a tour company that offers English-only experiences may target customers in the US and Europe.

Size: This one is specific to B2B companies. Identify the size of the business you're targeting-for example, you may market a new co-working space to funded startups with less than 20 employees.

Budget: To shape your pricing strategy, consider how much your customers have to spend on your product. This will also influence the market's perception of your product. For example, if your company sells luxury watches, you probably don't want to go below a certain price point. Alternatively, a legal consulting firm may find it worthwhile to only target businesses who can spend at least $5,000 per month.

Decision-making factors: What factors influence whether a customer decides to purchase your product? For example, do they rely on referrals from trusted friends or colleagues? Is there a primary decision-maker, like the CEO or sales manager of a company?

Pain points: What specific frustrations does your ideal customer have? For example, a company selling a financial-planning app may target customers who lose time trying to track their budget with spreadsheets.

Preferred media: How does your ideal customer absorb information? For example, do they use social media, read print magazines, or browse the web with ease?

Buyer personas

Not all members of your target audience are the same-each person is a unique individual with their own problems, values, and goals. Creating buyer personas helps you differentiate between the different types of people within your target audience, so you can visualize who your customers are on a human level.

You should create multiple customer personas to fully understand your target audience. Here's an example of one buyer persona for a tour company launching a new in-destination app:
Persona: Memory-maker

Individual between the ages of 25-35

Travels alone or with a partner

Willing to pay a higher price for premium experiences

Values booking flexibility

Wants to book high-demand experiences in advance, but also choose some activities after they've arrived at a destination

Can use technology and apps with ease

Buyer personas may seem similar to an ideal customer profile, but they perform a different function. Personas help you visualize who your customers are by breaking your ICP down into more specific segments-each representing a type of person with their own distinct problems, values, and goals.

Step 3: Research competition and demand

Now that you've identified your product's value proposition and target audience, it's time to do some research. Before you invest in bringing your product to market, you want to make sure that there's enough demand and not too much competition. To guide your research, ask yourself the following questions:

Who already offers a similar version of your product?

What audiences and geographic regions do your competitors target?

How does your product differ from the competition? What do you offer that others don't?

Is there demand for the product, or is the market oversaturated?

To fully understand the market landscape, conduct a competitive analysis. This method uses research to identify your direct and indirect competitors and uncover their strengths and weaknesses in relation to your own.

Step 4: Decide key messaging

The next step is to determine the key messages you'll convey to potential customers. The best approach is to tailor individual messaging for each of your buyer personas, so you can address their unique values and frustrations.

To map your messaging to each buyer persona, create a value matrix. A value matrix breaks down each persona, their pain points, the value your product brings, and a key message that conveys how your product can solve their unique problem.

Let's continue with the tour company example above. As a refresher, the company wants to launch a new in-destination app. One of their personas is a "memory-maker"-a customer who is willing to pay for premium experiences. Here's what a value matrix might look like for this persona:
Pain points Product value Key message
To complete your value matrix, continue this process for each buyer persona.

Step 5: Map the buyer's journey

Now that you've identified your buyer personas and messaging, you can map the buyer's journey-the path customers take from realizing their problem, considering your product as a solution, and deciding to purchase. Mapping your buyer's journey is a key component of content marketing, because it helps you surface the right type of content to potential customers at the right time.

Most often, the buyer's journey is visualized as a funnel broken into three sections:

Top of funnel: Customers know the problem they want to solve and research solutions. They may not be aware that your product exists yet. During this phase, you want to grab the customer's attention so they consider your product.

Middle of funnel: Customers weigh your product against other available options. Your goal during this phase is to convince potential buyers that your product is the best option.

Bottom of funnel: Customers decide whether to purchase your product. Your goal for this phase is to convince them to commit.

Create a GTM strategy template
Step 6: Pick marketing channels

Align marketing channels to your ideal audience. You want to make sure the marketing channels you choose align with the way your target audience consumes content. For example, if your ideal customer uses YouTube but not Instagram or Facebook, you may want to focus on YouTube ads rather than paid social posts.

