Martech Part II: Why Marketing Analytics is a Bad Business

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My post on martech was surprisingly well received, so I thought I might go deeper on a particular area of martech that no one is happy with, but it seems very few people attempt to solve: marketing analytics. I’ll pull no punches here: marketing analytics is a bad business. Sure, there are successful marketing analytics companies, and you can definitely build a successful marketing analytics company now. But when people complain to me about marketing analytics, they complain about something specific; that the tools to help me understand how well my marketing efforts are doing are harder to use than they should be. Solving that is bad business. The reason is that great marketers don’t understand what most marketers are hiring analytics products to do.

What does an average marketer want at a larger organization? Cynically, I can boil it down to two things:

  • To look good to their boss
  • More budget

It really is that simple sometimes. Yes, there are marketers that are motivated by the truth whether it makes them look good or bad, and marketers who have recommended they should not spend money they are offered because they don’t think they can do it efficiently. I love those people (like the Eventbrite marketing team 🙂 ), but they are the minority. When you get to the enterprise, most people want one or both of the bullets above. So what do most marketing analytics tools that focus on understanding how well a marketer’s marketing efforts are doing actually do in practice? They tell the marketer one of two things:

  • Their marketing spend is not efficient (read: they are not good at their job)
  • They should be spending less than they are currently spending

They literally do the exact opposite role the marketer hired them to do. This creates the Marketing Analytics Death Spiral:

  1. They hire a tool to achieve marketing goals, for which their proxies are their current efforts making them looking good to their boss and getting more budget
  2. The tool tells them the opposite of their goals in Step 1
  3. They think they are good at their job and deserve more budget, so they naturally distrust the data from the tool
  4. Since they don’t use the data, their marketing efforts don’t get better
  5. They look for new tool

The addressable market for marketers who will be willing to have a tool show them how ineffective they are and will use that tool to improve over time is just too small. People who read my first post may ask: why not just change the target customer? Sure, you can target the finance team or the CEO, who may be less biased as to the effectiveness of a marketing team’s current programs. But then your product creates organizational friction between either two different functions or the CEO and the marketing function. This is a tough win condition for most forms of go-to market.

So what are companies doing instead in this space? Well, Amplitude and Mixpanel decided to focus on analytics for product instead of marketing. If product or engineering becomes the position of strength inside an organization, they can extend their tools into other functions like marketing over time. Many other marketing tools focus on making the marketer more efficient through automation. This makes them look better to their boss, which is exactly the job to be done for most marketers. Another variation that is successful is making something measurable in the first place that historically has not. This tends to solve job #2 for marketers of making budget available to them when it previously was not. For example, it was hard to measure mobile app campaigns before companies like AppsFlyer and Adjust came along, so no one was approving large app install ad budgets. Once these tools became available, marketers adopted them so they could prove their CPA’s were effective to get more budget.

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The marketing analytics space is so tempting because budgets are large, and there are many unanswered questions. But you can’t forget the job to be done for marketers. If you’re not helping them look good or get more budget, your market size is going to be too small focusing on the few that are not motivated by that.

Currently listening to Let’s Call It A Day by Move D & Benjamin Brunn.

The Kindle and the Fire

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Entrepreneurs ask me about how to grow all the time. They ask about SEO, about virality, and about increasing conversion, about onboarding. They ask about hiring local teams, building up new functions, and hiring executives. What almost all of them miss is that all of this is context specific on what stage of company they are in. There are two types of growth strategies: non-scalable strategies to get to scale and scalable strategies. I have come to call these kindle strategies and fire strategies. I’ll explain a little bit more about that, and how to think about them.

Kindle strategies can be very unsustainable. Their only goal is to get the company to a place where more sustainable strategies are available. The classic example is in marketplaces. Marketplaces only work when their cross side network effects kick in. Those network effects can only kick in once you get to liquidity. Once network effects do kick in, they can generally be optimized for very sustainable growth. When I left Grubhub, my former co-workers started complaining to me about how much Doordash, Uber Eats, and Postmates were spending on paid search and promotions. They were losing tons of money. There was no way any of those companies ever made this money back from consumer LTV. I told them that wasn’t their goal. Their goal was to get enough consumers so the cross-side network effect kicked in. Those companies were paying their drivers no matter what. Might as well spend money to make sure they’re actually delivering something. And these companies would be willing to almost spend an infinite amount to get the cross-side network effect going because of its value to the company.

I’ve never seen a company as aggressive with promotions as Postmates besides perhaps Homejoy.

This does not only exist in marketplaces however. Superhuman, for example, does live calls or meetings with most people who sign up. This will never scale if they have millions of users, but until either their LTV increases to make this strategy profitable, or they improve self-serve onboarding, they are doing it, because no one would retain without it. You’re willing to do anything it takes in kindle strategies no matter how silly it might seem long term. This is what Paul Graham is talking about when he says “do things that don’t scale.”

Airbnb sold politically themed cereal to raise money for the startup in the early days.

For kindle strategies, it’s more important they work quickly rather than sustainably or efficiently. A lot of early stage companies, for example, ask me about SEO. SEO, unless you have very clever hacks for content and authority, is a fire strategy. It takes too long to work. It might be a great fire strategy to sequence to, though. A lot of companies also ask me about local teams in each market they launch. This can be a great kindle strategy, but it’s generally a terrible fire strategy. Read more from me on this topic here.

Fire strategies by definition need to be sustainable. They need to be able to scale the company 100x and set up a long-term profitable business. So a question all entrepreneurs need to be asking when they pursue their kindle strategy is what fire strategy am I sequencing to. Pinterest used DIY meetups to sequence to influencer blog campaigns to sequence to virality to get enough content where it could scale via personalization on the retention side and SEO on the acquisition side. Most startups won’t go through that many sequences. I’ve seen many companies that have a successful kindle strategy, but it’s not sequencing them into any eventual fire strategy. For example, I spoke with an automotive startup that hacked SEO to get answer box results for their content to get initial users. That eventually caps on how many users it could drive, and it didn’t sequence them to something greater. They eventually shut down.

There aren’t that many fire strategies. Those that involve network effects are generally the best. Sales, paid acquisition, virality, and user generated content with a scalable distribution channel are the most common ways to create sustainable loops to either scale a network effect or scale a product that doesn’t have network effects. This is sobering when I tell entrepreneurs this. There just aren’t that many ways to scale, and almost all involve having extremely good retention as well. Otherwise, you won’t have the profit in the system to invest in sales or paid acquisition, or you won’t get enough users to invite or create content to attract more users.

There are many ways to sequence to a network effect or some other sustainable growth loops, but there are not that many ways to scalably grow without these loops. If you want to learn more about these strategies, it’s exactly what we cover in the Reforge Advanced Growth Strategy course.

Currently listening to Perception by Grant.

