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Market Sizing Guide

Posted on by adam

A startup’s potential scale is bound by its future market size, and consequently “what is your market size?” is one of the determining questions that most VCs ask early stage entrepreneurs.

Why does market size matter? 
How to estimate your market size? 
What is the exact definition of market size? 
When should market size be estimated for? 

If you only take a few things from this article: 

  • Big companies can only exist in big markets. 
  • Estimate market size using a bottom-up approach not top-down. In other words, multiply the number of customers by the average revenue per customer per year (which you can estimate through multiplying transaction volume by price).
  • Present your total addressable market and your future revenue for 5+ years into the future. 

At Pear we consider an entrepreneur’s clarity of thought and enduring ambition as more important than the market size number in a pitch deck. The objective of market sizing is to demonstrate that you are targeting a big market opportunity that you understand deeply. Startups have many unknowns and market sizing is a rough estimation, so keep it simple. 

1. Why does market size matter?

Big companies can only exist in big markets. 

Founder perspective: If you want to build a company that has a DoorDash-sized impact on the world then make sure to commit yourself to a sufficiently large market opportunity. 

Investor perspective: If you want to raise capital from VCs then you need to convince them that your company will generate an exit value that returns their fund. In your pitch you should aim to convey that your startup has the potential to capture at least hundreds of millions of dollars of high-margin revenue within the next decade, within a multiple billion dollar market. 

2. How to estimate market size?

Use the bottom-up approach to estimate market size. Multiply the number of customers by the average revenue per customer per year. 

There are top-down and bottom-up approaches to estimating market size. The bottom-up approach is more convincing because its uses assumptions that are substantiated through other aspects of your pitch, such as customer definition, revenue model, and GTM. VCs also prefer bottom-up because the underlying assumptions can be tested and validated. Ideally you will only use top-down to sanity check the magnitude of your bottom-up estimate.

Keep your method simple and easy to explain. The underlying assumptions for market sizing will remain rough until you have ascertained your exact target customers and revenue model, so avoid undue complexity. 



3. What is the exact definition of market size?

There is no single definition of market size. Early stage companies typically present three estimates for TAM / SAM / SOM. I encourage you to skip the acronyms and present bottom-up estimates for your total addressable market and your revenue in 5+ years. 

We surveyed 30 VCs to better understand how other investors evaluate a startup’s potential scale. We learned that earlier stage investors tend to prefer market sizing presented as TAM / SAM / SOM, whereas later stage investors care more about recent revenue growth as well as estimates for future revenue. 

  • Seed VCs generally value TAM estimates more because they have limited additional information to inform decisions. We heard from seed investors that: “TAM / SAM / SOM works fine as long as the methodology is clear.” 
  • Series A VCs told us that they care more about future revenue even when looking at seed stage startups: “A bottom-up build of future revenue is more useful than basing SOM on a hypothetical % share of TAM or SAM.”
  • Growth-stage VCs pay less attention to market sizing and we heard that: “TAM is a crude indicator. Revenue growth is a better signal. It’s hard to grow 200% at scale if there’s a small TAM.”

The textbook definitions for TAM / SAM / SOM are vague.

You might have seen TAM / SAM / SOM in an article or a pitch deck. If you Google these acronyms and read a few articles then you’ll likely find varying fuzzy explanations (one example depicted below). Pitch decks often include a market sizing illustrated as three bold numbers within three concentric circles, without context or assumptions. Such minimalism saves one from committing to definitions that we might be unsure about, but it also forfeits this opportunity to present a compelling narrative that convinces investors. 

Based on our survey of 30 VCs, it seems that many investors do not know the exact definitions either. So when presenting your market sizing, explicitly state your methodology rather than assume universal definitions.  (These survey results also had me wondering whether later stage VCs are more honest about their knowledge gaps! )



The textbook estimation approach for TAM / SAM / SOM is TOP DOWN ⚠️

Marketing textbooks generally describe the TAM / SAM / SOM approach as: first estimate your largest possible market for $ TAM, of which estimate a narrower proportion that fits your company for $ SAM, and then estimate the % market share you can reach to get to $ SOM. However, the % market share assumption is often an unsubstantiated afterthought, which results in a meaningless estimate for your company’s potential revenue. This approach encourages top-down thinking and is unconvincing. 

The most consistent feedback in our VC survey was to dissuade founders from presenting their future revenue based on % market share of a large addressable market. So, what’s a better approach?


Present bottom-up estimates for your total addressable market and for your revenue in 5 years.

The market sizing definitions stated below are based on consensus across surveyed VCs. However, interpretation still varies so state your assumptions. Also, enough with the acronyms — replace the jargon with more meaningful descriptors. 

Some of the surveyed VCs encouraged founders to drop the conceptual distinction between TAM and SAM. However, opinions on this topic were mixed. Instead of presenting both TAM and SAM, you could communicate your plan for incremental expansion across customer segments and products.

eg. Start with an initial wedge of selling product A into customer segment X. Then expand through cross-selling product B into the same customer segment X. Followed by expanding further through selling products A and B to a new customer segment Y.


4. When should market size be estimated for?

Estimate your market size for 5+ years into the future. 

Surveyed VCs most commonly wanted to see market size estimates for 5 years into the future. If your company is many years away from IPO and/or riding a longterm industry trend (eg. transition to electric vehicles) then it’s more appropriate to estimate 7-10 years into the future. 

A significant proportion of the VCs surveyed also prefer to see market size now as well as 5 years into the future. If you’re targeting a rapidly growing existing market then you can highlight that growth through presenting both now and in 5 years.


Guidance on the underlying assumptions

Now that you understand how to estimate your market size, you need to source the underlying assumptions to feed into the bottom-up equations. You can follow the following steps to arrive at assumptions for calculating total addressable market, initial addressable market, and future revenue.

1) # of Customers

1.1) Define your customers

Precisely focus on the customer segment that will contribute the majority of your potential revenue. 

eg. While DoorDash could claim that every person in the US could potentially order food online, a more convincing segment might be: “Americans in the age range of 25-40, who are employed, and eat out at least once per week.”

If level of demand and/or willingness to pay varies significantly across your customer-base then you should capture such variation in your estimation through customer segmentation. Though keep it simple and only consider segments that will contribute significant revenue. 

eg. Market sizing assumptions can differ significantly between SMB and Enterprise customers. If we’re selling a product into both then we should segment the market. (100K SMBs x 5 seats x $10K per seat = $5B) + (1K Enterprises x 100 seats x $20K per seat = $2B) = $7B total.

1.2) Estimate the total number of customers

The most relevant data sources vary by business category, eg.

  • Consumer: If you can define your target customer (or user) segment in terms of socio-demographics then use the US Census Bureau data on US Population.
  • Vertical-specific B2B: You can identify the number of relevant companies within an industry vertical using US Census Bureau data on US Companies.
  • Enterprise: If you your future revenue will be concentrated in big enterprise accounts then identify what proportion of companies within the Fortune100 or Fortune500 would buy for your product.

Additional example data sources:

  • Research reports (eg. Gartner, Forrester, McKinsey, BCG)
  • Government agencies (eg. Bureau of Labor Statistics, Bureau of Economic Analysis, US SBA, trade.gov, Bureau of Transportation, Dept of Housing, US Dept of Agriculture)
  • Industry bodies (eg. National Business Group on Health, National Restaurant Association, National Association of Realtors)
  • NGOs (eg. UN Dept of Economic & Social Affairs, UN World Tourism)
  • S-1s of companies in your category

1.3) Estimate the number of customers you could acquire in 5 years

You will acquire only a proportion of total customers We need to estimate a realistic number of customers captured by around the time you IPO, so 5-10 years from today. Its best to build this bottom-up through considering how many new customers you’ll be able to acquire (and retain) per year over the next 5-10 years.

