With the rise of generative AI, most startups are either developing new products and services utilizing artificial intelligence (AI) or machine learning (ML) and/or integrating AI/ML into their operations from hiring to content marketing. At the same time, stakeholders in their companies — including investors, regulators, governments, customers, and employees — are increasingly asking how companies are designing and deploying ethical AI.

How can founders ensure their companies are using and developing AI responsibly? And what does ethical AI even mean? In this piece I’ll give a high-level overview of select ethical AI considerations, and some practical steps founders and tech leaders can take to address risks.

What Is Ethical AI?

Ethical AI refers to the practice of ensuring AI is developed and utilized in keeping with relevant morals, values, and principles. In 2020, the Berkman Klein Center for Internet & Society at Harvard University published a landmark paper aiming to represent a consensus in AI-related principles put forth by governments, intergovernmental organizations, companies, professional associations, advocacy groups, and multi-stakeholder initiatives. “Principled Artificial Intelligence: Mapping Consensus in Ethical and Rights-based Approaches to Principles for AI” (and the associated Principled AI Map) drew from 36 prominent AI principles documents to identify eight key themes related to developing and deploying AI responsibly and ethically:

1. 1. Privacy
   2. Accountability
   3. Safety and security
   4. Transparency and explainability
   5. Fairness and non-discrimination
   6. Human control of technology
   7. Professional responsibility
   8. Promotion of human values

For entrepreneurs whose companies develop or utilize artificial intelligence systems, it’s useful to think about these themes across a few dimensions:

1. 1. AI system development — when creating a system like ChatGPT, what are the risks and considerations in development and implementation (e.g., privacy and labor implications)?
   2. Tool use in company operations — when integrating AI into hiring procedures, for example, what are potential risks?
   3. Integration into development of products and services — e.g. Zoom’s almost implemented policy that would have meant the company could train its AI on customer data with no opt-out option (had it not been noticed by journalists), or utilizing AI technology as part of the customer service experience.

Let’s dive into five of the key themes from the Principled AI Map that were most common in their data set, and that company leaders are often most focused on initially:

• • Privacy
  • Accountability
  • Safety and security
  • Transparency and explainability
  • Fairness and non-discrimination

Below I’ve outlined representative questions to consider across these themes when developing or implementing AI systems. To wrap up, I’ll share three foundational steps for implementing ethical AI practices: designing an ethical AI value system, incorporating ethical AI education into company resources, and adopting tools to help teams evaluate risk and consequences.

Prioritize Privacy

AI often relies on tremendous amounts of data, and can present a variety of privacy issues. In fact, 97 percent of the Principled AI map documents included privacy as an important consideration when building and deploying AI systems. For generative AI systems, privacy issues may be foundational to their existence.

Privacy in this context refers to, “the idea that AI systems should respect individuals’ privacy, both in the use of data for the development of technological systems and by providing impacted people with agency over their data and decisions made with it.”

The US Federal Trade Commission recently ordered WW International (previously Weight Watchers) to delete their algorithms built off of data the company didn’t have permission to use. Privacy is a complex issue that won’t be fully solved any time soon — with that in mind, tech teams should continue to prioritize privacy considerations when developing or deploying AI systems.

Select Privacy Questions

1. 1. Are our tools in compliance with existing regulations like GDPR or CCPA?
   2. Should our company be using tools that intrinsically compromise privacy and may not comply with existing privacy regulations? If we do, what risks are we taking, and how are we prepared for those risks?
   3. How can we ensure we prevent Personal Identifiable Information (PII) data from leaking through the use of generative AI tools? (For example, ChatGPT Enterprise promotes “enterprise-grade security and privacy” – does this satisfy our requirements?)
   4. In developing AI systems, are we enabling users to consent to or refuse the use of their personal information? Are users able to amend data if it is incomplete, or remove personal data?
   5. How can we ensure privacy by design, or the integration of privacy into how we build our AI system and the lifecycle of the data in our system?

Implement Mechanisms for Accountability

Accountability as a theme is present in 97 percent of the Principled AI Map’s reviewed documents. The Principled AI piece highlights that AI must be developed with appropriate mechanisms to ensure that it is benefiting humanity and not causing harm. As the regulatory environment struggles to keep up with the pace of technology development, leaders need to craft their company’s approach to ensuring ethical AI practices are actually integrated into product and operations decisions. At the same time, companies will also need to comply with upcoming regulation (e.g., the European Union’s AI Act).

The duty to ensure ethical AI development and use should not reside inside of the technology, but instead it should be spread across those who are designing, developing, and deploying the system.

Select Accountability Questions

1. 1. What are the checkpoints as a product or feature is being developed and before a product or feature launches where the team reviews and ensures risks have been mitigated?
   2. How will we discern which use cases are most risky, and enable our teams to integrate AI when there is less risk but monitor when there is more risk?
   3. Are relevant stakeholder groups identified and consulted when designing and using AI systems? Stakeholders might include customers, users, employees, investors, ethics experts, communities impacted by the system, and others.
   4. Who will be responsible for developing our ethical AI policy and accountability mechanisms (including those related to product and operations)? Do we have a monitoring body to ensure accountability?
   5. Are there public commitments our team can make or sign that signal our approach and help hold our company accountable (e.g., Adobe’s Commitment to AI Ethics, Salesforce’s AI Acceptable Use Policy, Responsible Innovation Labs Responsible AI Commitments)? If you make a commitment, make sure you have the internal capacity to follow through.
   6. How are we evaluating the accuracy of output information? (Accuracy is another important concept to explore.)

Evaluate Safety and Security

In developing the Principled AI map, about 75 percent of reviewed documents referenced safety and security. Safety focuses on an AI system that internally functions properly and avoids unintended harms to humans and the planet during development and post-deployment. Security refers to the ability to avoid and protect against external threats on an AI system. Notably, the White House’s recent Executive Order highlighted safety, security, and trustworthiness in both development and use of artificial intelligence.

Select Safety and Security Questions

1. 1. Are we well versed on how we are ensuring AI systems we use or develop are safe and secure, and are we able to share this with stakeholders? For builders: How can we build and test this system to ensure we are preventing any possible misuse?
   2. Are AI tools we use or develop avoiding harm towards living beings and the environment throughout their lifecycle? Are we clear on the supply chain for developing these systems, and is it an ethical supply chain?
   3. Are we adequately applying existing security standards and regulations to this AI tool or use case?
   4. Is our team protecting sensitive information when utilizing AI software (e.g. anonymizing and encrypting data)?
   5. Are we developing and implementing relevant policies and resources to help employees decide when and how to use generative AI specifically? (See this checklist from the Future of Privacy Forum.) Do we offer training for relevant teams on proper AI usage?

Examine Transparency and Explainability to Tackle AI Governance

AI systems should not be mysterious black boxes, but as the Principled AI paper states, “Perhaps the greatest challenge that AI poses from a governance perspective is the complexity and opacity of the technology.” The theme of transparency (seeing how an AI model is working) and explainability (understandable concepts and outputs that can be outlined and evaluated) highlights the importance of oversight. While there has been a debate about how accurate a transparent model can be, recent research aims to show AI can be both accurate and transparent.

In July 2023, seven large tech companies agreed to voluntary commitments regarding “safe, secure and trustworthy AI.” However, University of Washington Professor Emily Bender notes a major missing piece: data and model documentation. “Without documentation, one cannot try to understand training data characteristics in order to mitigate some of these attested issues or even unknown ones. The solution, we propose, is to budget for documentation as part of the planned costs of dataset creation, and only collect as much data as can be thoroughly documented within that budget.” See more here about risks related to Large Language Models (LLMs) like ChatGPT.

Select Transparency and Explainability Questions

1. 1. Can our team have oversight of the operations of this AI model? Is there an ability to “see into” the model throughout the design, development, and deployment of this AI system?
   2. Are we able to translate technical concepts and decision outputs into a comprehensible outline that enables evaluation?
   3. Do we have appropriate documentation to understand the potential unintended consequences of this tool?
   4. Are we budgeting for appropriate governance mechanisms?

Ensure Fairness and Non-discrimination in Product Development and Internal Operations

Concerns about encoding bias in AI tools have been voiced for years. For example, Safiya Noble’s seminal book Algorithms of Oppression was based on research on Google search algorithms, examining search results from 2009 to 2015. Fairness and non-discrimination principles were noted in all the documents reviewed by the Principled AI Map team.

Algorithmic bias or “the systemic under- or over- prediction of probabilities for a specific population” can trickle into AI systems in a variety of ways. The Principled AI paper explains some of these ways, including:

• a system might be trained on unrepresentative, flawed or biased data
• the predicted outcome may be a bad proxy for the actual outcome of interest
• the outcome of interest may be influenced by previous biased decisions

It’s clear that integrating AI solutions without an ethical AI practice can result in discriminatory behavior. Take these real life examples: facial recognition software failing to recognize Black faces, and anti-Black biases in AI use related to hiring and loans.

Select Fairness and Non-discrimination Questions

1. 1. What is the source data, and is the training data biased? If so, in what way?
   2. Are decisions made using this AI tool more equitable than decisions made without it?
   3. Are the risks of using this solution greater than those posed by the solution we were using before?
   4. Are we ensuring diverse representation in the teams who build and/or evaluate AI systems we use or deploy?

If you answer no to question 2 and yes to question 3, reconsider whether you should use this tool for the given purpose.

Three Foundational Steps for Implementing Ethical AI Practices

The questions above are only a few of the important inquiries for developing and implementing responsible AI. Additional considerations related to the rest of the Principled AI Map themes (Human Control of Technology, Professional Responsibility, Promotion of Human Values) are crucial as well.

There are a variety of different types of issues AI presents, some new and some not so new. AI exacerbates the transparency and explainability challenges we already face with big data, and amplifies ubiquitous challenges related to areas like human rights, security, and carbon emissions (check out this tool to evaluate emissions related to ML). Regulators and industry participants also need to contend with aspects like misinformation, synthetic text, intellectual property, and generative AI’s social impacts.

Here are three enabling steps to tackle ethical AI with your team.

1. Values — Develop and implement your ethical AI value system. You don’t need to start from scratch. The Principled AI Map is a good place to look for relevant values. You can also integrate current company values or explore what other companies have implemented. Take a look at IBM’s AI ethics approach, for example.

In implementing these values, don’t forget about accountability. Having values and principles in place is great, but it’s also important to identify the folks who are responsible for ensuring these values are integrated into how the company operates every day. Use the values you align on to draft your own responsible AI use and development policy.

As teams design and implement powerful new AI tools, they should refer back to the principles that ideally guide all product, service and company building — principles related to equity, balance of power, responsible and sustainable development and human rights. Are these principles already woven into how you build and run your company? If not, developing an ethical AI practice will be more difficult.

2. Education — Incorporate ethical AI into professional development and company resources. Employees, leadership, and board members will all need support in navigating this space. Education should focus not only on the opportunities related to integrating AI, but also how to avoid relevant risks. If you have a learning and development function, you might incorporate ethical AI resources there.

Certain teams in the company will require more education than others — make sure education is prioritized for those teams who may be designing, evaluating, or implementing AI systems.

Some resources include: DAIR Institute, Responsible AI Institute, Algorithmic Justice League, webinars from Dr. Rumman Chowdhury, and Algorithm Watch.

3. Tools — Adopt tools to help your team evaluate risks and consequences. Review ethical AI canvas tools, and integrate an approach to scanning for unintended consequences when developing your products, services, and operations. Here’s an extensive roundup of frameworks, guidelines, and toolkits.

Different parts of the organization will likely need different types of tools. Think about how responsible AI practices will actually be incorporated into the way you build products now (e.g., How will you reconcile Agile development with AI safety?). Responsible AI development and use is a cross-functional effort, and it will require cross-functional leadership.

If you’re feeling overwhelmed, remember you don’t need to reinvent the wheel. Check out the frameworks and resources linked in this article, and refer to the vast amount of work that’s already occurred. Look for tips on how an ethical AI practice may evolve over time. There are ethical AI experts who have been working in this space for years — to learn more about the women who have been pioneering ethical AI development and use, see this profile.

As every aspect of our society adopts and integrates artificial intelligence, it has the potential to be incredibly disruptive in both positive and negative ways. For example, AI can substantially expand access to high-quality education and at the same time perpetuate unchecked bias in our healthcare systems. For companies, AI integration can propel marketing and product development forward, but it can also result in a variety of setbacks, including litigation due to privacy concerns.

With a critical lens applied to how, when, and why you develop and implement these tools, you can mitigate risks and orient the surge in AI innovations towards benefiting our collective future.

The post Ethical AI for Startup Founders and Teams: Key Questions and Foundational Steps appeared first on Norwest Venture Partners.

I posed a critical question: Is your company “enterprise ready,” and if so, what does that mean to you?

This simple question doesn’t have a simple answer. Depending on one’s perspective, different people can have different definitions.

By my definition, being enterprise ready is two sides of a coin: how you act and how you sell.

• How you act: You build an infrastructure of people, processes, and resources that allows you to scale your business into the future regardless of the markets you serve.
• How you sell: Your offerings are designed from the start with the intent of selling to enterprise customers, even if you may start out serving small/medium businesses.

My background is with several companies that made the transition from a startup to a global enterprise organization, so I offer these observations.

Why is it important to be enterprise ready?

In short, it means you’re prepared for anything that comes along, good or bad. If your organization is enterprise ready, you have a solid foundation on which to grow. You won’t be caught unprepared if sales suddenly accelerate, competitors show unexpected strength, or you need to scale headcount.

From the sales perspective, if you’re capable of meeting an enterprise customer’s needs – including high expectations for reliability, scalability, and most importantly security – then you can confidently sell to anyone.

What does it mean to be enterprise ready?

Here are some key attributes:

• You have the right people at all levels who can handle changing and growing demands as the business scales. They must thrive in chaos.
• You have the right systems – such as IT, accounting, and HR – that can scale so that your infrastructure doesn’t hinder your growth.
• There is a well-thought-out distribution model that accommodates evolving target markets.
• You serve a large TAM.
• There is a passionate, companywide commitment to customer success.
• You foster a company culture that is positive, self-confident, and resilient.

Every successful enterprise has a playbook.

A playbook is a description of how a company operates: the mantra it follows; the company culture and core values; how people are expected to conduct themselves. It provides discipline, structure, and a blueprint for success. It aligns everyone around executing the business plan.

It is repeatable, scalable, and iterative. It is purpose-built for a point in time, but subject to revision as the business evolves. It is emphatically not a set of sales tactics or cookie-cutter methodologies.

Aim high.

A benefit of being enterprise ready is that it gives you confidence and purpose: you’re confident that the company is going to grow and succeed. Always punch above your weight. Punching below your weight gives credibility and awareness to lesser competitors. The more you think and act like an enterprise, the more people will take you seriously. If you think big and act big, you put yourself in a position to play big. Playing big means engaging with the largest most complex companies, at their highest levels of management.

As I wrote when I started at Norwest, I want all the entrepreneurs and sales leaders I work with to believe in themselves, to believe in their vision. Confidence at the top permeates the entire organization. I’ve been very fortunate to be with the right companies, at the right time, with the right people. I know what great companies look like, how they act, how they execute. It’s my job now to share that experience and to help them develop that mindset and implement strategies for their companies.

Don’t be deterred by challenges.

There are some obvious challenges facing all of us recently. Unfortunately, we’ve seen times like this before – the dot.com crash, 9/11, the Great Recession, the COVID-19 pandemic – yet things seem to always recover. So, don’t let transitory challenges deter you from pursuing your stated vision. Adjust? Adapt? Certainly. Be nimble, be empathetic, and keep your eye on the long-term goal.

If you prepare yourself with the right vision, the right people, and the right attitude, you’ll set the foundation for success and have a distinct competitive advantage when you come out on the other side.

Be self-aware … and be enterprise ready.

The post Is Your Company ‘Enterprise Ready’? appeared first on Norwest Venture Partners.

The timing couldn’t be better — with 2024 planning underway, we gathered our community in a safe space for inspiration, learning, and frank conversations about common challenges.

I started the day rallying our attendees around three actions for the day, and every day:

• Aspire to change at least one behavior based on what you learn today
• Instill more wonder and rigor into your work (our keynote speaker Natalie Nixon touches on this in her book, “The Creativity Leap”)
• Lead with humility and courage in a more expansive way than you’re already doing

Each speaker brought their most authentic, vulnerable selves forward during their presentations in service of helping others be better. Some of our attendees called the conference a goldmine of marketing information and in this recap I’m delighted to surface the best insights from the content shared, starting with the keynote session, followed by the B2B and B2C tracks.

1. Work and Think Like a Jazz Band (Not a Symphony Orchestra)

To optimize creativity, consider functioning like a jazz band — embracing both orchestration and improvisation. Acknowledge that work doesn’t always need to resemble a finely tuned orchestra; instead, allow for flexibility and spontaneity, thinking and acting like a jazz musician. Balance chaos and order, using constraints to drive creativity; this way of thinking is particularly relevant in today’s market.

This perspective from Creative Strategist Natalie Nixon, our keynote speaker, was the perfect note to start our day on. I highly recommend picking up a copy of her book The Creativity Leap: Unleash Curiosity, Improvisation, and Intuition at Work.

2. Presenting to Your Board of Directors? Stay Strategic and Remember They’re People, Too.

Our partners sit on a number of boards — and they can tell you exactly what an effective board presentation from a CMO looks like. During our ‘How to Gain the Trust of Your Board’ panel, Norwest partners Ran Ding, Priti Youssef Choksi, and Parker Barrile shared their insight.

Arrive with a well-prepared plan, along with the background and data to defend your point of view, and be sure to highlight the outcomes that you expect your plan to drive. Don’t be afraid to lean in to their experience for guidance; your board members can provide insight into what other companies in their portfolio are doing to drive success. Remember, you’re on the same team and they want you to be successful, so let’s reframe board meetings from a one-way reporting session to a two-way exchange of value.

For sharing data, it’s critical to have consistent key performance indicators (KPIs). Rather than selectively showcasing favorable metrics that fluctuate each quarter, stick to a set of reliable north star KPIs. This steadfastness will go a long way in fostering trust and credibility with the board.

“The thing that kills your confidence as a board member is when someone changes their story all the time. Consistency is important.”

– Priti Youssef Choksi, Partner, Norwest

3. Look to Benchmarks to Evaluate Your Marketing Investments

Evaluating your marketing spend against benchmarks can be a useful exercise to see how effectively you wield your budget compared to your peers. And while it’s helpful to know how other marketers are approaching their investments and program priorities, you don’t always have to play it by the book. Stand ready to staunchly defend a different approach if conventional methods fail to align with your strategy or prove futile.

Norwest Marketing Operating Executive Renée Cohen gave a sneak peek into our 2023 B2B Marketing & Sales Benchmark Survey results during her panel. Here’s a quick look at some of the data we collected on marketing tech stacks (full results coming soon!).

If you’ve spent most of your marketing career at mid- to late-stage companies, you might be used to having more tools, tech, and resources available to you. Here’s the thing: tech doesn’t solve your problems if you don’t have a sound strategy and resourcing plan. You don’t want to over-invest in your tech stack if you haven’t validated the value of your programs. Tech is best used to scale your initiative after you have a proof of concept.

4. Attribution to One Source Will Always Be Misleading

Ditch the tunnel vision when it comes to attribution. Pinning success or failure on a single source oversimplifies the marketing journey. Embrace the complexity, understanding that it’s an intricate dance of interconnected touchpoints.

“The best strategy we have is to work off of benchmarks. You still want to measure the impact of individual touches, but that’s different than attributing a won deal to one thing.”

– Jon Miller, CMO, Demandbase

In Jon’s session, “Mastering the New Playbook for Account-Based Marketing,” he said the biggest problem with the traditional playbook is that it under-invests in brand. Simply put: when a brand is strong, everything else becomes easier.

He also shared his framework for the new ABM playbook, which I’ve detailed in a previous blog, How to Fast Track Your Path to ABM Maturity.

5. Dark Social Is a Stealthy Ally in Creating Super Fans

When someone says ‘dark social’ they’re often referring to links shared via messaging apps, email, or other private communication platforms where referrals aren’t explicitly tagged. Even though dark social might be hard to track, it can be a breeding ground for strong brand advocates. Harnessing the power of one-on-one shares can extend your brand’s visibility, even if it’s hard to quantify. Good content — not just marketing content — is powerful in dark social because it’s relatable or it provides a clear solution in an otherwise unexpected channel.

Looking for inspiration? Check out:

• Lavender Co-founder Todd Clouser’s Video Content Program
• Qualified’s Pipeline Visionaries Podcast, started by CMO Maura Rivera
• SourceDay CMO Sarah Scudder’s LinkedIn Live Series

6. B2B Marketers, Hug Your Sales Leaders More

Yes, harmonizing your organization’s sales and marketing efforts requires effective collaboration, but it won’t last if you don’t have each other’s backs. This piece of advice shined through Spiff CMO’s Anna Fisher’s session.

As with any good relationship, you need to “marry” clear communication with shared goals around pipeline creation. When everyone has skin in the same game, they’re incentivized to work together — to win together. Beyond goals, sales and marketing need to be aligned on campaigns, process, and the data. Getting there might be tough, but worth the payout in the end.

7. Predict Pipeline Better With the Failsafe Waterfall Method

The failsafe waterfall method helps organizations better predict pipeline by combining empirical data with a strategic framework. It anchors your model to a clear bookings plan, establishing it as the cornerstone for all subsequent stages.

