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Wednesday, January 10, 2018

Lesson #285: How to Recruit & Retain Rockstar Talent

Posted By: George Deeb - 1/10/2018

You have heard me preach over and over again how great teams build great businesses.  That I would rather invest in an A+ team with a B+...



You have heard me preach over and over again how great teams build great businesses.  That I would rather invest in an A+ team with a B+ idea, than a B+ team with an A+ idea.  Well now, you can learn exactly how to recruit and retain rockstar talent for your business.  My close colleague Jeff Hyman, the Chief Talent Officer at Strong Suit a Chicago-based executive recruiter than specializes in VC and PE backed companies, just published a new best selling book called Recruit Rockstars--The 10 Step Playbook to Find The Winners and Ignite Your Business.  It was like everything that was in my head on this topic, just magically found itself in print in Jeff's must read book.  Jeff was kind enough to let me share some of his wisdom with you in this Red Rocket post.

THE 10 STEP PLAYBOOK

First of all, here is a good summary of the book, featuring the 10 Step Playbook for hiring rockstars.  It compares what most recruiters do, and what rockstar recruiters do.  Notice the key steps from starting with setting up an upfront scorecard for what will make a great candidate, focusing on the candidates with the right DNA, taking candidates for a test drive, paying special attention during onboarding and pruning mis-hires within the first 60 days, to name a few.
APPROACH RECRUITING LIKE A MARKETER, NOT A RECRUITER

I especially liked the section that said recruiters need to entirely change their mindset in terms of how they approach recruiting.  Recruiting talent for your business should be no different than the marketing tactics you would use to attract new customers for your business.  So, put on your marketing hats and figure out how you are going to build a great "employer brand" in attracting the best talent for your business.
RETAINING ROCKSTARS IS JUST AS IMPORTANT IS HIRING THEM

Here is a quick excerpt from Jeff's book on the importance of retaining your rock stars once hired, and how exactly to do that:
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THE ALL-IMPORTANT FIVE CS

"After hiring a Rockstar, the real work begins—getting the most out of them. I’ve studied and tried countless leadership styles. I’m convinced that authenticity wins—be yourself. But ensure that you provide what I call the five Cs to your Rockstars. They value these more than treadmills, ping pong tables, and notoriety.

CHALLENGE

First and foremost, provide them with interesting work. Give them customer problems to solve and a variety of people to deal with. Ask them to figure out how to make things faster, cheaper, and better within the organization. Countless studies show that challenge is the most important factor to job satisfaction for Rockstars, ranking even higher than money.

CAREER PATH

Rockstars are not only interested in their current role, but in their next one. They want to understand their likely career advancement and progression. That doesn’t necessarily mean an annual promotion. It can include lateral moves to broaden skill sets or working in a different geography. You can also say, “Here are some potential options for what might come next. I can’t promise them to you today, but if you do an outstanding job in this role, in a year, here are the kinds of things we see someone like you doing.”

The average new hire will work with at least fifteen companies during their career. The average tenure at a company is two years. So, if you can keep a Rockstar aboard your “train” for longer than that, you’re doing well. Go ahead and tell them, “My hope is to make this the best job of your life. If I do that, you’ll likely stay with us for a sustained amount of time. My expectations are high, but they’re realistic. My job is to get the best from you and provide the most fulfilling
job you’ve ever had.”

There’s no need to have the career discussion more than every six months, but you need to understand their aspirations and how they evolve over time. That way, you can begin to think about their advancement and what other roles might make sense for them. Provide it before some headhunter does.

Part of career progression entails succession planning, so that when you experience a departure, you have a potential successor identified. The best companies in the world often have a successor in mind for every role; that way, if someone leaves, they have a replacement named by the end of the day. The injury-riddled occupation of football has addressed this issue with the motto, “Next man up.” Be prepared because you never know when a role will need to be refilled.

Bear in mind this will sometimes mean promoting a Rockstar who’s not quite ready for the next step—you can do so on an interim basis. This is often better than taking the chance with an outside recruit, who would come with risk and could be the reason your Rockstar departs when passed over for the role. Always search inside first; at the very least, when considering outside candidates, run all viable internal candidates in parallel through the same fair and objective process.

