Ten things I learned in 10 years of doing this
It was mid-August 2015, in the conference room we named Battery after a private social club that one of our investors built. This was “Curtis Day,” the day we were trying to close our new CEO, who was with us for a final round interview. I was last to present, and my topic was Scripted’s culture.
“The thing that defines our company culture,” I began, “is we don’t quit.” It was true then, in the midst of a prolonged CEO search, and it’s true now, after we agreed to be purchased by Xenon Ventures.
TDIL (This Decade I Learned)
I co-founded Scripted about ten years ago. The decade went by fast.
When we started it, I was an excited 24-year-old, headed off to grad school at the Harvard Kennedy School of Government, flush with cash from student loans. I recognized this time as a unique opportunity to learn, network, and do things I wouldn’t be able to do otherwise. Things like starting a company with my co-worker from Navigant Consulting, Sunil Rajaraman. It’s been an awesome ride, and I’ve now decided to leave and become a “parallel entrepreneur” running Toofr, eNPS, and Thinbox at the same time.
To commemorate both milestones, my ten years in entrepreneurship and Scripted’s next adventure without me, here are ten things I learned about business over the last decade.
Be technical or have a technical co-founder
I wrote about this in Inc. three years ago. It’s still true. I loved working with Sunil and Zak back when we started Scripped (yes that’s Scripped, our online screenwriting app), but oy, we should have had a fourth person who could actually build the product. Or one of us should have learned how, but that wasn’t practical at the time.
By not having a technical founder, we were forced to fundraise. Right out of the gates, we didn’t have the option to bootstrap. We had to raise money. This is so important. Always bootstrap if you can bootstrap. Always.
Only go into debt when you have a plan to pay back the principal
Fast-forwarding a decade, this lesson cost us millions of dollars. $16 million to be exact.
I was wrong to assume that because we drew down $3 million of a bank loan our board would keep funding us even if we couldn’t make the monthly principal payments. I figured the board was locked into us, pot-committed at that point. They were not.
Investors see companies as disposable, just like the people in them. That’s the harsh reality. The softer side is if you’re growing fast then you’re untouchable. We were not growing fast enough to allow our investors to fund our losses. When we asked for more money, and pointed to the likely outcome if we didn’t get it, they politely but directly said, “No.”
I learned too late that this is completely rational behavior on the part of investors. I don’t blame them. I blame only myself for not seeing this before we went into debt.
We’d taken too long to find our growth channels, to get positive unit economics, and a real, honest shot at profitability. Because of that, our market valuation was lower than the amount invested. When that happens, investors have to cut bait. It’s just business.
One board member told me, after we’d agreed to sell at a loss, that if we’d done the layoff we did this past January six months earlier he’d have kept us afloat. He would have done it not because he’d get huge returns but because he values cultivating a community of successful companies and entrepreneurs and would have rewarded us for executing on his advice. By the time we did what he suggested and cut the team down to six, it was too late. That deal was off the table.
These are complex problems, and for about a year we had discussions at the board level about when and how deep to trim down the team. Founders of other companies told me to cut immediately. “Do it tomorrow!” more than one of them said to me. I thought they were right, but I didn’t have consensus internally or on the board. Doing the layoff felt like giving up on the IPO dream. It would mean conceding that Scripted would not become a huge success and we didn’t want to disappoint the board members and investors who counted on us to go all the way. Since I was CEO then, I should have done what I knew to be right for Scripted, but instead we dragged our heels until we had no other choice.
If I seemed bitter in past Medium posts about this period, that’s one of the reasons why. We were slow to react at this critical moment and that will be my biggest regret of my time at Scripted.
Invest in marketing ahead of sales
We should have fully invested in marketing before fully investing in sales. The reasons are several:
- Marketing is cheaper than sales
- Marketing has faster feedback loops than sales
- Marketing gives you better data than sales because it’s easier to measure than sales
- When you first start a business, you don’t need a sales team — just by virtue of being founders, they’re the sales team.