Nani Shaffer, CMO at Channel99, shared in-depth worksheets for getting started during her session. Leveraging the power of historical pipeline data and close rates shapes and refines your tailored waterfall model strategically. This meticulous approach culminates in setting actionable pipeline goals, ensuring a harmonized integration of data-backed insights and a comprehensive understanding of your sales process.

“You’ll likely need multiple waterfalls, but too much granularity puts you at risk of too small numbers. Don’t be afraid to adjust numbers manually.”

– Nani Shaffer, CMO, Channel99

8. Brand Is Everyone’s Responsibility, Not Just Marketing

Marketing cannot create a brand. Creating a brand is a commitment that starts with the CEO and trickles down to every last person in the company. It’s everyone’s job, not just marketing. At best, marketing is just the steward of your company’s brand identity.

That’s what Gong Chief Evangelist Udi Ledergor made clear during his session on Building an Iconic B2B Brand. In the early days, the Gong marketing team gathered everyone at the company and came up with a set of principles to guide the culture. Those principles then helped set the brand direction on a path that was authentic to the business and that each person at the company could uphold. Gong’s scrappy roots and strong vision even led Udi to unconventional advertising tactics for a B2B company: two Super Bowl ads and a billboard in Times Square.

9. Tap Into Partnerships to Help Your Brand Punch Above Its Weight

Give your brand heavyweight status through strategic partnerships. Teaming up with other businesses, organizations, or influencers who align with your brand’s values will amplify its reach and impact. It’s the one-two punch your brand needs to reach new heights.

We were honored to have Talkspace CMO Katelyn Watson and Birdies Co-Founder and President Marisa Sharkey join us and share their insight into leveraging partnerships. Good partnerships are authentic, based on shared values, and tell a story about the brand. As Marisa put it, “There’s no substitute to on-the-ground creativity and pounding the pavement to find new ways to do it.”

Check out Talkspace’s collaboration with Olympian Michael Phelps for inspiration!

10. Confirm Product-Market Fit Before Expanding to More Channels

Before spreading your wings to new channels, make sure your product is winning in its current market. Validate its appeal by listening to your customers and closely tracking their behavior. You can’t build a second story if you have a shaky foundation.

We were joined by two of Ritual’s leaders, President Liz Reifnsyder and VP of Customer Retail Marketing Laura Brodie, who are seasoned experts in omni-channel expansion.

When Ritual first launched it was a DTC, subscription-only company, and the team focused on creating a product that catered to their tribe — the small number of people who loved the brand. They got their feedback and built more reasons for that subset of consumers to love them, which helped them build unparalleled brand trust.

After five years of DTC, the company had achieved $100M in subscription revenue. They knew they’d found their product-market fit in a single channel — and that they could scale that market. They were able to drive adoption, LTV growth and ultimately scale the company into an essentials platform.

Norwest Partner and lead investor in Ritual, Lisa Wu, recently sat down with Ritual founder and CEO Katerina Schneider, to talk more about the company’s brand evolution.

11. Measure Content With Your Heart and Mind

Acknowledge the qualitative impact of content alongside quantitative metrics, recognizing the emotional and brand-building aspects of content creation.

During her session, Babylist Chief Growth Officer Lee Anne Grant shared that the company looks at typical metrics for judging the success of their content, but they try to always look at the full picture of how customers are reacting.

Babylist’s impressive content engine drives commerce, brand, and growth for the company. They’ve built a content flywheel that spans the entirety of their customer journey — and can drive new business and vertical streams. For example, Babylist created a step-by-step guide on getting a free breast pump through insurance that performs well in SEO. That same guide then has played a role in driving business in their newest revenue stream, Babylist Health.

“We wanted to launch a new service that helps women get their breast pump through insurance. Because we had the guide, we could put paid behind it and put it in our emails. The guide now drives about 15% of orders through Babylist Health.”

– Lee Anne Grant, Chief Growth Officer, Babylist

12. Social Shopping and Tele-Shopping Are the Next Big Movement

As the boundaries between entertainment and commerce blur, brands that embrace this trend are well-positioned to tap into a new era of consumer engagement, where seamless, real-time interactions drive the shopping experience.

Two Norwest portfolio companies are heavily leaning into TikTok as an e-commerce platform. Pair Eyewear co-founder and CEO Sophia Edelstein and Wyze’s Head of e-commerce Logan Dunn shared their experiences using TikTok to grow their sales.

Both companies use TikTok, yet in different ways: Wyze uses TikTok Shop and Pair Eyewear does organic posting and TikTok Ads. Both companies also partner with micro influencers to expand their reach. In the last two years, Pair Eyewear has partnered with more than 950 unique influencers, leading to 50-60k new customers that they can attribute to the platform. In a single week, Wyze received 16k orders on TikTok Shop. And, Logan noted, TikTok expects to lose half a billion dollars in order to financially incentive creators to sell through the platform.

13. Think TV Ads Can’t Be Tracked and Optimized? Think Again.

If you still believe that TV doesn’t have the trackability and optimization benefits of your standard digital marketing channels, you may have fallen prey to some outdated myths. TV has huge potential as a performance marketing channel — and it’s not as expensive as you might think. TvScientific’s VP of Marketing Emily Robinson shared 5 myths about performance TV.

Top myths about Performance TV:

• You need to spend $100k to produce a great TV ad
• Buying a TV ad spot is too expensive to test out
• You can’t buy and optimize TV like your digital channels
• You can’t track or optimize toward outcomes like website visits, sales, ROAs
• It’s too hard to prove the values of performance TV

14. Get to Know Customers As If They’re Your Friends

Treat your customers like cherished friends, not just transactions. Personalize interactions, empathize with their needs, and build relationships that last. A customer-centric approach is the secret sauce for lasting loyalty according to Abodu brand marketing leader Tom Roche.

15. Not New, But Worth Repeating: Spending Time With Other Marketers is Priceless

Spending time with other marketers isn’t just networking; it’s a breeding ground for fresh ideas. Heard throughout the day at the Summit: I’m going through the same thing. How did you solve it? That sentiment of shared experience and knowledge exchange is what the Growth Marketing Summit is all about. We brought together marketers across the diverse Norwest marketing community, embracing the rich blend of perspectives from both B2B and B2C spectrums. The convergence allowed each of us to borrow great ideas and principles from each other. It’s an important reminder to be brave and experiment with new channels and tactics, to forge a path towards innovation and growth.

Thank you to all the speakers, attendees, and Norwest team members who made it such a fruitful community event. See you next year!

The post 15 Pieces of Marketing Gold From the 2023 Norwest Growth Marketing Summit appeared first on Norwest Venture Partners.

It’s only natural that you’d think about taking the next step and building a company around the project. Your code could be the basis for the next Confluent or Databricks. Or could it? I wouldn’t get ahead of yourself just yet.

I’ve partnered with a number of founders who’ve made that leap and scaled their open-source companies. In this post, I’ll share what I’ve learned from those experiences to help you assess your chances of commercial success.

The 6 Fundamental Truths of Starting a Company Based on an Open-Source Project

To begin, I believe in six fundamental truths — all of which will help you gain a clear-eyed understanding of the opportunities and challenges for your solution.

1) A product is not a market.

A market exists when you have current or prospective customers who:

• face similar problems
• can afford – and are willing – to pay for a solution
• exist in numbers sufficient to generate meaningful revenue

2) Consider the extensibility, a point solution alone will struggle.

Open-source software is often developed for a specific use case, which won’t necessarily dovetail with the needs of other organizations.

3) Never underestimate the cost factor.

Open-source software is popular partly because it’s so easy to acquire and work with – i.e., free. But it’s a very different proposition when users need a manager to sign-off on a 5-, 6- or 7-figure PO to adopt a product. (That’s why I’m adamant that product-led growth [PLG] is a marketing channel, not a sales channel. But that’s a longer conversation for another time.)

4) It’s hard to pinpoint users and use cases.

Most users are anonymous, employing obscure usernames. They leverage the software in various ways, making it difficult to identify typical use cases that could be mapped to commercial applications. Open-source software doesn’t call home, making it very challenging to reconcile who the users are.

5) A perfect product/market fit is rarely achieved at the outset.

You’ll need to keep iterating and adapting to the needs of the market.

6) I’ll say the quiet part out loud.

If you’ve already raised some money, that doesn’t necessarily mean you have a viable long-term business; it just means you sold an investor on the vision.

It’s a high bar, I know, but not insurmountable. Just consider these companies and their founders who did it. They once were where you are now.

• Mark Fussell and Yaron Schneider at Diagrid
• Ganesh Pai and Uma Reddy at Uptycs
• Mitchell Hashimoto and Armon Dadgar at HashiCorp

The 5 Questions That Could Make or Break Your Company (And an Investor’s Decision to Invest)

Now that you have those fundamental truths in mind, you need to do some homework. There are five foundational questions that entrepreneurs should ask themselves as they build their companies. The answers to these questions not only shape the business, but they can make or break if you sell others (e.g. investors) on your vision.

1) What’s the problem you’re targeting?

Every good business solves a problem. Your problem statement should be a concise, clear description of the challenge or opportunity that your solution can address. Answer these questions:

• What is the specific problem or challenge that requires your solution?
• How does this problem hamper your ideal customer’s work?
• Is there a quantifiable cost imposed by this problem?

2) What is your value proposition?

What evidence do you have that users support your product? Here are some topics to consider as you craft your value prop:

• Define what makes your solution unique. For example, have you developed a new approach or achieved a technological breakthrough?
• Describe how a customer’s life would be better after using your software. Draw a before-and-after picture.
• Quantify the impact. How would a customer measure the benefits of your product on the individual and on the organization, and how significant is the change.

Remember, every product has competition: either direct (a product with similar functionality) or indirect (tackling the problem in a different way). You’ll need to articulate how your product is superior to all alternatives and crisply define a compelling reason to buy. Saying you have no competition isn’t credible. Even if there is not a perfectly competitive company, indicating who could be competition shows pragmatism.

Finally, you need to be realistic about potential barriers to buying your product. Key factors can include:

• Any changes in process or work steps that might need to be made to accommodate your product
• The possibility that a new budget category or line item would need to be created

When Norwest evaluates companies as possible investments, we’re after the same thing you are – enthusiasm for your project. But we need to know how deep and broad that enthusiasm is, and how long it may last.

So, prepare to share how you’ve measured the adoption and usage of your open-source software. GitHub stars, contributors, forks, pull requests (PR), and Discord/Slack posts — they’re all breadcrumbs we follow. Sure, they don’t tell us if folks are ready to throw money at you, but they hint at what users find valuable (and whether there might be enough enthusiasts to constitute a viable market). If a handful of people contribute PRs, that’s nice. If a couple hundred do, then you might have something with legs.

3) Who is your target customer?

Who are these future fans you want to target with your software? Be prepared to share some of these characteristics:

• What job title(s) do they have and what are their responsibilities?
• What kind of companies do they work for?
• Are there any industries or markets that make them more suitable customers?
• What does success look like for them?

4) Does your product fit into a category that people already understand?

New solutions are often a double-edged sword: innovation is valued yet change often creates uncertainty. The more radical a solution, the more difficult it may be for the market to understand and accept it. Customers often look for a “bucket” in which to place you and your product. You need to place yourself either in an established category — consider Gartner categories if applicable — or define a new market segment.

Side note: creating a new market segment may sound exhilarating and highly differentiated, but it is a lot of work. We’re talking years of market education using time and resources that most startups don’t have. It may also complicate your sales process if customers need to create new budget line items to purchase a solution. It can even hamper your ability to raise money; some investors will want to know the size and growth rate potential of this new market segment. Just level setting with you.

5) How will you monetize your product and who’s going to pay for it?

Getting people to try open-source software isn’t hard — it’s free after all. But if you want to build a viable company based on that software, you’re going to have to charge for it. Your challenge now becomes how much you charge, and how the paid product differs from the free version.

It’s not essential to have a pricing model at the outset. But you should at least have a vision for monetization in the future and a rough idea of how you will motivate users to keep paying for your product over time.

And for goodness’ sake, name your paid product something that sets it apart from the open-source version. That will help both you and your customers clearly distinguish between the versions.

For example, the developers of open-source project Dapr eventually formed their own company based on the software: Diagrid, the name they use for the enhanced services they provide on top of Dapr.

And consider how open-source project business models can change over time as demonstrated by HashiCorp’s recent migration to a Business Source License… following the open source footsteps of Elasticsearch, MongoDB, etc. Is this the natural progression for all future open-source projects?

To be clear, the developer who tries your open-source software and loves it is the start of the journey, not the end point. The key question to answer is: who has the budget to pay for your product?

3 Steps to Validate Your Vision of Building an OSS Company

If you’re counting your GitHub stars and perfecting your answer to the questions above, you may be thinking “I’m ready to start selling.”

Hold on; not so fast. You’ll need to do more homework. By this point, you should have a profile of your ideal customer — understand their challenges and how their life would improve with your solution. You should have an MVP (remember your OSS project is not your product), nailed your product description, and perfected your 20-second elevator pitch.

Even after you’ve got everything above, you still have more homework. All of this information is exactly what you need, yet it’s all just theoretical. If you want your product in the market, then you must validate your idea in the market.

Step 1: Test your assumptions with potential customers.

This is the fun part: heading out into the real world to learn if anybody agrees with you – or even knows what you’re talking about.

The methodology here calls for interviews with potential customers. These aren’t yes/no interviews like public-opinion surveys; they’re discussions based on a few well-honed questions that should elicit open-ended responses and honest feedback.

Who are these interviewees and where do you find them? They are individuals who match the description of your ideal customer. Chances are, many of them will be like you: developers familiar with the benefits and challenges of open-source software. But don’t just talk to your friends or colleagues. Seek out people who are thought leaders in the field. Maybe they’ve spoken at conferences, posted particularly insightful blogs, or written articles for trade or professional journals.

One thing is for sure: don’t solicit the views of venture capitalist or other possible investors. They have minimal value to provide at this stage.

The goal is to conduct 15-20 interviews. A subset (say, 3-6) ideally will be with managerial-level people who have the budget to pay for your solution.

Developing a discussion guide for these interviews is an art form, so get help from people with the proper skill set and experience (e.g., sales and marketing professionals). A portion of the discussion will be a high-level description of your open-source project and your plans to commercialize it. I emphasize that this is only a portion of the discussion; it’s not a half-hour sales pitch. It’s an invitation for honest feedback, constructive criticism, suggestions for improvement, and an informed judgment as to the viability of the product concept.

The objective of each discussion is to answer questions like:

• Do they see the problem the same way you do? Be attuned to the language they use. Be cautious of disingenuous confirmation; many people avoid conflict.
• What is their degree of urgency for solving this problem? Would your solution be nice-to-have or must-have?
• What would a solution mean to them and to their organization? Probe for how benefits would be measured.
• What solutions have been tried before, and what were the outcomes?
• What’s their reaction to the idea of a commercial product based on your project?
• What suggestions do they have for improvement?
• Who/what is the competition, both direct and indirect? If there is an incumbent vendor, what are their strengths and weaknesses?
• What’s the process for a product like yours to be specified, recommended, and purchased?
• Who has the budget to pay for your product, and up to what dollar amount?

The results of these discussions will vary widely. You may love what you hear, you may be discouraged. But you’ll have a view of reality. The best response you can hope for is one that’s detailed, not just “this sounds cool.”

Step 2: Find a design partner to provide feedback

Here’s the thing though: talk is cheap. As great as these conversations go, they’re just conversations. It’s time to turn that positive interview into usage. Here’s where validating your product becomes mission-critical.

Feedback is a gift, particularly in the early days of a venture. Your first step to real, actionable feedback is to find design partners. Design partners are the first few users you enlist to help you define your company’s problem space, and help you shape your solutions as you gear up your product for market. A good design partner represents your target market, has an interest in your solution, and has the time to test it. Depending on your project, you’ll want to build a team of 5 diverse design partners who will test your product in a sandbox environment. They’re not there to cheer you on, they’re there to dig in and assess the usability and need for your solution. Their feedback should guide you in building a useful product that solves a real problem for your target buyer.

At this stage of your company’s evolution, your priority lies in understanding the market and your users thoroughly. By observing their behaviors closely, you can develop a solution that effectively addresses the correct problem, ensuring a good product-market fit.

Step 3. Iterate, Iterate, Iterate

Remember, feedback is how we grow. As you collect user feedback, leverage it to align your product vision with the market’s wisdom. Make the necessary improvements, which might involve changing features, improving user experience, or adjusting your pricing strategy. The key is to be willing to make changes based on what users tell you.
Once you’ve iterated (and iterated and iterated), make an honest evaluation of all that you’ve heard, and answer these questions:

• Have you heard validation of your assumptions and hypotheses?
• Where is the strongest agreement? Where are there gaps?
• What are the common themes? Is there consistent feedback about product direction?
• Is there enough consistent feedback to give you confidence that there could be an identifiable and addressable market?

Ideally, you will have the answers to all these questions — and more importantly, the evidence and documentation to back it up. Even still, you’ll need to continue refining your product functionality, user experience and packaging depending on how far along you are.

As you continue this process, you’ll crystallize how your product functions, who would use it, why it’s needed, and how it will become market ready. In short: all the reasons why it would succeed in the market. Embracing a continuous feedback loop not only enhances the overall quality of your product but also fosters stronger relationships with your design partners — who may even convert into paying customers.

After all this, how do you make the leap?

Once this homework is done and you’ve validated the product concept through design partnerships, you may be ready to take your solution to market.
At a high level, here are some questions that can determine how you make the leap:

• How much capital do you need? To reach a meaningful initial product milestone, how many engineers are needed and therefore how much capital is required? Take that forecast and increase it by 50 percent. Things always take longer and cost more.
• Do you need angel or seed financing? If you’re raising a couple hundred thousand dollars, you’re looking at angel funding (individuals) or perhaps pre-seed funding on the slightly higher end. If you need a few million ($2 – $5M), you’re looking at seed financing from an established seed fund. If you need $10M or more, you’re targeting Series A which typically means you have several hundred thousand of annual recurring revenue (ARR).
• How will you price your software? Numerous factors affect how you price your product. At a minimum, look at the feedback from your design partners, including the ROI and cost savings that customers will see. Do your market research: how do your competitors price their products? What are their monetization strategies? Consider how your pricing will scale as your customer base grows.
• What features are next on your roadmap? This demonstrates your commitment to continuing to provide value for your early customers.
• How will you sell and acquire new customers? I recommend a read through April Dunford’s How to Build a Killer Sales Pitch.
• Does a product-led growth approach suit your software? Here’s a primer for figuring out if PLG makes sense in your go-to-market strategy.

Good luck on your journey!

The post Everything You Need to Know to Start an Open-Source Software Company appeared first on Norwest Venture Partners.

The attraction of moving upmarket is clear: greater revenues, longer contracts, more prestigious logos, and more valuable customer feedback. Another advantage is a more stable customer base, which translates into greater profitability. Best-in-class customer retention in the enterprise is 95 percent, while in SMB it’s 85 percent. That 10 percent difference can greatly impact your ability to grow profitably. At the same time, dealing with enterprises has plenty of challenges, including longer sales cycles, more stringent contract terms, and heavier support requirements.

Over the past 15 years, I have worked for, or been an investor in, nearly two dozen SaaS companies. In that time, I have seen varying degrees of success (as well as failure) in moving upmarket. Based on that experience, I offer these five lessons.

1. Face it: you’ve got an uphill climb ahead

My friend and former colleague Julie Iskow is a pioneer and highly respected leader in the SaaS field. She’s helped companies penetrate enterprise markets and scale revenues from the tens of millions into the hundreds of millions. She knows what it takes to succeed – and is frank about the scope of the challenge:

“These enterprise customers can be brutal. They’re demanding. They use your products like they’ve never been used before; they go to the boundaries. They have unique processes and workflows. They challenge you. But they also inspire you and make you better.”

A key piece of advice from Julie is to make moving upmarket a total company-wide effort. “Going into the enterprise is a team sport. This is not about building a product and getting your sales team to close enterprise deals. Everyone in the company needs to know where you’re going and what it will require. You’ve got to talk about it all the time.”

2. A charter customer is more valuable than gold

One of the most valuable resources a startup can have is a “charter customer” who believes in you so deeply that they’re willing to help you refine your product. “You want to get their input, understand their workflows, and understand how they’re going to use it,” Julie says. “In addition, you want to understand what they need from you and your solutions. Give them easy access to testing environments. Let them see your roadmap. Even better, let them contribute to your roadmap.”

A charter customer often is a thought leader in their industry, recognized for applying innovative technology solutions to business challenges. They appear at conferences and in trade press articles and analyst reports. They pride themselves on their expertise and vision. Collaborating with one or two customers like this can mark an inflection point in your company’s growth trajectory.

Legion, one of my portfolio companies, started down-market as an HR platform for hourly workers and noticed a land grab in the enterprise as customers were moving off legacy on-premises solutions. Seizing that opportunity paved the way for them in the enterprise and helped land some charter customers like Dollar General and Rite Aid.

