Five years ago I emailed David about an outdated job listing at Davidville. A few months later I was living in the East Village as Tumblr’s fifth employee.
So much has happened since then.
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Part of being an entrepreneur is knowing when to shift tactics.
When you’re building something new like Sherpaa, you have no real precedent to see how other companies sold the product/service. You can’t learn from others. So you have to build something, get it out there, see how people react, and experiment with what works best. Once you get a hunch that something is more effective, you build that and run with it.
We created Sherpaa to increase access to healthcare and make healthcare affordable for companies. When we launched with tumblr in February 2012, I made an assumption that companies would pay for access to a doctor for their employees. We were right. We’re now up to about 40 companies. However, when Cheryl joined Sherpaa in May 2012, she brought a whole new level of expertise to the company. I knew the medical side of things. She knew the HR/health insurance side. So we combined our expertise and continued to sell Sherpaa as 24/7 email and phone access to our group of doctors, paid for by companies looking to offer their employees an amazing perk and save money.
Although some companies were willing to pay for perks for their employees, not every company wants to or can. However, every company has a mandated, yearly, big, hairy problem— they have to purchase health insurance. It’s such a pain in the ass and it’s confusing as all hell. I don’t want to bore you, but they essentially have two very old-school and boring options— a health insurance broker (picture a sleazy insurance salesman incentivized to get you to spend as much as possible) or a Professional Employer Organization (a creepy company that “hires” your employees, groups them all together with all the other companies they’ve “hired” and goes to health insurance companies as a large group to secure lower cost health insurance). This means you may work for “super cool internet startup company” but get paid by this creepy thing called Trinet or Ambrose, or ADP. PEOs also offer payroll. But payroll is easy with plenty of super affordable options. However, PEOs charge about $150-$180 an employee per month for all of this stuff they say they can do. So any cost they save by lumping you together for health insurance is offset by their monthly fees. There are a ton of problems with PEOs which is beyond the scope of this post. But for the most part, they’re designed to put out fires when you’re small. But once you grow bigger than 20 employees are so, it’s time to be a big boy company and get off the PEO or you have a financial albatross around your company’s neck.
The other option companies have are brokers. For the most part, you reach out to them once a year, they get your company the most expensive insurance they can get you to buy, and then they go away and say your employees are on their own. They did the job they were hired to do. However, they don’t help individual employees use their health insurance wisely and they are incentivized to maximize your spending.
I think there’s a massive hole in the market between a creepy, bloated, expensive PEO and a once a year conversation with a broker who’s not financially on your side. There needs to be an entity that can procure health insurance for you and also help you and your employees use that health insurance wisely on a daily basis so you don’t waste time or money.
But for the past year we’ve been selling Sherpaa as a perk (24/7 access to doctors!), not part of the mandated equation (purchase health insurance and get this super amazing benefit, 24/7 access to doctors!). So, all of that is changing. We’re focusing equally on procuring insurance for you and giving you access to our group of doctors. We procure the most logical health insurance for your company and then we partner our doctors with you and your employees so you use that health insurance effectively so you don’t waste time or money.
And, year after year, we get better and better. In fact, the companies we’re renewing for year two saw health insurance premiums increase half as much as what they would have increased without Sherpaa. We also discovered that employees covered by Sherpaa spent half as much on healthcare expenses this past year than we expected. Why? Because when you have a doctor available to you within a few minutes to speak with you and create a plan with you, you never waste time or money. We’re doing something wonderful here. Making healthcare accessible and more affordable. It’s my dream come true.
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How to use Excel in early stage startups
Excel gets a bad rap in early stage startups. So there is no confusion here; it is impossible to build a great product in Excel. And many confused entrepreneurs torture themselves in Excel for much too long. Yet, after all Excel is just a tool and if used properly can be helpful. So, how should you use Excel when building a startup?
1) What are my levers? Each business model and product distribution strategy has unique levers. They are not all created equal. The process of building a good Excel model can help you see these levers far more clearly than simply talking about them. It’s like product design. You can talk about it but until you see it it’s hard to react. Once you’ve spent the time to build the model it’s fairly trivial to prioritize your distribution features, as the numbers will be staring at you. I’ve done this numerous times and it is usually one or two distribution features that contribute 75% plus to your monthly growth. Obviously, you need to get those ones right.
2) Does it pass the smell test? Let’s say you are targeting the App Store business category. Assume $1 billion of annual spend happens in this category. If the model you develop has your product generating $200M in revenues by month 10 that translates to ~20% marketshare. Clearly, that fails a basic smell test. While this an extreme example the key to this process is playing. The more you play you’ll find that it generates rather unlikely outputs that fail a smell test. This is very helpful as you think about managing your burn.