CANDID COACHING

Most Rockstars respond well to candor, because they have an insatiable need to improve their performance. They recognize the path to promotion, to taking your job, and the CEO role perhaps one day, is to continually improve. To get better, they need and crave your feedback. So, provide it frequently. Ban the annual review; your Rockstars hate it as much as you detest cramming to write those missives over Christmas week. Instead, implement a monthly or quarterly coaching cycle. Find just two or three messages—not the laundry list given by most managers—that you want to reinforce, give specific examples, and then watch for improvement. When you catch them doing something right, reinforce it by letting them know you noticed and by recognizing them publicly if possible. Your two or three things should be tied to the skills they need for their next career move.

A powerful yet underused tool to help you give candid feedback is the Socratic method. Ask a few simple questions. “How do you think the (meeting/product launch/etc.) went? What could you have done differently? What could have gone better?” Rockstars are often their own toughest critic. Often, they are aware of what could have gone better or what they could have done differently. You can say, “What can I, as your manager, do next time to make sure your performance is better?”

Rockstars appreciate a work environment where candor, or a debate-and-align structure, is valued. This structure supports productive disagreements focused on the idea, not the person. Once a decision is reached, regardless of whether the group agreed or the leader reached a decision, everyone agrees to align behind that decision.

CONTACTS

Open your personal network—including your LinkedIn network—to your team. Introduce them to mentors outside the organization. This is especially important if yours is a small company where there just aren’t many people for them to learn from. You might know people who would be great role models for your Rockstars. Some managers won’t do this because they want to keep their Rockstar a secret, but when you introduce them to people who can broaden their knowledge, they will be grateful. And that increases loyalty.

COMPENSATION

Compensation isn’t everything, but it’s something. I’ve found that more important than the fixed base salary, however, is the variable upside. Rockstars respond well to a challenge, and they respond well to currency tied to upside performance. Lay out specifically how they earn it. Be clear with what percentage they can earn and when it will be paid out. And don’t change the rules halfway through the game.

Rockstars don’t respond well to black-box, or subjective, variable compensation. No matter how well they do, they don’t know what they’ll earn. That’s not motivating, and so you’re wasting your money and frustrating your top performers. Avoid capping your variable compensation. If they can deliver three times what you expect them to deliver, they should receive a meaningful variable compensation payout.

Perhaps my greatest frustration with regard to compensation is that so many leaders apply the “peanut butter” approach. They spread money around, approximately the same to all employees, in an effort to keep the peace. Instead, use differentiation, the concept of not treating everyone equally, to separate Rockstars from B- and C-Players. It means promotions, titles, and public recognition for great performances. It means fair compensation tied to performance. So rather than giving everyone 2 to 5 percent raises, give 20 percent raises to the ones who deserve it. And yes, that means you’ll fund it by giving no raise this year to many. And those C-Players may choose to leave because of it. And that’s okay."

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So, as you can see, there is a lot of terrific wisdom in Jeff's new book.  It is a must-read if you going to build really great teams for your business, as there are a lot more how-to details in the book than are shared in summary in this post (here is the link to the book on Amazon).  Thanks, Jeff, for allowing us to share this gem with our Red Rocket blog readers.

For future posts, please follow me on Twitter at: @georgedeeb.


Friday, January 5, 2018

The Pros and Cons of Hiring a Clone of Yourself

Posted By: George Deeb - 1/05/2018

Come on, we have all thought it as entrepreneurs, at one point or another in our careers: “I just wished I could clone myself in findin...




Come on, we have all thought it as entrepreneurs, at one point or another in our careers: “I just wished I could clone myself in finding new employees for my business. Nobody works harder than I do. Nobody is as smart as I am. I don’t trust anybody to make decisions or manage teams better that I do.”  Sound familiar? But is "cloning" yourself really the right solution for your hiring goals? There are clear advantages and disadvantages to a strategy like this, so you will need to figure out if cloning yourself will help or hurt your business, based on your business’s specific needs. Read on.

Read the rest of this post in Entrepreneur, which I guest authored this week.

For future posts, please follow me on Twitter at: @georgedeeb


Wednesday, January 3, 2018

Lesson #284: How To Calculate Your Total Addressable Market Size

Posted By: George Deeb - 1/03/2018

I have written many posts about the importance of determining your industry size for strategic planning or investor pitch purposes.  Bu...



