The Business Blockchain: the future of authenticity and trust on the web

I recently read The Business Blockchain by William Mougayar, which provides a really strong description of the practical applications of this important new technology. This goes way beyond bitcoin. William anticipates a future with thousands, possibly millions, of blockchains that will enable frictionless value exchange and disrupt traditional business models.

He defines blockchains as “new technology layers that rewire the internet and threaten to sidestep older legacy constructs and centrally served businesses.” A blockchain injects trust into the network.

A couple years ago, William and I wrote an article about the trust web, in which we explained how the transfer of authority and trust to a decentralized network enables the continual recording of transactions on a public “block,” creating a unique “chain” known as the blockchain.

The Business Blockchain further explains what the blockchain is and how it works, and goes into depth about the blockchain’s multiple layers. He also includes practical examples of how to implement the blockchain within specific industries.

According to William, we shouldn’t be asking what problems the blockchain solves. Instead we should be focusing on new opportunities. It’s hard to even imagine the possibilities that will develop as traditional business models are disrupted and a new level of trust and transparency is enabled.

If you’re at all into authenticity and trust on the web, this book is a must read.

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How Microsoft, Uber, Twitter, and Google came to Boulder

A thriving startup community provides a boost to the greater community in lots of ways. It encourages innovation and investment, attracts creative, entrepreneurial people, and generates a certain energy– making the entire city a more desirable place to live.

Additionally, when local startups are acquired by big companies, and those companies hire more people in the area, the result is more jobs, which boosts the local economy in a lot of new ways.

A great example of how big companies get here is Sketchup, a startup that my partner Mark Solon invested in back when it was a tiny company. Google acquired Sketchup in 2006 (yep, I was blogging about Colorado startups way back then), and we’ve had the footprint of Google’s presence in Boulder ever since then. Bolstered by the addition of around 1,500 jobs in Boulder, over the years that acquisition has significantly contributed to Boulder’s growth and housing boom.

Similarly, in 2011 Federated Media purchased Lijit (now Sovrn), leading to an increase in hiring at the Boulder office. And in 2014, Boulder startup Gnip was acquired by Twitter, leading to their large office here. By the way, even as I write this Twitter has 10 job openings in Boulder right now.

Microsoft brought an office to Boulder when it bought the startup Vexcel. Later, Uber opened up a Boulder office when it acquired some of the Bing assets and Microsoft continued to operate here.

There are plenty of other examples in Boulder alone. By my count, about 2,000 high paying, high tech, “big company” jobs in Boulder can be traced back to startups from the last decade. Not to mention the many thousands more jobs that are enabled by the current generation of startups today.

This is how an active startup community impacts the broader community, well beyond just the startup community itself. It impacts all aspects of the area, including real estate, retail and housing in major ways. Next time you find yourself wondering if startups really matter to a community, take a look at Boulder and ask yourself why Google and Twitter employ so many people here. Startups are responsible for most net new jobs in America. As big companies continue to cut back, we can continue to look to startups to create our future.

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How much should a growing SaaS business burn?

As an investor, I’m often asked what sort of burn rate is appropriate for a growing company. This question seems to come up right after a Series A raise when the startup feels flush with cash, has some level of product/market fit, and is wondering how much and how fast to try to grow.

For SaaS companies in this situation, my rule of thumb for burn guidance is to have a one year ratio of net burn to net new MRR. In other words, if you are growing through $30K of net new MRR, I’d be comfortable as an investor with you burning $360K a month (30,000 x 12 = 360,000). Your $30K of net new MRR pays back this months burn over the next year. Of course it also matters how much cash on hand and runway you have and it matters that you’re still seeing other healthy metrics as a result of that burn over time. This rule of thumb also assumes a reasonable operating margin and healthy limits on churn.  So you have to watch those things carefully, as always. At earlier stages, it’s more art than science and of course the ratio makes no sense at all if you have no revenue.

Please be careful if you’re just skimming this post looking to justify a big burn! I’m talking about net new MRR (the amount of MRR you’re ADDING each month, not the current level of MRR or CMRR. If your current MRR is $100K and you’re adding $10k of net new MRR each month, my rule of thumb would only work out to about $120K per month burn. Much lower. Growth rate matters when you’re learning in and stepping on the gas.  

I also think this rule of thumb applies to in-revenue companies in the typical Series A to Series B range, and not indefinitely. I’m not sure I’d ever get comfortable with millions in burn per month for a SaaS company (although others have), so apply sanity tests outside the typical Series A to B scenario.