What Type of Company Are You and the Growth 2×2

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At Reforge, we’ve written about how companies actually grow, and built an entire program around it. Most companies, when they talk about how they grow, will usually pick from one of the following terms:

  • Sales Driven e.g. Oracle, Workday
  • Marketing Driven e.g. Hubspot, Moz
  • Product Driven e.g. Atlassian, Github
  • Engineering Driven e.g. Google, Palantir
  • Product + Sales Driven e.g. Slack, Stripe
  • Marketing + Product Driven e.g Uber, Amazon
  • Sales + Marketing Driven e.g. Drift, Salesforce

Most people can’t reasonably answer why they are one of these types, but there are reasons. If people inside these companies have thought enough about it, they might understand the market to have attributes that force these styles:

  • Sales Driven: Custom value props and big customers
  • Marketing Driven: Need to make a “space” that doesn’t exist yet and convince people they need it
  • Product Driven: High viral quotients and/or word of mouth from product differentiation
  • Engineering Driven: Solving hard technical challenges creates markets
  • Product + Sales Driven: Large customer spread with bottoms up adoption
  • Marketing + Product Driven: Marketing fuels network effects
  • Sales + Marketing Driven: Custom value props and big customers and need to make a “space”

That was extremely simplistic, but hopefully you get the idea. The larger a company grows, the more likely singular definitions like this start to break down though. Companies launch multiple product lines that require different distribution models, and these product lines typically build on top of each other that gain from the intersection of them. In the Advanced Strategy course, we teach how to model these systems of loops that power such companies.

What growth teams sometimes miss is that optimization is not always the answer to a growth problem. It may require a new product or building a sales team. Modeling your loops to understand your constraints to pick tactics that alleviate those constraints takes some time to do well. A framework I’ve used for more quick and dirty decision making is using data companies usually have on hand: whether a tactic is reliable or not historically in driving growth i.e. you can predict the output from an investment or not, and how fast the payback period is.

For those who aren’t familiar, payback period is one of the most important metrics you can track for growth. It’s very simple. Given this investment today, how long will it take before I recoup that investment in profit from the customers it impacts. For example, a customer you acquire in Adwords for $10 might take you six months to make $10 in profit, subtracting all marginal costs. So our payback period would be six months.

Most executive teams can start to plot where in this 2×2 tactics seem to sit. For example, brand marketing at all but the most sophisticated marketing driven companies is something that has a slow payback and is not reliable. Similarly, innovative product development focused on entirely new products or value props usually sits in that category. For other tactics, where they sit in this 2×2 may vary. On Pinterest’s growth team, for a more specific example, efforts in product driven growth around UGC content distributed through SEO, conversion optimization, email marketing, and activation were very predictable and had quick payback periods, but viral growth was unreliable. At Uber, I imagine viral growth via incentivized referrals was very reliable, but SEO was not. Now, it’s important to remember that within reliability is a sense of scale that matters for the business. If a tactic gives you .1% growth, and only 10% improvements matter, it actually isn’t a reliable lever. An alternative is to make a three dimensional chart where reliability is separate from impact, and ain’t nobody got time for that.


A sample Growth 2×2 for just Pinterest’s growth team

In the long run, model your loops well and find the constraints. In the short term run, maximize efforts on reliable and quick payback activities until you hit diminishing returns. Then, think about moving excess resources into things that are reliable, but have longer payback periods. And think about how anything with short paybacks that are unreliable can become more reliable.

What you’ll quickly realize in the case where you have built a proper growth model or you’re short term optimizing based on this 2×2 above is the opportunities are rarely siloed to one function. You can’t even build this 2×2 if you don’t have many functions represented. So start talking to all the functions of your company to map the opportunities to grow better so that you can grow faster.

Currently listening to Simplicity is the Ultimate Sophistication by Matthieu Faubourg.

Taking On Too Much

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There is always a time in your career where you’re asked to take on more responsibility. This is normally a good sign! It means your manager or CEO or whoever trusts you and seeks you out when problems arise. If you’re like me when I was earlier in my career, you always said yes. I thought of this as moments to increase responsibility, learn new skills, and have more impact. Now that I’m older, I am no longer so eager to take on more. When these situations arrive in my career now, I take real stock on my capability to handle the increase in responsibility. Today, I’ll walk you through the three most common scenarios you’re likely to find yourself in when this happens, and some recommendations on what to do in each situation.

Option 1: Scale
In the first situation, you have been spending years building up a team and/or some sort of scope you’re comfortable with. It could be an entire function like product, a group within a function like the email marketing team, or, if you’re an IC, an area of the code or a particular skill set the company needs. By all accounts, you’re excelling in this scope. If you’re stuck in this structure for too long, and you’re like me, you tend to get bored and are looking for new challenges anyway. This is a great time to accept the new challenge, and either empower your team with more ownership, or use some of the slack time you’ve built up from automation or process improvement to provide more value. This is usually not a confusing move. I only call attention to it in contrast to the other situations I’ll talk about in the rest of the post.


Sam Porter Bridges carries the weight of the world on his back. Don’t do this.

Option 2: Prioritize
In the second situation, you do not feel as if you’re excelling yet. You might still be building your team if you’re some sort of manager, or still learning the function if you’re an IC. Taking on more responsibility might prevent you from succeeding in your primary job, so it’s a pretty big risk. In situations like this, I generally advise people to do what they do in any sort of situation where they have too many things to do and not enough time to do it: prioritize. The difference in this situation is you have to force the person asking you for the additional scope (if they are more senior) to prioritize for you.

For example, I was working with an analyst, and he got a request from an executive at the company for an analysis he wasn’t planning on. He already had a lot of high priority stuff on his plate, so he was confused as to what to do. I told him to email back the executive, show her everything he was prioritizing and how and where this request should fit in. This forces people to acknowledge the value of the work you are currently doing and the amount of time you realistically have available for work effort. If you’re more senior, you can talk about the scope you currently have and whether it might be appropriate to shed some of that scope or de-prioritize progress to accommodate this new area. That’s a very healthy conversation to have.

Option 3: Stretch
In the third scenario, there is no ability to prioritize or shed scope, and you just have to stretch your ability. It’s important to understand this is not a sustainable state. The only way stretching works is if it is short term until you can figure out how to prioritize. Not doing so will result in failure or burnout.

Triage
There are times in a company’s lifecycle (frequently described as war time) where it feels like you might be in a position for a prolonged stretch. What this really means is you need to switch to a variation of option 2 called triage. Triage actually comes from the medical field, and is a process of extreme prioritization of who to treat when you have a large number of wounded or sick, invented for wars, of course. The process focuses on helping what you have the opportunity to meaningfully help on, ignoring things that will likely get better with you, and accepting that some things will go poorly because you do not have the resources to prioritize everything. This process is mostly associated with bugs as a company always has more bugs than it can possibly fix, but I prefer to reserve its use for periods of war time when some things will fail, and you are acknowledging that beforehand.

A mistake that can be made in triage mode inside an organization is to make a decision on what to prioritize and not re-evaluate over time or check on your assumptions. Prioritization in war time is a best guess on what’s most critical, what can fail, and what might be fine without you. If you make a mistake on the latter, it may become more critical, forcing you to change prioritization. And it can be tough to remember to stop and check up on things you’re not focused on to see how they’re doing, and also to remember to re-evaluate and re-prioritize. But it’s important to do so.