Use different channels for different phases of the buyer's journey. Depending on where customers are in the marketing funnel, different types of marketing content can help move them to the next phase. For example, search engine optimization (SEO) content can direct top-of-funnel customers to your website who haven't heard of your product before. Case studies and webinars may be most applicable for middle-of-funnel customers as they consider your product. And at the bottom of the funnel, strategies like free trial options can help convince potential customers to commit.

Read: Marketing vs. advertising: What's the difference?
Marketing channels are the different types of content you use to create demand for your product and move potential customers down the marketing funnel. For example, social media, paid search ads, blogs, SEO content, and emails are different marketing channels. The marketing channels you choose depend on two things: your target audience, and where your potential customers are along their buyer's journey.

Step 7: Create a sales plan

Self-service model: Customers purchase your product on their own. This is a common sales process for e-commerce, in which customers can find and buy products online. While this option doesn't require a dedicated sales team, you need to invest in marketing to drive traffic to your website.

Inside sales model: Your sales team nurtures prospective customers to convince them to purchase your product. This is a good option for products with a medium price point that are a bit more complex, like design software for teams.

Field sales model: Salespeople focus on closing big enterprise deals. This option requires more sales investment and a longer sales cycle, but there's a big payoff. For example, you might use a field sales model to sell HR management software to large companies.

Channel model: An external partner sells your product for you. While this option gives you less say in how you market your product, it's the cheapest option and can work well if you partner with a company that sells similar products. For example, if you're selling a new type of cereal, you could partner with a grocery chain.

The goal of your GTM strategy is to sell your product, so it's essential to decide how you'll sell to your target audience and turn prospective customers into buyers. That's where your sales strategy comes in.

We've outlined the four most common sales strategies below. As needed, you can combine these strategies to fit your specific product and business model.

Step 8: Set concrete goals

SMART goals: This acronym helps you set goals that are specific, measurable, achievable, realistic, and time-bound. For example, you could set the following SMART goal when launching a new app: "In six months, generate 1M total app downloads and 50K new user accounts."

Key performance indicators (KPIs): KPIs are quantitative metrics that help you track progress toward business objectives. For example, you could track total purchases and ad click-throughs when executing a go-to-market strategy for your new product. Keep in mind that you can use the SMART goal framework when crafting KPIs-for example, "Within three months, generate 100K total conversions and 1M ad click-throughs."

Objectives and key results (OKRs): This strategy pairs the objectives you want to achieve with the key results you'll use to measure progress. It follows this format: "I will [objective] as measured by [key result]." For example, "The marketing team will increase awareness of a new product, as measured by the following key results: Drive 1M web visitors to the product page, increase social media engagement by 50%, and generate 50K new customers through email signups."

Every great go-to-market strategy starts with clear objectives. Goals give you specific targets to aim for, a clear timeline, and a way to measure progress. Without clearly defined goals, it's hard to tell if your strategy is working.

Here are a few different goal-setting frameworks you can use to set measurable objectives. Depending on your business needs, you can combine these strategies or use them on their own:

How you'll share your strategy and collaborate with team members. Don't let your strategy gather dust in a drawer-instead, house the plans and projects that comprise your strategy in one easily accessible place. A robust work management tool can help you accomplish this. Asana lets you coordinate plans, projects, and processes in one central location. That way, team members can work and collaborate in the same space where your GTM strategy lives.

How you'll course-correct and track goals. In order for goals to be effective, they need to be connected to your day-to-day work. That means instead of setting and forgetting goals for your GTM strategy, make a plan to regularly check in and track your progress-for example, at the end of each week or month. Share these updates with project stakeholders in a centralized project management tool. That way, everyone is on the same page.

How you can standardize processes with templates. Every go-to-market strategy contains lots of components and moving pieces. But while it's important to evaluate your strategy for each new product launch, that doesn't mean you have to reinvent the wheel. To avoid duplicate work, create process documentation and templates to standardize your go-to-market process. For example, you could create templates outlining the steps to determine your target audience, clarify your messaging, and so on-plus an overarching template to guide how you craft your entire GTM strategy. When choosing a project management tool for your team, pick one that lets you create and share templates for processes your team uses on a regular basis.