3. Don’t waste your time customizing products … yet

Let’s not mince words; enterprise customers are demanding and difficult to please. If most of them had their way, every product would be custom-built to their unique specifications. That’s why many enterprises build their own data centers and applications — although fewer do so these days thanks to cloud computing and SaaS. However, young SaaS companies must resist the temptation to customize their products to attract enterprise customers. The time and resources you put into tailoring a solution for a single customer will seldom generate a positive return. Provus, a portfolio company that offers QTC solutions for enterprise and professional-services companies makes sure to ask their customers why they need certain functionality three times. Organizations aren’t snowflakes, but once you have a customer base and a reputation, then you can offer customized solutions for a price that reflects the value you deliver. But that’s down the road.

If there are gaps in your product offering, you must identify what’s table stakes and what’s aspirational. Once you’ve determined this, focus on delivering table stakes. Over time, your offerings will grow, which is why a product and technology roadmap is so critical. Your enterprise customers want to know they can grow with you over time. That’s why positioning your product offering as a platform can be an effective way to communicate long-term growth in capabilities and value.

One more tip: don’t avoid the CIO, you won’t get that far. Each enterprise is complex and you need to understand the nuance. Salesforce used to avoid IT and then evolved to include their own CIO in sales engagements 50 percent of the time.

4. Treat your customers like family

It’s seven times easier to sell to an existing customer than to find a new one, according to Forbes. Propel, one of my portfolio companies, does a great job at landing in a department or geography and expanding from there.

So, work hard to build long-lasting relationships that not only produce greater sales but enhance your reputation through word-of-mouth and references.

Here are three techniques I highly recommend:

1. Form a customer advisory board to formalize the process of obtaining feedback and suggestions, sharing your roadmap, and evangelizing your vision. Often the best product doesn’t win, but the best distribution does. Spiff, a commission management software, does a great job of leveraging their ecosystem such as their board and partners such as Salesforce. Failing to do so could cost you, just look at Bic and Harley Davidson as examples. Bic made a pencil just for women (I know, right) and Harley made a cologne that flopped. If they’d engaged their customer advisory boards, they might have avoided those product flops.
2. Assign each of your top executives up to 20 customers who will have their direct phone number. For goodness’ sake, don’t make a senior-level enterprise customer use an 800 number! Enable, another portfolio company, said it perfectly when they told me, “talk to large customers twice a week for the first year so that you’re proactive, not reactive. Your end goal is not implementation, it’s adoption.”
3. Help build your customers into thought leaders. Publish case studies about their use of your product. Give them prominent speaking opportunities at your user conferences. Share the podium with them at trade show presentations. Distribute their references to market analysts. Workato, an enterprise automation platform, was the first startup in 20 years to debut as a leader in the Gartner Magic Quadrant as a result of sending their top 20 customer references to Gartner. Even today, they keep the steady drumbeat alive with customer references.

5. Get a Firm Grasp on How Enterprises Work

Enterprise customers aren’t just bigger than SMBs; they operate very differently. You need to understand those differences and be prepared to accommodate them.

For example, enterprises have plenty of resources and experience in negotiating contracts. You’ll need your own team of finance, contract, and legal professionals. And enterprises tend to have more stringent requirements for security, data privacy, availability, and promised mean time to repair (MTTR) in case of failures.

Multinational enterprises will need localization and support. And configurability is also highly desired (not to be confused with customization as discussed above).

None of what I’ve said here implies that targeting SMBs isn’t a valid strategy. After all, there are vastly more SMBs than there are enterprises. And the customer-acquisition and support costs can be lower.

But the potential rewards of moving upmarket are huge: higher revenues, lower churn, longer contracts, greater customer involvement, and enhanced reputation. Is it going to be hard? Absolutely. But the adage “no pain, no gain” certainly applies.

Want more tips for moving upmarket? Watch mine and Julie’s SaaStr session that covers this very topic.

The post From SMB to Enterprise: Five Strategies for Moving Upmarket appeared first on Norwest Venture Partners.

I’m not the only person who believes this. Lindsay Hyde, an entrepreneur and advisor to startups, teaches a class at Harvard Business School on “Avoiding Startup Failure.”

“As a founder, you aim to run disciplined experiments to validate or invalidate your hypotheses as quickly and inexpensively as possible,” she told me. “By learning from the failures of other companies, you can accelerate your learning and avoid repeating mistakes that have already been made. Particularly in the earliest days, this is an essential part of navigating the Idea Maze and coming out the other side.”

Most of the entrepreneurs I work with seek actionable advice, not only on what to do but also what not to do. They’re eager for suggestions that will help them avoid mistakes.

That is why I have created a two-part blog series about lessons I have learned from observing and working with successful and failed companies. This post deals with failed companies, the other with product failures.

What Can We Learn from Failed Companies?

Let’s acknowledge a harsh reality right up front: companies fail all the time. Some are startups, some are decades old. The specific circumstances around a given company’s demise can vary widely, but there are some common themes.

Lindsay Hyde offers some valuable observations: “Founders are often told to ‘fail fast.’ But failing in and of itself isn’t the aim. The aim is to reflect on the reasons for the failure, to learn from those experiences, and to ultimately grow from them. Learning from our failures is difficult. We may be inclined to blame others and we may struggle to diagnose the causes. What can be easier – and often just as effective – is to study and learn from the failures of others.”

Founders are often told to ‘fail fast.’ But failing in and of itself isn’t the aim. The aim is to reflect on the reasons for the failure, to learn from those experiences, and to ultimately grow from them.

Here are five lessons I have learned from analyzing failed companies.

1) Constantly monitor the performance of your business model

Rare is the company where everything always goes according to plan. The challenge is not to avoid all bumps in the road but to skillfully navigate around them.

Let’s look at the most worrisome deviation from plan: revenues falling below expectation. There can be several reasons, such as:

• • You’re targeting a market that doesn’t have enough companies with adequate budget
  • Your assumptions on pricing are too optimistic
  • Customers/prospects do not perceive your value proposition the same as you do (your product is a “nice-to-have,” not a “must-have”)
  • Incumbent vendors are well-entrenched
  • Customer churn is too high and repeat business too low
  • Weakness in the sales organization or distribution channels

Sometimes, variations in company performance can be traced to changes in the environment. So, you need to be alert to developments that you don’t directly control. Examples of such changes include:

• • New technologies or disruptive approaches that offer customers an alternative way to solve the problem(s) you address
  • The entrance of new competitors, or significantly enhanced performance by existing competitors
  • Changes in your target customer’s business environment
  • Macro-economic factors (e.g., COVID, war in Ukraine, or the 2008 downturn)

In some cases, the base business model may be fundamentally flawed. Two companies that succumbed to this disease were:

• • Juicero, which sold an expensive juice press and proprietary packets of fruits and vegetables. The problem was that customers could bypass the machine and squeeze the packets themselves to make a glass of juice; and
  • MoviePass, which offered an irresistible offer: users could see one movie each day in a theater for $9.95 a month. MoviePass would make up the revenue gap with theaters. It sounded financially unsustainable – and it was. The more customers used the product, the more money the company lost.

Finally, let’s not forget companies that fail due to outright fraud, such as Enron and Theranos.

2) Ensure that your business has legs

This advice is mainly for startups and young companies, although even mature companies can find themselves at a dead end after years of growth and profits.

It’s important to recognize that initial success doesn’t last forever, or even very long. No matter how encouraging the early days may be, every young company needs a second and a third act. There are numerous ways to maintain momentum. For example,

• • Follow-on products with enhanced features and functionality
  • New, complementary product lines
  • Expansion into new markets (e.g., by industry, geography, company size)
  • Additional sales channels
  • Acquisitions (of technology, products, or companies)

Some notable examples of companies that have built upon initial success are:

• • Salesforce, which started in CRM and expanded into marketing and service;
  • Amazon, which used its internal ecommerce infrastructure as the basis for Amazon Web Services; and
  • Workday, which started in HR and expanded into finance.

Another mark of a company with legs is one whose founder and/or CEO has a long-term vision. These visionaries see beyond current technologies, products, and markets to a day when the company could possibly look radically different than it does today.

That vision, however, must be matched with a realistic plan for how to get there. Long-range thinking always must be supported by excellent short-term execution.

Successful companies avoid stagnation. There’s no better example of a company with ever-expanding ambitions than Amazon, which started with a single product (an ecommerce bookseller) and today is practically everything to everybody.

In contrast, companies that don’t adapt to rapidly changing market conditions can fail. Think of Blockbuster, AOL, and Radio Shack, for instance. Each at one time was a market leader, yet ultimately the world passed them by.

3) Rigorously Enforce Financial Discipline

Most companies ultimately fail for one reason: they run out of money. So, let’s examine a variety of contributing factors.

Obviously, one is insufficient revenues: the company doesn’t sell enough product because too few potential customers have found a compelling reason to buy. Or, the product hasn’t been priced appropriately, a necessity for generating both sales and profit.

A common misstep is spending heavily on marketing and sales before a strong product/market fit is established. Any good marketer will tell you that strategy precedes tactics – and sound strategy requires both a clear picture of the target audience and a crisp, compelling message for them. That’s what I mean by a strong product/market fit.

Most companies ultimately fail for one reason: they run out of money.

A mistake seen over and over – in companies large and small – is a failure to closely monitor all aspects of spending, especially hiring. It never ceases to surprise me when highly successful companies suddenly find they can do just fine without 5,000 employees. The same discipline, though, must be applied in even the smallest business. When you’re only 20 people, you must fully justify every new hire and closely assess the expected outcomes.

Outflows on other expenditures – office space, supplies, travel, entertainment, off-site meetings, etc. – also can creep up until a crisis is identified. An example of out-of-control spending was Fast, which soared to unicorn status in 2020 and then crashed just two years later. Insiders blamed over-hiring and extravagant spending without results.

And then there’s debt, which sometimes is a reasonable option for financing but can also turn into a burden too great for a company to manage. The perils of debt have become strikingly evident during the sharp rise in interest rates since 2022. One of the worst aspects of debt is it limits your freedom to act. You do what you must, not what you’d like.

And lest you think only people naïve about finance get into trouble, consider that the four largest bankruptcies in US history have all been financial services companies.

4) Nurture Your Customers

If your company is off to a good start, be grateful – but keep moving. Complacency and stagnation can be fatal, especially in fast-changing markets like technology, consumer goods, and healthcare. Constantly ask “what’s next?” But always be mindful of the cost of any new initiative by running risk-reward analyses and demanding justification through fact-based business plans.

A cardinal rule in business is that it’s easier and less costly to make additional sales to an existing customer than to gain a new one. Complement new products with market-focused initiatives, such as:

• • Identifying adjacent market segments – Look for new groups of customers that have similarities to your existing customer base but might need slightly different products or need to be reached through alternative marketing channels. Sometimes, these adjacent markets may exist in large enterprises you are already selling into, just in different departments.
  • Adding sales channels – If you’ve been selling direct, investigate the potential for complementary methods, such as third-party resellers, OEM agreements, or retail partnerships. Conversely, companies that have been selling through channels may want to consider (carefully) direct-to-consumer sales.
  • Complementing products with services – Many companies find new revenue streams and deeper customer relationships by adding services such as consulting, training, system integration, customization, and financing.

Another goal can be to move upmarket, reaching larger companies with bigger budgets.

5) Build the strongest team possible

Every CEO knows the power of a strong, cohesive management team. Hiring, supporting, and retaining excellent leaders in all key functions is essential for a company to succeed. That’s one reason many of our portfolio companies tap the resources and expertise of our Talent & People advisory services.

Your senior management team is only one part of your leadership, however. You also should tap the brainpower and experience of outside resources, including:

• • Investors – Venture capitalists, private-equity firms, and angel investors have seen many companies through all stages of growth. Their experience and perspective can be invaluable in making sound decisions and providing guidance to avoid mistakes.
  • Advisors – Lawyers, bankers, management consultants, and retired executives also can help you navigate change and develop strategies.
  • Business partners – Capitalize on relationships with key business partners (if they exist), such as suppliers and sales channels, whose knowledge of markets can be of value.

Finally, maximizing your board of directors is vital. Beyond their statutory and fiduciary responsibilities, board members can be deep resources of expertise, experience, perspective, and contacts. Sadly, the opposite can also be true. Spectacular failures like Enron, Theranos, and FTX occurred right under the noses of reputable (but perhaps inattentive) board members.

Get the best out of your board members by assigning each one an area of expertise where they can be a key contributor to the company’s operations, such as finance, marketing, sales, or legal affairs.

A final thought from Lindsay Hyde: “While founders would prefer to avoid failure, it sometimes is unavoidable. In that case, founders will be remembered for how they honored their commitments to employees, vendors, customers, and investors.”

Running a company is challenging even in the best of times. In my experience, staying true to the guidance above will help you avoid failure. After all, I don’t want to see one of your coffee mugs or sweatshirts in my Failure Museum.

The post Learning from Failure: Lessons for Founders from Failed Companies appeared first on Norwest Venture Partners.

Amusing as these might be, I have a serious reason for sharing this interest: while we VCs tend to focus on success, there is a great deal to be learned from failure. I’m not the only person who believes this. Tom Kalinske is one of America’s great business leaders. A former CEO of Sega, Mattel and other companies, Tom has shepherded such iconic brands as Barbie, Hot Wheels, Sonic the Hedgehog, and LeapFrog.

Tom has an interesting and valuable perspective on business failures. He says, “In my experience, fear of failure in decision-making keeps executives from taking risks that could be huge successes. At Sega, I used to reward well-thought-out failures in product or marketing with a check. I wanted to make certain as a company we continued to take ‘good risks.’ On the other hand, I’d give a rubber chicken to execs who were too cautious on a decision, where the outcome was OK but should have been much better.”

Most of the entrepreneurs I work with are certainly risk-takers but they’re also mindful. They seek actionable advice not only on what to do but also what not to do. They’re eager for suggestions to avoid making similar mistakes.

That is why I have created a two-part blog series about lessons I’ve have learned from observing and working with failed companies as well as successful ones. This one deals with product failures, the other with company failures.

Why Do Some Products Fail?

The single biggest reason why products fail is a poor product/market fit. That is, there aren’t enough customers who are willing to pay for the product. There are myriad reasons for a poor product/market fit. The product may lack critical features; or maybe it has too many features. It may be too different from alternative solutions for some, while not being different enough for others. Buyers may perceive its price as too high. The list goes on.

It takes time, hard work, and a willingness to change to create a strong product/market fit.

Here are four lessons I have learned from analyzing failed products. I hope they provide some helpful guidance in your own search for a great product/market fit.

1. A product is not a market

Startups rightly focus on getting their first product out the door and into the hands of initial customers. Selling a few early products may be a good start, but it does not necessarily prove there will be enough customers in the future to make a viable market – that is, a critical mass of individuals or companies who face similar problems and will pay for a solution. For the product to be marketable, you also must be able to identify and reach these customers in efficient ways.

It’s important to distinguish between “bad” products and “failed” products. They aren’t always the same thing. Bad products give customers numerous reasons to turn away: inadequate features, poor quality, lack of support, frustrating interface, etc. Failed products may be well-defined, well-produced, and well-supported but they never reach escape velocity. Why? Well, there can be any number of reasons. Some of the most common are:

• • It takes time for customers to understand the compelling value of the product, delaying repeat business.
  • The universe of willing buyers with adequate budget is too small to generate sufficient revenue.
  • Sales volumes are too low to achieve economies of scale, undercutting profitability.
  • Innovative products may require lengthy sales cycles to explain their benefits, followed by large amounts of handholding after purchase.
  • The product, though attractive in many ways, may be perceived as “nice-to-have” not “must-have.”

2. Customers ultimately define the value of the product, not you

Comedians try out new material to see what kills and what bombs. The jokes may be good, but it’s the reaction that determines success. The same is often true for entrepreneurs bringing a new technology or product to market. Customers and products may find a product interesting, appealing, even impressive. But only when they’re willing to pay money will it have any value.

So, customers and prospects are the best source for feedback on your product idea, and what a justifiable price might be. If you’re a founder in search of financing, your chances of success will improve if you can demonstrate – through 1:1 interviews and other research – that a group of individuals with a common problem find your solution so compelling that they’re willing to pay for it.

Remember, you may speak the language of features, but customers understand value in terms of benefits.

3. You must have compelling competitive differentiation

Every product – even the most innovative – has competition. It can be direct (a product in the same category) or indirect (tackling the problem in a different way). Even a prospective customer’s inertia is a form of competition.

To make a sale, then, you must show how your solution is superior to all forms of competition. Here are some guidelines to consider in crafting your competitive positioning:

• • Don’t just compare features. Describe the whole product you offer, which wraps core product features with other qualities (such as support, customization, company reputation) to create a successful customer experience.
  • Recognize the power of incumbent vendors to retain their customers. Identify weaknesses you can exploit and emphasize how you can help the customer better.
  • Some of the biggest hurdles may not relate directly to the product, e.g., convincing customers to work with a new vendor or find new budget.
  • It’s an even harder task when you have a category-creating product or concept that requires a lot of education and explanation. Emphasize the benefits of seeing things a whole new way.
  • If you have a competitive advantage in price, develop tools and analyses that show superior ROI.
  • Leverage your early customers. Learn from their experiences with your solution and turn their observations into selling points.

4. Innovation isn’t always improvement

Every new product idea isn’t a great one. As I stated in point 2, a product has value only if customers are willing to pay for it. Even successful companies with loyal customers can have product failures when people don’t find the new item compelling.

One of the all-time classic product failures was New Coke. In 1985, Coca-Cola changed the formula of the world’s most popular soft drink. (It wasn’t actually called New Coke; only the product in the can changed.) Customers hated the change, and it was quickly apparent that New Coke was a disaster. Three months later, the original formula was revived as Classic Coke. The new formula was rebranded Coke II in 1990 and died an unlamented death in 2002. To this day, the episode remains the epitome of what can happen when a company toys with a successful product in the name of innovation and change.

Here’s another case study: BIC sells nearly $2 billion worth of pens a year and is synonymous with writing instruments. In 2012, it introduced “BIC for Her,” a line of pens ostensibly designed to meet the unique pen needs of women??? It was almost immediately mocked in thousands of online reviews for its irrelevance and misogyny. Another example of an innovation no one wanted.

A brand can lose credibility and acceptance if it strays too far from its core business. For example, who thought the name Harley-Davidson or Burger King would add panache to the cologne market? While Coors has millions of fans for its beer, few were interested when the company introduced sparkling water. And is it any surprise that there wasn’t huge interest in Cheetos Cosmetics or bacon lip balm?

Even the strongest market leaders in technology have product failures. Apple, which over the past few years has appeared to do no wrong, had the Lisa and Newton. Amazon had the FirePhone. And Microsoft has had its share of flops, including the Kin mobile phone and Zune music player. It even endangered its lucrative operating system business with Windows Vista.

Great products don’t sell themselves. Following these lessons will help you reach the pinnacle of product success – when customers come to you asking to buy.

The post Learning from Failure: 4 Lessons from Famous Product Flops appeared first on Norwest Venture Partners.

1. How to build your network
2. How to nurture your network
3. How to leverage your network
4. How to tap into other people’s networks

1. How to Build Your Network

Building a network is more than adding names to a list – it’s a year-round commitment to broadening your circle.

Ways to build your network:

• Lead with value: provide helpful information and perspectives on the market or problem space. Write 1-2 blog posts a year. Pick topics that will both resonate with your contacts and build a reputation for yourself as an expert. (See Sean’s capital efficiency blog for an example).
• Find common ground: Leverage commonalities with the other person (e.g., educational or work background, volunteer experience).
• Leverage conferences and industry events: Research people to meet and stand in high-traffic areas. Schedule follow-up meetings after the event and follow through with any materials you mentioned.
• Host events and webinars: Create community with people who have common interests and business issues. Ask invitees to bring a guest. When you meet someone new at an event, invite them to another one. For example, Workato created the Systematic Community for Business Systems Analysts and hosts in-person events for them.

2. How to Nurture Your Network

Relationships are a two-way street. Consider what you can give as well as what you might gain. Here are our top tips:

• Get to know people holistically, not just as a business contact: Remember people’s hobbies, spouse, children, pets, travel, stories, etc. Be a good listener and make your prospective buyer feel heard. Take notes on your conversation and use a personal CRM.
• Prioritize in-person meetings: Even if you don’t live in the same city, try to meet up when you’re in town. We find breakfasts to be best, as most people can make room in the morning.
• Stay in touch throughout the year: Offer congratulations on a promotion or major milestone. Remember birthdays, anniversaries, or holidays (BirthdayAlarm.com is a great tool).
• Check LinkedIn daily: Someone may have moved to a new company or taken a new position (Connect the Dots is a great platform for this).
• Leverage activity-based events to deepen relationships: Invite prospects to sports events, pickleball, golf, or another activity-based event. This is a great way to get to know people on a personal level outside of the office setting.

Sean invites the founders and tech executives in his network to run half marathons — and likens it to starting a company.

3. How to Leverage Your Network

After you’ve built a network, it’s time to thoughtfully leverage it. Here are the most impactful ways to do so:

• Highlight your customers: Word of mouth and customer love are the most powerful sales tools. Ask to feature your customers in case studies, spotlight them at your company’s customer conference, and ask them to act as references
• Ask for intros: Ask friends and colleagues if they have 1st or 2nd-degree connections with target prospects. Check if existing customers are open to connecting you to their peers. Send people a draft email that they can forward easily that details why you’d like to connect with them.
• Organize your contacts: Use LinkedIn Sales Navigator to create lead lists and stay on top of your network. Review your lists periodically to remind yourself of your contacts.