Sense check your implied market share. Look at the market shares of existing dominant players in your category and in adjacent categories. Also consider strength of network effects, how entrenched established players are, and ease of distribution (eg. capturing 10% of the Fortune100 is more realistic than capturing 10% of 100,000 SMBs). 

Our expectations for high market shares are often anchored in the dominant consumer-facing FAANGs, yet many other categories are more fragmented or under-penetrated. Pitch decks often state a 10% potential market share. Yet when tech companies IPO they have typically only attained a 0.1% to 2% share of their addressable market. See the chart below based on data in S-1s of recent tech IPOs.

2) $ Avg Revenue per Customer per Year

2.1) Select your revenue model

Identify the most relevant revenue model for your business. You might foresee multiple revenue streams, however its best to keep it simple and focus the market sizing on your core revenue stream.  See the table below for examples (though this is not an exhaustive list).

Each revenue model is split into transaction volume multiplied by pricing.

2.2) Estimate Transaction Volume

This requires you to understand your target customer’s behavior. (eg. How many product will they consumer per year, How much data storage will they require, How many seats per company, etc.)

2.3) Estimate Pricing

Pricing is an artform worthy of volumes, and in practice you might chose to implement multi-tiered pricing differentiation to maximize your profits. But again, for estimating market size, minimize the complexity. 

There are three main approaches to pricing. Value-based pricing is generally the best approach. 

  • Value-based: Estimate how much value your customer attains from your product, and charge a proportion of that value. You can charge more through: (i) creating greater value for your customer; and/or (ii) heightening your customer’s perception of that value creation. Attribution is as important as the actual impact of your product. A rule as thumb is that you can charge in the range of 10-30% of the value you create for your customer.
  • Competitor-based: If your industry has pre-existing comparable products to yours then your customers are likely anchored in pre-existing price ranges. When pitching to VCs you might need to explain why your product has a premium or a discount to comparable products.
  • Cost-based: Estimate the cost to deliver your product and add a margin. Fixed costs are generally low in tech companies, and this is more relevant to operationally intensive and/or asset heavy companies.

How to best apply these approaches varies by the business category, eg.  

  • B2B SaaS: Value-based pricing is the optimal approach to determine your customer willingness to pay. (eg. If your products increase your customer’s profits by $1M per year on a perpetual basis then you can charge a $100-300K per year subscription fee.)
  • Consumer: Anchoring to the price of adjacent products often informs the attainable price, unless your brand is highly differentiated. This also applies to consumer fintech. (See this article)
  • Healthcare: B2B healthcare solutions sold to payers or employers usually have a fee per member per month revenue model, and you can charge a proportion of the cost savings you deliver. D2C healthcare solutions usually a fee for service or a monthly subscription revenue model, and ideally you identify relevant reimbursement CPT codes. Healthcare also includes several more complex pricing models. 
  • Marketplaces: The % take rate in a marketplace is driven by how much demand you can drive to your customer and how much easier you make it to run their business, as well as how competitive your market is. (See Lenny’s newsletter)

Now multiple those assumptions out. Hopefully you arrive at a big number for the addressable market. If not then revisit your assumptions as well as your overall vision. 

Additional Tips 

  • Think long-term and dream big. Most successful startups create or change markets, so you should estimate hypothetical demand for your product in 5-10 years, not just existing demand. Also consider how you will expand average revenue per customer through solving additional problems for your target customers.
  • Global market size is rarely relevant. If your strategy is US-focused then state an addressable market for the US only. If you’re starting in a smaller country and your strategy focuses on multiple similar countries then state an addressable market for those countries and be ready to explain your international go-top-market plan.
  • Ensure that the revenue you are presenting is annual. (eg. If there are 10M potential customers for your product and they might buy your product every two years on average, then you have 5M target customers per year. 
  • For marketplaces, include take rate in the market size calculation rather than presenting overall GMV. For financial products, include fees rather than presenting total transaction value or AUM. If your B2B startup is helping your customer to increase their profits, then you can only charge a proportion of that impact. 
  • Read S-1s of public companies with similar customers or products as your company. Search the SEC database for a public company of interest and open their ‘S-1 Prospectus’. S-1s are a goldmine of information and provide insights well beyond market sizing. 

About Pear VC

Pear partners with entrepreneurs from day zero to build category-defining companies. Our team has founded eight companies and invested early in startups now worth over $80B, including DoorDash, Gusto, Aurora Solar, Branch, and Guardant Health. We use this knowledge to provide founders with hands-on support in product, growth, recruiting, and fundraising. If you’re building a category defining company then reach out to our team.

Apply to Pear Founder Circles for Female Engineers

Posted on by adam

Apply here, or be referred and nominated here by Aug 1 2023 for Fall 2023 cohort

We are excited to announce Pear Founder Circles for Female Engineers, a three-month long curated community for female and non-binary engineer entrepreneurs.

At Pear VC, we believe founders make category defining companies, and we want to create communities that support these founders through our program of inspirational founders, tactical company building workshops, executive coaches, and community bonding.

Supporting female engineer founders is in our DNA.

Pear VC is co-founded by our Managing Partner, Mar Hershenson, a 3X founder who earned her Stanford PhD in Electrical Engineering and is a supporter for women founders as one of the founding members of AllRaise, Equity Summit and other programs.

Mar was named on the Forbes Midas’s 2021 list of top investors. Mar is also a lecturer at Stanford for Lean Launchpad where she helped increase diversity of enrollment to 50% female.

<15% of VC-backed startups have at least 1 female founder and we want to change this. Female engineers are underrepresented, even when we see female-run businesses achieving a 35% higher ROI.

We are looking for the next generation of female engineer entrepreneurs.

What do you get from this program? 

An intimate founder circle of female engineers, guided by successful female founders and leaders.

  • Gain a tight-knit community of like-minded aspiring female engineer founders in the same pivotal movement of their career
  • Learn from intimate fireside chats and dinners with visionary female leaders and tactical company building and presence workshops

  • Gain valuable perspectives from top female general partners on what they look for
  • Enjoy curated social events like tastings by our very own portfolio founders: Maker Wine, Siren Snacks and more!
  • Eight Wednesday sessions happening every other week in our SF Office in South Park and virtually, sponsored by Pear VC! 

Apply here or be nominated here by Aug 1 2023

Who are we looking for?

  • Female or non-binary engineering background
  • Actively working on a startup idea part time outside of work, or full time
  • A few years out of school

How much does it cost? 

  • Free! We want to make this community as accessible!
  • We expect individuals to commit ~2 hours every other Wednesday and attend all events.

Feel free to reach out with any questions to vivien@pear.vc. We look forward to reviewing your applications!

Pear LP Spotlight: Kamehameha Schools

Posted on by adam

We spoke with the Kamehameha Schools Endowment, who are Limited Partners in Pear VC. They shared more about their incredible founding story, how they think about investing in funds, and the impact their investments can make on their community and beyond. 

Founding Story 

Kamehameha Schools was founded in 1887 by Ke Ali‘i (Princess) Bernice Pauahi Bishop, the great granddaughter of King Kamehameha the Great, the monarch who unified all of the Hawaiian Islands into a single kingdom in the early 1800s. Throughout her life, Ke Ali‘i Pauahi witnessed the negative impact of Western influences on indigenous culture in Hawaii. Inspired to reverse these impacts and create a better future for the Hawaiian people, Princess Pauahi bequeathed her entire estate of approximately 370,000 acres of Ali‘i (royal) lands to establish a school with the goal of furthering the education of native Hawaiian students. Through this estate, the Kamehameha Schools first campus was opened 3 years after Bernice Pauahi’s passing under the leadership of her husband, Charles Reed Bishop. 

Today, the schools operate 29 preschool campuses, and three Kindergarten through Grade 12 campuses throughout Hawaii. In total, the schools educate around seven thousand students, providing over 5,700 prekindergarten to post-secondary scholarships, and invest nearly a half of a billion dollars in education and educational support each year.