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More responsibility can be a great or a troubling thing. You don’t want to fall over because too much is on your shoulders. Being honest about your capabilities at the time and the mode you need to be operating in can help prevent you from failing by being burdened with more responsibility than you can handle. Tomorrow is in your hands.

Currently listening to Run with the Floating, Weightless Slowness to by Kelpe.

What Is Good Retention: An Exhaustive Benchmark Study with Lenny Rachitsky

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At the end of 2019, I presented Eventbrite’s product plans to the board for 2020. These plans included a lot of the goals you likely have in your company: improvements in acquisition, activation, and retention. One of our board members asked: “I understand these goals for the year. But long term, how high could we push this retention number? What would great retention be for Eventbrite?”

I actually didn’t have a great answer. Soon after, I was chatting with Lenny Rachitsky, and we decided to embark on a holistic study across the industry to ask “what is great retention?” across business models, customer types, etc. Lenny surveyed a lot of the top practitioners in the industry across a variety of companies, and we’re happy to share the results here. You can see the raw data below, but I recommend reading Lenny’s analysis here. Done? Good.

Why is retention so damn important?
Why are Lenny and I spending so much time researching retention? Because it is the single most important factor in product success. Retention is not only the primary measure of product value and product/market fit for most businesses; it is also the biggest driver of monetization and acquisition as well.

We typically think of monetization as the lifetime value formula, which is how long a user is active along with revenue per active user. Retention has the most impact on how many users are active and lengthens the amount of time they are active. For acquisition, retention is the enabler of the best acquisition strategies. For virality or word of mouth, for example, one of the key factors in any virality formula is how many people can talk about or share your product. The more retained users, the more potential sharers. For content, the more retained users, the more content, the more that content be shared or discovered to attract more users. For paid acquisition or sales, the more retained users, the higher lifetime value, the more you can spend on paid acquisition or sales and still have a comfortable payback period. Retention really is growth’s triple word score.

What are effective ways to increase retention?
Okay, so you understand retention is important and want to improve it. What do you do? Well, at a high level, there are three types of efforts you can pursue to increase retention:

  1. Make the product more valuable: Every product is a bundle of features, and your product may be missing features that get more marginal users to retain better. This is a journey for feature/product fit.
  2. Connect users better to the value of the product that already exists: This is the purpose of a growth team leveraging tactics like onboarding, emails and notifications, and reducing friction in the product where it’s too complex and adding friction when it’s required to connect people to the value.
  3. Create a new product: Struggling to retain users at all? You likely don’t have product/market fit and may need to pivot to a new product.

We discuss these strategies in a lot more depth in the upcoming Product Strategy program coming soon from Reforge, and if you really want a deep dive on retention, we build the Retention & Engagement deep dive.

Why does retention differ so much across categories?
One question you might be asking yourself is why does retention differ so much by different categories? This was the impetus for the initial research, and why I couldn’t give a great answer to our board. Every company has a bunch of different factors that impact retention:

  • Customer type: For example, small businesses fail at a much higher rate than enterprise businesses, so businesses that target small businesses will almost always have lower retention.* This does not make them inferior businesses! They also have many more customers they can acquire.
  • Customer variability: Products that have many different types of customers will typically have lower retention than products that hone in on one type of customer very well.
  • Revenue model: How much money you ask from customers and how can play a big role in retention. For example, a customer may be more likely to retain for a product they marginally like if it costs $30 vs. $300,000. A product that expands revenue per user over time can have lower retention than ones that have a fixed price.
  • Natural frequency: Many products have different natural frequencies. For example, you may only look for a place to live once every few years (like my time at Apartments.com), but you look for something to eat multiple times of day (like my time at Grubhub).
  • Acquisition strategy: The way a company acquires users affects its retention. A wide spread approach to new users may retain worse than carefully targeting users to bring to your product.
  • Network effects: Network effects may drive retention rates up more over time vs. businesses that do not have these effects. For example, all of your friends on Facebook or all of your co-workers on Slack makes it hard to churn from either product whereas churning from Calm or Grammarly is entirely up to you.

* In those businesses, the business failing and churning as a result is called “involuntary churn”, though that can also mean a payment method not working for someone who wants to retain in other models.

BONUS: Why are Casey’s benchmarks for consumer transactional businesses lower than others?

For the demand side of transactional businesses, where the retention graph flattens is more important to me than the six month retention rate. And unlike other models, these businesses can take longer than six months to have their graphs flatten. Also, for marketplaces, one of the two common models along with ecommerce in this category, a healthy demand side retention rate is very dependent on what supply side retention looks like and acquisition costs. For example, since Uber and Lyft have to spend so much time and money acquiring drivers due to a low retention rate, in order for their model to work, demand side retention either has to be high or demand side acquisition has to be low cost. For a business where supply side retention is high and acquisition costs are low, demand side retention can be lower, and the company can still be very successful. Etsy and Wag I imagine fit more into this model.

Currently listening to We All Have An Impact by Boreal Massif.

How I Grew This Podcast, and How I Unintentionally Started Working on Growth

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I caught up recently with Mada Seghete, co-founder of Branch Metrics on her new podcast “How I Grew This”. In the podcast, I talk about my career in growth including some of my early experiments before I even had a real job. You can listen here:

I thought I’d go into a little bit more detail in this post despite how embarrassing it is.

When people ask about how I got into working on growth, I usually respond by talking about my job at Apartments.com, and how I had to measure everything the marketing team was doing to grow the business. It turns out measuring everything and its impact on growth gives you a pretty good understanding of the growth channels. And for me, one of the biggest lessons was that it was none of the things you learned about in marketing classes at school. It was things like SEO, affiliate marketing, paid search, distribution partnerships, et al. As I automated more of the tracking, it gave me more time to actually work on optimizing those channels. This is all true, but it’s not actually the start. So I’m going to talk about the start in hopes it helps other people figure out how to find opportunities to develop skills and learn. This is going to be a somewhat autobiographical post, and it may not be useful, but multiple people have said I should write in more detail about it, so I am.

My High School Passion: User Generated Content
I was pretty early to the user generated content trend. In high school. I spent a lot of time on AskMe.com, which was basically a pre-bubble Quora, answering questions about a range of topics including music, video games, and history. I answered over a couple thousand questions there. I also hung around the IGN message boards, which was the 3rd largest forum on the internet at the time. I became a moderator on IGN eventually for some of the music and video game boards. This is pre-Facebook, pre-reddit, pre-most things you spend time on the internet with. One interesting thing is how all of those multi-billion dollar companies existed in some form back then; they just didn’t become the valuable companies:

  • AIM = WhatsApp
  • IGN = reddit
  • AskMe = Quora

My College Obsession: Tony Hawk’s Pro Skater
In college, I started playing a lot of Tony Hawk’s Pro Skater 3 on the GameCube. I got pretty good at it. When I went online, I eventually found a community of the early online players playing on the Playstation. They were a lot better than me, and posted videos for download of them reaching new high scores. This was pre-Youtube, so they used various archaic methods of recording (I, for example, used a capture card and a VCR to record the play), uploaded them to a server, and you had to download them to play the videos locally on your computer.