Step 9: Create clear processes

Creating a great go-to-market strategy is one thing, and executing it is another. That's why creating clear processes is essential when bringing a product to market-because regardless of how well-crafted your strategy is, it only succeeds when you communicate and execute your strategy with your team. For example, you should consider the following when crafting your GTM strategy:
Create a GTM strategy template
Ready, set, strategize

Bringing a product to market is a big investment. But you can set your next launch up for success with a solid framework to determine your audience and messaging, concrete goals, and clear processes to carry out your strategy. With these nine steps, crafting a great go-to-market strategy isn't so daunting after all.

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Create a go-to-market strategy in 9 easy steps [2023]

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A go-to-market (GTM) strategy is a step-by-step plan for launching a new product or expanding into a new market. It helps you launch your product to the right audience, with the right messaging, at the right time. Learn how to craft a go-to-market strategy in nine steps and set your next product launch up for success.

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Complete Go-To-Market (GTM) Strategy Framework: 2025 Plan (Young Urban Project)

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Complete Go-To-Market (GTM) Strategy Framework: 2025 Plan (Young Urban Project)

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This detailed framework outlines each step of building a modern GTM plan, including ICP (Ideal Customer Profile) creation, value propositions, pricing models, and launch tactics. It stresses data-driven decisions and customer-centric approaches. Their 2025 update also incorporates AI and automation into GTM strategies.

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The business space is hyper-competitive right now. In a competitive space like this, a solid go-to-market strategy framework can make or break a new product launch. Every business, from a startup to an established enterprise, needs a well-thought-out plan that ensures its product or service reaches the right target market at the right time. Whether you're looking to launch a new product, tap into a new market, or reposition an existing product, the GTM strategy provides a comprehensive blueprint for success. But creating one isn't easy, and mistakes can result in costly setbacks.

This guide will walk you through everything you need to know about creating a go-to-market strategy, from its definition to the step-by-step framework that guides businesses in executing it.

What is a Go-to-Market Strategy?

A Go-to-market strategy (GTM strategy) is the plan that businesses use to introduce a new product or service to the market. It involves identifying the target market, crafting key messaging, selecting the right marketing channels, and establishing sales strategies. Essentially, it is a roadmap for getting your product into the hands of consumers, ensuring that the business meets the needs of the market and maximizes the impact of its marketing and sales efforts.

A well-defined GTM strategy can help businesses:

Differentiate from competitors

Minimize risks in launching new products

Enhance market penetration

Optimize sales processes

Without a clear GTM strategy, even the best products may fail to gain traction, especially when competition is fierce and market demand is unpredictable.
Also read: 15 Effective SAAS Marketing Strategies
When Do You Need a Go-to-Market Strategy?

A go-to-market strategy is crucial in several business scenarios where planning, alignment, and execution determine success. It helps ensure that the product or service reaches the intended audience effectively while minimizing risks and maximizing return on investment. Below are detailed situations when a GTM strategy is essential:

1. Launching a New Product or Service

When introducing a new product or service to the market, a GTM strategy provides a clear roadmap. This is especially critical when:

Target customers are unfamiliar with the product.

You're competing against established players.

Market timing and first impressions are crucial.

For example, tech startups launching an innovative app need a structured approach to educate potential users, differentiate their offering, and scale quickly.

2. Entering a New Market

Expanding into a new geographical location or customer demographic brings unique challenges. A GTM strategy addresses questions like:

Who are the target customers in this market?

How do cultural, economic, or regulatory differences affect marketing and sales?

What are the best channels for reaching this audience?

For instance, a business entering an international market might need to adapt its messaging, pricing, or even product features to suit local preferences.