I have written many posts about the importance of determining your industry size for strategic planning or investor pitch purposes.  But, determining your industry size is not always easy, and more importantly, determining your total addressable market (which I will define later), is even more important and an even more nebulous calculation.  So, here is everything you need to know to make sure you are correctly calculating your total addressable market and going after the biggest total addressable market you can (which will attract more investors for your business).

THE DIFFERENCE BETWEEN INDUSTRY SIZE AND ADDRESSABLE MARKET

In this lesson, let's use the example that we are selling social media marketing software into small businesses.  If you go to Google to search for "marketing software industry size", you will stumble on many industry research reports written by professional research firms, that estimate the marketing software industry was approximately a $37BN market size in 2017, on a global basis.

Many entrepreneurs will just stop there, and say they are serving a $37BN industry.  But, are you really?  First of all, you are not selling globally today, you are most likely only selling in the U.S.  And, with the U.S. around 30% of the global market, your market size just cut to $11BN.  And, you are only serving social media software, not other types of marketing software.  So, estimating that social media only makes up 20% of all marketing software, that means your market has just cut down to a $2BN market.

But, it doesn't stop there.  Perhaps half of the social media marketing software business is for managing free social communications, and the other half is focusing on managing paid social media advertising campaigns.  Let's say, you only do the latter, so now your industry size is down to $1BN.  But, remember, we only serve small businesses, not large enterprise-scale corporations.  With small businesses comprising 50% of the U.S. economy, now you are down to a more realistic $500MM total addressable market size.

Furthermore, assuming there will be plenty of big competitors going after this exact same space, it is unlikely that you will ever drive in excess of $100MM in revenue, with a hefty 20% market share in this space.  So, don't show your revenues ever getting larger than that . . .  unless you broaden your product offering or expand your target client base or take your business global.

THE DIFFERENT WAYS TO CALCULATE TOTAL ADDRESSABLE MARKET

There are a few different ways to calculate total addressable market size.  The above example was a TOP DOWN look, starting with the overall industry size and paring it back to the market you are actually serving.

A second way to calculate it would be BOTTOM UP.  That would start with actual data from what you are actually selling today, and grossing it up for your potential future selling efforts.  Let's use this same example as above, and take a bottoms up look.

Let's say you have been in business for a year and already have $1MM in revenues at a selling price of $25,000 per customer (serving 40 customers today).  Let's say there are 16MM small businesses in the U.S., but only half of those are B2C marketing driven companies (taking us down to 8MM B2C small businesses).  But, only 10% of them would ever be able to afford a software like this, since the average small business only does $5MM in revenues.  So, there are 800,000 potential customers over time.  Of which, you would not be able to get more than 20% market share, so 160,000 potential clients of yours.  So, that suggests a total addressable market of $20BN (or $4BN to you with a 20% market share), as your current $25,000 selling price.

A third way to calculate total addressable market would be the value-created model.  That says your solution is going to help your customers drive additional revenues, or save future costs, and they will share a portion of that with your business.  So, let's say there is $30BN in social media advertising spent every single year in the U.S., half of that by small businesses, or $15BN.  Let's say your software can save them 10% on their marketing expense, with better efficiency from your tool.  So, $1.5BN in value created.  And, let's say you sell them on giving 10% of those savings to you, creating a $150MM market opportunity for you and your competitors (and a $30MM revenue opportunity for you, assuming you get a 20% market share).

NOW COMES THE SANITY CHECK

We tried to calculate the total addressable market in three different ways, and got three completely different answers.  Top down suggested $500MM, bottom up suggested $20BN, and value-created suggested $150MM.  We obviously were too aggressive with our bottom up thinking.  It is not rational for us to serve a $20BN market in bottom up analysis, when the overall marketing software industry in top down is only $11BN.

So, I would go back to the drawing board on bottoms-up, or ignore it altogether.  On the second try, I would cap it based on how many sales people I can afford to hire in the next five years.  So, if we have 20 sales people in year five, each doing $1MM in sales each, that suggests your business is $20MM in size and serving at least a $100MM market.  If not more, as you will most likely not have a 20% market share as early as your fifth year.  Maybe you only have 5% market share by then, and the market is really $400MM in size.

That leaves us with two reasonable numbers with the top down and value-created analyses.  But, two thoughts here.  First, I would always lean towards the lower number, to be conservative, or the $150MM value-created number in this case.  And, second, I would also lean to a bottoms-up or value-created number, over a top down number, as those are more real based on known data points for your business, as opposed to pie-in-the-sky estimates from the industry research created by an analyst you don't know is any good, or not.