I watched all of the new videos. Not only were they entertaining, but they helped me learn how to get better myself. All of the best players used loops of the level to repeatedly hit parts of the level that allowed them to do valuable tricks. Many people started to post tutorials of their loops. You can see one of the loops I used for a good score here (sorry for the quality. All of this was recorded before Youtube existed, and when we finally did upload things to YouTube, they didn’t support high quality yet):

When Tony Hawk’s Pro Skater 4 came out, it became super easy for these players to score billions of points in one combo using these loops, so the quest for higher and higher scores lost its luster. Instead, the best players switched to showcasing themselves doing stylish combos without ever touching the ground. They called these videos “no manuals” or “nm’s” as the manual was a trick introduced in Tony Hawk’s Pro Skater 2 to link combos on the ground. Essentially, these players challenged themselves to play Tony Hawk’s Pro Skater 4 as if it were the first Tony Hawk’s Pro Skater. The entire community shifted from a score based system to a style based system.

When Tony Hawk’s Underground came out, the community didn’t love many of the changes. You could now walk to link combos, which made something that was too easy for the best players even easier, and people stopped posting videos. I was dismayed as well, because the volume of content coming from the community dropped precipitously.

My First Growth Loop: The Get There Challenges
Worried that this community I loved was dying, I tried to think of ways to revive the community. I essentially needed a way to prompt people to post stylish videos. I came up with an idea. I would post a screenshot of a piece of a level in one of the Tony Hawk games to start. I’d post another screenshot of a place you had to get to in the same combo. And you had to do all of this without touching the ground (no manuals, walking, or reverts). The first to complete it got to post the next challenge. I posted two of them to make sure someone would bite, called them the “Get There Challenges”, and a player named Milky posted of a video of himself completing the second. I awarded him the win and challenged him to post the next challenge. He did, and the Get There Challenges were born. Within a day, someone had beaten Milky’s challenge. The loop had officially begun.

By the eighth challenge, the community started adding variations, such as shortest to complete, coolest version to complete, and sub-challenges. Eventually, some even allowed manuals. A website was built (not by me) to host them officially, and a bunch of copycat websites tried to start their own. GT’s (as they had become known) became a pillar of the Tony Hawk’s Pro Skater online community. Over 300 challenges were consecutively posted and completed over the course of the next three years.

Most of these videos are lost to time. Mike, one of the best players in the community, did create a video commemorating 100 challenges, which is probably the best introduction to the concept. Apologies for the video quality, the out of context teenage jokes, and most importantly, the music choices used in the video.

Now, I am probably an idiot for not using this concept to build a billion dollar business ten years before esports and three years before Youtube became a thing. But the framework of the Get There challenges continues to serve me in my career in other ways. I have come to call these loops content loops and not viral loops as what they do is generate content that attracts people instead of invites. I have built a course on them and talked about them. The Get There challenges have a similar dynamic to how Eventbrite (event listings), GrubHub (menus), and Pinterest (boards) have grown. People mistake this as an SEO strategy, but it’s not. As long as you have a place for the content to be discoverable, it can be a loop if enough people interact with it.

There is much more of an opportunity today to leverage your hobbies for learning opportunities than there were when I was a teenager, whether it’s new creation tools available or all of these new online communities. You may be surprised what you learn from them and how they can inform your eventual career.

Bonus content with much better music:


Currently listening to Ritorno by Andrea.

Buffing, Nerfing, and OP: What Video Games Can Teach Us About Talent Management

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One of the more interesting, but less talked about, dynamics in the video games industry in the last few decades is that the product they initially ship to customers is no longer the final product. Because of online connections via mobile phones, PCs, and consoles alike, video game creators can push constant updates to their games to make them better over time in response to real-time player feedback and behavior. This makes their approach to development much more like other software in that it can be more agile and less like producing a film or a piece of hardware.

Like any change in the video game community, gamers notice, and a whole lexicon has been created based on these new abilities of game developers. One of the more common genres of video games that receive these changes over time are fighting games and shooters. If you grew up pre-internet like me, then examples include Street Fighter and Mortal Kombat and GoldenEye. If you’re, the youth, as they say, then you might be more familiar with Overwatch, Fortnite, and Call of Duty.

What these franchises do now is ship their initial products, watch the community play, and make adjustments over time. As the community plays, players and developers notice that certain characters or items are incredibly powerful, perhaps more so than the developers intended, or they change the game in some unexpected way. The community deems these OP for overpowered or OD for overdone/overdosed.

Before game developers could update their games over the air through the internet, that would mean certain characters would stay overpowered and make games lopsided if you didn’t use those characters. Players would create rules to adjust for these issues, like not allowing anyone to play as Oddjob in GoldenEye, or just blaming losses on your friend using a “cheap” character.


Oddjob was considered OP in GoldenEye because he was smaller than other characters, making him harder to hit.

What developers now do is notice these patterns and update the games over time to re-balance the game. When this occurs through over the air updates, serious gamers read through the patch notes to figure out who has been buffed and nerfed. Buffing is when a character or item is underpowered, and the developers do something to make it stronger. Nerfing is when a character or item is overpowered, and the developers do something to make it weaker. When these patches occur, the power dynamics change overnight in the game, leading to a lot of players trying new characters to see who they can gain an advantage with. This also can extend a game’s lifetime because it forces people to try new things in the game.


Cassie Cage was nerfed in the first major update to Mortal Kombat 11. Holy graphic improvements, Batman!

I find the concepts of buffing and nerfing fascinating and incredibly relevant to organizations, where employees are the players. All organizations are going to, intentionally or unintentionally, overpower people or areas of the company over time. Organizations need more tactful ways to adjust when these mistakes occur, and the buffing and nerfing of the video game industry is a concept I think can be applied successfully to organizations in this case.

So, how do founders and executives get good signal as to the current dynamics of their “players”? Video game developers watch play data and observe the community. Founders and other executives don’t usually have the same analytics video game developers have, so they need to rely on qualitative signals. Many organizations use business results and culture surveys as a signal into organizational success, and use performance reviews, 360’s, 1:1’s, calibrations, skip levels, Q&A’s, and all hands to build even more signal. If you’re not doing any of these today in your organization, start. Organizations usually know how to use these tools to identify who is doing well and needs to be buffed, and this can result in more scope, more resources, or official promotions. But our tools for nerfing are incredibly crude today, so I’m going to talk more about how to effectively nerf in an organization.

How To Execute a Nerf — Conditions for Play

One thing I want to call out about being overpowered. This is often the failure of an organization, not an individual or a team. We tend to treat OP situations in companies as a failure of the employee or team because it’s a lot easier, and we have mechanisms for those situations, such as demotions and firings. And this is typically the way organizations fix OP problems. To do a nerf effectively requires an organization to understand that it failed in structure or talent management, creating the OP situation. Talent management doesn’t just include performance management, but mentorship opportunities and career pathing. Only then, can it think about using these nerfing tactics effectively.