- Unless one of the founders is a digital marketing whiz, you will eventually need to hire a marketing leader, and that should happen before hiring the sales leader.
When I look at the trajectory over the years at Scripted, I point to our post-Series A enterprise sales focus as the moment we went off course. Not because we hired the wrong sales leader, but because we never should have hired one to begin with.
We didn’t have product market fit. We didn’t have our unit economics right. We didn’t know which channels we could use to profitably feed a hungry sales team. To make up for this we raised and spent millions of dollars. If I could give it all back and re-build Scripted without that money, I would.
During that period we believed every quarter that we were one quarter away from cracking the code. That went on for two years until we bagged it, laid off the sales team, went full marketing funnel, and turned the business around. It was a rough period but we got through it.
I’m proud of the turnaround but we should have never needed to go through it.
Your customers are, on average, right
If you follow the old business adage literally, you wind up confused. Every customer is not right. A lot of customers are irrational, angry, and even incompetent. But most of them aren’t. So instead of believing that every customer is right, believe in the average customer.
If customers keep getting confused about your pricing page, then try another feature grid. If they keep complaining about the terms in your contract, then find middle ground. If they keep telling you your business model is wrong, then find another way.
Talk to your customers as much as you can. Collect NPS scores and other forms of feedback. Be very accessible.
Your customers want you to win! It’s very easy to forget this.
Take your hiring seriously
One thing we did very well is hire. The process wasn’t always pretty but we still hired great people. I am absolutely certain of this because our culture was our most consistently talked about trait.
We used a three-part hiring rubric on a four-point scale and it worked wonders for us. The three parts are skills, “eye of the tiger” (passion), and cultural fit. After the office interview we’d gather up anyone who interacted with the candidate and blindly collect their ratings. Then we’d discuss.
I always thought the culture question was the most important. Of our seven company values the three that mattered most to me were simplicity, scrappiness, and friendliness. That was my cultural barometer. When we hired people that didn’t work out, it was a cultural problem every time.
Fortunately those were few. Like any company of 40 people, there were personalities that didn’t get along (I had problems too) but we powered through them. The common thread was strong. It wasn’t broken when we did a poorly executed layoff, and it stayed intact when we had to do two more of them, incorporating hard lessons learned.
Take your layoffs as seriously as your hiring
We completely botched our first layoff. It was awful, and I still feel bad about it, three years later.
The first problem was poor expectation setting. One day we were rallying the company around how great everything was going. Two days later we announced a “reorganization” because things in fact weren’t going so great. That was big mistake #1.
We then announced the departure of two popular managers. Only one of them was there for the announcement. The other we let go earlier that morning in an inherently awkward encounter because this employee also had no idea it was coming. This was big mistake #2.
If I were an employee I might have thrown up my hands right there. But like I said, the culture was strong despite the unforced error we made that day. Everybody stayed.
I still cringe at this moment. It’s a scar. No one meant to do harm, and we did plan for it in advance, but in retrospect we really should have considered the employee perspective. Our messaging leading up to and during the layoff was terrible.
Fortunately we got a lot more transparent after this and found strength in sharing our weaknesses.
Always be within 12 months of profitability
It’s wise to invest in growth. That’s why you raise capital. A lot of great companies are unprofitable by design because they keep investing into their own future. That’s Amazon in a nutshell. To an even greater extent that’s Uber.
If you can follow a course where you’re unprofitable but can flip a switch to become profitable, it can be a wonderful way to run a business and create huge value. I credit the CEOs who can do it. It’s very, very hard. Most of us will never get there, and most unprofitable startups are just spinning their wheels in quicksand.
I don’t think there’s a good reason to run a business that cannot become cash flow positive within 12 months. If no reasonable iteration (e.g. hiring freeze and only focusing on profitable marketing channels) will get you there then several things could be wrong:
- You’ve hired too many people
- You’re investing in the wrong marketing channels
- You’re not collecting your receivables fast enough
- Your pricing is too low
- Your churn is too high (your customers aren’t happy)
- You’re simply in a bad market and chose a bad business
These are all very serious problems, so before you burn another dollar, you should focus on getting these straightened out. Be prepared for a tough road.