WHAT DOES THIS ALL MEAN FOR YOUR  BUSINESS & FUND RAISING

So, hopefully, you know have a better understanding on how to calculate total addressable market for your business.  Stop embarrassing yourself with inflated numbers trying to impress investors.  They will be more impressed with your more scientific, data-driven approach to a more conservative and realistic number.  So, put that number in your investor presentations.

But, in all cases, venture investors are trying to build $1BN companies, so if you can't reasonable build them $100MM revenue company that can be sold at a 10x revenue exit multiple, you might need to either expand your product offering to attract more revenues, or know that your business will most likely not attract venture investor attention.  So, in this case, the value-created model only gets us to $30MM in revenues.  That will not be enough.  Back to the drawing board, if venture investors are what you are looking for.


For future posts, please follow me on Twitter at: @georgedeeb.


Monday, December 18, 2017

Red Rocket's Best Startups of 2017

Posted By: George Deeb - 12/18/2017

Red Rocket gets introduced to hundreds of startups each year, in the normal course of doing business, or via our involvement with variou...



Red Rocket gets introduced to hundreds of startups each year, in the normal course of doing business, or via our involvement with various startup groups or events.  We wanted to honor the best of these startups that we met in 2017, in Red Rocket's 6th Annual "Best Startups of the Year".  This list is not intended to be an all-encompassing best startups list, as there are many additional great startups that we are not personally exposed to each year.  And, this list is not intended to be only for businesses that launched in 2017, it is open to startups of any age, that they or their advisors had some personal interaction with us in the last 12 months.  The business simply needed to have a good idea, good team or good traction, that caught our attention.  Congrats to you all!!

THE BEST STARTUPS OF 2017 (in alphabetical order):

Adzerk (CEO, James Avery) - B2B private ad servers

Archive Social (CEO, Anil Chawla) - B2B social media monitoring for legal compliance

Canopy (CEO, Hunt Davis) - B2C on-demand lawn care services

Cloud Factory (CEO, Mark Sears) - B2B cloud-based human workflow services

Feelgoodz (CEO, Mark Saad) - B2C comfortable flip flops & footwear

Filter Easy (CEO, Thad Tarkington) - B2C & B2B air filter replacement subscription service

Freight Farms (CEO, Brad McNamara) - B2B mobile farming containers & apps

Genetic Direction (CEO, Edwin Mayfield) - B2C diagnostic health testing based on your DNA

Its By U (CEO, Caroline Strzalka) - B2B DIY flower arranging subscriptions

Leesa (CEO, David Wolfe) - B2C mattress ecommerce

MATI Energy (CEO, Tatiana Birgisson) - B2B healthy energy drink

Open Angler (CEO, Alicia Aloe) - B2C fishing charter reservation platform

Option It (CEO, Rich Gilsdorf) - B2C sports event ticket options market

Pearachute (CEO, Desiree Vargas Wrigley) - B2B reservation platform for kids activities

Pendo (CEO, Todd Olson) - B2B product user experience analytics platform

Pet Wellbeing (CEO, Darcy Foster) - B2C natural supplements for pets

Phononic (CEO, Tony Atti) - B2B next-generation semiconductors for refrigeration

PocketChefs (CEO, Jason Brown) - B2C on-demand chefs to your home

Precision Hawk (CEO, Michael Chasen) - B2B corporate drone fleet management

Ravean (CEO, Bryce Fisher) - B2C heated jackets and gloves

Remedy (CEO, Jeremy Gabrysch) - B2C on-demand doctors to your home

Seal Innovation (CEO, Graham Snyder) - B2C IoT necklace for safe swimming

ShiftWizard (CEO, Joe Velk) - B2B scheduling platform for nurses

Spark451 (CFO, Ron Tadross) - B2B admissions marketing & management platform for universities

Spiffy (CEO, Scot Wingo) - B2C & B2B on-demand car washing service

Stealz (CEO, Jim Zidar) - B2B turning customers into brand ambassadors

Sunscreenr (CEO, David Cohen) - B2C sunblock protection visualizer

TransLoc (CEO, Doug Kaufman) - B2G transit data for municipal transportation agencies

Validic (CEO, Drew Schiller) - B2B digital health IoT platform

Volata Cycles (CEO, Marco Salvioli) - B2C smart bicycles



And, don't forget to check out the 2012 winners, 2013 winners2014 winners, 2015 winners and 2016 winners, many of whom continue to be doing great things.