98 percent of the school’s activities are supported by the endowment. A third of the endowment is invested in real estate (largely the initial land bequeathed by Bernice Pauahi). The rest of the endowment is invested in financial assets, including venture funds like Pear VC. A part of the endowment is spent each year on fulfilling the mission of furthering education for Hawaiian students. The endowment supports campus operations, expansions to new grade levels, the establishing of charter schools, and many other programs. 

The Kamehameha Schools Endowment plays a critical role in addressing socioeconomic challenges in Hawaii, uplifting the Native Hawaiian community through education, providing financial aid to students, and perpetuating the rich Hawaiian culture. 

Fund Selection 

Kamehameha Schools Endowment invested in Pear for several key reasons: 

  • Team: “Pejman and Mar are incredibly nice people. Time is a premium in the VC business, but Mar and Pejman were so approachable and showed genuine interest in their LPs, that really stood out.”
  • University Connection: “Pear’s connection with Stanford really resonated. Visiting Pear Garage feels like an extension with so many students going there. As an educational institution, this resonated with us. Having a connection to a school and educational ecosystem was quite nice.”
  • Unique Programs: “Seeing the way Pear is set up, it’s almost like a school for aspiring founders. It’s a very interesting Pear specific concept with programs like Pear Dorm.” 
  • Early Stage: “There’s a trend toward moving early, investing earlier in a company’s formation. Pear was firmly planted in that space.”  
  • High Touch: “Pear stood out to us as a unique opportunity to pursue…with Pear, we saw a high touch approach. Pear’s companies receive a high amount of attention. Pear provides a more hand crafted approach to the seed stage.” 

Impact

Kamehameha Schools Endowment highlighted the impact Pear VC has made in furthering the school’s mission.

The returns from Pear VC Fund 1 distributed back to Kamehameha translates to the following impact*: 

  • 120 children with an education in one of Kamehameha’s 30 pre-schools
  • 422 students with subsidized tuition at one of Kamehameha’s three K-12 campuses
  • 423 scholarships towards tuition at other K-12 schools and colleges and universities
  • 4,220 learners served through Kamehameha’s various community outreach and community investment programs
  • 26,552 acres of sustainably managed agricultural and conservation lands

Altogether, Pear VC Fund 1 has touched the lives of 5,185 members of the Native Hawaiian community and supports the sustainable management of a meaningful portion of Kamehameha’s 360K acres of legacy lands.

Future distributions from Pear will continue to impact Kamehameha, and the long term impact to the community will almost certainly be well in excess of the above numbers.

The data is reflected of Kamehameha Schools FY19-20 reports*

Tom Eisenmann on Why Startups Fail

Posted on by adam

Pear VC hosted an event with Professor Thomas Eisenmann, the Howard H. Stevenson Professor of Business Administration at Harvard Business School. He is the faculty co-chair of the HBS Rock Center for Entrepreneurship, the Harvard MS/MBA program, and the Harvard College Technology Innovation Fellows Program. He currently teaches Entrepreneurial Failure, Technology Venture Immersion, and Launch Lab at HBS. 

Earlier this year, he published Why Startups Fail: A New Roadmap for Entrepreneurial Success. The book looks at common failure partners for early and late stage startups, how to avoid these failure patterns, and how startups can fail better. 

We cover the key takeaways from Professor Eisenmann’s talk in this article. 

What does it mean to be an entrepreneur?
Why study failure?
Do founders make or break a business?
Why do partnerships fail?
Why do co-founder relationships fail?
Why do execution oriented founders fail?
How do startups with momentum fail?
How can aspiring startup operators leverage these lessons?
How can you rebound after failure?

What does it mean to be an entrepreneur? 

Entrepreneurs pursue novel, risk opportunities without resources. For example, while Dropbox and Google Docs built similar products, Drew Houston was launching the former with far fewer resources than Google had. 

In his research and book, Professor Eisenmann defines a failed startup as one that never makes investors money. Of course, he notes, this is not a perfect definition because it does not factor in societal impact or the startup outcome’s alignment with the founder’s ambitions. In the later stages, specifically in the Series D and beyond, only around 40% of startups are even still led by the founder: sometimes, a startup can succeed or fail regardless of the founder’s involvement. By Professor Eisenmann’s definition, up to 90% of startups fail.

Why study failure? 

Professor Eisenmann found that oftentimes a startup can be a victim of its own success. Things like hypergrowth can simultaneously boost the likelihood of success and failure of startups. By studying failure, Professor Eisenmann aims to help founders better understand how they can avoid these common mistakes. 

Do founders make or break a business? 

Many investors make the argument that investing decisions should largely be made based on the caliber of the founder. According to this philosophy, even if the initial idea is poor, a great founder can make it work or figure out a better idea to pursue. 

Professor Eisenmann notes that it’s not just the founder whose time and ideas contribute to the company’s success. In fact, there’s a whole constellation of players who have to be aligned from investors to other team members to external partners. 

He recalls a founder he advised at HBS who was building a company providing better fitting, stylish work apparel for women. They validated their MVP, raised $1 million, and launched their business, but they quickly found they could not deliver on their promise of providing better fitting clothing. Their rate of returns were on par with other eCommerce sites, which ran counter to their promise and mission. In hindsight, here were the mistakes he realized they made: 

  • Holding inventory: Rent the Runway (another HBS founded company) was able to find success in a similar space in part because they were renting dresses, not holding their own inventory. When you hold inventory, you run into a world of logistics challenges many founders aren’t prepared to face. 
    • While both sets of founders didn’t have domain expertise in retail, such domain expertise was less necessary when the company was renting (in the case of Rent the Runway) than when they were holding inventory (in the case of this failed startup). If you’re a founder lacking domain expertise and building in a space that requires it, leverage people (friends, investors, advisors) to help you vet the domain expertise of talent when you are hiring to fill these gaps. 
  • Working with outsourced manufacturers: outsourced manufacturers usually are working with hundreds of customers and don’t especially prioritize a smaller, newer startup with fewer, specialized orders. They likely didn’t pay special attention to the unique fitting needs and dimensions the startup requested. 
  • Not having a jack of all trades culture: in the company, everyone just did their part, which is certainly sufficient at a large company but definitely not aligned with the startup culture of everyone pitching into everything, even tasks outside of their core roles. 

Why do partnerships fail? 

Startups frequently want to partner with big companies, but doing so often leads to an unbalanced dynamic. It’s hard to find a point person in large companies. With the natural turnover in large companies, even if you do find a champion, they may leave to join another team or company before you close the deal. Large companies may also be looking to steal your idea and build your concept in house. For them, partnering with you long term may just be less of a priority and less of a need. 

Marc Andreessen aptly uses the Moby Dick analogy to describe the nature of startup and large company partnerships: startups spend ages chasing after the promise of a partnership only to realize it wasn’t at all what they expected or wanted. 

Startups typically can’t afford lawsuits in cases where the partnership with a large company goes south. Other alternative courses of action include threatening to sue or, better, using your social media platform to drive attention to the situation and pressure the large company in question. 

Why do co-founder relationships fail? 

When founders talk about “resources,” they often think of time or capital, but in reality, people and relationships are the most important resource. Within this context, your relationship with your co-founder is crucial to the success of your business. 

Too often, entrepreneurs jump into founding a startup together too hastily. It’s hugely helpful to feel out working together prior to formalizing the founder relationship. Try working on a big project together first. 

Why do execution oriented founders fail? 

People always stress the importance of founders having a bias toward action. While this is certainly true, execution oriented founders can face the false start challenge. They become instantly convinced of their product market fit, and they want to move quickly to building, but they neglect to truly do customer research. Fight against your instinct to just build heads down. Instead, make sure you spend time with your prospects and talk to people in the ecosystem. 