Nerf Tactic #1: Change the process

One way an employee or team becomes OP is because they manage a key process in some way that gives them undue influence over others. The easiest change then is to change the process to re-balance some of that power. In order to understand how to do this, you need to a) understand the process and b) understand the failings of it according to others. When members of your team that are OP manage a process, they seldom see the flaws in it because of how much control it gives them. So you have to seek out different people’s opinions in the organization as to what is going wrong. A signal that revisiting a process may be a good solution is when other senior team members complain, or if they have enough power, start opting out of certain other processes.

Nerf Tactic #2: Change the structure

Another way an employee or team becomes OP is the structure itself. This tends to happen when functions are grouped. For example, if a GM also has control of sales and marketing, they may become OP. Or if your CMO owns customer service, they may become OP. Neither of these are bad if they occur, but they may end up giving that executive too much power, so they can bully other teams, or they may not be as effective at managing either the scope or the function they’re less familiar with. In this case, the easiest path is to separate these functions or create more dotted line ownership to re-balance the teams.

Nerfing Mistakes to Avoid

#1: Don’t Wait Too Long to Nerf

The longer a power balance is allowed, the higher the chance that the organization will blame the strife on the person/team that is OP rather than the structure itself. Even when that person or team is nerfed, animosity will remain that may make the organization not want to work with the person or team, and continue to impair their performance. When you wait too long to nerf, you’re effectively destroying people’s careers in your organization, which may lead to them leaving. The worst situation is when you have to let go of someone who could have been great with a less powerful scope, but you waited too long to do it. In this case, firing or radically moving the person to something else is the only option.

#2: Don’t Change Titles When You Nerf, Especially Downward

As I said earlier, the most common way organizations nerf today is through demotions, which implies the employee failed instead of the organizational structure. If you absolutely have to change titles because the scope change is that significant, I prefer keeping the level the same, just changing the functional name of the role. Say, for example, you have a Director of Strategy, and they became OP, but you want to retain them. Changing their title to Director of Competitive Research is better than changing their title to Manager, Strategy. Why is this? The demotion indicates failure not only to them, but the rest of the organization. These people usually exit their organizations shortly after the demotion.

Organizational Mistakes That Prevent Effective Nerfs

#1: Inflate Titles

I was talking with a startup recently who hired someone to be their first product manager. They had made a mistake that happens commonly in startups — to make the role attractive or to reward performance once in the role, startups inflate the role title (to be more senior than what that role means on the market). One common example is calling your initial Product Manager a VP Product, or worse, a Chief Product Officer. When the company grows 3x and you’re now asking that product manager to manage people for the first time, these people frequently aren’t ready. Then, in order to fix your organizational mistake, you either have to change their title, which will look like a demotion to them and the organization to hire someone more senior, or try to seek out on the market effective mentorship for them to scale up their career progression faster than is normal.


In the words of Keith Rabois: Wrong.

It’s enticing to inflate titles to make people happy or to attract talent, but it removes your ability to nerf without demoting. In practice, I like to reserve C level titles for public companies and VP titles for managers of managers, though I will be the first to admit that impact is not defined by the number of direct reports. This is not always possible with companies that need their employees to do a lot of external to company work. “Head of” is a happy medium startups are starting to use, but it can still feel like somewhat of a demotion when that title is converted to, say, a Director, when a VP is hired.

#2: Confuse Being OP and Poor Performance

I want to be perfectly clear: do not nerf for poor performance! You nerf when someone was performing well, and a process or scope changed to unintentionally give them too much scope. If you have a good CMO, and you ask them to take Customer Service, and they don’t manage it well, you still have a good CMO. Change the scope, not your performance management strategy for the CMO.

What if you promoted someone to a new level, and they are not meeting it? Well, that is not following performance management best practices. You should be promoting someone when they are already performing at the next level for some time, which eliminates the risk of overpowering them. This is why you want to have career guides with clear levels and expectations for them, so you promote only when it is appropriate. Hired someone at too high a level? Do not nerf; demote or fire. Yes, they will most likely leave, which is why you want to be careful about the titles you give just based on interviews and not actual job performance. What if you have a big hole to fill in the organization and have to do it internally with someone who hasn’t demonstrated all the skills necessary? It happens, but recognize this should be more of a last resort situation.

What about people who move into new roles where they are not effective? This is also a situation I prefer not to have happen. I much prefer creating apprenticeship programs within organizations where individuals try the role for a while before they are permanently placed in that role. Apprenticeship is therefore the evaluation of whether the person can meet the expectations of the role. I recognize this is not always possible, but it’s a sound strategy nonetheless. We do this in product management at Eventbrite today. Those in other parts of the organization in good standing with their manager can work with a product manager on a project to see if they like it, and for the organization to see if they would be good at it.

Nerfing Best Practices

#1 Take the Blame

If you are nerfing an individual, it’s important to make sure they don’t feel like it’s a demotion. When announcing the nerf to your employee, make sure they know the reason for the nerf to occur, and that it is your fault, not theirs. You gave them too demanding a scope, and you’re fixing it. If you’re nerfing a team, this is usually less of an issue. Also, make sure that others in the organization that were affected by the OP individual or team know that you believe this to be your fault, and they should not hold animosity toward the individual going forward.

#2 Thank the Individual You’re Nerfing

Whether the change that made the individual or team OP was intentional or not, thank them for their effort to help the company, and say that the nerf is a way to make sure they can create a positive impact for the company with the right scope. People should not be penalized for trying to step up for the organization.

—
I think it’s incredibly important to manage performance of people and organizations. The gaming community has created a vocabulary that provides a solid analogy with corporations, allowing us to separate performance issues from structural mistakes. The more companies can separate those issues from each other and use different tactics to manage them, the stronger those organizations will be.

Currently listening to my 2019 playlist.

Thinking Outside the Job Title Box: How to Thrive in Undefined Roles

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As a leader of a large team, the members of my team tend to have pretty well-defined roles, like designer, or product manager, or researcher. They also tend to interface with other employees of the company with pretty well-defined roles like engineers, analysts, data scientists, etc. Now, most of the time, these well-defined roles operate in cross-functional teams. But, what if you don’t operate within one of those roles, or don’t want to fit the mold of these well-defined roles? How do you work with teams? To answer that, it may first be helpful to understand how these teams form.

“In the beginning, there was an engineer.”

Most startups begin with an engineer building something from scratch. As the company scales, usually a designer is added next. Then, as keeping track of projects between the designer(s) and engineer(s) becomes onerous, a product manager is added. Then, as the team scales and problems become harder, the product manager and engineer(s) don’t have enough time to fulfill the analytical needs of the team, so they hire an analyst. Then, keeping up with users becomes too time consuming for the designer or product manager, so they add a researcher, etc. This is an overly simple example, but all cross-functional teams grow larger as the company scales, with more specialized roles over time. One issue you may have if you don’t fit into this model is that you want to perform a more specialized role than the company has scaled into needing yet.

The opposite can also be true. You may want to do bits and pieces of a well-defined role, but not all of it, or may want to combine some elements of a few different roles into your job. Either of these situations can be totally fine. But each require a more tactical, subtle approach to working with teams than fitting within well-defined roles. When people outside of the cross-functional teams want to work with these cross-functional teams, they frequently perceive friction. They interpret this as political, when in fact, it is structural.