Congratulations to you all!!  Keep up the good work.  


For future posts, please follow us at: @RedRocketVC

Friday, December 8, 2017

Too Many Meetings Suffocate Productivity and Morale

Posted By: George Deeb - 12/08/2017

Early stage companies have many demands on an employee's time. From getting the product built to marketing for new customers to gett...



Early stage companies have many demands on an employee's time. From getting the product built to marketing for new customers to getting the capital lined up, it is a never ending battle to fit in all that work in a limited amount of time.  But, what I often see is productivity gets squeezed by early stage entrepreneurs scheduling way too many meetings, which gets in the way of employees having enough time to do their actual jobs. And, when productivity slows, the company's bottom line suffers and employees start looking for the door in frustration. Let me explain further.

Read the rest of this post in Entrepreneur, which I guest authored this week.

For future posts, please follow me on Twitter at: @georgedeeb.


Thursday, December 7, 2017

Lesson #283: Marketing Roles and Compensation

Posted By: George Deeb - 12/07/2017

. As your company scales, marketing becomes a bigger and bigger driver of your success.  You will experience expansion in each of ...

.



As your company scales, marketing becomes a bigger and bigger driver of your success.  You will experience expansion in each of your marketing team, tactics and budgets.  I recently read a great blog post by Andy Crestodina at Orbit Media Studios, who studied the key marketing roles and salary trends based on the reports of 67,736 individuals as reported through Glass Door and PayScale.  

The conclusion was marketing salaries are on the rise, as there appears to be a shortage of really good marketing talent in the market, that is best skilled to deal with this generation of marketing needs.  And, in my opinion, that specifically means finding marketers that are well-versed in omni-channel marketing combined with a data-first, marketing ROI driven mindset.  That often means people that are deep in data and analytics, more than the softer branding and creative skills (which are freely available in the market.)

THE KEY MARKETING ROLES

Here is a summary of the key marketing roles inside the organization, in reverse order of seniority and experience.  


Marketing Coordinator.  Supports external teams through project support, program execution, collateral development, sales programs, as well as via ad hoc requests.  The average salary in 2017 is $50,291.

Marketing Associate.  Support online and offline marketing and advertising initiatives with the goal of expanding brand awareness within targeted, relevant audiences. The average salary in 2017 is $57,140.

Social Media Manager.  Engage with communities and clients through social media channels, with the goal of web traffic, lead generation and revenue. Create, execute and revise social media strategy and social media marketing blueprint. The average salary in 2017 is $48,285.

Content Strategist.  Works closely with interactive designers, visual designers, product and project managers to: gather business and technical requirements, analyze user and business needs, define user requirements, and inventory and analyze existing content.  The average salary in 2017 is $90,402.

Marketing Manager.  Manage brand messaging via marketing, advertising and promotional activities. Ensures relevant metrics are measured, benchmarks met, staff performance enhanced, and managed communities enriched through assigned goals and objectives.  The average salary in 2017 is $80,668.

Director of Marketing.  Demonstrate leadership and expertise in marketing. Be savvy in various forms of online and offline demand generation. Charged with leading a wide range of community experiences and becoming the brand voice.  The average salary in 2017 is $113,503.

Vice President of Marketing.  Responsible for determining and leading the strategic direction for organization’s marketing functions including positioning, brand awareness, driving demand generation and lead nurturing, as the head of the department managing the team.  The average salary in 2017 is $167,194.

If you want more-detailed job descriptions for each role above, please visit Andy's original blog post at this link.

MARKETING COMPENSATION TRENDS

What was interesting is how fast salaries are rising in the marketing department.  Overall, they were up 22.6% year-over-year.  Here is a summary of how they changed by role, with Content Strategist and Social Media Managers in the most demand.
CLOSING THOUGHTS

Most entrepreneurs do not give marketing enough focus in their businesses.  This is really important stuff, as marketing drives leads which drives sales.  The better your marketing team, the higher odds of revenue success and growth you will have.  You won't be able to afford all of these people out of the gate, so maybe two people could be filling the roles of six to start.  But, as soon as you can afford to put full-time people in place, you should.


For future posts, please follow me on Twitter at: @georgedeeb.  


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