You may have some enthusiastic early adopters, but many early adopters are not truly useful data points unless you can bridge the gap between them and your mainstream audience. Building based on early false positives leads you to overbuild to early adopters and build in the wrong direction. 

How do startups with momentum fail? 

Even startups that seem to have great momentum in early user growth and big rounds of funding at high valuations can fail. As you grow, it becomes increasingly harder to get customers. You usually transition from word of mouth and other organic avenues of growth to paid marketing and start selling to a less captive audience who you’re not in direct contact with. 

If you don’t meet your milestones, you can face a down round, so be careful what you raise at and don’t just go for the term sheet with the highest valuation. 

For more logistically intensive products, scale presents other challenges. For example, Professor Eisenmann recalls a couch delivery startup he worked with that faced challenges with their couches showing up at the customer’s doorstep too early. 

For companies creating a new market, many things need to go right, and if even one thing goes wrong (like consumer behavior shifting in the case of Segway), everything can quickly go wrong. 

How can aspiring startup operators leverage these lessons? 

Professor Eisenmann’s insights aren’t just useful for startup founders but are valuable for operators as well. If you’re thinking about taking a job at an early stage startup, consider the following: 

  • What is your learning style? What do you want to learn? Knowing this, are you able to learn from the people on the existing team? 
  • What is the risk of failure? What does that mean for you financially? 
  • Do you see any of these failure patterns? For example, are the founders overbuilding to early adopters? Do they need domain experience? If so, do they have it? 

How can you rebound after failure? 

Failure isn’t the end of the word. Even if your startup does fail, there’s ways you can fail better and rebound effectively: 

  • Balance distraction with reflection
  • Be graceful: make sure your vendors are properly paid, give back capital to investors whenever possible, ensure your customers are taken care of, and support your employees in finding their next roles 
  • Be intentional: think through what you learned, instead of blaming others. Focus on what you can tactically do better next time. 

We hope this article has been helpful for you in avoiding common startup mistakes and failing better. 

Pear Partners From 0 to 1: Anand Iyer

Posted on by adam

Before Anand founded Trusted, he was the co-founder of Threadflip, which lost out, in a sense, to Poshmark. 

Reflecting on his time there, after Poshmark’s IPO, Anand realized that he and his team had always been relying on product to move the needle.

“It was always based on some small signal and sometimes there’d be some marginal improvements. But we weren’t fundamentally understanding who our users were and listening to what they needed. For a marketplace that was heavily designed for a female demographic, we needed to really get into the weeds a lot more than just marginal product improvements. You can be the best product in the world, but I don’t think you can quite get the big hits unless you know how to realistically build a company. There’s a difference between building a product and building a company. And I think we weren’t a great company.”

It was a lesson Anand took to heart in building his next company, Trusted, and it is an ethos that fuels his obsession with customer acquisition. 

Day Zero: A date night app
0 to 0.5: Cracking the nut on customer acquisition 
0.5 to 1: Serving customers and expanding to corporate benefit customers
Anand’s Key Pillars For Founder Success

Day Zero: A date night app

Trusted actually started off as a date night app for married couples, called Bliss. It started because Anand started to realize that he wasn’t spending as much time with his wife as he would have liked since they had welcomed their daughter to the family. The app planned and set up dates for busy couples for a subscription fee. After six weeks, he and his cofounder, Vivian, a friend from his early days at Microsoft, found that 4 out of 10 couples were churning.

As experienced founders, they knew to immediately ask why.

“We learned that couples were thinking, ‘We know where to go. We know what we want to do. We just can’t get out of the house frequently enough, because childcare becomes a problem. There’s no trusted network for us to leave our children with.”

Aha! They had found the true underlying problem. 

0 to 0.5: Cracking the nut on customer acquisition 

At the time, Anand was the primary caregiver in his household. It was this role that granted him his unique insight into the caregiving space.

“I started to spend a lot of time with other caregivers, because I needed my daughter to socialize with other children. My learning from this was that tooling for caregivers was missing. They didn’t know how to clock hours or find clients.”

So, Anand and Vivian started building that tooling, creating a SaaS product that helped caregivers to manage their schedules and other logistical aspects of being a paid caregiver, such as qualifying for overtime, upskilling, where to get help, where to get background checks, and the like. 

To acquire their first set of caregivers, they got creative. 

“We did not want to spend on customer acquisition. That was our goal from out of the gate,” Anand says. “If you’re really deep in the space, sometimes you can find some distribution hacks that others who are out of the industry are unaware of.” 

That distribution hack for Trusted was partnering with nursing sororities in universities around the country.

“We noticed that a lot of nursing students had a lot of credentials. They loved caring for people. A lot of them used to watch children before they got into nursing school. So they became sort of a natural fit for us, and we didn’t really need to even interview them. They found great jobs and would bring all their friends in, so it became a really interesting viral loop.” 

It was that relentless focus and discipline around customer acquisition strategy that continued to drive Trusted’s success, as they went on to launch the parent side of the app and become a marketplace. 

“We literally had this chart, and even today, I could refer to this chart. It starts with ‘How are we going to get our first 10 users?’ And then we would go from 11 to 100, then from 101 to 500, 501 to a 1000, and so on. It was methodical and specific. Vivian and I really challenged each other on this, on both sides of the marketplace, asking, ‘What are our core assumptions here and how are we thinking this is gonna work?’ That gave us a holistic way to think about customer acquisition.”

0.5 to 1: Serving customers and expanding to corporate benefit customers

Of course, the founders were also constantly iterating on the product to make sure that it engaged and served their customers. One of the biggest early decisions the team made was to switch from a flat rate pricing model to a flexible rate, after they saw caregivers churning from the app to collect payment directly from their clients. 

“Caregivers were asking, ‘Why are you making 25 and I’m only getting 17.50?’ And it was hard to explain that we were a software platform or for-profit business and all this stuff,” recalls Anand.

Anand and Vivian designed a flexible pricing model where there would always be a floor price that a caregiver would be able to make based on skill set and number of hours on the platform, but that number could always go up based on demand. As the caregiver started to accrue more hours in the platform, they could naturally command a much higher rate. 

“That was a big moment for us, because we introduced a transparent pricing model and caregivers felt better. They were happily staying on the platform and continued to grow with us.”

To this day, some of the caregivers who Anand and Vivian had hired back in 2014 are still on the platform, working and bringing in good income — some have even stayed moving between markets, from San Francisco to LA to Austin.  

On the client side, Anand and Vivian began selling to companies as a corporate benefit, ultimately leading to their acquisition by care.com, a company rapidly growing in the space.  

***

Nowadays, as an investor, Anand is learning to flex his startup brain in different ways. 

“When you are building, you go a mile deep and it is sort of an inch wide. You’re very much siloed in your problem space. As an investor, you have to go a mile wide and inch deep. That’s the biggest difference that I’ve noticed,” he observes.

Still, Anand is full of advice from his 0 to 1 days, and he’s been inspired by his new work. 

“In spite of all the issues that humankind has faced, there’s some really ambitious founders, solving some really big problems and that’s very encouraging. We had a vaccine for a crazy virus that came out in a year, and that’s unheard of! I think that kind of progress is something that I’ve never seen.”

Anand’s Key Pillars For Founder Success

Keep it raw

One thing that I always struggled with was knowing how much to absorb and keep to myself, versus how much I should share with the team. Say, customer support would flag something, and I read every single customer thread that came in. I struggled with knowing how to parse that information and how to share it, whether it was a technical glitch or an operational issue, because I didn’t want to drop the burden of something so strong coming from a customer. My learning was that it is important to keep it raw—your team actually appreciates that. The vulnerability goes a long way and they end up being a part of the solution as opposed to thinking there’s a gatekeeper between the problem and themselves.