By definition, when you don’t have a clearly defined role to others, they do not know how to work with you. The onus is on you to prove value so that they want to work with you, because they don’t have to. Usually, my advice when people come to me with these problems is to switch to a more defined role. There may be a valid reason to leave your role less defined though, and in this case, I propose a framework for finding a valuable fit within a cross-functional team.

While all cross-functional teams have well-defined roles on paper, in reality, for all the needs of a team, people within the cross-functional team trade off responsibilities based on skill set and interest. You may have a PM who’s better at execution, so the designer takes on strategic duties, for example. What you’re trying to find with a less defined role is a team that has a need for a skill set, and wants someone to fulfill that need.

What happens in each of these boxes? Well, if your role is not needed or wanted, then you don’t get an opportunity to help. If your role is wanted, but not needed, you tend to be superfluous and lowly leveraged. If your role is needed, but not wanted, you experience rejection. If your role is wanted and needed, that’s where the magic happens. You integrate into the cross-functional team well, help them achieve their goals, and likely are happy in what you’re doing.

Two Tips to Make These Roles Work

#1 Get a senior leader to sponsor your effort
It’s almost impossible to make this type of role if your manager and ideally someone very senior in the organization support it. If senior leaders are very strict about team formation, it just might not be the company where you can be successful in a non-uniform role. Also, if your manager doesn’t support the direction you’re targeting, there will be a big mismatch come review time that will stifle your career.

One way to be more successful with managers and senior leaders is to be very clear why you want to work this way and what value it adds to the company. I would not recommend going to managers and senior leaders suggesting you not fit a typical role in the organization, and then ask how you can be effective. You are not giving them two problems: 1) someone who won’t fit into the traditional organizational structure and 2) someone who doesn’t know how to help the company. For many managers, this would trigger them to ask why you’re at the company in the first place if you don’t know how to help.

#2 Approach teams with humility
Your approach to talking to managers and senior leaders about your role should be very different from how you approach teams. While with managers and senior leaders, you want to make a clear case of the value you can add and what you want to do, that can not work so well for approaching teams. A better approach gets across a few key points:

  • You’re interested in the problem they’re working on
  • You think they are doing interesting work
  • You’re just here to help in whatever way you can
  • These are the skill sets you have that may be valuable
  • Finally, the ask: What can I help with?

Whether you have a traditional or non-traditional role in a team, the first step is building trust, and that is usually earned by doing smaller tasks the team is not getting to and would like help on. From there, you earn the right to work on more critical tasks. It may take some time to get to the role you’re most interested in playing on the team, and that is normal.

—
At Eventbrite, we have multiple people who sit outside the traditional paradigm of well-defined roles who are thriving. They all found a way to add value to a team that was wanted and not competitive, and the team operates better for it. But this all happens on an opt-in basis. The teams chose to accept them. If you want to play outside the lines, you have to understand that other teams playing with you is entirely opt-in on their part. This is the risk of not participating in the structure the company operates in; you may find opportunities to help that the team isn’t welcoming to, and there’s nothing you can do about it.

Sequencing Business Models: Can That SAAS Business Turn Into a Marketplace?

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As someone who has spent a lot of time building marketplaces in my career, a curious thing has happened over the last couple years. Founders have started reaching out asking for help converting their SAAS or SAAS-like business into a marketplace. The approach sounds a bit like this:

  • I’ve amassed a large group of X type of professionals
  • I’ve helped their business, but they’re asking for help driving more customers
  • Since I already have the supply, it should be easy to build the demand side to have a successful marketplace
  • My customers will be happy, retain better, and I’ll be able to charge them more

So goes the story. Now, this story itself explains why many businesses fail to make the conversion to marketplace. If driving more customers was your customers’ #1 need, and that’s not what you helped them with, you probably didn’t build a very successful business, or the problem of solving customer acquisition for that market is very difficult.

What Types of Businesses Are We Talking About?

Before we go any further, we should talk about what these businesses look like, and what they mean when they ask about becoming a marketplace. Many of the terms we use to define businesses today are features of the business rather than an encompassing definition, like the words SAAS or platform, which makes them not very useful. Note: I am blatantly stealing Brandon Chu’s platform definitions for this. Let’s break down these definitions so we know where we’re at:

  • SAAS: software that businesses access online and purchase via a subscription e.g. Slack, Adobe, Atlassian
  • SAAS-like: any number of different models where a business sells software to businesses online, but does not charge via a subscription e.g. transactional or pre-revenue
  • Marketplace: a business where sellers (frequently businesses) provide their services on a platform to attract additional buyers, and buyers come to this marketplace to seek out these services and find new suppliers. Marketplaces commonly process the transaction and charge a commission to either the supplier or the demander. If not, they usually charge some sort of lead generation fee to the supplier.
  • Developer platform: a business where developers can build businesses on top of the business’s software and charge customers. The end customer is usually not aware this company even exists e.g. Stripe, Twilio, Amazon Web Services
  • Extension platform: a business that enables other developers to make your product better where the platform owns the relationship with the customer and provides some of the direct value itself e.g. Shopify, WordPress, Salesforce
  • Networks: a type of platform where consumers interact with each other and/or content on the platform in a non-transactional way e.g. LinkedIn, Pinterest, Yelp

So, when we talk about businesses trying to become marketplaces, what we’re talking about usually is sellers of software to businesses trying to help those same businesses attract more buyers by aggregating buyers on their platform and aiding in the discovery of those buyers finding the businesses the company currently counts as customers.

The Weak Transition to Marketplace Arguments

Why is there a sudden demand of founders looking at this strategy? There are three fairly weak arguments I don’t like, but I’ll present them anyway.

#1 Saturated Growth in SAAS

Perhaps it is a natural extension of the SAAS explosion the last ten years. Kevin Kwok and I have often discussed that growth at some scale equals an adjacent business model:

  • Ecommerce businesses trend towards marketplaces over time e.g. Amazon
  • Marketplaces trend towards vertical integration over time e.g. Zillow
  • SAAS businesses trend towards extension platforms e.g. Salesforce

Perhaps as SAAS has moved into more niche verticals, the extension platform opportunities have dried up, so companies are looking at consumer marketplaces as a new potential growth lever. But SAAS companies continue to grow on the public markets. Perhaps as SAAS has expanded into industries where customer acquisition is difficult, they’ve found their businesses at best only solve the second most important problem for their customers.

#2 Desire for Market Networks

Perhaps it’s because of James Currier. He has blogged repeatedly about market networks being the companies of the future. These companies combine SAAS, marketplaces, and networks. But these founders are not using this term, and this supposed revolution looks no closer to happening five years after his original prediction. Some businesses attempting to build out market networks have become good SAAS businesses e.g. Outdoorsy with its Wheelbase product, but there is no evidence they’ve actually ended up building marketplaces or market networks. Honeybook has struggled, and Angellist and Houzz started as networks, not SAAS businesses. Angellist has never added a SAAS component. Houzz acquired IvyMark last year to launch a SAAS model after ecommerce, ads, and marketplace models for monetization disappointed, and it is too early to understand how well that is working. All evidence shows that if market networks are real, they are more likely to become them from starting as a marketplace or network first, then adding SAAS, not the other way around. Faire is a recent example of this.