So, now you know the why let’s focus on how to build a good model:
1) Assumptions and Outputs - You are constantly learning so build the model with a set of assumptions that you can constantly tweak. An assumption is a monthly growth rate, a price you charge for your product, a conversion rate on a freemium product, etc. you get the idea. Your assumptions drive your monthly metrics. Now create a set of outputs. I like to think of these just as a set of questions I want answers to. How many units do I need to sell to hit $500K net revenue, what % of marketshare does this mean I will have, or what month will I hit cash flow positive in?
2) Build Scenarios - I like sets of three, so I build three different scenarios. Why three? Two seems too few and five seems unwieldily, it’s mostly a personal choice. The important thing is to build out dramatically different scenarios to open your mind. For example, a scenario could be a business model that requires a single upfront payment and another scenario could be a freemium model.
3) Limit your model to 8 - 10 months - Why? First, exponential growth models behave in unnatural ways the further out they go. For now it’s not critical to apply drag factors to your model (unless you really understand what they may be). Secondly and more importantly you only have 8 to 12 months to build revenue or you die, so it’s far more important what happens in month 8 than month 24.
4) Don’t Forget…do not torture yourself. No great product was ever created in Excel. The reason it’s a startup and not just another project at Cisco, Apple, or LinkedIn is because there are lots of cells in your spreadsheet that simply don’t have an answer.
Below is an overview of an actual model I helped somebody develop. Unfortunately this meant I had to hide much of the actual data (if you want to help me turn it into a generic template contact me).
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“The most obvious, important realities are often the ones that are hardest to see and talk about”
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Writing As a Competitive Advantage
Yesterday an email exchange between the late Steve Jobs and some executives at book publisher Harper Collins made the rounds. Tho most commentary, retweets and reblogs focused on Steve’s negotiating tactics, I found another aspect of the exchange equally interesting.
Rather than the message, I wanted to highlight the medium.
Specifically, that this exchange happend in email. Sure, the emails reference back to a series of meetings and calls that lead up to the exchange but the real negotiating didn’t happen in the boardroom or over breakfast, it happened behind a keyboard.
This stuck out to me for a few reasons.
The first being that it matches my experience. Over the years, the vast majority of investments we’ve made have been agreed to behind keyboards, not in person. Which runs counter to much of the folklore of “the handshake deal” embedded in our startup culture. The reality is that in-person people are less comfortable. They aren’t as articulate. They forget, or are too nervous, to bring up certain sensitive issues.
I wasn’t in these Harper Collins negotiations, so don’t know if Jobs was just putting into writing what had already been spelled out in those prior meetings. My guess is it was a lot of restating what was already said, and a little new context or a different angle than was discussed live. Given that both parties were able to absorb the information without someone staring across the table, and looking at the clock, they were able to take the time to process the material and have a low decible, civil exchange that netted them a plan for moving forward.
The medium made the message resonate in a way a face to face exchange could not.
Pulling further back, I see the value of writing clearly and concisely becoming an increasingly important skill for digital workers. Partly for the reasons outlined above, but also because we’re moving into a massive wave of distributed work and self selected customers.
This means our voice, and the voice of our companies, are often going to be discovered and engaged with via the copy of our services, the content of our social media channels and the clarity of our emails.
I recently met with the manager of a large engineering team. As we talked he shared that one of the key pieces of his hiring process were a series of writing exercises. Sure it wasn’t coding, he went on, but his teams are distributed across multiple states with a few in other countries. The vast majority of their collaboration is happening in IRC, IM and email. As a result, he was hiring the engineers who not only knew how to build, but who knew how to communicate the whats, hows and whys in writing across those various channels.
Writing can be intimidating, even challenging. But I believe it will be an increasingly important medium for getting work done and convincing others of our ideas. Steve was a master of the medium and I’m glad we’ve gotten a small peek into how he used it.
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“I need to be alone. I need to ponder my shame and my despair in seclusion; I need the sunshine and the paving stones of the streets without companions, without conversation, face to face with myself, with only the music of my heart for company.”
—Henry Miller
Painting: Devin Leonardi
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shortformblog reblogged usnews“I started sketching it out, and I had this funny idea for Maeby. It doesn’t quite fit into the master family story, but it’s funny for Maeby, and I do have this funny bit for Tobias where he writes pop songs. He’s written a song called “I Kissed a Boy.” I just had all these crazy notions, and suddenly I was overwhelmed by the task of squeezing all these unrelated stories into a movie that has a central plot. So I met with Ron Howard to say, “Hey, is there any way we can turn this into a trilogy?” He’s such a good guy. He was like, “I think it might be hard enough to get one movie made.” It was a good point. A studio might not want to spend $150 million on an Arrested Development trilogy. I can see that argument.”
— ‘Arrested Development’ Creator Mitch Hurwitz on His Two-Year Odyssey to Revive the Show
(via usnews)
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