Set your boundaries 

I was having a chat with a fellow founder at 11 PM Eastern his time when he was texting me. And I was like, “Why are you texting me? You have three kids, you should really be going to bed now— take care of yourself!” I think that’s something that we all struggle with. But as you age, at some point you start to do the math on how much time you will have with your children before they go off to college, and you can put that in a finite number of weekends, for example. Then it becomes really scary. You think, ‘Oh my God, I only have 520 weekends left when they’re eight years old.’ That’s not a lot if you think about it. Setting boundaries is number one. I literally have times that I block off on my calendar very deliberately as a reminder for: “I need to do this now. This is important.” And then simple things like activities where you’re forced to not have your phone with you. With my daughter, when we’d go to the Farmer’s Market, we’d go biking, and you have to be single-tasking there. That will force you to really check out. The last thing I’ll say: don’t forget your partner. They’re the ones who are supporting you and your pillars through the journey.  It’s important to spend time with them, cherish them and make sure you celebrate all the little milestones with them along the way.

You can’t always buy your way out of customer acquisition 

Customer acquisition is something that you just cannot take for granted. You can have an amazing concept and a great product in theory. But when you start to build the company, you really need to think about how the company will  scale. There are a lot of very strong product minded entrepreneurs out there or founders who can build great product. But building a great company comes with sorting out  customer acquisition and scaling. There is a gap in how some people think about customer acquisition, and it is not always trivial to buy your way out of it. You will hit a point where your CAC (cost of customer acquisition) is just too high and the LTV (lifetime value) is relatively low.

Pay attention to the details

The little things matter. You want everything to be bulletproof when it comes to the pitch. Be heavily invested in putting your imprint out there, because it is going to get looked at by a lot of people, and there are a lot of people who are going to pick up on the little things. It’s not about the graphics or rounded corners versus squared corners, but it’s about the attention to detail. Your narrative becomes even stronger, and the way that comes across is that you’re someone who’s really thought about the problem space really well and knows their stuff. Relatedly, generally speaking, knowing how to create something that delights your users is an art form and it’s something that you should never take for granted because that’s the power of technology. I wouldn’t say it always helps with acquisition of a new customer, but it always helps with retention, because the user will be delighted by the product and experience.

The Data and Analytics Playbook for Startups

Posted on by adam


Ali Baghshomali, former data analyst manager at Bird, hosted a talk with Pear on data and analytics for early stage founders. We wanted to share the key takeaways with you. You can watch the full talk here. 

While a lot has been said around building go to market and engineering teams, there’s not much tactical coverage for analytics teams. Yet analytics is one of the most fundamental and crucial functions in a startup as it launches and scales. 

When should you start seriously working on analytics?
Why should you work on analytics?
Who should you hire?
What should be in your analytics stack?
What are some case studies of company analytics operations?
What should you do moving forward?

When should you start seriously working on analytics? 

You should start thinking about your analytics platform when your company is nearing product launch. After your product is live, you’ll receive an influx of data (or at least some data) from customers and prospects, so you want to be prepared with the proper analytics infrastructure and team to make the most of this data to drive business growth. 

If you are just starting out and would benefit from working with analytics but don’t have much in house, consider using third party data sources, like census data. 

Why should you work on analytics? 

If done well, analytics will pay back many, many times over in time, work, money, and other resources saved as well as powerful insights uncovered that drive meaningful business growth. 

Who should you hire? 

In conversation, people often use “data scientist” and “data analyst” interchangeably. While fine for casual conversation, you should clearly understand and convey the difference when writing job postings, doing job interviews, hiring team members, and managing data teams. 

Data scientists work with predictive models through leveraging machine learning. Data analysts, in contrast, build dashboards to better display your data, analyze existing data to draw insights (not predictions), and build new tables to better organize existing data. 

For example, at Spotify, data scientists build models that recommend which songs you should listen to or add to particular playlists. Data analysts analyze data to answer questions like how many people are using the radio feature? At what frequency? 

Similarly, at Netflix, data scientists build models that power the recommendation engine, which shows you a curated dashboard of movies and TV shows you may like as soon as you log in. Data analysts would conduct data analysis to determine how long people spend on the homepage before choosing a show. 

Unless your core product is machine learning driven, you should first hire data analysts, not data scientists. In general, a good rule of thumb is to have a 3:1 ratio of data analysts to data scientists (for companies whose products are not machine learning driven). 

For early stage startups, stick to the core titles of data scientists and data analysts rather than overly specialized ones like business intelligence engineers because you’ll want someone with more flexibility and who is open and able to do a wider range of work. 

What should be in your analytics stack? 

Here are examples of tools in each part of the analytics stack and how you should evaluate options: 

  • Database: examples include BigQuery and Redshift. Analytics databases are essentially a republica of your product database but solely for analytics. In this way, you can do analytics faster without messing up product performance. In general, it is advisable to use the same database service as your cloud service. 
  • Business intelligence: examples include Looker and Tableau. Business intelligence tools help you visualize your data. They connect to your analytics database. You should pick a provider based on pricing, engineering stack compatibility, and team familiarity. Don’t just default to the most well known option. Really consider your unique needs. 
  • Product intelligence: examples include Mixpanel and Amplitude. Product intelligence tools are focused on the product itself, rather than the over business. Specifically, they are focused on the user journey. They get code snippets inserted from the product. Because they don’t encapsulate the full code, you should consider this data to be an estimate and use the insights drawn more directionally. Product intelligence tools can be used to create charts, funnels, and retention analyses, and they don’t need to be connected to other databases. 

What are some case studies of company analytics operations? 

Helping Hands Community is a COVID inspired initiative that services high risk and food insecure individuals during the pandemic. 

  • Team: 7 engineers, no data analysts
  • Product: basic with 1000 users
  • Stack: Google Cloud, Firebase for product database, BigQuery for analytics, Google Data Studio for business intelligence, and Google Analytics for product intelligence 

Bird is a last mile electric scooter rental service. 

  • Team: 50+ engineers, 30 analysts, 8 scientists, 6 analyst managers
  • Stack: AWS for cloud, Postgres (AWS) for product database, PrestoDB for analytics, Tableau and Mode for business intelligence, Mixpanel for product, Google Analytics for website, Alation for data, DataBricks for ETL, and Anodot for anomaly detection (you generally need anomaly detection when ~1 hour downtime makes a meaningful difference in your business) 

What should you do moving forward? 

Make a data roadmap just like you make business and product roadmaps. Data roadmaps are equally as important and transformative for your startup. List the top 5 questions you foresee having at each important point along this roadmap. Structure your data roadmap in a way that your stack and team addresses each of the questions at the point at which they’re asked. 

We hope this article has been helpful in laying the foundations for your analytics function. Ali is available to answer further questions regarding your analytics strategy, and he is providing analytics and data science consulting. You can find and reach him on LinkedIn here. 

How to Develop an Email Marketing Strategy

Posted on by adam

Margarita Golod, visiting partner at Pear VC, and former head of trade marketing at Houzz, the leading platform for home remodeling and design, hosted a talk on email marketing in April for Pear Founders, and we wanted to share the key takeaways with you. 

When many founders think about marketing, they think about channels like YouTube, Facebook, and TikTok, but email marketing is still the most cost-effective channel for growth, especially at the startup stage.

Why email?
What makes a great subject line?
What makes a great message?
How do you build your list?
What metrics should you target?
What tools should you use?

Why email? 

Email is an important channel for any startup. It’s important to understand how it compares to other channels. 

  • Volume: Unlike social media, 92% of adults online use email, so email is still a comprehensive way to reach your audience. 
  • ROI: email has the highest ROI of any digital marketing channel. The ROI of email marketing is, on average, 4X higher than the average of other marketing channels. 
  • Tracking: Unlike other channels, feedback on email campaigns can happen instantly – you can see who opened and click your email and iterate future campaigns based on instant data.
  • Personalization: Email allows you to tailor your message to each individual subscriber at scale. You can personalize people’s names, companies, and titles. You can also easily segment different email copy by various personals and track engagement across these segments.