4. How to Leverage Other People’s Networks

Everyone in your network has a network of their own. Here are ways to thoughtfully tap into them:

• Express Gratitude: Send thank you notes. People love feeling like they were part of the journey to your success. Even if you close a deal 3-6 months after someone’s initial introduction, follow-up and share the news along with your gratitude. For larger deals, send a bottle of their favorite wine or another small gift as a token of your appreciation.
• Leverage your Board of Directors: Connect with your company’s investors on LinkedIn and check if they’re connected with your target prospects. If yes, email them to ask for a warm introduction. In addition, ask investors to help close major deals if you see that they know senior executives in the decision making process.
• Share a Forwardable Email: Craft a personalized email that your investor can easily forward.

Here’s an example email inspired by how one of our portfolio companies leveraged the tactics above:

From: Sean Jacobsohn
To: [Contact name]
Subject: potential intro

[Contact name],

I hope you’re doing well.

I would like to introduce you to [company], one of my portfolio companies. They are focused on [company solution] which complements and extends your [goal or investment] by [relevant benefit statement].

[Company founder name], one of the founders, will be in NYC next week and would love to meet you. Let me know if you have some time for her to stop by your office. In the meantime, see below a quick intro from her.

Sean

—————————————

Hi [contact name],

I’m the co-founder of [company], and we are focused on [company solution and clear, relevant benefit statement]. A couple of examples:

• [Use case for contact’s company]
• [A short demo or workflow demonstrating benefit for contact’s company]

I’m going to be in NYC next week on Monday and Tuesday and would love to meet with you if you are open to it? Please let me know.

Warmest regards,
[Founder name]

Happy selling!

The post How to Leverage Your Network to Crush Your Sales Quota appeared first on Norwest Venture Partners.

To learn more about TikTok advertising, Norwest held a virtual panel discussion with three performance marketing experts: moderator and Norwest advisor Jamie Fontana and panelists Kyra Richards and Abir Hegazi from the marketing freelancer platform Right Side Up.

Following are highlights from the discussion, which covered three topics:

• • The current — and rapidly evolving — state of TikTok
  • Testing ads on TikTok
  • Best practices for advertising on TikTok

The Current — and Rapidly Evolving — State of TikTok

TikTok has been downloaded more than 3.5 billion times and is available in more than 150 countries and 75-plus languages. Its advertising revenue has also expanded rapidly. Last year, revenue surpassed $11 billion and is forecasted to top $23 billion by 2024.

Perhaps the most remarkable aspect of TikTok is how “sticky” it is. Users spend an average of 95 minutes per day on the platform and open the app an average of eight times daily. Around 60 percent of users are from Gen Z, a demographic that soon will be the largest generation by population. But TikTok is not just a Gen Z phenomenon; some 20 percent of users are over 40.

Users spend an average of 95 minutes per day on TikTok and open the app an average of eight times daily.

TikTok is not taking its growth for granted. It is constantly evolving, making improvements in features and incentives to advertisers. While TikTok has attracted some negative attention due to mounting privacy concerns and its ties to ByteDance, the Chinese parent company, it seems too well-entrenched to imagine it disappearing.

Should You Start Advertising on TikTok?

Authenticity may matter more to TikTok than any other social platform out there. Before diving headfirst into creating ads, you might consider posting organically first. This will help you understand what people are engaging with — and ultimately help you make more informed decisions later down the line. Before allocating marketing budget, you should pay special attention to some unique aspects of the platform.

Three questions to answer before advertising on TikTok:

1. What is the objective? What do you hope to achieve? Is it awareness of your name or product, consideration, or outright sales? How about capturing leads, or mailing list sign-ups? Perhaps a download of your app.
2. Is there a product-channel fit? Does your product/service fit the TikTok platform’s content style? Is it visually engaging and able to be shown in 6-10 seconds? Is the tone of your brand authentic and fun?
3. Do you have the creative resources? You may be familiar with the process for developing ads for the Web, print, TV, email, and other outlets. But TikTok is very different — different even from ads you already may be placing on YouTube or Facebook. TikTok’s primary attraction is user-generated content (UGC), so that’s the format that works best for advertisers. And that may be an art form that your team (in-house or agency) doesn’t have much experience collecting and repurposing.

Once you’ve answered the questions above, you may want to create a testing program.

Three considerations for your pilot program:

1. Don’t make a major commitment to TikTok advertising until you have conducted — and learned from — content and audience research. It may be as simple as determining if you can find a subsegment of users on TikTok who closely match one of your target audiences. Or are there TikTok users posting content that addresses needs or interests close to those you are targeting? The goal here is to learn, refine, and optimize. Committing to specific strategies and content will come later.
2. Budget enough time and money to run a sufficiently long and broad test. Our panel of experts suggests spending $25,000 to $50,000 a month for three to four months. Make sure you and your team will have measurement tools in place to gather the data needed to make a fair assessment.
3. Not ready to invest a high level of resources yet? Start organically. Use SEO tools to see what topics are trending and whether any of them are relevant to you. You can start with traditional keyword research for search engines and search those terms on TikTok to understand what content already exists on that topic. The app also auto-populates the most popular keywords related to your query. Creating and posting TikToks with rich text builds your organic search results both on TikTok and on other search engines like Google.

Best Practices for Advertising on TikTok

Make TikToks, Not Ads.

If you remember only one thing from this blog, this is it. Experienced TikTok users can easily tell what is native and what isn’t; what’s an ad and what isn’t. Your post should feel like you’re sharing something with a friend — a tidbit of information, the solution to a problem, or having a bit of fun. Successful UGC has an authentic, do-it-yourself quality. The minute anything starts to feel inauthentic, users will simply scroll away.

Make TikToks, not ads. Your post should feel like you’re sharing something with a friend — a tidbit of information, the solution to a problem, or having a bit of fun.

TikTok is a highly creative platform, so 85 percent of your time should be spent on creative strategy, coordination, and vision. That’s where the magic is. In general, it’s best to keep the audience broad. TikTok’s hashtag targeting is still limited, and you don’t want to limit the algorithm from finding the right users.

Hook Viewers in the First Three Seconds

The first thing every single piece of content needs is a hook. It should come in the first one to three seconds and stop the user in their tracks and compel them to watch. After you’ve captured their attention, share your product, its benefits and impact. Show that the product can solve a problem or is a great life hack — why it’s better than everything else out there. Viewers should believe this is the only product for them and be glad they discovered it on TikTok.

Leverage Voiceovers and Trending Sounds

Voiceovers are very common on TikTok and allow you to add details about your product. Be sure to record them separately from the video you’re creating; the audio quality will be much better. If you add captions, keep them under 30 characters to avoid eroding your visuals. And center your ads a bit to the left to ensure it doesn’t conflict with any native overlays, such as the like and share buttons.

Finally, adding music or sounds makes the content immersive and helps users find you. For example, if there’s a sound that’s currently trending on TikTok and if it’s in your content, you’ll show up in search results for that sound. One caveat: check with your legal team to ensure you have permission to use a specific piece of music.

Make a Clear Call to Action [subtitles encouraged]

Finally, close with a TikTok-specific offer or some call to action. This is a chance for you to tell users how to buy your product, or maybe just how to spell it. You can insert a headline at the end to show users where to find you.

Some additional best practices include text overlays, which can emphasize the hook and highlight the benefits of your product; and a concluding call-to-action screen with the product name and URL. Subtitles are another valuable tool. TikTok does auto-generate subtitles, but small overlays can make your main messaging more memorable.

7 Super Short Tips for Advertising on TikTok:

• • Make TikToks, not ads
  • Hook your viewers in first three seconds
  • Be authentic to your brand
  • Make a clear call to action
  • Record voiceovers separately
  • Use subtitles, but keep them short
  • Add trending sounds and music

TikTok is Making the Platform More Attractive to Advertisers

Spark Ads Let You Partner with Creators

As noted earlier, TikTok is an evolving environment, especially for advertisers, online shoppers, and B2B participants. A unique TikTok ad format that we have found valuable is Spark Ads — native ads that use content from other TikTok accounts, with their permission. Spark Ads have been found to perform better than other ad formats, especially in terms of views, engagement rate, conversion rate, and CPM. While Facebook and Instagram visitors may be used to seeing ads, TikTok users are more focused on finding relevant content. When you partner with a creator to develop Spark Ads, the content will come from that creator but will link to your landing page or app download.

TikTok Content Fatigues Faster Than Other Platforms

Creative content loses its appeal a bit faster on TikTok than other social media platforms because users spend so much time there. So, it’s important to refresh your content – every four to 14 days, depending on how often you serve it up. Ideally, you’ll have three to four creatives in an ad group with a few additional ads in your queue to swap in as you start to see signs of fatigue, such as an increase in CPM or decreases in click-through rates or conversions. But be careful not to build too many ads upfront. You might find out that your creative assumptions were wrong, and you’ll wind up with a lot of content that doesn’t work.

Creative content loses its appeal a bit faster on TikTok than other social media platforms. So, it’s important to refresh your content.

Creator Marketplace Helps You Find Collaborators for Your Brand

Another tool for advertisers is the Creator Marketplace, a database of TikTok creators who are open to brand collaboration and ad content creation.

Any account holder that wants to become a content creator can add themselves to the Creator Marketplace and list their rates. Brands can search the database and invite up to 100 creators a week to collaborate on creating paid assets.

Even if you don’t use Creator Marketplace, just searching on TikTok can be a way to discover potential content creators that may be a fit for your brand.

Influencer Due Diligence Is Crucial

Conduct some due diligence if you identify creators who might be a good fit. Are their followers engaged in their organic content? An engagement rate of 15 to 20 percent is good. Is their personal brand a fit for your brand and product? Is their content well-produced and does it demonstrate clear thinking?

Include an influencer creative brief when you start negotiating with content creators. The brief—which should be easy to read and run no more than five pages—should describe your brand guidelines, tone of voice, and any visuals you can share. Be clear about your objectives and key messages.

Building Your Creative Team for TikTok

What kind of team do you need to start testing ads on TikTok? We recommend having two core skill sets:

1. Strategy and media buying – You want your media buyer to understand the TikTok platform well. Not only should they understand media buying on TikTok, but they should have excellent creative instincts to adapt your messaging and serve as a creative director.
2. Creator management – Even if you’re just employing user-generated content from your customers, you still need someone to manage that process. If you do engage native content creators, you need someone to manage the relationship from start to finish. That may or may not include work by a video editor.

Some people may have more than one skill set, so the size of your team will vary, as will the mix of in-house and outside resources.

4 Key Takeaways for TikTok Advertising

• • TikTok is a wholly different medium, and that applies to advertising on this rapidly changing platform. What works elsewhere (even on other social-media platforms) will not necessarily work on TikTok.
  • Create TikToks, not ads!
  • Authenticity and relevance are essential. Partner with content creators to develop authentic TikToks that will attract users while still advancing your marketing objectives.
  • Start small, especially if you’re a B2B brand. Experiment and test to learn what messages resonate with which audiences.

The post Let’s Talk TikTok Ads: Actionable Insights for Performance Marketers appeared first on Norwest Venture Partners.

This softening economic backdrop has slowed demand for enterprise software. CIO surveys, most notably Morgan Stanley’s 1Q23 CIO Survey, indicate that software budgets may see increases in only the low single-digits this year, down from the five percent or higher annual increases we saw in the pre-COVID period. Public software companies have seen their valuations slashed, and many are reducing their workforces to cut operating burn and navigate to profitability.

These market changes have complicated sales processes and raised the level of scrutiny potential buyers face internally. Sales leaders in the Norwest portfolio have noted that the office of the CFO is weighing in on more purchasing decisions and requiring more approvals for sales and renewals. Finance is raising the bar on tangible ROI in purchases while customers are asking for lower pricing and more favorable payment terms (e.g., monthly payment vs. annual pre-payments). More and more customers are even going so far as to ask for terminations of convenience, requests rarely seen in the pre-COVID-19 days. As if those factors aren’t challenging enough, some software companies are seeing more deals stall out as no-decisions as processes languish under new layers of legal and compliance scrutiny.

Enterprise Sales Strategies for a Down Market

To find out what tactics and techniques companies are using to maximize sales in this climate, Norwest conducted a series of interviews with sales leaders across the portfolio:

• Chris Cesio (CRO at Exabeam)
• Jimmy Hart (CRO at YipitData)
• Phil Hodge (CRO at AbsenceSoft)
• Rob Means (CRO at Legion)
• Stephen Molen (CRO at Cority)
• Ken Sims (CRO at FloQast)

Our interview panel represents six companies at different levels of scale (from just over $10M of revenue to well over $100M) and they each sell into a different market. We spoke to vendors selling workforce management software to retail clients, compliance software to industrial companies, cybersecurity software to the Fortune 500, and more.

While all the interviewees were clear that no silver bullets or magic formulas exist, they did share some “common-sense” sales approaches that they have found valuable.

Here are the three core selling strategies that emerged during our conversations.

Evolve the Sales Messaging

Software can drive different kinds of value. Revise your sales message to promote an ROI that is relevant to customers who are experiencing the recession. This updated messaging can help the customer convince their CFO that spending money to buy your software is a sound investment. Take FloQast, providers of accounting automation software, for example. “Software can help you scale during good times, and help you be efficient during lean times,” said CRO Ken Sims.

FloQast helped its clients scale more confidently when they were in growth mode. As the economy contracts and clients focus on cost reductions, Sims explained that FloQast has evolved the sales message to emphasize the resource savings its existing customers can gain by using FloQast to be more efficient.

ROI has always been a core piece of value-based selling and it becomes more important when a CFO scrutinizes new spend. Cority has found success by training its team to sell around key business issues and lay out tangible ROI. It is also important to reiterate the ROI on an ongoing basis, so customers are reminded of why they bought your product in the first place.

A couple of other examples of conveying ROI to customers include:

• Exabeam embeds ROI indicators in its product dashboard, which highlights the value-added activities that the system creates.
• Legion incorporates a prospect’s data into its ROI calculator to more tangibly show the specific business outcomes they can achieve with Legion and the cost of delaying an investment.

Invest in Training. Adhere to Process.

All the CROs we interviewed spoke about the importance of training your sales team appropriately for this new environment. Salespeople need to be armed with the right tools and messaging to address the additional objections they are likely to face. Increased rigor needs to be applied throughout the sales process from upfront prospecting to downstream contracting.

Companies such as Cority are also reinforcing processes to empower the internal champion at a prospect so they can effectively sell the solution within their own organization. It is often helpful to have clearly mapped mutual action plans and ROI frameworks so champions can effectively manage their buying committees.

AbsenceSoft does sales enablement training to prepare their sales team for conversations with the various personas involved in the buying process as well as for the next steps they should expect in the sales process.

This is also the time to enforce process discipline across the organization. When selling becomes harder, greater discipline is required to ensure that deals aren’t delayed or put at risk because of missteps. Sales reps need to understand a customer’s new buying journey and press for repeated clarification on process so there are no surprises or hiccups along the way.

“The only thing you can control is process discipline,” said Cority CRO Stephen Molen. “Adhering to a robust sales process is ultimately what allows a business to scale.”

Other process adjustments we heard were:

• AbsenceSoft has evolved its sales operations to address major deal issues at the beginning of the contracting process rather than at the end, where they historically had relegated them. The sales team tackles major issues upfront to avoid additional layers of approval and legal back-and-forth when a deal is near closing.
• YipitData is more closely tracking opportunities through the funnel, so it has a better gauge of which activities and strategies are most successful in the new environment.
• Many of our interviewees are leveraging marketing technologies to improve their lead-gen capabilities and better screen prospects.

A tough market is an opportune time for organizations to implement substantive changes to their sales processes. As AbsenceSoft CRO Phil Hodge put it, “A recession is a great time to revisit processes. During tough markets, the team is more embracing of dramatic change.”

Jimmy Hart, CRO at YipitData, echoed this sentiment: “Now is the time to really focus on fixing and improving everything you can. If we can succeed in a time like this, then when the environment recovers, we’ll be even better off.”

The process optimizations put in place during downturns will help maximize sales during a tough market and lead to more robust scaling when the market returns to health.

Experiment with Pricing and Packaging

When customers and prospects are budget constrained, experimenting with new product packages can ensure that accretive deals are not left on the table. For certain companies, a lower-cost essential product with fewer features can be a good way to land an account and provide runway for downstream expansion over time. These changes require a comprehensive conversation with functions across the entire company — How will the product be packaged? How will the various bundles and features be priced? How likely is the customer to buy them?

For companies like Exabeam that historically sold an all-you-can-eat platform at a relatively fixed price, the introduction of different bundles can ensure that your team captures all the incremental dollars it can. Legion, for example, has focused on starting their customers off small before pitching new products and upselling. Another way to start off small is doing more proof-of-concepts or landing in a small segment of the organization and working your way up and around to the rest of the organization – the classic land-and-expand strategy.

What’s Worked for Your Sales Teams?

We are thankful to the sales leaders who took the time to share their insights with us. We hope you have found them helpful as you navigate the current market. If you are interested in learning more about tactics for selling software in a recession, feel free to contact us. We welcome your questions, input, and thoughts on go-to-market approaches that work well in tough markets.

The post How to Keep Winning Enterprise Software Deals in a Downturn appeared first on Norwest Venture Partners.

To look at cash preservation from a marketing perspective, I facilitated a discussion with more than a dozen GTM leaders in B2B SaaS. The event was hosted by Norwest portfolio company, Workato, the leader in enterprise integration platform as a service (iPaaS). Thank you to Workato’s head of marketing, Bhaskar Roy, for inviting me. The cool thing: the gathering was held at the Chase Center in San Francisco. So, after we talked shop for an hour, we watched the game from a private suite. (The Warriors beat the Pelicans that evening 120-109.)

To frame the discussion, I shared the top five money-saving marketing trends we’re seeing across the Norwest portfolio (and one bonus idea!) that can help companies extend their financial runways during challenging times.

1. Generative AI Boosts Your Creative Horsepower

Generative AI applies artificial intelligence to content creation, such as ad copy, blog posts, emails, images, and other marketing materials. It can save time, boost efficiency, and free up talent for higher-value tasks. It’s a tool to supplement (not replace) humans. Using generative AI can accelerate and amplify an individual’s work, as in these oft-cited analogies: it’s like a digital camera for photographers or Excel for accountants. You still need people to provide a deep understanding of the audiences you are trying to reach, the competitive differentiation you have, the marketing strategies you employ and your unique voice in the market.

Generative AI accelerates and amplifies an individual’s work—like a digital camera does for photographers or Excel for accountants.

Keep in mind that generative AI is trained to give you an answer, even if it’s wrong—thus the term “AI hallucinations.” AI has no actual knowledge or sense of context, which is why human involvement and review is so critical. Getting an answer is one reason why generative AI is good for content creation—since it’s always easier to edit something than ideate from a blank screen—but can be dangerous for research, education, and search.

To use it effectively in your work, identify the areas of marketing strategy where you see friction—such as content that isn’t generating the desired interest level from the target audience, or bottlenecks in the content-creation process—and then look for the right AI tool to reduce that friction. Always lead with strategy, not tools.

2. Self-Reported Attribution Demystifies Business Drivers

Marketers are leaning away from expensive and sometimes inaccurate attribution tools by investing in self-reported attribution, which is generally defined as direct feedback from prospects on how they learned about your company. This information is often collected via an open-text “how did you hear about us?” question on forms. (Beware of using drop-down picklist choices, as those can bias the data.)

Self-reported attribution will demonstrate to your CEO and CFO that your best leads may be coming from your investments in content and channels that are hard to measure—think about videos, podcasts, LinkedIn posts, and other brand and community channels … the so-called “dark funnel.” My friends Sarah Scudder and Will Allred, marketing leaders at Norwest portfolio companies SourceDay and Lavender, respectively, swear by self-reported attribution to understand where to place their marketing investment bets. True, the dataset might be small if your volume of form submissions is low, but I have it on good authority that the data clusters around key channels such as word of mouth and social.

3. Owned Channels Fuel Upstream Demand

As paid budgets get squeezed, scrappy companies are leaning into brand-building, activating their teams and customers as influencers to drive awareness and demand without paying for every impression. This means leveraging channels like your website, social, podcast, communities and other owned properties where you have an audience and create content worth sharing (pro tip: most viral B2B content is entertaining—maybe even tongue-in-cheek or controversial—and motivates your audience with its usefulness or timely insights). To expand reach, consider collaborating with your ecosystem, much like my friend Udi Ledergor at portfolio company Gong does so successfully.

Scrappy companies will lean into brand-building, activating their teams and customers as influencers to drive awareness and demand without paying for every impression.

Udi talks about how to get members of your team to become social evangelists by sending them calendar invites with pre-written social posts that they can cut and paste into their favorite platforms. Remind them what’s in it for them: by regularly posting valuable content, they will score points with the algorithm and gain more impressions while adding followers.

We also pursue this approach at Norwest where we engage our senior advisors, portfolio leaders, and ecosystem partners to share their invaluable perspectives through blogs, short videos, and social posts.

4. New MQL Definitions put the “Gate Debate” to Rest

Gating whitepapers and ebooks used to be a surefire way to produce qualified leads, but many believe those days are gone forever. We see more and more portfolio companies ungating educational content, only passing high-intent inbound MQLs to sales, such as contact-us and demo request forms. For companies that want to continue gating, consider guarding only the highest-value content and/or holding back those leads until you can gather more data about intent, or the prospect takes additional actions. Remember: one webinar signup does not an MQL make! . As lead volume decreases, that frees your team and budget to focus on driving higher-quality engagements with target buyers in your ICP.