In Bessemer’s wonderful “state of the cloud” report for 2017, slide 35 illustrates this similarly but on an ARR basis. Their “efficiency score” is the ending ARR over the net burn, where ratios > 1 are best.

And, of course, this rule of thumb only applies if I think you’re not close to market saturation. As long as I feel like there’s plenty of room in the market to go get it, then I’m generally comfortable with this rule of thumb. And if you’ve just raised your Series A, presumably you and your investors have that belief!

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Metrics for Startup Success

What is the right startup success metric?

I was recently asked why we celebrate fundraising amounts as opposed to other meaningful metrics, such as revenue, recurring customers or staff size. To be perfectly honest, it’s a struggle to find intermediate metrics for startup success.

In our industry, funding is used often as a measure of success, but this is by no means a perfect metric. Just because you raise money doesn’t mean you should celebrate. Securing funding doesn’t automatically mean your company is going to be successful. Think Color or Quirky. If we measure success by fundraising, then these were huge successes. But clearly they were not actually successful.

There are other meaningful metrics to consider, such as impact, number of employees, amount of revenue or number of customers. All of these are reasonable intermediary proxies, and we take them as signals of success, which is the best gauge we have in this industry. But no one factor by itself is sufficient to compare the success of startups. For instance, you could try to use number of employees as a metric, but sometimes great companies are built and create a lot of value while hiring very few people (think Craigslist).

When we say that Techstars companies have raised $3 billion, that’s a proxy for activity, but it’s not a measurement of success. Ultimately the measure of success is the return on investment—and we’re fortunate to have some pretty great returns on Techstars. However, you don’t know how “successful” a particular company is until you actually get that return on the investment. The problem is exacerbated because we are also judged on imperfect intermediary metrics like funding by our capital partners. It’s the best we all have until companies are more mature. Startups are a long-hold, long-term type of asset.

In the long term, you can absolutely measure success based on return to investors. But on an intermediate basis, it’s truly a struggle to find the right way to measure startup success. I’m sure you’ll have some ideas for the comments.

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Don’t Make Yourself Indispensable

When you’re first starting a company, you’re right there in the thick of it, all the time. During that heavy lifting phase, you naturally have to throw yourself into getting your startup off the ground and figuring things out.

But it can’t go on like that forever. Obviously your own personal health would take a hit, but it’s also a sign of poor health for your company if it relies on your presence in order to exist.

So once you’re a little farther along—after you have things figured out and have a good market fit—as the CEO you need to start thinking about working ON the business instead of IN the business.

You should be able to go away for a month or two and still have your business run just fine without you there.

Now, that doesn’t mean you should run away to Cuba for six weeks right off the bat. Start out by testing the waters by staying out of the office for a couple of days. Next, actually leave town for a few days. During these test periods, remain accessible and see what happens. What do people send you emergency texts about? Did it turn out that there are some things only you know how to do? Was there something only you have the authority to take care of? Figure out what information you need to share with other members of your team.

This is all about surrounding yourself with great people and ensuring they have the ability to handle every aspect of the day to day business. In November of 2015, I took an entire month off work. I was able to do that because I have a great team and the business was healthy enough to run smoothly for a month without me.

Refusing to become indispensable doesn’t mean you aren’t important to the company, or that your contribution isn’t valuable. But when it comes to day to day operations, if you have to be there in order for things to work, it’s an indication that you’re not building the company the right way. If you get to this point, as a special bonus, you’ll get to focus more on strategy instead of tactics and this will in turn move the needle even more.

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Coaching Up!

Time and time again I’ve seen how important quality relationships are to a startup’s success. I really appreciated the focus on authentic connections in Jordan Fliegel’s book Coaching Up!

Jordan is an alumnus of Techstars, and his company, CoachUp, is a service that connects athletes with private coaches. He started CoachUp because of his life-changing experience with a private coach, and his desire to make that opportunity available to more kids. Jordan is also a cofounder (along with Jeremy Levine, another Techstars alum) of Bridge Boys, a seed investment fund in Boston.

Coaching Up! demonstrates how anyone can use coaching techniques to better connect with, engage, support and inspire other people. It offers concrete advice and a skill set for leaders who want to learn how to more effectively build connections and motivate coworkers, teammates or even family members.

As I noted earlier, the focus of this book is forging authentic connections with people, which is why I highly recommend it for startup founders–or anyone who is leading an organization. Honing your ability to build and develop authentic connections is critical, and Coaching Up! provides some practical insight about how to develop those skills.

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