3. Repositioning an Existing Product

Sometimes, existing products require a refresh or repositioning due to shifts in market trends, competitive pressure, or customer feedback. A GTM strategy in this context helps:

Define the new value proposition.

Re-engage existing customers while attracting new ones.

Realign internal teams with updated objectives.

An example is a brand repositioning its soda as a "healthier beverage alternative" by changing ingredients and marketing campaigns to appeal to health-conscious consumers.

4. Scaling a Product or Business

As businesses grow, the scalability of their sales and marketing efforts becomes critical. A GTM strategy helps:

Streamline operations to handle increased demand.

Expand into secondary customer segments.

Identify efficiencies in distribution and marketing.

For instance, SaaS companies moving from small business customers to enterprise clients often require significant adjustments to their approach, including custom pricing models and enhanced customer support.

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Complete Go-To-Market Strategy Framework: 2025 Plan

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Learn how to develop a complete go-to-market strategy framework. Launch a new product into a new market with a plan that drives growth and revenue success.

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How to build your GTM strategy from scratch (Growth Unhinged)

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How to build your GTM strategy from scratch (Growth Unhinged)

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Targeting early-stage startups, this article shows how to start a GTM plan even with limited resources. It highlights steps like identifying early adopters, piloting product-market fit, and using founder-led sales. The advice is highly practical and designed for rapid iteration.

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How to build your GTM strategy from scratch

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Proven frameworks from working with 350+ startups

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Go To Market Plan - 6 Steps to Creating a Go-to-Market Plan (YouTube)

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Go To Market Plan - 6 Steps to Creating a Go-to-Market Plan (YouTube)

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This short YouTube video explains six clear steps to build an effective GTM plan, including market research, channel selection, and launch readiness. It’s perfect for visual learners who want a quick crash course. Simple frameworks and real-world examples make it actionable.

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Go To Market Plan - 6 Steps to Creating a Go-to-Market Plan

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Create a memorable brand identity and voice.
Develop a marketing strategy that includes content, digital, and social media.
Track brand awareness, engagement, and conversion metrics.

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For better or worse, in today's world everyone is a brand. Whether you're applying for a job, asking for a promotion, or writing a dating profile, your success will depend on getting others to recognize your value. So you need to get comfortable marketing yourself.

In this article a branding thought leader and a professional dating coach present a guide to creating your personal brand. It's an intentional, strategic practice in which you craft and express your own value proposition, and it involves seven steps: (1) Define your purpose by exploring your mission, passion, and strengths, and thinking about whom you want to make a difference to and how. (2) Audit your personal brand equity by cataloging your credentials, doing a self-assessment, and researching how other people view you. (3) Construct your personal narrative by identifying memorable, resonant stories that will best convey your brand. (4) Embody your brand by paying attention to the message you're sending in every social interaction. (5) Communicate your brand through speeches, social media, the press, and other channels. (6) Socialize your brand by getting influential people to share your stories. (7) Reevaluate and adjust your brand by doing an annual audit to find deficits to fix and strengths to build on.

This process will not only allow you to better control your image and the impact you have on the world but also help you uncover and share the unique abilities you have to offer it.

A version of this article appeared in the May-June 2023 issue of Harvard Business Review.

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A New Approach to Building Your Personal Brand

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For better or worse, in today's world everyone is a brand. Whether you're applying for a job, asking for a promotion, or writing a dating profile, your success will depend on getting others to recognize your value. So you need to get comfortable marketing yourself.

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MVP Testing - A Guide to Validate a Minimum Viable Product

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MVP Testing - A Guide to Validate a Minimum Viable Product

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How do you know your new app is going to make waves in the market and provide value to users? Sure, you can trust your gut feeling, but in this fast-paced digital era, relying on instinct alone may set your product up for failure. This is where MVP testing — a methodical, data-driven approach to validating your product concept — comes into play. Specifically, for mobile apps, this can prove to be a game-changer.

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MVP Testing - A Guide to Validate a Minimum Viable Product

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MVP testing is the process of validating a minimum viable product through user feedback and iteratively improving it based on the results.