What makes a great subject line? 

Subject lines are the most important part of the email. People decide whether or not they actually open an email based on your subject line. Here are some best practices for subject lines:

  • Incorporate people’s first name. Doing so makes the email pop out for them more in a sea of other messages. People reading your email also feel as though your email is tailored to them, which encourages them to pay attention and read on. You can also avoid getting your email stuck in the promotions tab in gmail by personalizing it. 
  • Avoid exclamation marks. Stay away from overly click bait like language. Using too many exclamation marks or words like “urgent” can land your message in people’s spam. 
  • Pique curiosity. For example, Margarita shared an email with the subject line “Margarita – here are 3 sites that have your information.” Of course, this subject line piqued her curiosity: she is now interested enough to open the message to see which 3 sites have her information. 
  • Be concrete. Margarita shared an email advertising a webinar with the subject line “Have 9 minutes?” The sender was very explicit about what exactly they needed from the reader, which made readers more comfortable opening the email to explore the ask further. 
  • Use the “fwd” trick. People are more likely to open an email that was forwarded to them. Add “fwd” or “forward” to the start of your subject lines. Of course, you can’t do this too often because people will catch on, so do use this trick carefully and sparingly. Relatedly, you can add “did you see this” to the start of subject lines as a more eye-catching way to check in with people who did not open the first “forwarded” email. 
  • Leverage cliffhangers. Margarita shared some great cliffhanger subject lines that caught her attention, such as “I didn’t wanna do this” (which prompted her to engage since she was quite curious about what this person did not want to do) and “Can emails save a life?” 
  • Use a real name. In your “from” field, use a real name. For example, at Houzz, many of the marketing emails were sent from “Kirsten from Houzz” (she is a real member of their customer success team, but you can also use a fake name if you prefer). People make genuine connections with other people, not abstract company names. Using a real person’s name in your “from” field helps establish a more authentic connection with your prospects and customers. 
  • Get creative about the sender. Margarita shared an example of an email she received because her friend referred her to use a company’s product. That company sent Margarita an email through her friend’s name with the subject line “Don’t let your friend down.” The combination of the sender and the subject line caught Margarita’s attention enough for her to open the email. 
  • Don’t forget your preview text. Your preview text is also important. Consider how it can complement your subject line. For example, Margarita shared an email from a startup with preview text that said “help shape our product.” That line makes early users feel like they are a part of something special and motivates them to open the email and engage. 

What makes a great email message? 

Now that you’ve written an excellent subject line, it’s time to craft an equally compelling message. Here’s how: 

  • Incorporate aspirational language. Margarita shared an example of an email sent to marketers that started off with “as a data-driven marketer.” The company tailored its messaging to its intended audience and who their intended audience wanted to be (“data-driven marketers”). 
  • Send text-based emails. Avoid templated emails that look inauthentic. Try to use direct text in your emails whenever possible to make your readers feel like you are talking only and specifically to them. 
  • Add personalization. Beyond just their names, consider adding other information to further personalize the message, such as their recent purchase data to show you are truly tailoring your message and speaking directly to the reader.  
  • Share stories. Bring your reader on a journey through, for example, highlighting the transformation they can undergo with your partnership. In particular, incorporate other people’s stories advocating for your product, such as testimonials in written and video form. 
  • Give a reply option. Your readers are more likely to feel more genuinely cared for and heard if you give them a real way to reply to you. Instead of just sending messages from a no-reply account, include contact information and invite their response. You can set up a separate inbox for this to not clutter anyone’s personal inbox, and you can carve out a bit of time each day to read and respond to inbound notes. 
  • Offer something useful. For example, at Houzz, Margarita and her team sent an email with the header offer “We’ve built a beautiful website out of your Houzz profile.” Right off the bat, Houzz was offering readers something of value, which drove very high engagement. 
  • A/B test. When possible, A/B test your emails and subject lines. For example, send version A to 25% of people, version B to 25% of people, and the winner of A and B (the version of the best metrics) to the remaining 50% of people. 

How do you build your list? 

With a sound email strategy, it’s time to plan how to kick start your email list, grow it over time, and keep up its quality. 

  • Start with your network. Add in the contact information of your family, friends, colleagues, investors, advisors, etc. By doing so, you warm up your IP address and build up your email reputation to avoid having your first “real” customer or prospect email sent to spam. 
  • Share gated content. Put together valuable eBooks, guides, templates, and other resources that people in your prospect base would want to download. Before you let them download the content asset, ask for their email address and other contact information. This helps you build a list of engaged subscribers.
  • Remove unengaged subscribers. If a lot of people on your email list don’t open your email, then, over time, you will get a low email reputation, and your emails will no longer be delivered to the inbox. To remove unengaged subscribers, send an email to them saying “this is your final email” and ask them to confirm if they would like to stay on. If you still don’t receive any engagement, remove them from your list. Similarly, be sure to include an unsubscribe option in all of your emails. If you don’t have one, people may instead mark your email as spam, which would hurt your reputation score. 
  • Segment. Segmentation is critical for sending more personalized emails and tracking engagement more precisely. Start capturing audience information right away (for example, through the gated content forms mentioned above or through the newsletter subscriber form or through the customer onboarding process). Ask questions about the user that will help you identify which bucket of customers they fall into so you can segment them properly.

What metrics should you target? 

Of course every industry and business is slightly different in terms of what success looks like, but here is a general sense of the metrics to measure and thresholds to aim for: 

  • Open rate (percentage of people who opened your email): 
    • >30% for very engaged people, such as existing customers 
    • >15% for less engaged people 
  • CTR (clickthrough rate – percentage of people who actually clicked through the links you shared in your email): >4% 
  • Unsubscribe (percentage of people who unsubscribe after your email): <0.2% 
  • Delivery rate (percentage of people who actually received your email – this is more a measure of email list health, that is, whether the emails you have on your list are accurate and up to date): >96%
  • Conversion rate (percentage of people who ultimately take the action you want them to from your email) really varies depending on your business and goals (for example, some companies want to convert people into paid users, others want them to get a free trial, and others want them to make a one time purchase).

What tools should you use? 

It’s time to get started! There are so many tools out there and below is a list Margarita has put together, based on her experience. You should always evaluate and demo every tool before deciding to use it. 

  • For designing, creating and sending emails:
    • Mailchimp (for smaller lists when you are just starting out)
    • Active Campaign (more robust automation)
    • HubSpot 
    • Marketo (more for b2b)
    • Pardot (more for b2b – integrated with Salesforce)
    • Eloqua (more robust for b2b enterprises)
  • For lifecycle marketing (across push notifications, SMS, in app notifications and email): 
    • Iterable
    • Braze
    • OneSignal 
  • For understanding deliverability (how accurate is your email list and whether your emails are landing outside of the inbox): 
    • Senderscore.org
    • Mailgenius.com (helpful for determining if your emails are landing in Spam) 
    • Inboxtrack.io
    • Zerobounce.com
  • For previewing emails: Litmus (lets you see how your email looks across devices and browsers) 
  • For cold emailing: 
    • Reply.io
    • Outreach.io
    • Mailshake.com
  • For inspiration: www.reallygoodemails.com has great email examples 

Here’s important factors to keep in mind when evaluating what tools are best for you: 

  • Whether the platform integrates with your CRM and event management systems like Zoom to ensure automatic sync with your contacts and data
  • Whether they offer end-to-end value for landing page creation, SMS marketing, and other marketing use cases important for your business
  • How easy the service is to use
  • The cost of the service and potential add ons 
  • Whether they have great customer service 

We hope this article has been useful in helping you lay the foundations for your email marketing strategy. Margarita is available to answer further questions regarding your email strategy – just send her an email at margarita@pear.vc. 