We see more and more portfolio companies ungating educational content, only passing high-intent inbound MQLs to sales.

To make your hard-earned MQLs even more effective, research the buying-committee contacts within your target accounts and arm your SDRs with the information—along with intent data from sources such as ZoomInfo, Bombora or Lusha—to inform their outbound and follow-up approaches. The name of the game is to arm your SDRs with as much contextual information as possible. Along with behavioral queries and intent data, your sellers must also be well-informed about how the accounts have engaged with your brand.

When this data is operationalized, sellers can multithread their outbound efforts with confidence, reaching several influencers and decision makers in an account that’s signaling they have “need” and to improve opportunity creation and win rates.

5. Fractional Talent Plugs Holes in Your Marketing Org

A prominent trend we’re seeing in our portfolio—especially among early-stage companies—is a move toward fractional marketing talent, especially at the senior leadership level. Companies with smaller budgets that are still trying to gain product-market fit often don’t have the budget (nor do they need) a CMO yet, but they still want the benefit of higher-level strategic thinking.

With an abundance of senior-level talent available due to layoffs or late-career pivots away from operating roles, hiring fractional resources is an attractive option. Companies can hire a CMO-level contractor two days a week and then surround that person with people that can execute the strategies. At Norwest, we recommend resources like Right Side Up and 621 Consulting for sourcing fractional marketing leaders.

Bonus: Lead with Love to Drive Increased Employee Engagement and Retention

Laila Tarraf is an executive coach, board member, and people leader who believes that exceptional organizations are created when people connect to their common humanity and bring heart into the workplace. One of our portfolio companies, Simpplr, invited her to speak on this topic—read the full summary of her talk. Her core messages were insightful:

1. 1. There’s a new definition of power in the workplace: a skillful blend of tenderness, nurture, and compassion that is every bit as powerful as the more forceful approaches of the past.
   2. Honoring people, celebrating diversity, and focusing on employee engagement and retention have a profound impact on creating a positive workplace culture.
   3. Active listening is an essential part of employee communication. Let others feel heard, cared for, and valued. If you can’t provide an answer right away, that’s OK. People usually just want a bit of empathy or a chance to brainstorm.

Parting Thoughts and Considerations

Cash preservation tactics are likely to evolve and remain fixtures in our 2023 marketing strategies and beyond. To navigate the uncertain economic environment, we’re leaning into the power of our community. Creating space for the marketing leaders in our portfolio to discuss shared challenges is a small, but mighty way we’re supporting our companies.

This year, Norwest has started to host “huddles” for our marketing leaders to talk about what’s top of mind for them. It’s been inspiring and validating thus far and I’m looking forward to sharing their collective insights in future blogs. Whether you’re a current or future marketing leader in our portfolio, I’d love to hear from you to shape the topics of future huddles. What’s on your mind?

The post 5 Low-Cost Ways to Optimize Your Marketing for Challenging Times appeared first on Norwest Venture Partners.

It takes a lot of work to recruit great sellers; often, that is the CEO’s focus at this stage. However, recruiting is only part of the equation. A common mistake we often see is a lack of focus on sales enablement.

Here is a common scenario:

A historically high-performing, new seller has been just been recruited from a tier-one B2B SaaS company (e.g., Salesforce, DocuSign, Slack, etc.). At their prior company, they had an extensive onboarding process. This process likely included messaging training, role-play scenarios, buddy and mentoring assignments, and many shadowing opportunities. All the sales support materials were ready and proven for the seller to leverage. The seller arrives at the founder’s company, and there is no formal training. The value proposition messaging is in the founder’s head. The objection handling is in the founder’s head. There will likely be no tested and proven presentations, prospecting emails, or lead-generation support. If they don’t get discouraged, the new seller loses valuable time building all those sales enablement tools when they should be focused on prospecting and winning new clients.

How do you solve for this scenario? Before you set out to buy software or leverage sales enablement tools, you should document any sales curriculum—then you can leverage the many great sales enablement platforms (check out Norwest portfolio company MindTickle) out there. Documenting your sales curriculum will help you generate the content to populate whatever sales enablement solution you use and actually make the training effective.

I recommend that early-stage leaders write a “sales playbook” to get down their initial thoughts and harness all their learnings to date. Of course, the playbook will evolve over time, but it at least gives your organization something to start selling from.

The Benefits of Writing a Sales Playbook

A few of the top line benefits of creating a documented sales playbook:

• • The more repeatable your process is, the more consistent (and predictable) your sales conversations are. Your strategies, sales plays and background materials should live in a documented format that can be easily accessed by others on your team. The goal is to make your playbook as repeatable as possible.
  • Documentation helps expedite the onboarding process. When you welcome new hires to the team, they’re going to dig through your existing materials to set themselves up for success. With a playbook in hand, they’ll be able to ramp up within a few weeks and start generating revenue faster than if they had to gather all the information themselves.
  • Outlines your strategy for if and when you need to change course. As your company matures, the market evolves or industry changes, you’ll be able to evaluate your sales strategy and adapt accordingly. It’s easier to acknowledge when messages or pitches need to change if you have a clearly documented plan to refer back to.

To get started with a playbook, it can be as simple as documenting the below in a Google Doc or Slides format.

At a Minimum, Your Sales Playbook Should Have the Following Sections:

• • Industry Overview. This section describes the industry you compete in and sell into, the major players, and trends. This should include commonly used terms, economic models, and trends.
  • Ideal Client Profile and Buyer Personas. This section should cover your Ideal Client Profile (ICP). Your ICP should be the company traits of the ideal buyer of your solution. It may be characteristics like employee count or industry vertical, and it can also be more psychographic traits (e.g., a recognized top employer designation). A Buyer Persona is information about the people in those ideal companies that you are actually selling to. They are often designated by department and level as well as other traits, the most important being common pain points and their personal wins.
  • Qualifying Criteria. Time is one of your seller’s most valuable resources. To help them, you will want to provide your qualification critters for them to evaluate leads. A part of these criteria may be the traditional BANT (budget, authority, needs, and timing) and criteria that align with your ICP and Buyer Persona. For example, if you are focused on companies between 1,000 and 10,000 employees based on your solution, a seller working on a very small or very large prospect won’t be a great use of their time.
  • Your Value Proposition. This should be a crisp articulation of your solution’s value to your ICP and Buyer Persona and proof points that support its credibility. Ideally, your value proposition will have quantifiable data to communicate economic value, especially if you are selling in a recessionary environment.
  • Common Objections. Prospects likely have given you many reasons why they won’t move forward with your solution. All of these objections should be written down, and you should have the ideal response messaging for your sellers to leverage to overcome the objections.
  • Frequently Asked Questions. Prospects have also likely asked you dozens of questions about your solution’s value, features, and implementation. Writing these down and giving sellers the answers will not only build credibility with the prospect but also shorten sales cycle time if sellers don’t have to chase down answers all over your company.
  • Competitor Battlecards. This section details your competition, their value proposition, and how to position yourself to come out on top. Competitors can include a client’s in-house solutions, and the client doing nothing is also a competitor. Messaging to help your sellers convince buyers of the risks of inaction is often just as important as out-positioning a competitor company.
  • Your Sales Process. You may not have a formal selling methodology at this point in your company’s lifecycle. You should, at minimum, have a basic sales process* that your deals typically follow and that your new sellers can track against. This is critical to help develop financial forecasts, implementation plans, and your overall resource needs.
  • Data Hygiene and Pipeline Management Data Obligations. It is never too early to build a strong data foundation! In this section, you will want to tell your sellers their obligations for maintaining data in whatever systems you utilize. My company has strict obligations around contact, company, and opportunity data (especially opportunity data). Building this muscle inside your company is much easier at the start than re-engineering behaviors when you cross that $100M ARR threshold!

You may also want to develop a “certification” process your new sellers must go through to start selling your solutions. Role-playing various scenarios is one of the best tools I use to help sellers practice. We always record these over Zoom so we can “break down the tape” and the sellers can identify improvement areas.

Your sales playbook, in many respects, is simply capturing all the learning and best thinking of your company’s journey to date. This document will evolve, and you can leverage this solution across any sales enablement or learning management platforms you may one day implement as you scale your sales team.

Happy selling!

*What is a sales process? B2B sales process refers to the steps that a business takes to sell its products or services to another business. It usually involves identifying potential customers, qualifying their needs and budget, presenting and demonstrating the products or services, addressing any concerns or objections, negotiating terms, and closing the deal. B2B sales can be complex and involve multiple decision-makers, so building relationships and trust with the customer is critical. After the sale, it’s important to follow up and provide ongoing support to ensure customer satisfaction and retention. The ultimate goal of the B2B sales process is to create a mutually beneficial partnership that drives revenue and growth for both businesses.

The post Writing Your First Sales Playbook appeared first on Norwest Venture Partners.

Instead, as his top priority, O’Neill prioritized workers’ safety and invested in reducing work-related injuries.

Although it was initially an unpopular decision with shareholders that led to the stock tanking, O’Neill’s move to focus on worker health and safety led to astonishingly impressive downstream results: a maniacal focus on employee safety resulted in streamlined manufacturing processes, more well-maintained equipment, and increased employee productivity. All of these things ultimately reduced the cost base and made the company run more efficiently. Then the stock price soared. Prior to O’Neill taking over in 1986, Alcoa was worth $3 billion. By the end of O’Neill’s term in 2000, the aluminum producer was valued at $28 billion and branded as among the world’s safest companies despite the inherent risks in the aluminum industry.

“Our safety record is better than the general American workforce. But it’s not good enough. I intend to make Alcoa the safest company in America.”
– Paul O’Neill

Social impact investing follows a similar template within the software world. For software businesses, measuring social impact creates a more profound commitment to customer value. Customer value, in turn, leads to a stronger product. A stronger product leads to happier customers and ultimately more revenue growth! In addition, a compelling social impact story rallies a company’s culture. Recruiting also gets a boost by broadening the gateway to a talent pool motivated by social impact. This becomes important during tight labor markets like we’re experiencing today; knowing how to measure social impact of a business has become more crucial.

Within Norwest’s growth equity business, we often hear companies talk about their positive social impact, but their discussions can be vague. We take the position that to experience the entire customer, product, employee, and ultimately, financial benefits of social impact, companies must begin tracking and measuring social impact and make it one of their most crucial KPIs.

So what is the broader picture of social impact investing today? And how can companies move toward better social impact measurement?

Social Impact Investing: A Growing Trend

Social impact investing is often confused with ESG (environmental, social, and governance) investing. However, they are two different things. ESG investing supports the tracking and measurement of environmental, social, and governance factors relevant to a particular investment, many of which are not core elements of a company’s operations.

Since starting Norwest’s growth equity business over a decade ago, we’ve seen social impact investing grow in popularity. As a result, the number of investors looking for portfolio companies that create social impact in addition to investment returns has dramatically increased. Some investors are doing this as part of a distinct social impact fund, while others are making it a core thesis within their traditional funds.

Younger investors are often at the vanguard of social impact investing as they are the most keen to bring about positive societal change. According to a recent study, 62 percent of millennial investors believe that impact investing has greater potential versus traditional philanthropy. The same research also found that two-thirds of young investors think impact investing is a smart strategy in terms of financial viability.

Despite social impact investing gaining substantial traction, there are roadblocks hampering its maturity, especially in businesses that operate on traditional ESG models. About 78 percent of investors want organizations to home in on environmental, social and governance (ESG) initiatives, even if it impacts short-term profits. However, only half of enterprises agree. In addition, 76 percent of investors believe businesses “cherry pick” information they share on sustainability activity.

The Secret Sauce: Measuring Social Impact

One of the biggest challenges of measuring social impact is selecting and implementing a standardized framework. Measuring social impact is indeed a difficult endeavor. A global survey by BNP Paribas has found that 51 percent of investors across 356 institutions say that “social impact” is the most demanding aspect of ESG to analyze. Without a standard, industry-wide accepted framework for analyzing social impact investment performance, investors and organizations struggle to integrate it into their investment strategies.

While various organizations have great frameworks, we’ve found a more bespoke approach to work better than something force-fitted.

As part of our process, we endeavor to align with management around the fundamental social impact measurement framework they’re looking to create. For example, is management decreasing carbon emissions, lowering job site injuries, or improving access to online learning for underprivileged students? We can then create a longitudinal model pre and post-investment to measure social impact improvement. For example, in the instance of software that mitigates the risk of job site injuries, we can track injuries or near-misses by customers over time. The company can then work back up the funnel to see which variables and tools actually influence the ultimate social impact. Is it more investment in product, subject matter expertise, an acquisition that enhances the overall solution, or better customer training through professional services? The company then sets up processes and priorities that drive the social impact.

The flywheel shows how the process, product, and service improvements that drive social impact leads to happy customers and great case studies to support even more new business. The strategies, investments, and priorities that drive social impact eventually become central to the company’s mission, culture and evolve into a rallying cry for all stakeholders in the business. Measuring it all is the secret sauce to social impact because, as the adage goes, “if you can’t measure it, you can’t improve it.”

The BNP Paribas report concludes that the lack of initiatives on measuring social impact has led to an “acute lack of standardization around social metrics.” This then impedes investors from understanding the social performance of the companies they invest in.

There is no doubt that measuring social impact has become vital today. Fortunately, we have some great social impact-oriented companies in the Norwest growth equity portfolio. We asked the founders and CEOs of a few of these companies how they think about social impact and measurement within their respective businesses.

Cority

Cority is the global enterprise EHS (environmental, health, safety, and sustainability) software provider that empowers those who transform the way the world works. For over 35 years, Cority has been powered by a spirit of innovation, deep domain expertise, and a commitment to integrity that enables our customers to achieve higher operational and sustainable performance levels.

“We have a customer that had multiple deaths on the job from one incident,” said Cority CEO Mark Wallace. “The employees and community were devastated. As a result, the company redoubled its use of the Cority system and is singularly focused on avoiding such tragedies in the future. We also recently got the world’s largest retailer to use Cority’s Waste Management Solution, which has enabled them to divert ~82% of its waste from landfills through recycling, donating to charities, creating animal feed, composting, reselling or reusing, and converting waste to energy. Cority employees and customers can all feel proud that we are making a positive impact on the planet.”

Envisage Technologies

Envisage Technologies is the world’s leader in unified public safety training, compliance, and performance software solutions. Our Acadis Readiness Suite is the only comprehensive solution built exclusively for public safety leaders that ensures first responders are trained, equipped, and ready. The software enables streamlined personnel training, compliance, internal affairs case management, professional development, legal defensibility, and public accountability. Customers include federal agencies, law enforcement organizations, military commands, and state and local public safety organizations.

“Readiness saves lives, and saving lives is what our first responders do every day,” said Ari Vidali, Envisage Technologies Founder and CEO. “For us, the mission is simple; ensuring that our firefighters, police officers, and emergency medical personnel are fully trained and equipped to provide the critical services our communities need to be safe and citizens need when their lives hang in the balance. It is our primary goal that every first responder come home alive and uninjured from their shift.”

Avetta

Avetta offers a configurable SaaS-based solution that assists organizations – both large and small – in managing supply chain risk across a variety of disciplines. Avetta is building the world’s most intelligent supply chain risk management network to advance clients’ safety, resilience and sustainability programs. Less than two weeks ago, Avetta announced that a growing number of executives in all industries recognize the importance of social and environmental efforts. The findings are in a technical whitepaper here.

We’re inspired by the remarkable social impact software tools that many of our portfolio companies deliver. These companies have proven that a heightened measurement on the underpinnings that create positive social impact results in a positive flywheel of great products, happy customers, motivated employee culture, and strong financial returns. So whether it’s Cority helping its customers to thrive as a result of sustainable operations, Envisage transforming law enforcement training, Avetta creating safe and sustainable supply chains, or our other portfolio companies creating substantial social impact in their own endeavors, we thank all these companies for their commitment to social impact.

The post Measuring Social Impact in Your Software Business appeared first on Norwest Venture Partners.

Founders and startup teams are hearing more from investors, customers, and employees about Environmental, Social, and Governance (ESG) performance. But what is ESG, and why does it matter—especially now? When you think ‘ESG,’ think about data security and privacy, employee engagement as remote work becomes the new norm, and all of the governance missteps making news headlines (WeWork, FTX, etc.).

During this time of economic uncertainty, industry leaders continue to suggest that in fact due to slowing growth, investors looking to beat the market must consider ESG factors, including topics like carbon footprint and governance structures. However, many founders and teams are grappling with both understanding what ESG performance means, and the increased pressure to demonstrate excellence in performance across environmental, social, and governance areas.

In this piece, we will share both background on ESG as a concept and actionable advice for fast-growing companies.

What is ESG?

‘ESG’ as a term was first coined in a June 2004 report facilitated by the UN Global Compact and published and endorsed by a group of 20 financial institutions, entitled Who Cares Wins: Connecting Financial Markets to a Changing World. The writers of the report shared that investors should consider environmental, social, and governance factors when making investment decisions, in order to build stronger markets, and contribute to sustainable development that works for everyone, over the short and long term.

Investors should consider environmental, social, and governance factors when making investment decisions, in order to build stronger markets, and contribute to sustainable development that works for everyone, over the short and long term.

Let’s break down what we mean by E, S, and G:

• • Environmental: Company impacts on the environment, and environmental needs and risks. Example topics include water usage, greenhouse gas emissions and climate-related risks.
  • Social: Company impacts on people, including topics such as employee engagement, supply chain resilience, and internal practices related to diversity and inclusion.
  • Governance: Company performance related to fair, accountable and transparent corporate practices and actions.

As the ESG field has evolved, standards and frameworks like ISSB, GRI, TCFD, and others have been developed to provide an avenue for companies to share reliable and comparable information so stakeholders can make better decisions about company ESG performance.

What is ESG Performance?

ESG performance refers to how a company is doing in ESG focus areas. The specific ESG areas a company focuses on should be tailored to their business model, and ultimately drive financial performance and contribute to sustainable growth.

ESG topics can include (not exhaustive):

Investors are assessing performance across E, S, and G dimensions as a way to better understand a company’s ability to create and maintain value.

MSCI shares this objective of ESG integration: “Investing with a systematic and explicit inclusion of ESG risks and opportunities with the intention to enhance long-term risk-adjusted returns.” In practice, this might look like an investor including questions related to carbon emissions, diversity of the board and employees, and responsible product design in their due diligence questionnaire.

The objective of ESG integration is to invest with a systematic and explicit inclusion of ESG risks and opportunities with the intention to enhance long-term risk-adjusted returns.

The integration of ESG factors when determining a company’s potential for positive financial performance has continued to grow.

• • In 2020, 92 percent of S&P 500 companies published a sustainability report, and investors are increasingly developing formal frameworks for assessing ESG performance.
  • A 2021 PwC survey of VC investors with a majority of European respondents revealed 76 percent currently consider ESG in their investment process, and 37 percent have refused an investment because of ESG concerns.

Successful ESG strategies consider relevant environmental, social, and governance risks and opportunities across operations, products, and services.

Consider example outcomes of focusing on relevant ESG focus areas:

Consider example outcomes of neglecting relevant ESG focus areas:

Good governance can help drive long-term growth

Take a look at what Norwest’s portfolio founders and CEOs said are top of mind issues for them and learn how specific governance practices support sustainable growth.

Read the blog >

ESG vs Impact Investing: What’s the Difference?

An important distinction to understand is the difference between ‘impact investing’ and ESG integration into investment decision-making. Impact investors are focused on investing only in companies with a mission to make a positive difference either in peoples’ lives or for the planet, while all investors can integrate ESG considerations as they evaluate and invest in every type of company.

Impact Investing: ‘Impact investing’ is focused on measuring the positive impacts of products or services alongside financial return. Impact investors seek to invest in companies with a purpose to deliver measurable positive social or environmental outcomes. Impact investors might target companies that focus on reducing poverty, increasing educational opportunities for underserved communities, or climate technologies.

ESG Integration: In contrast with impact investing, all investors can choose to integrate ESG performance into investment evaluations. ESG integration means an investor is including relevant ESG factors in analysis and investment decisions, with the intention to enhance risk-adjusted returns. For example, an investor considering whether to invest in an enterprise SaaS company might evaluate how the company protects against cyber attacks, and how the company ensures employee satisfaction.

What Are the Benefits of Developing ESG Strategies?

1. Attracting capital. Both startups and VCs are recognizing they are more likely to secure funding if they implement intelligent ESG strategies.

2. Financially outperforming your peers. Studies continue to suggest companies that prioritize ESG demonstrate financial success. A recent NYU Stern meta-study found 71 percent of studies show companies with strong ESG performance financially outperform their peers or have a neutral result (58 percent positive results, 13 percent neutral, 21 percent mixed, 8 percent negative results).

3. Attracting and retaining high quality employees. At Fiix Software 78 percent of employees stated the company’s sustainability program influenced their decision to join the company, and almost 90 percent stated the program influenced their decision to stay at the company. A majority of startups in a recent WEF survey shared that employees and customers are the main drivers for implementing ESG strategies.

4. Demonstrating sustainability to both consumers and enterprise customers who care. Both large enterprise customers and consumers alike are seeking to manage their own sustainability through who they choose to buy from. For example, Microsoft requires key suppliers to complete a CDP questionnaire. A 2021 PwC survey revealed, “83 percent of consumers think companies should be actively shaping ESG best practices.”