#3 It Worked for OpenTable

Now this is a reason I actually hear. But it’s not a great one. The first reason is that OpenTable was a marketplace from day one. Customer acquisition was always a key value proposition, and they delivered on it. It wasn’t aspirational. Second, OpenTable is one of the largest public market disappointments of the last ten years. With an infinitely sized market, the company struggled, was acquired, and then written down significantly post-acquisition by Booking.com.

While these stories exist and do influence some founders, I do still think the main reason why is illustrated in the initial story above; it’s just the strange allure of ongoing customer development.

Why Changing Business Models and Customers is Always Hard

Ignoring the impetus for the rapid increase in desire for SAAS businesses to transform into marketplaces, let’s talk about why companies struggle to do this in practice, and how you fight these headwinds. Through my research and directly working with companies attempting these changes, I’ve identified some main barriers for this transition. If you can work through these barriers, your chances of making this mythical transition increase dramatically.

#1 Founders have to change the incentive structure for all or a significant percentage of the company

SAAS or SAAS-like businesses can grow very quickly. If you’ve spent a significant amount of years building a SAAS business and are considering the marketplace transition to drive additional growth and value to your customers, you’ve almost assuredly built a significantly large base of customers, still have growth targets on this core business, and are managing a lot of complexity already. What happens frequently is founders attempt to spin up a team to work on what’s usually a large, new addition to their current product offering. This initiative is considered a long term, strategic play. It’s important, but not urgent.

What happens to important, but not urgent, initiatives at fast growing companies? They usually get broken up by other important, but more urgent initiatives for the core business. Oh, our quarter was soft, and we need more resources to get back on track? Take them from the marketplace team. We’ll get back to it later. Have an initiative that could drive additional growth in the core business, but don’t have the resources? Take them from the marketplace team. We’ll get back to it later. And so on.

It’s always more attractive to take the more guaranteed optimization on the core business than risk those resources for the very long term, completely risky proposition that might drive a step change in growth for the business much later.

Fortunately, this issue is not new to fast growing companies, and there is a solution. In fact, we faced this very issue at Pinterest. Our largest strategic issue was international growth, but employees kept optimizing 1-2% changes in the U.S. business that moved the top line instead of international work that needed to begin from scratch. Founders usually have two tools to solve this problem. The first is to make the entire company’s growth revolve around this new initiative. That’s what Ben Silbermann did at Pinterest. The entire company was goaled on international growth at the expense of U.S. growth. And it worked.

The other tool is what usually happens at larger companies looking to expand into new product lines. They create a new team with separate goals and reporting lines. Frequently, they don’t even sit in the same building. This is what we did at Eventbrite. We created a Marketplace business unit with a GM reporting directly to the CEO. And while they sat in the same building, it had its own team and its own OKRs.

Changing the goals or creating an independent team with its own set of OKRs does not guarantee marketplace success, but they free you from the temptation of dismantling or impacting teams that frequently need to do years’ worth of work to find product/market fit for a second set of customers.

#2 Founders have to shepherd the right new and existing resources most likely to value the business model transition and change the company culture

Strong businesses usually build a culture of understanding their customers and their model very well and catering to those needs. What happens when you suddenly ask those employees to care about a second customer, or a new business model, and potentially trade off the needs? Old habits die hard. Employees still default to doing what’s best for the current customer/business model even at the expense of the new customer. And even if they do want to care about the new type of customer, they may not have the DNA. Consumer and B2B cultures tend to be very different, for example, attract different types of talent, and there are very few people who are great at both. 

Building B2B products can be very different from building consumer products, and many marketplaces (but not all) have consumers on the demand side. In this case, your customer is a less reliable narrator for their needs, so user research, while effective at identifying their problems, can be a lot less reliable at predicting what people will actually use. Consumer products require significantly more experimentation, and have the data to do it because there are so many more consumers than businesses. 

This cultural issue frequently requires new blood in the organization and careful recruitment of internal resources that are more passionate about the opportunity and usually have some background in consumer product development. Usually, leaders are brought in to lead teams like this with heavy consumer backgrounds, and they recruit more new people with consumer backgrounds. The use of advisors with that kind of experience (like myself) is also common—to suggest product development best practices that may be better suited for the task, to prevent common marketplace-building mistakes, and to more objectively monitor if progress is occurring at the appropriate rate.

How to Be Better Positioned to Build a Marketplace

While transitioning to new customers and/or business models and described above is hard, there are a few ways to make the transition to a marketplace more likely to be successful from a SAAS-like business.

#1 Founders need to confirm there is a demand side to this market, and the way you would engage with them aligns to you and your customers’ business models

One major reason marketplace transitions fail is that there isn’t actually a demand side to this theoretical marketplace to be added. These companies are selling to the supply side of a theoretical marketplace, and don’t understand if demand exists. There are two shades of this I have seen. One is that the SAAS customers make their revenue not by selling something people want to buy and find more, but that people feel compelled to support financially. Let’s take GoFundMe or Patreon as an example. These companies would love to have consumers come to their websites and find people and causes to support. Patreon even tried this. But are consumers searching for websites where they can donate more of their money to artists and local causes? No, not really. Do they support artists and local causes? Of course, that’s why those businesses have done well. But consumers generally aren’t searching for more causes.

The second shade is that the marketplace opportunity is only to find a vendor once on the demand side. In these markets, once a consumer finds a provider for a service, they tend to stick with them for long periods of time. Let’s say you are looking for a babysitter. If you find one that works for you, you stick with that person for a long time. This is in contrast to ordering food, where variety is a feature, not a bug, of the decision-making process. While successful marketplaces have been built in these areas, they are harder to build. SAAS companies struggle to transition in these markets because they have to build trust signals that may damage their relationships with their clients, and there are generally better platforms for researching these vendors than on the SAAS platform e.g. Yelp for local restaurants and services, Tripadvisor for hotels, and G2 Crowd for software. Also, how should the SAAS tool price these additional customers? Just once for the acquisition, or every time they use the product in the future? The clients and the company will usually be misaligned on this, creating leakage. In this case, the business model for the marketplace doesn’t align with the business model for the SAAS business or the SAAS customer. In a weird way, by trying to address the biggest problem you heard from your customers, you built a product that doesn’t work for that need, but for your own.

Again, this is a solvable issue. It can be mitigated through a lot of customer research on the demand side. Not only understanding the consumer your clients are targeting, but finding a critical pain point for them that isn’t solved on the market by another product that your company can actually solve due to its relationships with all of the suppliers in the market. Then, try to align revenue to the value you create in a way your SAAS customers will understand. And be prepared not to capture all of the value.