5 Guidelines for Introducing Product Management to Your Company

Posted on by adam

This is a recap of our discussion with Nikhyl Singhal, VP of Product at Facebook, former CPO at Credit Karma, and former Director of Product Management at Google. 

Watch the full talk at pear.vc/events and RSVP for the next!

Product management can be an elusive topic, especially as its definition changes as the company grows. Early on, product management is focused on helping the company get to product market fit. Once the company achieves it, product management can change dramatically depending on the type of product or service, the organizational structure, and the company’s priorities. We brought Nikhyl Singhal to demystify the product management process and share insights on when, how and why to add product management into your company.

Jump to a section:

In the “Drunken Walk” Phase, Product Managers Should Really Be Project Managers

For Founders Working on Product Market Fit, Maintain Healthy Naivete

If You’re Not a Product Person, Find a Co-Founder Who Can Own Product Market Fit

Introduce Product Management When Founders Shift Priorities

Look for Product Managers Who Can Scale with the Organization

In the “Drunken Walk” Phase, Product Managers Should Really Be Project Managers

While employees at early stage companies may have Product Manager as their title, they should really be owning project management and execution.

Product management, or the goal of helping that company get to product market fit, should be owned by the founders. 

It’s partially an incentive problem. Founders, as Singhal notes, are usually the executives with a larger share of ownership.

“They’re the ones that the investors have really placed money in and the extended team in some ways just aren’t at the same level in scale as the founders,” Singhal says.

However, execution and distribution are team responsibilities–and Singhal considers them much more of a utility than a strategic function. Understanding the allocation of responsibilities in founders versus product managers in early stage companies can be crucial to success.

“I actually embrace this and I [would] suggest, “Look, there’s no shame in saying that we need to bring in product managers to really own a lot of the execution.”

For Founders Working on Product Market Fit, Maintain Healthy Naivete

For early stage founders, Singhal says not to discount naivete. He recounts from his own experience that while others had insider perspectives or felt jaded, his own beliefs helped propel him through company building, ultimately helping him found three companies in online commerce, SAAS, and voice services. 

“I think that the lesson, if I were to pick one, is that healthy naivete is a critical element to finding product fit and actually fortitude around some of those ideas that are, ‘Hey, the world should work this way,’” Singhal reflects. “‘I don’t quite understand the industry, but I want to focus on that user, that business problem, and go forward on it.’”

If You’re Not a Product Person, Find a Co-Founder Who Can Own Product Market Fit

“The speed to be able to go through product fit is so essential for being able to efficiently get to the destination in the final course of action for the company,” Singhal says.

Thus, while it’s possible for founders to take other roles early on, purely outsourcing product fit to the rest of the team is still not a wise decision.

“If you’re not the person who’s owning product fit and you agree that product fit is sort of job number one, what I would say is—find a co-founder who can be essentially the owner of product fit. The reason why I use the term co-founder is for the economics to work.”

Introduce Product Management When Founders Shift Priorities

One issue founders often face with product management is determining when to introduce it. Introducing it too early may lead to conflicts internally, while introducing it too late means the company may have missed out on the prime time for strengthening execution. 

Again, product management is dependent on the founders’ backgrounds. For founders who have backgrounds in product, as long as there is clarity and predictability around what will happen, the company may proceed without product managers. The most common case for introducing product management, however, is when founder priorities need to shift from product fit to scaling the organization.

“This could be establishing new functions,” Singhal notes, “Or fundraising or thinking through acquisition. Marketing is also an important area, or thinking through company culture if the company starts to scale. At this point, if you fail to bring in product management, you’ll see dramatic reductions in efficiency.”

Look for Product Managers Who Can Scale with the Organization

For early product manager hires, companies should consider both the growth curve of the company and the growth point of the individual. Especially for companies that may be in hypergrowth, it’s important to have a mindset that “what’s gotten us here isn’t what gets us there.” This means the product management team must be adaptable. 

Being aware of how product management interacts with other functions is also crucial. 

“Product tends to essentially sit between the power functions of the organization as it deals with scale and growth,” Singhal says. It could be between marketing analytics and product engineering, or sales and product, depending on what the company’s business model is. 

Lastly, founders need to examine their own career trajectories in transitioning product power to teammates. It can be a tough emotional decision, Singhal acknowledges, but this question should be asked early on.

“I think that it’s almost a psychological question around: what is the person’s career ambition as a founder? Do they see themselves as moving into a traditional executive role? Shall I call it CEO or head of sales or head of product? If the goal of the person is to expand beyond product, then I think that the question really deserves quite a bit of weight,” Singhal says.

15 Mistakes Startups Make When Building Their First Engineering Teams

Posted on by adam

This is a recap of our discussion with Pedram Keyani, former Director of Engineering at Facebook and Uber, and our newest Visiting Partner. Keep an eye out for Pedram’s upcoming tactical guide diving deeper into these concepts.

Watch the full talk at pear.vc/speakers and RSVP for the next!

Mistake #1: Not Prioritizing Your Hires

The first mistake managers encounter in the hiring process is not prioritizing hires. Often, when faced with building a company’s first team, managers tend to hire for generalists. While this is a fine principle, managers must still identify what the most critical thing to be built first is.

“The biggest challenge that I see a lot of teams make is they don’t prioritize their hires, which means they’re not thinking about: what do they need to build? What is the most critical thing that they need to build?”

Mistake #2: Ignoring Hustle, Energy, and Optimism

People naturally prefer pedigreed engineers — engineers that have worked at a FAANG company, for example, or engineers that have built and shipped significant products. But for young companies that might not have established a reputation yet, they’re more likely to attract new college grads.

“They’re not going to know how to do some of the things that an engineer who’s been in the industry for a while will do, but oftentimes what they have is something that gets beaten out of people. They have this energy, they have this optimism. If you get a staff engineer that’s spent their entire career at—name-your-company—they know how to do things a particular way. And they’re more inclined to saying no to any new idea than they are to saying yes.”

So don’t worry too much about getting that senior staff engineer from Google. Often, bright-eyed, optimistic young engineers just out of school work well too. 

Mistake #3: Not Understanding Your Hiring Funnel

Managers must be aware of how their hiring funnels are laid out. No matter what size of company or what role, a hiring manager must treat recruiting like their job and be a willing partner to their recruiters.

Get involved as early as sourcing. 

“If they’re having a hard time, for example, getting people to respond back to their LinkedIn or their emails, help put in a teaser like, ‘Our director or VP of this would love to talk to you.’ If that person has some name recognition, you’re much more likely to get an initial response back. That can really fundamentally change the outcomes that you get.”

Mistake #4: Not Planning Interviews

Once a candidate gets past the resume screen to interviews, that process should be properly planned. Interviewing is both a time commitment from the candidate and from the company’s engineering team. Each part of the process must be intentional. 

For phone screens, a frequent mistake is having inexperienced engineers conduct them. 

“You want the people who are doing the phone screens to really be experienced and have good kinds of instincts around what makes a good engineer.”

For interviews, Pedram suggests teams have at least two different sessions on coding and at least one more session on culture. 

To train interviewers, a company can either have new interviewers shadow experienced interviewers or experienced interviewers reverse shadow new interviewers to make sure they’re asking the right questions and getting the right answers down.

Mistake #5: Lowering Your Standards

Early companies can encounter hiring crunches. At this time, hiring managers might decide to lower their standards in order to increase headcounts. However, this can be extremely dangerous. 

“You make this trade off, when you hire a B-level person for your company—that person forever is the highest bar that you’re going to be able to achieve at scale for hiring because B people know other B people and C people.”

What about the trade-off between shipping a product and hiring a less qualified teammate? Just kill the idea. 

“At the end of the day, these are people you’re going to be working with every day.”