5. Staying ahead of upcoming regulations. Regulators are starting to propose and implement disclosure frameworks related to ESG topics. Even for startups not seeking to exit anytime soon, proposed disclosures will likely impact both private companies in the supply chains of publicly traded companies, and public LPs of venture capital GPs.

Integrating ESG principles early is more effective than attempting to retool later on. For example, it’s easier to establish a culture of scanning for unintended consequences (e.g. mental health impacts of social media filters) using a tool like doteveryone’s Consequence Scanning when the product design team is 10 people versus 100 people. Or on the organizational side, another example—it works better when founders and teams establish inclusive hiring practices when the organization is 20 people, instead of waiting until the company is 400 people.

Take a look at how Norwest approaches ESG and DEI

Read more >

What About ESG Critiques?

It’s useful to consider ESG critiques while building your strategy, as those same critiques can be helpful in developing your approach (take a look at some commentary on corporate sustainability here). For example, make sure to avoid greenwashing by focusing on relevant ESG focus areas for your business, and actually develop strategies to address risks and opportunities—don’t just focus on marketing or communications. In a future piece, we’ll dive into common criticisms and how you can avoid those pitfalls.

‘ESG’ as an umbrella term can be useful, but if you stop at generalized concepts you won’t make progress on the real risks and opportunities that will prevent or drive profit and sustainable development.

Some Relevant ESG Practices to Implement If You’re Just Getting Started:

• • Define your corporate purpose: what you will do for profit that will benefit a broad group of stakeholders, including people and the planet.
  • Develop a diverse board. Ensure independent director(s) are on the board.
  • Do a lightweight materiality assessment and make relevant commitments (e.g. Net Zero targets, implementing responsible supply chain policies—who you will or won’t buy from).
  • Integrate processes into product design and development and business operations that consider key ESG risks and impacts (e.g. implement responsible product design practices and develop inclusive hiring practices).
  • Strengthen governance practices and policies including code of conduct and ethics, anti-harassment, anti-corruption, and whistleblower policies, and board committees.

If You’re Further Along in Your ESG Journey, Consider These Practices:

• • Align with global standards and frameworks, start or continue measuring and managing performance in relevant areas (e.g. employee engagement as a percentage).
  • Develop a process for continuous engagement with internal and external stakeholders about relevant ESG risks and opportunities.
  • Build ESG performance metrics into KPIs for executive team leaders and relevant managers.
  • Develop a more robust ESG data management process and controls.
  • Disclose ESG-related performance information.

If you are looking to learn more about integrating ESG practices, take a look at the ESG Inquiry Tool, developed by Tandem Impact.

Norwest takes pride in the support, mentorship and guidance we provide to portfolio leaders as they build their companies for enduring success. We’re at the ready with the resources you need to start or continue your ESG journey and invite you to get in touch with Portfolio Services to start a conversation about how we can help.

Photo credit: Nathalia Segato

The post What Is ESG Performance and Why Does It Matter? appeared first on Norwest Venture Partners.

Hi, I’m Lisa Ames with a Norwest Nowcast about the one question every marketer should be able to answer off the top of their head.

So the question is: if your CEO or board member came to you and gave you an extra $100,000 that you weren’t expecting, how would you deploy those dollars? What would you spend it on? And why?

In these times when budgets are getting squeezed, the question can actually be flipped. And what you’re probably hearing right now is, ‘hey, if we were to reduce your budget by $100,000 (or fill in the blank on the amount), how would you save?’

If your CEO or board member came to you and gave you an extra $100,000 that you weren’t expecting, how would you deploy those dollars?

And so let’s ground our answer in a couple of things. First, clearly, we need to know our data. We need to know what channels are underperforming and performing. We need to know our conversion rates to the funnel, our close rates, because that’s going to inform our decision first and foremost.

Maybe what’s less obvious is our relationships with the sales team and even the CFO. The sales team, those SDRs that are calling on your leads, you want to know what gets them excited, what can they convert the fastest and the best?

And the relationship with the CFO is important because they can help model certain outcomes. They have line of sight on where the business is headed. And so having a trusted relationship with them is gonna go a long way too.

And then finally, trust your gut as a marketer. You probably have been doing this for a while. You’ve seen the patterns over a number of years, and you know where your investments are best spent and where you can cut.

And so what I want to know from you is what questions do you feel like you should know off the top of your head as a marketer? And can you share them in the comments so we can help other companies and other marketers succeed?

Thank you.

The post The Pop Quiz Every Marketing Leader Should Ace appeared first on Norwest Venture Partners.

To learn best practices on scaling engineering organizations, we hosted a fireside chat with three industry veterans:

• • Ohad Parush – Chief R&D Officer at Gong, the global leader in revenue intelligence. Ohad helped scale Gong’s engineering org 10x from 30 to 300+ engineers. He has 25 years of experience managing large R&D teams at companies such Akamai and Imperva.
  • Sri Ramalingam – Head of Engineering at Harness, the leading intelligent continuous integration, continuous delivery (CI/CD) and software delivery platform. Sri has scaled the Harness engineering org 5x to over 400 people and leads 7 modules in production. He previously led Zoom’s platform engineering team during their massive growth from 2014-2019.
  • Einat Orr – Co-founder & CEO of Treeverse, the company behind lakeFS, an open-source platform that delivers a git-like experience to object-storage-based data lakes. Before founding Treeverse, Einat built R&D organizations and led the technical vision at multiple companies, most recently scaling the engineering org from 0 to 200+ people at Similarweb as CTO from 2014-2019.

Five key lessons from our fireside chat that we unpack in more detail below:

1. Give people ownership

2. Organize teams in pods of 2-10 people

3. Define culture early

5. Embrace hybrid work

6. Minimize use of contractors

“What are some lessons on scaling engineering teams from 10 to over 300 people?”

Ohad: People like to have responsibility and feel like they’re contributing to what’s being done. To retain this feeling, we work in small pod structures, with each pod owning a specific feature or product. Each pod is almost self-sufficient, in the sense that there is a product manager, a UX designer, and a team of heterogeneous engineers that are working very closely.

Sri: We created a squad model similar to what Ohad calls a pod. The squads are small teams – two to 10 engineers – and everyone is located plus or minus three hours in a time zone, so you don’t have to wake up somebody in the middle of the night or have meetings during dinner time. Smaller teams mean we can move faster. One of the unfair advantages startups have is speed, and you don’t want to lose speed for any reason.

Einat: I also like cross-functional teams and small teams that can deliver. I would first define the process and then create an org structure that best supports that process. You need to create smaller processes within your architecture to allow more people to work in parallel. That is critical, because if you don’t scale the architecture together with a team you would probably not be getting the velocity you need. As much as I love cross-functional teams, if the teams involve people who are working on different components, that doesn’t contribute to velocity; it actually works the other way around.

People like to have responsibility and feel like they’re contributing to what’s being done. To retain this feeling, we work in small pod structures, with each pod owning a specific feature or product.  -Ohad Parush

“Is there a rule of thumb on when to build a centralized infrastructure team?”

Einat: As late as possible.

Sri: As you grow, you need to be careful about what I call the “island problem,” where your engineers start to focus on specific areas and lose a larger sense of how the product and the platform work. The good thing about a founding team of 20-30 people is that everybody’s working on pretty much the same thing, so if there’s a production issue everybody jumps in. When you get to phase two – where you have more products, are handling a lot of common core services, APIs and all that – it makes sense to introduce a dedicated platform engineering team.

Ohad: We have what we call “infrashifts,” in which every engineer takes a 1- or 2-week break from their day-to-day work and joins the core infrastructure team, led by our Chief Architect. This has been very successful because the engineers work with people they don’t otherwise see and learn how other things work. When they go back to their normal teams, they know much more.

As you grow you need to be careful about what I call the “island problem,” where your engineers start to focus on specific areas and lose a larger sense of how the product and platform work. When you get to a point where you have more products and are handling a lot of common core services (APIs, etc.), it makes sense to introduce a dedicated platform team.  -Sri Ramalingam

“Nurturing culture: how do you build it, articulate it, hire and fire for it?”

Ohad: The culture needs to go beyond R&D. There needs to be a company culture. They did an interesting thing at Gong; it happened before my time. They sat down and defined the Gong operating principles; the principles they aspire to. Coming from Israel, we have a concept of “no sugar” – we give you feedback right in the face; something Americans don’t usually do. Once it becomes the culture, it’s the way everyone speaks in the corridors. It’s interesting to see how new people coming into the company immediately get addicted to that culture. It’s always something I’m impressed to see.

Einat: The thing with culture is that it makes the decisions for you when you are not there. Whenever there is a void, the culture will make the decision. And this is why it’s very important. We have discussions to apply the culture, because it’s not enough to say, for example, we don’t sugarcoat anything. Let’s roleplay these situations where I’m really upset about someone harming production and I didn’t sleep all night and I need to have a good discussion about that. What is the way we have those discussions? What is the expected outcome? What are the processes that help us get to that culture? For example, we have a postmortem after every such problem. These are tools that help enforce and apply the culture.

The thing with culture is that it makes the decisions for you when you are not there. Whenever there is a void, the culture will make the decision.  -Einat Orr

“What’s your stance on remote and hybrid work?”

Ohad: The important thing we’ve learned is that reality changes and we as humans adapt. I remember that just a couple of weeks before COVID erupted, we sent out an email to all the employees to minimize the days they don’t come to the office, because we value working from the office. Then COVID erupted and our life changed. The first two or three months, it’s like a deer in headlights. How do we recruit? How do we onboard? Would it impact our ability to collaborate? But then slowly we found ways to do this. People found that Slack could be an effective way to communicate. And you can supplement with Zoom and WhatsApp communication. So we’ve changed our perspective. No one is thinking of going back to the office full-time; everyone is talking about working hybrid. People are able to have a better work/life balance, spend more time with their families. And when people come to the office, they actually value the energy they get from being around other people. So to me life is much better now than it was before. I don’t think we’ll ever go back. We have adjusted to the new reality.

Sri: The pandemic made us rethink how we operate. Providing flexibility is extremely important. Instead of every conversation becoming a Zoom meeting, we are moving to a more asynchronous means of communication. For example, if you want to review a design, you put it in a document and use asynchronous collaboration rather than holding a meeting every time. We are still not there completely yet, because it’s tough to get engineers to write. So, it’s more of a cultural shift. How you make the hybrid model work is a challenge. If you have five people in a room and three are on Zoom, the people in the room will always have a natural advantage. How do you break that and create a seamless hybrid environment?

We’ve embraced hybrid work. People are able to have a better work/life balance, spend more time with their families. And when people come to the office, they actually value the energy they get from being around other people. So to me life is much better now than it was before.  -Ohad Parush

“How do you balance building in-house versus using third-party vendors?”

Einat: It is extremely important to have the right model for using third-party vendors. I would use remote teams, not just one person. Then you have to do quite a lot of groundwork to make sure they feel some ownership and feel the culture. For example: sending people physically to sit with them, a lot of face-to-face on Zoom, or having a dedicated product manager for them. You want to have their deliverables presented as any other team in your organization; make them feel as if they are really a part of your team. If everyone around them behaves in a way consistent with the culture, then they would adopt the culture and become part of the company. I did it several times and it worked beautifully. But ownership is key, because the moment they don’t own anything, they become a person who does what they need to do and then goes home.

Ohad: We try to minimize usage of third parties or contractors, especially if they’re not in our main centers of excellence. We do use contractors in Israel, but we treat them like any other employee (except for equity). We have just opened a development center in Dublin, and we are applying two lessons that we learned from a failed effort in Romania. First, you need to have a strong site lead; someone that people can relate to and see as a leader. Second, they need to own something that is valuable for the company or the product. If you give them just the scraps or the stuff you no longer want to do, you won’t be able to retain good talent. So, we’re moving critical pieces of software over to them. It’s a risk, but either we do this or we don’t do it at all.

Sri: Getting contractors to work on your core codebase is always going to be challenging. We have adapted the contractor model so if there are peripherals you want to develop, use your API’s but don’t let them get into your core code. Give them bigger, logically independent components. There are some considerations you need to take; e.g. if you have federal business in the U.S., it becomes a bit more challenging because of audits and a higher level of scrutiny.

Getting contractors to work on your core codebase is always going to be challenging. We’ve adapted the contractor model so if there are peripherals you want to develop, use your APIs but don’t grant access to your core code. We’ve found that giving contractors bigger, logically independent components work best.  -Sri Ramalingam

The post Scaling Your Engineering Org? 5 Pro Tips From Vets Who’ve Done It appeared first on Norwest Venture Partners.

Our 2022 report affirmed that remote work is a large component of return-to-office policies. About two-thirds of companies added some form of remote work opportunity, with 34 percent offering options for fully remote roles, and 25 percent for partially remote or hybrid roles.

However, despite the initial buzz about remote work, the percentage of workers permanently working from home is expected to dwindle in the coming years. The present and future for many millions of workers is some form of a hybrid work environment, in which most employees split their time between working in the office and working remotely.

Workforce sentiments and trends both indicate a complete shift from the traditional 9-to-5 work structure. At the same time, many organizations are hesitant to go fully remote. The hybrid work model allows both employers and employees to find that delicate balance and go forward together.

More Time at The Workplace

Remote job postings have eased and employers have slowly regained their bargaining power over employees who prefer to work remotely. Job listings on LinkedIn offering remote positions fell from 16 percent in January 2022 to 12 percent by December 2022. This development will likely continue through 2023 as 50 percent of businesses expect employees to be in the office at least five times a week.

In general, the workforce appears to favor hybrid environments over working in the office full-time. A recent study found that a vast majority of workers prefer a hybrid setup where they can work remotely for 25-75 percent of the time. The latest data shows that nearly a third of combined Gen X and Baby Boomers say they can be productive in both the home and office. Over a fifth of millennials and Gen Z share the same sentiment.

Evolving Office Models

A shift toward hybrid working models will massively impact the way founders build companies going forward. At Norwest, we wanted to delve deeper, and explore the future of the hybrid work environment to help our portfolio companies understand how to design a model that works for everyone in this new normal. We also thought it was important to analyze employee sentiments towards various workplace models after nearly a year of working from home.

Over half of employers support a hybrid work model where employees report to their workplace a few days per week. In contrast, only 5 percent of companies favor an entirely remote work scenario. In the near term, most of our companies will adopt a hybrid approach.

There is no denying that we are now in an era where hybrid work models are fast becoming the norm. How do employees feel about hybrid work? We dug in to some key research and found four key insights:

1. Most employees like the flexibility of a hybrid work environment.

An earlier study conducted during the pandemic showed that 90 percent of respondents believed a hybrid workplace model would become the standard post-pandemic. While it’s still too early to understand the long-term ramifications of remote work, many high-revenue growth companies have embraced hybrid work models. During the height of the pandemic, many workers didn’t expect to come back to the office. And in a post-pandemic world, a majority of employees prefer the flexibility that hybrid work offers.

Whether they’re interested in maintaining a healthy work/life balance, not wasting time in a long commute or feeling more productive at home, employees clearly crave the flexibility of a hybrid work environment. Wise organizations should adjust, or risk losing potential talent to other, more flexible companies.

90% of the respondents believe that post-pandemic, a hybrid workplace model will be standard for most businesses.

2. Office spaces still serve a great purpose, even in a hybrid working environment.

Although most employees enjoy the benefits of WFH, employees are less willing to forgo the office completely.

Our evidence suggests that employees want the freedom to choose when and how often they utilize their office space. They enjoy having a dedicated space for socializing and collaborating. As a result, organizations are working to transform conventional offices into hybrid-friendly spaces, conducive to collaboration, communication, and optimal performance.

The takeaway? In a hybrid workplace era, organizations might want to rethink their strategy on how they utilize their office spaces. They might not need a dedicated area for every single employee; but they can still leverage the square footage they have for meeting spaces, private phone booths, or creative uses.

3. Employees need connectivity and flexibility to become productive

As companies look ahead to adopting a hybrid work environment, they should bear its potential limitations in mind. Along with other issues with remote working, leaving the office behind risks a rise in loneliness. In a 2021 survey of our portfolio companies, 23 percent of employees cited feeling isolated or alone in their WFH environment, and 19 percent missed participating in company culture. Another 18 percent found it difficult to collaborate and brainstorm with their colleagues remotely.

Our data shows that employees need subtler forms of support that prevent them from feeling disconnected. Only a third of employees report that they have received training or education on work from home best practices.

Workers need to be flexible and their experiences personalized so they can thrive both at the workplace and home. A recent study by Gallup support this, indicating flexibility and connectivity will be crucial to the hybrid employee experience. Employers should set in place rules and processes that drive communication, encourage partnerships, and enhance teamwork.

89% of employees say they are satisfied with their current work from home experience.

4. In a hybrid work environment, collaboration requires extra effort

Transitioning to a hybrid workplace model appears to make collaboration more challenging than in a classic, in-person office setting. Over two-thirds of respondents believe collaboration within a hybrid work environment may prove more difficult compared to an all-remote environment.

Two of the top-cited pain points were difficulties in participating in meetings (both being heard and just understanding what is being discussed) and the feeling of being left out of the office culture.

How can companies empower employees to collaborate more effectively in a hybrid work environment? In our survey, respondents say they would value the following:

• Making video (rather than solely voice) mandatory during collaborative sessions (cited by 58 percent of respondents)
• Providing equipment with better camera and audio quality (cited by 36 percent of respondents)
• Adopting smart cameras that identify the speakers’ faces (cited by 32 percent of respondents)

It is clear that any successful shift to a hybrid workplace requires a proactive approach that implements combined inputs from the management and employees. Both parties should communicate and collaborate in creating and executing a viable hybrid work model.

Going Hybrid: The Only Way Forward

The hybrid work environment is here to stay. To thrive in this new working landscape, companies need to be keenly aware of how arrangements are impacting employees, both positively and negatively. They need to take steps to address the issues with remote working while recognizing that there is much about a hybrid setting that employees truly value.

Happy and motivated employees make for successful companies. As we enter a new, hybrid world, savvy companies will want to optimize their operations so that their staff experiences the best possible hybrid workplace. Hopefully, our survey helps companies thrive, through 2023 and beyond!

The post The Fluid Office: Rise of the Hybrid Work Environment appeared first on Norwest Venture Partners.

Since I first published the article, the financial landscape has been upturned. After years of sky-high valuations and free-flowing capital, investors are tightening their belts. In the first half of 2022, investments in US tech startups dropped to $62.3 billion, the lowest total value since 2019.

Though times feel tough for startups right now, in some ways, this more frugal mindset fits my advice around capital efficiency. Why? Because I consistently advise young companies to raise money cautiously. Raising too much, too fast can make it difficult to find capital further down the line. I’ve always said that startups should first create capital efficiency.

What is Capital Efficiency?

At a high level, capital efficiency is the financial return on capital deployed. It encompasses the ratio of how much capital a company spends versus how much it brings back in. Your capital efficiency ratio measures how efficiently your company spends cash to operate and grow.

It’s important for startups to establish this ratio early on and maintain it at scale. For one, it helps develop engaged, thoughtful leadership. In capital efficient companies, leaders need to be very deliberate about how they allocate resources. This leads to more informed decision-making, enabling executives to hone thei rapproach to business.

A startup that holds the line on its capital efficiency ratio through angel funding rounds demonstrates a track record of sound money management. Institutional investors are much more likely to throw their money behind a startup that has used its angel funding judiciously than behind a devil-may-care spender.
This is more relevant in the current market as investors withcapital to spendare looking for safer bets than ever.
With this in mind, below are some of my best practices for maintaining capital efficiency.

1. Don’t splurge on sales and marketing

Inefficient sales and marketing spending is one of the most common ways startups waste capital. A Gartner study has found that the average marketing budget for startups is 11 percent of their overall revenue.

I’ve seen many startups hire large sales and marketing teams, then launch huge campaigns, before they fully understand their business model. This is a setup for failure. In a company’s early days, the founding team should be making most sales.

I’ve seen many startups hire large sales and marketing teams, then launch huge campaigns, before they fully understand their business model. This is a setup for failure.

When your company is small, it’s not efficient to hire a sales manager. Your CEO, who has a much stronger understanding of the industry problem your company is trying to solve than anyone else, should be your number-one salesperson. Customers take a huge risk when they bet on the product of an early-stage company. They want to see the whites of the CEO’s eyes to know he’s committed to their success.

The founders of WageWorks, where I was VP of sales and partner development, did a great job on this front. They were tax policy experts, not salespeople, but WageWorks’ commuter benefits services were in such high demand that despite having no prior sales experience, they were able to sell to major clients, such as Ernst & Young, Pitney Bowes, and Bank of America within the first two years. Such customers gave WageWorks credibility when the company began marketing to Fortune 500 companies. By 2003, when WageWorks hired its first professional salesforce, 50 of the Fortune 500 were customers.

Likewise, when life sciences software maker Veeva Systems launched, it focused primarily on selling to just the top 20 companies in the pharmaceutical industry. When it went public in 2013, Veeva was a $4 billion public company few had heard of. Its leaders had targeted customers personally, building meaningful, long-term relationships, and felt no need to pound their chests in Silicon Valley. Then, with a meaningful base of customers and product validation, the company benefited from word of mouth and became the industry standard for pharma CRM despite spending very little on marketing.

To improve capital efficiency, startups need to carefully consider their expenditures and ensure they are getting the most bang for their buck. Every dollar wasted could have been used to fund a more crucial part of the business, such as improving product development. By being mindful of their spending and ensuring that every dollar is well-spent, startups can give themselves the best chance at success.