#2 Make sure the opportunity actually aligns to the characteristics of other successful marketplaces

Transitioning to a marketplace effectively requires founders to understand what makes a successful marketplace, and those characteristics are surprisingly opaque to people who haven’t worked on marketplaces. Rather than reinvent the wheel, I encourage founders to read Bill Gurley’s treatise on 10 factors to consider for marketplaces. One other factor Bill neglects to mention that is important is that normally marketplaces are built on top of under-utilized fixed assets:

  • Excess kitchen space for Grubhub
  • Idle cars for Uber/Lyft and Getaround/Turo
  • Empty bedrooms for Airbnb
  • Empty land for Hipcamp
  • Empty hotel rooms for Booking.com/Expedia
  • Excess SMB Inventory for Groupon

Do your current customers have this characteristic?

Can the Transition to Marketplace Ever Work?

It’s clear that evolving a SAAS business to a marketplace is an emerging strategy that more and more founders will research. What is important is to make sure you’re doing it for the right reasons, and that you’re prepared to fight the main barriers that prevent this transition from working. It’s also important to remember that even if you fight these barriers, this transition takes time. Marketplaces tend to take 2-3 years to find product/market fit. You need to be in a position where you can invest for that long before seeing a return.

In the Advanced Growth Strategy course, Kevin and I talk a lot about minimum scope. Minimum scope is the activation energy that makes a strategy viable. In the course, we talk about the minimum scope for cross side network effects to emerge. And in our examples, we do show that most cross side networks (but not all) emerge with the supply side first. But you have to remember that you do have to hit minimum scope for the demand side as well. And many businesses find they do not have a good answer for this.

Another existential issue for founders looking at this transition is that it inverts the typical company building model. When building a company (especially if you are raising venture), you typically have different assumptions you have to validate to receive funding rounds and eventually build a successful, long-term business. The harder the assumption you validate, the more likely you are to be successful, and the easier a fund raise will be. Ask any founder whether building a SAAS business or a marketplace business is harder. I bet you almost all will answer that a marketplace is harder. With the SAAS to marketplace strategy, you defer the hardest part of your strategy.

When looking for inspiration, it’s true there isn’t a cohort of companies to emulate, and that’s scary. In fact, almost every other business model transition related to this has more data to support. Flexport started as a SAAS business from the demand side (called ImportGenius), and built a marketplace on top of it, for example. Almost all marketplaces add a SAAS component eventually to their model. But don’t be too scared if this is your strategy. If you can answer positively:

  • Can I change the culture?
  • Can I change the structure?
  • Have I vetted a demand side exists?
  • Does the demand side actually exhibit great marketplace characteristics?

Then you are off to a great start in building a new scalable model of growth for your business.

Have transition to marketplace questions? If so, hit me up in the comments.

Thanks to Kevin Kwok and Gemma Pollard for giving feedback on this post. Also thanks for Brandon Chu for letting me use his platform definitions.

Currently listening to my 2010s Shortlist playlist.

On The Spectrum: Thoughts on Zuckerberg, Tradeoffs, and Cultural Values

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Many founders spend a lot of time trying to codify their culture and get culture right for their company. Yet many companies end up with serious cultural issues as they scale. Frequently, this is due to a forest for the trees approach to culture. Companies think they maybe they can hide lack of alignment and political strife with pool tables and company offsites, and are surprised when they still have employee attrition problems. Most founders get past that and try to codify strong cultural values that instill how they want to work to get things done at their company. But these values are frequently some mythical view of how things could work vs. how things actually do work. The average response of an employee to a complete set of these values is slightly better than an eye roll. I can’t tell you how many times I’ve seen goals like “Be aggressive” at a company, but everyone is the opposite, or something is set as a cultural value that is just a thing all people should do anyway, like “Think like a founder,” when the problem is people don’t know how.

Mark Zuckerberg has taken a lot of flack for some of his management at Facebook over the years, but I believe it was he who most clearly defined what a cultural value is and isn’t.  Company values (among many other parts of building a company) are about asking, “What are you willing to give up?”. When Facebook chose “Move fast and break things” as a cultural value, they put speed and quality on a spectrum, and said they biased toward speed.

Screenshot 2019-08-18 16.45.52.png

Compare that to Slack. On Slack’s website, they list a few cultural values, including: Craftsmanship, Courtesy, and Solidarity. They too are picking a place on the speed vs. quality spectrum, and I bet with those words it’s a lot closer to quality.

Screenshot 2019-08-18 16.45.38

Neither of these is wrong in isolation. It depends on your market, your competition, your value prop, etc. In all cases, it’s important to pick where you are though. More recently, Facebook switched its core value to “Move fast with stable infrastructure.” It doesn’t have quite the same ring to it, but it’s a signal to the company that at their scale, they need to prioritize quality a little more.

Screenshot 2019-08-18 16.45.16

There are other spectrums to consider when managing culture for a company. One is around openness. Again, here, Facebook has a value that mentions specifically how they think about it, with “Be open,” where they say “We work hard to make sure everyone at Facebook has access to as much information as possible about every part of the company so they can make the best decisions and have the greatest impact.” Stripe is another company famous for swinging to the open side of the spectrum. Most of the email at Stripe is available for anyone at the company to read, for example. Compare this to Apple, where most projects are handled in secret, and information is given on a need-to-know basis.

Screenshot 2019-08-18 16.39.22

Another classic tradeoff is good for company vs. good for world. Take a company like Netflix that ruthlessly measures performance, and focuses on time spent on the platform. It very much biases towards good for company on this spectrum. But take a company like Etsy or Warby Parker that is certified as a B corporation. That’s an explicit signal that they are trading off some company performance for social responsibility. Then there’s of course companies like Kiva, which are non-profits.

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There are others like data vs. intuition, but you get the point. Plotting your company values on a spectrum is important to setting values that actually matter and driving decision-making at scale. Most that make “company value” level should be ones where you are taking a more extreme position. 

What’s really interesting is if you spend time working at companies is many companies don’t appear to be on the spectrum for some of these company company trade-offs. Now, for direct opposites like open and closed, that’s impossible, except for being inconsistent. But some companies are neither fast, nor do they deliver quality products. Some companies are not providing great financial returns or social returns. In this case, our spectrum becomes a 2×2.

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For illustration purposes only. I do not purport to know where Slack and Facebook actually sit on this 2×2.

As in all 2×2’s, it’s the worst to be in the bottom left. If you find this to be the case, the first step is to get on the spectrum. Make a decision about where you want to be, and work to get there. Then, once you’ve landed on the spectrum, you can try to optimize toward getting to the top right of the 2×2. Even though Facebook changed its value, I bet it’s still faster at building and higher quality than a lot of other companies. The same can be said for Slack. Except for Slack Threads. They definitely drifted into the bottom left on that one. I… really hate Slack Threads.

Whether you update your company values to reflect these spectrums is not the point of this post. The point is to be intentional about the tradeoffs you’re making, and revisit them over time to make sure they still make sense, like Zuckerberg did. You may find you’re not making a tradeoff at all; you’re just performing poorly on both axes, or you may find that the value you picked five years ago no longer matches the needs of your company.

Thanks to Brian Balfour for reading through an early draft of this and providing his feedback.

Currently listening to Flamagra by Flying Lotus.