Mistake #6: Ignoring Your Instincts

Failure #5 ties into Failure #6: Ignoring your instincts. If there’s a gut feeling that your candidate won’t be a good fit, you should trust it. 

“The worst thing you can do is fire someone early on because your team is going to be suffering from it. They’re going to have questions. They’re going to think, ‘Oh, are we doing layoffs? Am I going to be the next person?’” 

Mistake #7: Hiring Brilliant Jerks

During the hiring process, managers may also encounter “Brilliant Jerks.” These are the candidates that seem genius, but may be arrogant. They might not listen, they might become defensive when criticized, or they might be overbearing. 

The danger of hiring brilliant jerks is that they’ll often shut down others’ ideas, can become huge HR liabilities, and won’t be able to collaborate well within a team environment at all. 

So when hiring, one of the most important qualities to look out for is a sense that “this is someone that I could give feedback to, or I have a sense that I could give feedback to you.”

Mistake #8: Giving Titles Too Early

Startups tend to give titles early on. A startup might make their first engineering hire and call them CTO, but there are a lot of pitfalls that come with this.

“Make sure that you’re thoughtful about what your company is going to look like maybe a year or two year, five years from now. If you’re successful, your five person thing is going to be a 500,000 person company.” 

Can your CTO, who has managed a five person team effectively, now manage a 500,000 person team?  

Instead of crazy titles, provide paths to advancement instead. 

“Give people roles that let them stretch themselves, that let them exert responsibility and take on responsibility and let them earn those crazy titles over time.”

Mistake #9: Overselling The Good Stuff 

When a team’s already locked in their final candidates, young companies might be incentivized to oversell themselves to candidates—after all, it’s hard to compete against offers from FAANG these days. But transparency is always the best way to go. 

“You need to tell a realistic story about what your company is about. What are the challenges you’re facing? What are the good things? What are the bad things? Don’t catfish candidates. You may be the most compelling sales person in the world, and you can get them to sign your offer and join you, but if you’re completely off base about what the work environment is like a weekend, a month, and six months in, at some point, they’ll realize that you are completely bullshitting them.”

As Director of Engineering at Facebook, Pedram made sure to put this into practice. After mentioning the positives and perks of the job, he would follow up with “By the way, it’s very likely that on a Friday night at 9:00 PM, we’re going to have a crazy spam attack. We’re going to have some kind of a vulnerability come up. My team, we work harder than a lot of other teams. We work crazy hours. We work on the weekends, we work during holidays because that’s when shit hits the fan for us. I wouldn’t have it any other way, but it’s hard. So if you’re looking for a regular nine to five thing, this is not your team.” 

Make sure to set expectations for the candidate before they commit. 

Mistake #10: Focusing on the Financial Upside

Don’t sell a candidate on money as their primary motivation during this process. 

“If the key selling point you have to your potential candidate is that you’re going to make them a millionaire you’ve already lost.”

Instead, develop an environment and culture about a mission. Highlight that “if we create value for the world, we’ll get some of that back.”

Mistake #11: Getting Your Ratios Wrong

Companies want to make sure that they have the right ratio of engineering managers to engineers. Each company might define their ratios differently, but it’s important to always keep a ratio in mind and keep teams flexible.

Mistake #12: Not Worrying About Onboarding

Once a candidate signs on, the onboarding process must be smooth and well-planned. Every six months, Pedram would go through his company’s current onboarding process himself, pretending to be a new hire. This allowed him to iterate and make sure onboarding was always up to date. 

“It’s also a great opportunity for you to make sure that all of your documentation for getting engineers up to speed is living documentation as well.”

Mistake #13: Not Focusing on Culture

Culture should underscore every part of the hiring process. It can be hard to define, but here are some questions to start: 

  • How does your team work? 
  • How does your team solve problems? 
  • How does your team deal with ambiguity? 
  • How does your team resolve conflicts? 
  • How does your team think about transparency and openness? 

“Culture is something that everyone likes to talk about, but it really just boils down to those hard moments.”

Mistake #14: Never Reorganizing

Failure #14 and #15 really go hand in hand. As many companies grow, they may forget to reorganize. 

“You need to shuffle people around. Make sure you have the right blend of people on a particular team. You have the right experiences on a team.” 

Again, keep your ratios in mind.  

Mistake #15: Never Firing Anyone

Lastly, and possibly the hardest part of hiring, companies need to learn to let people go. 

“People have their sweet spot. Some people just don’t scale beyond a 20 person company. And, you know, keeping them around is not fair to them and not fair to your company.”

Transforming Healthcare with Tech

Posted on by adam

This is a recap of our discussion with Lindsay Kriger, Director of Transformation and Business Operations, Andrew Smith, Chief Operations and Innovation Officer, and Dr. Bobbie Kumar, a family physician, from Vituity, the largest physician-owner partnership in the U.S.

Watch the full talk at pear.vc/speakers and RSVP for the next!

Healthcare innovation is local
To get started, pick an area to focus on
Recommendations for new healthcare solutions

Healthcare innovation is local

Though tackling the American healthcare system seems extremely daunting, the most important rule as a healthcare founder is to remember to keep the patients’ and the communities’ needs centered. Like any startup founder, healthcare providers need to know their users.

“The reality of healthcare innovation is that it’s local,” said Kriger, Vituity’s Director of Transformation and Business Operations. “We need to talk to real people from diverse backgrounds, geographies, cultures, and clinical care settings and build companies from passion and personal experience. That will ultimately create the healthcare that we all want.”

Often, this means bringing care directly to the patient, especially in the COVID era, when patients may be wary of coming to hospitals.

“There are many sick people in this country that aren’t coming to the hospital or asking anyone for help, so taking care of people at home, or in their grandparents’ house, or at an SNF, or anywhere they are and reaching out to them has become incredibly important,” explains Smith.

To get started, pick an area to focus on

Our healthcare system is a $6 trillion problem. We spend close to 18% of the GDP on healthcare every year and over $10,000 per capita—twice of what any other industrialized country spends.

Naturally, numerous technical solutions and innovations have emerged in this space. Because of how vast the market is, however, it can be difficult to figure out how to start. 

This is where balance comes in. After thoroughly understanding your users, pick one area to focus on. 

“If you try to solve all of the problems of healthcare in one swoop, it is going to be extremely difficult,” Smith emphasizes.

Smith underscores the importance of iteration and building feedback cycles from diverse sets of users. 

“With whatever you’re rolling out, you need to hear from patients and providers–and not just in one location. One location is a great place to start, but one of my recommendations is having a diverse set of pilots.”

Again, because of how local healthcare is, understanding the specific needs of markets you are targeting will help you build the best solutions. 

At scale, however, Vituity firmly believes that all users and all markets should be serviced. 

“We’re going to take care of everyone equally, always. And we want to build solutions and products that work for the entire community in this country.”

Recommendations for new healthcare solutions

Dr. Bobbie Kumar, Director of Clinical Innovation at Vituity, thinks a key area for innovation in the healthcare space is physician productivity.

When Dr. Kumar was an intern, she had 45 minutes to meet each patient. As a doctor, she only gets 10-15 minutes to do the same amount of work. 

“Reducing the administrative burden that myself and the care team have to experience is going to be a very key and poignant feature in how solutions are able to penetrate the healthcare space,” she added.

Beyond that, she leaves two other recommendations for innovating solutions within the healthcare industry. 

“Disrupt the industry, not the mission,” she said. “The top two reasons for choosing medicine are help people, followed by intellectual pursuit— wanting to find something that’s challenging enough for the knowledge base and the research.”

The last recommendation? “Preserve the humanism.” Technological solutions simply cannot account for the degree of human interaction inherent in physician-patient relationships. 

“Until we really start looking at healthcare as both patient-centric and provider and care team supported, we’re just going to end up missing the target. So, my hope for the future is that we disrupt the status quo and we model these solutions that not just promote, but really emphasize the value and the unique human experience.”