2. Hire the most eager talent, not the most senior

In a company’s early days, you need employees who want to execute, not delegate. Capital-efficient startups tell me they turn down a lot of applications from seasoned engineers who haven’t coded in at least five years and are used to delegating. They realize they need employees across all functions who will roll up their sleeves.

Aaron Dinin, a lecturing fellow for innovation and entrepreneurship at Duke University and founder of multiple venture-backed startups, advises young entrepreneurs to spend less time talking and get more things done.

Startup teams work best when a group of people with diverse and complementary skill sets divide the work among themselves, do their jobs as best they can, and trust that their co-founders are doing the same thing.

A startup I know churned through three senior sales leaders in two years before realizing that it should promote its top sales representative. He had been helping the company define product-market fit and had been speaking with lots of customers; he had more credibility to lead the team than any outsider.

In these early days, you want people who will be motivated more by equity or potential bonus than guaranteed wage. They’ll have more conviction in what you’re doing and will want to do more to increase the value of your company than an executive who’s in it for an unnecessarily high wage. They’ll set the company culture and grow into bigger roles over time.

3. Solve an industry pain point

If your startup is not meeting a specific market need, customers will be hard to come by. CB Insights reported that 42 percent of startups they surveyed fizzled out because they did not solve a major industry problem.

To improve capital efficiency and achieve major business growth, a startup should focus its resources and attention on one product that solves an important pain point. Customers tend to pay for products that solve their top one or two problems; many startups waste money trying to build a portfolio of products, each with a thin layer of functionality. These companies don’t produce the top product in any area.

It’s better to have small successes than try to win the entire market at once. Develop other products over time
So take a methodical approach to your product plans. It’s better to have small successes than try to win the entire market at once. Develop other products over time.

It’s better to have small successes than try to win the entire market at once. Develop other products over time.

Cornerstone OnDemand, where I was VP of channel management, developed and launched its employee learning software before turning its attention to other cloud-based talent management products. Building a single best-of-breed product gave Cornerstone the credibility to later sell its customers recruiting, performance, onboarding solutions, and other products.

Likewise at WageWorks, we first focused on a commuter benefits product. Our success in this realm gave us enough credibility to later develop and sell health savings account products, among others. In the early years, we focused on one area where we knew we could provide the best product, and we became the top company. Customers had such a great experience that they trusted us when we began to offer more.

Bonus Tip: Keep money in the bank

Many entrepreneurs who raise a lot of money early believe attracting investors will always be easy. This isn’t so. Investors want to see that you’ve been successful with what you already have.

They want to see that you have channeled money you’ve saved on marketing and recruiting into developing the best product in the marketplace. They want to see that you are spending prudently.

And of course, cash flow is an excellent signal of your startup’s capital efficiency. The amount of money coming in and out of your organization, the channels, and the sources of these funds are critical information on a company’s financial health.

Capital Efficiency: An Investor Magnet

When investors are judging which startups to finance, a track record of capital efficiency can be very attractive. It’s a positive signal of founder discipline and leadership. Capital efficient companies typically have a clear destination and have set a three-to-five-year window to get there.

Capital efficiency indicates that founders have a mindset built on cautious and calculated spending for maximized returns. This cultivates a sense of confidence among stakeholders, making any startup extremely attractive to investors.

Super short takeaways: 10 ways startups can establish and maintain capital efficiency

1. Develop the best product addressing one key problem to start.
2. Ensure that the problem is a top pain point for many stakeholders.
3. Hire talent that wants to execute, not delegate.
4. Promote from within.
5. Have your CEO lead sales efforts to secure the first 10 customers.
6. Ensure that those first 10 customers are not your friends or family.
7. Establish your sales model before expanding go-to-market efforts.
8. Quantify the return on investment before spending anything on marketing.
9. Test your marketing messages with small audiences before running major campaigns.
10. Don’t spend everything you raise.

The post 3 Best Practices for Using Capital Efficiency to Drive Major Growth appeared first on Norwest Venture Partners.

Taking the lessons I’ve learned from previous downturns, I’ve compiled a quick list of 5 ways you can retool your sales and product strategies to land deals on a dime.

ABC: Always Be Closing
EBC: Everybody Be Closing

Your installed base has never been more valuable than it is now. We may be entering a period of low to no new logo growth, which means you need to protect your current customers at all costs. For a market like today, the classic Glengarry Glen Ross “Always Be Closing” should actually be “Everybody Be Closing.” You should change your mindset to think of every employee in your company as a lightweight customer success or account executive.

By everybody, I truly mean everyone in your company—the engineers, product people, and back office folks, all hopping on the phone to talk to customers. You should always stay in touch with your customers, but it’s crucial when the market is down because those are the accounts you’re most likely to grow. That’s where you’re going to land an expansion, upsell, or cross-sell. If you don’t embrace your customers right now and build deeper relationships, your competitors will.

You should always stay in touch with your customers, but it’s crucial when the market is down because those are the accounts you’re most likely to grow.

In 2015, I was working at desk.com when we hit some headwinds. Our general manager at the time told us to get in touch with every single customer. She assigned a list of top customers to everyone in the office—there were hundreds and we called every single one. Throughout those calls, we learned there were a large number of customer support issues that were unsolved; we also learned that some weren’t even logged as tickets. Using that information, we proactively dealt with each case and lowered our churn.

We also found out—this was a little bit more shocking—that most customers were only using about five percent of what we built. Some customers had been working with the product for years and didn’t even know certain features existed. After stepping in to help and show off the product features, we saw more expansions and upsells.

Apple Pie and Cookie the Pipeline

There has never been a better time to get creative on first customer contact—and get as creative as you possibly can. Every buyer is inundated by SaaS reps, who are leveraging every channel to blast their offering, which means you need to get creative when conducting your cold outreach.

One of the best examples of creativity I’ve seen happened about 10 years ago when I worked at Salesforce. A sales rep from Pluralsight spent a year sending me messages over LinkedIn. He figured out my email address, he left me voicemails and I ignored all of it. Not on purpose—I just had other things going on.

Then one day I got a call from the mailroom, telling me that I had to come retrieve a perishable item. I had no idea what they were talking about but headed down to investigate. And sure enough, when I got down there, I found a warm apple pie from a local bakery in a box with a cellophane window. In that moment, I knew exactly what was going on.

I took it upstairs and the smell of apples and cinnamon permeated the entire floor. Everyone came over to investigate.

What’s going on over here?

Can I get a slice of that?

Wow, who’s that from?

Oh, Pluralsight. Who is that?

You’re going to call them back, right?

And I did. After a series of meetings, we closed a multimillion-dollar deal with Pluralsight. Not bad for a $50 apple pie.

Welterweight PLG

Product-led growth (PLG) is a hot topic these days and for good reason—it’s a cheap way to new annual contract value (ACV). We have two of the most successful PLG stories in our own backyard, Slack and Calendly. They have taught us everything we know about PLG. They gave away nearly 100 percent of their product for free and gamified the system to attract new users. They incentivized users to share it with their network, getting other people to sign up for free causing the network to grow virally. And once the benefits have really sunk in, they go for the enterprise upsell—which is what I call pure play PLG.

Slack had the benefit of building a PLG product from day one, but most companies don’t have that privilege. In fact, if you try to jackhammer your own product to become a PLG product, it could take you quarters or years—and there’s a chance you never get there. And not all companies were designed to be PLG companies. The good news is there’s an in-between that I call Welterweight PLG. It requires a smaller investment, but still allows you to see the benefits of PLG.

If you’ve had a free trial sitting in your product backlog, now’s the time to spin it up.

A good place to start is a free trial. If you’ve had a free trial sitting in your product backlog, now’s the time to spin it up. Feature flags are a great way to get free users engaged in a trial. As the users go through the free trial, you can bring in your favorite user analytics tool (Mixpanel, Pendo, etc), and send that data to your sales team. This arms them with a greater understanding of how someone is interacting with the product and equips them to have a more meaningful, content-filled conversation when they do reach out.

On top of that, you can build a drip campaign through email, letting these prospects know the value and benefits they can get by upgrading to the enterprise version.

I currently sit on the board of a company called Connect the Dots. Connect the Dots has a product that maps your network to find the strongest connections to the people and companies you want to reach. The founders of the company wanted to build two products: PLG and enterprise. They didn’t have infinite resources—they had to pick and choose which to prioritize. They decided to put most of their effort behind the enterprise product and then worked to build a free product. Only they didn’t build the PLG flywheel, they created a lightweight version that served up most of the software functionality for free. That decision allowed them to extract a lot of the value of PLG, while avoiding the engineering and development time that takes a tremendous amount of effort.

Throw Out the Trash, and Focus on the Fresh Food

There’s never been a better time to focus on optimizing your sales pipeline. During a downturn, the way we look at our pipeline is different from every other period in history. Now is the time to focus on those top 25 percent of accounts that are most likely to close—and throw out the bottom 75 percent. Why? Because they’re probably not going to close anyway. We’ve all seen it: prospects’ budgets are frozen and they are bumping their buying decisions out to next year. That’s alright, though, because you can hone in on the deals most likely to close. You can spend more quality time with the customers that have a higher chance of success.

Way back in the early 2000s, I was a co-founder of an early-stage startup and we built a product for the healthcare industry. We had a list of 30 prospect accounts that we wanted to go after, but the twin towers had just come down and the markets were tanking. We knew buyers weren’t going to buy anything for the next year or more, so we made the decision to focus on the top five accounts and put those other 25 aside for a minute. We then put all of our energy into building highly customized demos for those five customers. We spent a massive amount of high-quality time with them and we ended up closing every single one of those five deals.

We could have gone after those other 25 accounts, but that would have risked spreading ourselves too thin. And right now, during a downturn, there is no time to spread yourself thin. You should focus on building the deepest possible relationships you can with your prospects. Full stop.

Hunt Down Old Customers in New Jobs

Why waste your time building trust with a new customer when you can hunt down your old customers in their new jobs? Hopefully, your old customers love you—and you can help them build their new careers in their new jobs.

The current market poses a great opportunity to do exactly that. I work with a company called Bluecore that sells exclusively to the retail industry. The retail industry is notorious for employees moving around a lot. One day, their champion, who was the director of merchandising at a big retailer, vanished. Most companies would have panicked and tried to find their new champion. Instead, Bluecore tried to figure out where he went. And it turned out that he had gotten an upgrade and was now the head of merchandising for an even larger retail brand.

He was thrilled when they re-connected with him because it was somebody he knew, loved and trusted from his past. And again, after a series of meetings, they’d landed a deal that was much bigger than their average. The sales cycle for this opportunity was also much shorter because he already knew the value of what he was going to get. In a downturn, I urge you to do more hunting down of your old customers at new jobs. It can really reduce your sales cycle.

Hopefully, your old customers love you—and you can help them build their new careers in their new jobs.

Creativity is your best friend

Weathering a downturn or any sort of economic uncertainty challenges even the most seasoned companies and teams. These growth tips boil down to two core directives: unlock creativity across aspects of the business and deepen your current or future relationships with customers. If you stay true to those two values, your chances to learn more, dig your heels in and grow will multiply.

The post 5 DIY Growth Hacks to Juice Your Sales on a Dime appeared first on Norwest Venture Partners.

Key performance metrics I look for as a venture capital investor

I have spent more than 15 years of my career building, investing in, advising, and studying online marketplaces. I am convinced marketplaces possess very unique and fascinating characteristics, which are often counter-intuitive and easily misunderstood.

By “online marketplaces,” I am referring to a central exchange of goods or services whereby a large fragmented supply/seller base meets in one concentrated place to sell to a large and fragmented demand/buyer base. Visually, this many-to-many model for commerce has been captured as a butterfly. Lots of suppliers (one wing) meet lots of buyers (another wing) in one central spot (the body). That “body,” the marketplace, typically has a lot of the concentrated control and power, which results in high equity values.

The online marketplace sector continues to grow despite market woes. By 2023, online marketplaces are expected to dominate the e-commerce space. In the US, the online marketplace sector is expected to grow at 15 percent per year and become as large as direct e-commerce platforms by 2025.

Given that outlook, investing in online marketplaces could prove to be fruitful . However, it’s a crowded, competitive market that’s hard to break into.

Successful online marketplaces tend to enjoy incredible network effects that result in winner-take-most dynamics. For the winners, this is very rewarding and highly defensible. Unlike companies in most technology sectors, where there can be multiple winners, marketplace dynamics offer no prize for second place. The results are often binary.

An early successful example of this is eBay. eBay was able to dominate most of the auction marketplaces in the world but lost the network effect war in China to Alibaba, Latin America to Mercado Libre, and Japan to Yahoo! Japan.

All of these regional online marketplace leaders are now multi-billion dollar businesses. More recently, we have seen several great online marketplaces emerge and thrive in many sectors of the economy, from fintech (e.g., Stripe), to hospitality (e.g., Airbnb), to crafts (e.g., Etsy), to transportation (e.g., Uber), to clothing (e.g., Threadflip), and even to education (e.g., Udemy).

I’ve evaluated each of these winning online marketplaces, and I’ve found that they are very similar to each other yet very different from their less-successful competitors, especially in five key dimensions:

• What do they do differently early on compared to their competitors to emerge as the undisputed leaders in their own sector/category?
• At the same time, what do these specific winners have in common?
• Is there a recipe for success?

I contend that there are five “uber” ingredients (pun intended), which – if present – create the recipe for the successful early detection of a winning marketplace.

1.   Trading Liquidity: Methods for increasing and sequencing effective supply & demand “matches”

Marketplaces’ most important value proposition is to deliver high-quality demand to providers and high-quality supply to buyers most efficiently and effectively. In other words, an online marketplace is only as good as its trading liquidity.

Trading liquidity is an essential consideration for any investor, but it is necessary for the context of investing in online marketplaces. That’s because these digital marketplaces are relatively new and dynamic investment opportunities, and they can be subject to large swings in trading liquidity.

When an online marketplace first gets started, the suppliers often need to be patient and wait for the buyers to arrive, so the time to “match” (also called “conversion rate”) is slow. As the marketplace gains momentum, buyer demand increases, and the time to match improves.

Uber, for example, religiously focuses on the time it takes for a driver to be matched with a passenger; response and pick-up time are critical liquidity metrics for them. Of course, many online marketplaces measure this differently. Still, a marketplace needs to do its primary job: satisfy sellers and buyers by delivering liquidity.

2.   Trust & Safety Focus

The other key value proposition an online marketplace offers its participants is a transparent, well-behaving community of buyers, and sellers, who follow precise rules of engagement. Trust and safety are critical in any marketplace, and early marketplaces have an advantage if they focus on them.

Trust, safety and confidence are essential to successful online marketplaces. A thriving community of buyers and sellers helps to create this feeling of trust, as it shows that the marketplace is active and growing. Furthermore, transparent policies and procedures help build trust by showing investors that the marketplace is well-run and accountable.

A good example here is Lending Club. Very early on, Lending Club decided to do their loan underwriting partially to ensure the quality of the loans offered to lenders was very high. This resulted in a meager loss ratio early on, which fueled very high trust among lenders and borrowers.

Trust and safety are critical in any marketplace, and early marketplaces have an advantage if they focus on them.

3.   Habitual Repeat Usage

Another great sign of initial marketplace success is how the early cohorts of buyers and sellers stick with the marketplace over time and continue to use it more actively. I always focus heavily on how early adopters are retained over time.

Early adopters are essential for several reasons. First, they help validate the marketplace business model. If customers are willing to come back and use the marketplace multiple times, it’s a good sign that the marketplace is providing value. Second, early repeat users help build customer loyalty and brand recognition. As the marketplace grows and attracts new users, those early repeat users will be more likely to stick around and continue using the platform, acting as ambassadors for the brand.

Finally, early repeat users generate valuable data that helps the marketplace improve its algorithms and match buyers and sellers more effectively. This, in turn, leads to more users, which attracts more investment and drives further growth.

For example, I was very happily surprised to see that Udemy’s engagement with consumers of educational videos spans several years, and every year its consumer base becomes increasingly addicted to Udemy. Think about Uber and Airbnb as well. Many of their early adopters are even heavier users and stronger evangelists today. As a result, marketplaces must master the “hook” and generate intrinsic triggers that get customers returning.

As the marketplace grows and attracts new users, those early repeat users will be more likely to stick around and continue using the platform, acting as ambassadors for the brand.

4.   Increasing Value Capture

A marketplace should be able to capture more of the value without much change in retention numbers. This is because a network-effect business becomes more valuable as its network effect takes hold. Online marketplaces gain substantial pricing power once they establish evident trust, improve liquidity, and generate a positive brand.

Increasing value capture is crucial. First, it allows the online marketplace to generate more revenue, which can be used to reinvest in the business and drive growth. Second, it helps create a competitive barrier for new entrants. If a marketplace has already established itself as the go-to option for users, it will be much harder for new players to gain traction. Finally, higher value capture can help to increase margins and improve profitability. This is especially important for investor-backed companies that need to show consistent growth to encourage more people investing in online marketplaces and attract more capital.

While sellers and buyers may complain at first, a marketplace can change its value capture as long as they offer more value than they are capturing. Thus, winning marketplaces can charge more; as long as marketplaces don’t become too aggressive, this dynamic should endure.

5.   Signs of Increasing Distance between No. 1 and No. 2

Ultimately, if the marketplace network effects are taking hold, the most straightforward measure that a winner is emerging is the increase in distance between No. 1 and No. 2. This distance can be measured in terms of typical key performance metrics (KPIs) such as traffic, engagement, supply, conversion, revenue, margin, etc. In these and other performance metrics, the top marketplace should be performing increasingly better.

The credibility that comes with being a market leader can instill investor confidence and result in more capital being invested. Conversely, being in second place may make it more challenging to attract investment because there could be a perception that the company is not as strong as its competitor. This is why it is vital for online marketplaces to maintain their position as the market leader, as it can significantly impact their ability to raise capital.

By the end of the maturing cycle, the marketplace could end up with a vast majority of the market share and mindshare. Once the market shares and mind shares are cemented, it is difficult to displace the winner. It is not until another disruptive wave of technology comes around that the marketplace becomes vulnerable to displacement. The lifetime value of a winning marketplace is very long and high; hence the public market valuations and multiples are given.

The credibility that comes with being a market leader can instill investor confidence and result in more capital being invested.

The Norwest Difference

At NVP, our early investments in and lessons from now-successful marketplaces have led us to make our newest marketplace investments, including Udemy and others.  We believe Udemy exhibits these five characteristics and we are very excited about their funding announcement this week.

These five ingredients are not meant to be completely comprehensive. In each of our investments at NVP, we tend to look at dozens of other key ingredients that make a great marketplace thrive.  More importantly, we use our knowledge and best practices to make sure our marketplace partners have a clear competitive advantage.  We actively offer our expertise and guidance to help CEO’s and entrepreneurs achieve that coveted winner-take-all position.

The post Five Must-Haves of Successful Online Marketplaces appeared first on Norwest Venture Partners.

We hosted a fireside chat with JEDI (Justice, Equity, Diversity, and Inclusion) Ambassador Constance Wilson, Global Head of BEDI. Constance shared how she developed the BEDI program at Udemy and what has helped her along the way

To help Norwest portfolio companies along in their DEI&B journey, we combined efforts with The People Collective, Growth by Design Talent, and Collective, to create a comprehensive Diversity, Equity, Inclusion, & Belonging Toolkit. The toolkit is grouped into three sections:

• • Where to Start
  • DEI&B Strategy Framework
  • Accountability, Goals, & Metrics

Today our portfolio companies can access our DEI&B Toolkit online. We have also open-sourced the resource library to the public. The main tenets of the toolkit are helpful to all no matter where they are in their journey. Let’s look at some of the common questions we heard today from the fireside chat.

DEI&B Strategy Framework: Where do I start?

Define what diversity means for your company, and then make sure everyone knows it. Go about it strategically, not performative. When creating your DEI&B strategy, identify your north star and purpose and ensure that your approach is multi-pronged and holistic by evaluating these 5 pillars:

1. 1. Attract
   2. Select
   3. Retain
   4. Develop
   5. Product & Ecosystem

Ultimately, you want DEI&B to be embedded into the fabric of your business, not an add-on.

Attract: A clearly-defined recruiting strategy can help you operationalize, prioritize and measure the effort. We like to say that there are no silver bullets, but rather hundreds of lead ones. (See: Diversity Strategy Worksheet)

Select: A structured hiring process is one of the best ways to mitigate against bias in recruiting. It not only improves the quality of your hiring outcomes but also strengthens the integrity of your approach to promote fair, objective decision making. (See Guideline docs on the Resource Library.)

Retain: Creating a culture where all employees feel they belong and can do their best work will not only empower your entire team to perform to their full potential, but it will keep them engaged and result in retention of your highest performers. Ongoing engagement surveys are a great way to monitor perceptions of culture and provide useful insights into how different parts of the organization are feeling about their work environment.

Develop: Creating a culture of learning and development and investing in the development of your employees is important to your people and DEI&B strategy. Weave DEI&B into the training and development opportunities in your organization. Every stakeholder at your company, and particularly managers, needs to understand their role in creating a diverse, equitable, and inclusive culture.