It’s tough because even if you “fix” it tomorrow, it will take you months before you’ll have the data to verify that it’s actually fixed. Sales cycles, marketing channels, and customer funnels take a while to mature and offer feedback. In the meantime, you’ll keep burning cash.
My point is, if you can’t project cash flow breakeven within 12 months, then you have a real crisis on your hands. Better to know now.
How did I learn this? The hardest way possible.
Know basic finance and understand financial statements
As a founder or CEO, it is critical to understand basic finance. Even if you hate it, I highly recommend running your own books when you first start your business. Tools like Wave, Xero, Freshbooks, and even Quickbooks Online make it relatively easy to get a handle on your finances.
There are plenty of books, tutorials, and YouTube videos to help out too. The reasons I recommend it are:
- You’ll appreciate how quickly money disappears
- You’ll understand the relationships between the three financial statements, Income Statement, Balance Sheet, and Statement of Cash Flows, and what you use each one for
- You’ll learn how to hire and manage a bookkeeper and/or accountant (and what the difference between them is!)
- You’ll be a much more capable fundraiser and board member if you choose to go that route
I did Scripted’s accounting for the first couple years. I even filed our taxes! It was extremely helpful because I completely bombed finance in business school. I didn’t appreciate it then, and I still kick myself for wasting that opportunity to learn financial statements inside and out. It’s probably the one thing that you can apply from your MBA program throughout your career. I wasted my chance at a top business school known for its finance curriculum, but I got it back in spades by forcing myself to close our books every month. I made a lot of mistakes, and even had to completely rebuild our books once, but I learned a tremendous amount and am better for it.
Be very visible in your industry
My co-founder and our first CEO, Sunil, was great at this. Far better than the leaders since, especially me.
It’s really cheap marketing, and it’s more art than science. You need to have the right personality and opinions about the industry you’re in. In some respects you need to be fearless and over-confident. These can be really good attributes for a CEO to have.
Visibility is a virtuous cycle. The more you give, the more you get, and most industries want to rally around a figurehead, pundit, expert, thought leader, whatever you want to call it. When your CEO is one of those people, doors open, financing and customer acquisition becomes easier, and your blended cost of acquisition falls.
That’s ultimately how it connects to the bottom line. Industry visibility attracts customers, shortens the sales cycle, and probably extends customer life too.
Those are three benefits that will make any business a great business. If you don’t have it, then cultivate it. If you do have it, then get better at it, focus on it, and let your team handle the stuff you’re not as good at.
Let your culture be your guide
Every difficult decision we made was guided by the seven cultural values I explained earlier in the hiring lesson. Everything from how to price our plans to how quickly to pay writers, to how to deal with refunds and angry customers. It’s all informed by our culture. We did a really good job of this.
A lot of our culture is aspirational. We don’t always live up to it, and may never fully live up to our ideals, but that’s okay. The point is to keep trying. I’m reminded of the parable of early explorers following the north star. They may walk toward it for 100 years but never actually reach it. I think a good company culture is like that too.
Be proud of your product
When I look at what we’ve built today, my heart swells. It’s truly a terrific product. It feels really, really good to build something that works.
Some people may read this who got a bad piece back, or paid a membership fee they didn’t mean to pay. I’m sorry if you had a bad experience with my product. I hope you’ll see from the rest of this post that we tried our best to deliver, but we understand not everyone will be a happy customer. Also, thanks for reading!
Through all of this, I’ve learned how difficult it is to build something great. It simply takes time to iterate through all the mistakes and keep up with all the latest technology. Product teams work in “sprints” but zoom out and you’ll see that it’s actually a marathon. You need terrific stamina to work on a product for years at a time.
At the end of the day, I’m proud of Scripted. Damn proud. It’s a great company that makes a great product. I hope it lasts forever.
Thanks for spending your time with me, everyone. I can’t wait to see what Scripted does next.