Product & Ecosystem: Depending on the nature of your business, there may be immediate and tangible opportunities to reduce bias and promote diversity and inclusion through your product. For example, Airbnb changed the way guest photos were revealed to hosts and moved it later into the booking journey. They also implemented a pledge requiring all users to commit to not discriminate. Gather ideas from the team, and particularly your engineering and product employees. It will energize employees to know that they are having a direct impact on your company’s DEI&B initiatives.

You want DEI&B to be embedded into the fabric of your business.

How Can We Measure Progress?

Merely having a DEI&B strategy or initiatives is not enough. You need to be able to show progress. What gets measured gets done—just as with any other corporate initiative, the success and impact of DEI&B initiatives requires measurable outcomes. From the beginning, set out goals and metrics for DEI&B initiatives. If you’re just getting started, launch a DEI&B survey before communicating a strategy to get a baseline you can track against.

Measuring diversity is about impacting the number of people in your organization who come from underrepresented backgrounds. Measuring inclusion is about your culture and work environment.

We’re a small company, how do we start DEI&B without hiring someone?

DEI is more than making a dedicated hire. Having everyone involved from the CEO down will help bring visibility and drive initiatives.

Constance recommends talking to employees to get their input on what they’d like to see from a DEI perspective. Hold trainings where all employees can simultaneously learn about DEI topics. Trainings can be something as simple taking a Udemy course together and reflecting on how to implement changes based on learnings.

When Constance first started at Udemy, she went on a listening tour. Taking 15-20 minutes to hear what is working, what is missing, and what is desired from employees.

How can we recruit for diversity, when we’re not diverse ourselves?

Constance recommends being transparent about your situation. Recognize the reality and state to your candidates what you’re trying to achieve. You want your recruiting to be balanced overall. (See sample recruiting and hiring metrics.)

DEI&B, BEDI, JEDI… regardless of your choice in terms—all efforts are dynamic and ever-evolving. Constance urged us to be strategic, not just performative. It goes beyond updating logos for a month, think about how you’re actually supporting your employees and customers? Do you have tangible actions in place?

Remember, it’s a collective responsibility within the entire company.

About Norwest’s DEI&B Toolkit

Who is the toolkit for?

Norwest portfolio CEOs/Founders, their People teams and anyone directly responsible for ensuring diversity, equity, inclusion, and belonging at their company.

We’ll be sharing relevant sections of the toolkit externally to create awareness, but the majority of the content will be exclusively for portfolio companies.

What are the benefits?

• • Provides practical operational guidance on how to attract, select, retain, and develop a diverse and inclusive workforce.
  • Helps companies create a place of belonging where people from all backgrounds feel welcome.

The post Demystifying DEI&B: How Norwest is Empowering You to Lead appeared first on Norwest Venture Partners.

Hey, this is Scott Beechuk with a Norwest Nowcast. Today, I want to talk about SaaS product managers and what we can all do in a downturn.

Every product leader that I’ve ever met does a couple things really, really great:

• They spend time with their customers;
• They deliver fantastic features; and
• They continuously take input from sales and pipeline customers to figure out what the best roadmap could possibly be.

Well, in a downturn, guess what. There aren’t going to be as many new logos, and that’s okay. We’ve just got to plan for it. What can we do with all those extra cycles that we’ve got as product leaders during this time?

We could:

1. spend more time with our customers, and
2. listen carefully to what our customers are deriving value from within our products, and
3. help them understand how they can get more out of what they already own.

Now, it’s no secret that in the SaaS world, a lot of our customers are only using a small portion of the product that they bought – might be only five percent, 10 percent, 15 percent. How can we help them get a lot more value? We’ve built all these features over the past months and quarters and what we would love more than anything is for those customers to get so much value that they want to not only renew, but they want to expand their use of the products that we’ve already built.

So this is a tremendous opportunity to do just that. We can think of ourselves not as just product managers and product leaders but customer success managers and customer success leaders. And that’s a different way of thinking. But everyone in the company during a downturn should be focused on that one thing, and that’s customer success and customer happiness.

So with that, I’d love to open it up to hear what you think. So please send us your comments. I look forward to it.

The post What Product Leaders Should Do in a Downturn appeared first on Norwest Venture Partners.

Last year, we documented how HR trends shifted in response to the COVID-19 pandemic. This year, our data shows a tenuous tug-of-war as companies balance deteriorating market conditions with investing in the employee experience.

Collecting the insights from 121 people leaders in our portfolio, the 7th annual Talent & People Practices Benchmark Survey uncovered pressing HR questions, including:

• • How do people leaders balance employee satisfaction with startup belt-tightening in an economic downturn?
  • Which benefits will companies scale back to conserve cash?
  • What benefits are table stakes companies must offer to retain employees and attract the best talent—regardless of market conditions?

Norwest’s Talent and People teams analyzed the survey responses to find answers to the questions above, as well as the questions they are being asked most often by HR teams in the Norwest community. I’ve compiled our takeaways below and hope the survey results provide timely guidance for HR leaders as they adjust their forecasts and set their strategies for 2023.

Companies are not cutting back on benefits

Undeterred by market woes, companies view employee experience as table stakes.

In the past few years, there’s been heightened attention on the employee experience, spurring employers to expand benefits that support workers throughout their personal and professional lives. Despite economic headwinds, companies are forging on with their pursuit of the whole-person employee experience.

Our 2022 Talent & People Practices Benchmark Survey showed companies are increasingly investing in core benefits like PTO, remote work, and parental leave as well as perks such as learning and development programs, mental health services, and fitness memberships.

Remote work is a large component of return-to-office policies. About two-thirds of companies have added some form of remote work opportunity, with 34 percent offering options for fully remote roles, and 25 percent for partially remote or hybrid roles. About 8 percent of surveyed companies have closed offices entirely.

The pandemic’s cascading and lasting impact on remote work shed light on the advantages of a distributed workforce. Employees value flexibility and are reportedly happier in remote or hybrid roles. Companies also save money on leasing office space when they have partial or entirely remote teams. With more companies reducing their monthly burn in this uncertain economy, reducing office footprint can represent material cost savings. And while it’s still too early to understand the long-term impact of remote work, companies will do well to embrace flexibility for employees.

L&D programs make a rebound amid the “war for talent.” Our 2022 report reveals that 47 percent of companies now offer learning and development (L&D) options to all employees. In 2021, only 33 percent of companies provided L&D opportunities versus 40 percent in 2019.

The increase in companies implementing L&D programs for all employees is certainly a nod to the dynamics of remote work. Without employees in the office full-time, there are fewer opportunities to learn and absorb information in the organic way it tends to happen in the office. I believe companies also view L&D programs as a means to both attract and retain top talent. In this continued “war for talent,” employers want to compete for—and hold onto—the top candidates, and focusing on L&D is one way to do that.

Companies offer more paid days off (if they’re tracking PTO at all). Since 2021, more companies have increased the number of paid days off that they offer, with 68 percent providing 11 or more paid holidays a year. There was also a 45 percent increase in the number of companies offering 16+ days of PTO a year to employees in their first year of employment. However, we saw a significant drop in the number of companies tracking PTO due to the rising popularity of unlimited PTO policies.

More companies shift to unlimited PTO. Offering unlimited PTO offers the perception of employee flexibility and it removes liability from the balance sheet in states like California where accrued PTO is required to be paid out to employees. Unlimited PTO has largely been a recruitment tool for companies despite receiving negative attention after studies showed that employees took less time off when companies offered it. That trend reversed this year, with employees averaging more days off under an unlimited PTO plan versus a traditional plan. It seems that the blurred lines of working from home (or living at work?) have shown employees the benefits of a healthier work/life balance.

Equality for parental leave holds strong. Parental leave benefits remained largely the same from 2021, continuing an encouraging trend. About 75 percent of companies we surveyed do not differentiate between primary and secondary caregivers, which points to a larger movement that promotes equality for all parents.

Companies are looking to conserve budget

As economic uncertainty looms, employers recast their priorities for compensation as well as DEI programs—clashing with employee expectations.

The findings from our 2022 Talent & People Practices Benchmark Survey highlighted the disconnect between employee compensation expectations and employer budget constraints. Both sides are feeling the heat of rising inflation costs and budgetary concerns of the market downturn, culminating in market conditions we haven’t quite seen before.

Annual increases on the decline. Overall, the percentage of companies offering annual increases fell from 86 percent to 76 percent—nearly a 12 percent decrease since 2021. The drop appears to be at odds with many employees’ expectations that annual increases will at least cover inflation costs this year. In previous downturns, I often heard that people were just happy to have job security, but with living costs constricting household income, many employees expect to see raises.

The value of DEI programs is still being understood. Only one-third of companies have diversity recruiting goals and DEI training programs in place as of this year. Unfortunately, the percentage of respondents who named DEI as a priority for the coming year dropped from 47 percent to 38 percent—nearly a fifth less than the companies who prioritized it last year.

This data underpins the disconnect between employer priorities and employee expectations. Throughout this year, I’ve been included in many hiring processes, including advising our portfolio companies on hiring, and nearly every single candidate asks what DEI programs are in place. It’s a major factor for talent evaluating a potential employer—predominantly Gen Z, the first minority-majority generation and remarkably vocal about seeing more diversity in the workplace (primarily in senior leadership positions).

Earlier this year we welcomed senior advisors Rachel Williams (DEI) and Shu Dar Yao (ESG) to our team, strengthening our commitment to progress in creating broader representation in our industry. Our Portfolio Services team continues to support our portfolio founders, CEOs, and their teams in building diverse, equitable, and inclusive companies.

Hiring and talent acquisition plans are scaling back

The “war for talent” seems to be cooling off as companies trade in their growth-at-all-costs mindsets for a more sustainable approach.

Our 2022 Talent & People Practices Benchmark Survey indicated that hiring will scale back in 2023. The workforce landscape is changing fast though. In late summer when we solicited survey responses, we were already seeing the news of companies undergoing large-scale layoffs. Since then, and as recently as this week, more companies have announced reductions in force (RIFs) and/or hiring freezes. I wrote about clear, compassionate communication for handling RIFs in Harvard Business Review, which I encourage company leaders to read.

Companies are planning to hire fewer people. The number of companies planning to hire 21+ employees in the next 12 months fell to 55 percent in 2022, a 14 percent decline from 2021. This shift is part of a larger trend to optimize budgets as businesses look to do more with less.

Companies are utilizing in-house talent acquisition teams more. The number of companies utilizing internal talent acquisition (TA) teams has steadily increased over the past few years, and in 2022 we saw a near 50/50 split between companies that do and don’t use internal TA teams. A sizable portion (37 percent) of companies reported that their internal TA team brought in over three-quarters of the new hires at the company.

We expect this trend to slow in the coming quarters as budgets tighten and growth plans are cut back. There will likely be an increased focus on leveraging internal teams, but teams will be leaner and more attuned to measuring their productivity. We are also beginning to see companies supplement with contractors on an “as needed” basis, an approach that is easier to scale up or down as conditions change.

Companies may pay more per hire. Hiring costs seem to be reverting back to pre-pandemic levels. In 2022, 30 percent of companies reported an average cost per hire to be between $5-10k versus 22 percent of companies in 2021 who reported the same. The hiring cost efficiencies gained last year look like a blip on the radar, which could put a strain on budgets as companies look to optimize across all aspects of business.

The opportunities that lie ahead in 2023

It’s hard to forecast how the economy will shape the HR landscape in the next 12 months. It’s likely many people leaders will have tough conversations as their companies make complex trade-offs. I find it incredibly helpful to understand how my peers are navigating unknowns, and hope our 2022 Talent & People Practices Benchmark Survey findings can provide that guidance for your 2023 plans.

My parting wisdom is to be as open, kind, and transparent as you can be with your employees. Compassion goes a long way in overcoming challenging circumstances, which holds true in any market.

I’d like to thank Laura Buckingham Thomas for driving this survey year after year, as well as our dedicated Talent leaders Teri McFadden, Kris Snodgrass, Lauren Heller, and Julia Lewis for their insightful analysis.

Watch Our Webinar Discussing The Findings

The post How Startups are Balancing Budgets, Benefits, and Hiring for 2023 appeared first on Norwest Venture Partners.

What is organizational chart mapping?

Organizational chart mapping is detailing out the client’s hierarchy of everyone who will touch your opportunity.

We would spend hours trying to uncover organizational structures, mapping out everyone involved in the deal, identifying their buying role, and discovering that buyer’s position in the deal.

We spent this amount of time on organizational chart mapping because we had to in order to win. In the economic turmoil after 9/11 and the Great Recession later in the decade, winning deals was hard! Businesses rigorously scrutinized both the expense and potential vendors, and questioned everything. If you wanted to make your quota and keep your job, you had to ensure you covered every buyer, understanding and aligning your solution to their personal wins.

Fast-forward to today, and both as the CEO of a tech-enabled service company and as an adviser at NVP, I work with B2B sellers to help them optimize their performance. When getting into deal reviews, I rarely see the use of org chart mapping anymore. The past decade’s economic boom made enterprise selling easier than when I started. Whether it was buyers loosening the purse strings, solutions that more clearly delivered an ROI, or improved seller productivity (likely some combination of all three)—the need to map the prospect’s organization to win a deal lost some of its necessity.

It’s Time to Dust Off Your Organizational Chart Mapping Skills

Whether we are in a recession or not, any enterprise seller will tell you times are tougher. Many companies I spend time with are seeing YOY declines in top-of-funnel lead generation, increases in sales cycle length, declining win rates, and more dreaded “pushes.” But our companies still need to grow, and as enterprise sales professionals, we need to step up our games to do our parts. I am encouraging my company’s sellers and NVP portfolio companies to dust off their organization chart mapping skills to improve their performance.

Mapping organizations is not rocket science; many selling methodologies have their own twist. I learned via Miller-Heiman’s Strategic Selling Methodology. This approach identified four broad buyer roles, which are detailed below.

1. The Economic Buyer: Controls the budget and makes the final decision
The Economic Buyer makes the final decision and often they are either the direct budget holder or it rolls up to them. Typically, they are the most senior person involved in the decision and are looking at the broader benefits of your decision to drive ROI. They are asking if your solution helps them make more money, reduce costs, or support a growth strategy. It is always one of those reasons. There is also always only one Economic Buyer for a sale. Many argue there are multiple, but my push back is always you haven’t identified the true Economic Buyer yet.

2. The User Buyer: Is a direct end-user of the solution you’re selling
User Buyers are going to use your solution. Getting this audience on board is critical to influencing the Economic Buyer. User Buyers want to understand how it will help them do their jobs better, solve their pain, and not threaten their jobs. For example, early in my career, I had a solution that could reduce indirect spending for prospects and was always shocked when a Procurement team told me “no.” What Procurement team doesn’t want to save money?! The mystery was solved one day when a category buyer confessed that it would take away her value to the organization. Never forget, the solution must appeal to people’s personal motivations and if it doesn’t, you’ll need to find a way around that audience.

3. The Technical Buyer: Determines technical compliance of your solution
Technical Buyers are my least favorite buying roles. They can’t say yes, but they can say “no”. These roles are often people in IT, Procurement, or Legal. They can stop a deal because you don’t have a specific security certification, you can’t agree to long payment terms, or you won’t budget on a key legal term. Rarely do they have a personal win in a deal, often they are just trying to reduce risk and not create more work for themselves.

4. Coaches: Your internal champion
Coaches want to see your solution implemented and they’re one of the most important roles. If your solution or your relationship with that Coach is aligned, this person will champion you within an organization, guiding you to the win with the information you need. Rarely have I won an enterprise deal (or seen a victory) without a Coach.

How to map an organization chart

With my deals, I would create an organization chart of everyone who could tough those deals, label their buying role, and then color code the box to identify their position in the opportunity. That chart often became the focus of my deal reviews, helping to identify ideas to help move a deal a long and identifying areas of risk (e.g., “We haven’t done a demo for a group of user buyers, we need to try and get that scheduled asap!”).

Rejuvenating the use of organizational chart mapping in your deal reviews and selling processes is easy. As a CEO or a sales leader, you can take action with these simple steps:

• • • Ensure your team works off of a common methodology to understand organizational dynamics. Whether it’s Miller-Heiman’s approach or something custom to your sales process, your team needs to have a common language.
    • Incorporate organization charts into deal reviews. Make organization charts with identified roles and your deal position a mandatory part of the deal process. These charts should be robust, and if you only see two to three names on a >$100K deal, your seller does not have the complete picture!
    • Be patient. A tougher economy may mean “fewer swings at the plate,” so more deal discipline like org charts will hopefully improve your win rates to help overcome this challenge. Mapping an org chart and developing specific win strategies takes time, so you may not see the same deal velocity as the past few years.

In a future post, I’ll cover in more detail how to identify this information, develop Coaches, and identify strategies to win people over. As a teaser, though, it all comes down to asking great questions and listening! Your sales organization’s ability to ask and receive information to help you win the deal is the key ingredient in building this muscle.

Happy selling!

About the author
David is a senior advisor at Norwest Venture Partners, providing counsel to Norwest’s portfolio companies in the areas of sales, marketing, and operations strategy and execution. He is an experienced data industry executive with more than 20 years of proven success in securing and increasing revenue from new and incumbent customers while delivering superior client satisfaction.

The post Reviving Buyer Organizational Understanding To Improve Win Rates in a Recession appeared first on Norwest Venture Partners.

To provide guidance on this topic, Norwest hosted a webinar to introduce portfolio companies to the “G” in ESG—corporate governance. Given the headwinds brought on by the current macroeconomic environment, we believe that strong governance practices will put companies in the best position to survive and thrive during what could be a prolonged downturn. At the same time, good governance can help companies avoid reputational risks that could threaten otherwise healthy corporate performance and brand equity.

It seems that few can articulate what good governance looks like, but almost everyone understands the pain of poor governance (think of the headlines you’ve seen over the past few years, especially in recent weeks!). We hope the education provided here can help our companies, and the broader ecosystem, to understand the pillars of governance and the levers available to the collective “we” to lead with purpose and affect positive change.

To dig into this meaty topic, we invited our senior ESG advisor, Shu Dar Yao, to share her insights on corporate governance. As the founder and managing partner of Lucid Capitalism, a boutique ESG and impact investing advisory practice, Shu Dar works closely with Norwest and its portfolio companies to educate and guide them on climate change, social inequality, and related risks and opportunities.

Founders and CEOs from Norwest portfolio companies joined the conversation, posing many insightful questions.

Following are highlights and key takeaways from the discussion.

What is Corporate Governance?

Governance is the foundation of effective ESG work, and success in basic business functions more broadly. It is the rules, roles, and processes by which a company and its board are run. It answers questions such as:

• • • Who has decision-making authority and who exercises it?
    • What positive behaviors does leadership demonstrate?
    • Are the right policies in place before they are needed?
    • How do everyday decisions align with the company’s purpose?
    • Can employees freely speak up and feel heard?

Governance Starts From the Top

Lucid Capitalism’s basic framework provides a helpful way to think about how governance works in practice. There are four major building blocks: people, purpose, policy, and practice.

Prepared by Lucid Capitalism

• • • People + Ownership: The board and leadership set the tone for company culture. They create and enforce governance mechanisms.
    • Purpose + Culture: An articulated purpose aligns the board, management, and employee interests, ensuring that day-to-day actions are in line with long-term goals.
    • Policy: Enforced by leadership, policies are mechanisms to ensure compliance and institutionalize culture.
    • Practice: Leadership should demonstrate policy enforcement and decision-making that aligns with the company’s purpose, creating a virtuous cycle of good governance.

Examples of Good and Bad Governance

Shu Dar shared a few examples to demonstrate how the governance framework described above functions in practice:

Stripe is a good example of governance – With a mission to “increase the GDP of the internet,” this provider of online payment products has grown from zero to a valuation of more than $70B in a decade.

• • • Day-to-day decisions are guided by a documented guide to operating principles.
    • Visionary long-term thinking and a consistent focus on the mission inform decision-making.
    • Management communicates the importance of the team’s work to achieving company goals.
    • Employees are encouraged to speak up and contribute; management conducts frequent employee satisfaction surveys.

Opsware is another example of good governance, even in a tough situation – A pioneer in SaaS and cloud computing, the company underwent three rounds of layoffs before eventually being sold to HP in 2007. Even today, the actions of then-CEO and co-founder Ben Horowitz (co-founder of a16z) are recognized as exemplary of the best way to conduct a reduction in force.

• • • Avoided destroying culture by being transparent, timely, intentional, and human with employees.
    • Leaned on the board and investors to navigate the right next steps.
    • Invested time and support into management to deliver difficult news to their teams.

WeWork is an example of poor governance – This provider of shared office space withdrew a highly anticipated IPO after criticism of its corporate governance.

• • • Limited controls: Unbalanced shareholder power and absence of board oversight. CEO had 20:1 voting rights.
    • Company culture failed to foster diversity.
    • Lack of alignment on long-term vision among leadership.
    • High valuations despite a short-sighted business model.
    • Self-dealing: Founder-owned trademarks, received $5-9 million from the company to license them.

How Does Governance Affect Long-Term Success?

Although it occurred many years ago, the Opsware example is still relevant, because many companies, both public and private, may be entering (or are already in) a challenging period in today’s economic climate. Although it is something no one ever wants to do, you one day may have to think about a workforce reduction. And when that is the case, make sure you take care of your people, ensure they know as much about what’s happening as you can share, and don’t lose track of your culture and purpose.

In tough times, the first priority is to survive and maintain viability. After that, continued performance will build resilience. And, if you capitalize on growth opportunities, you can increase vitality and thrive. At each of these stages, governance can play a critical role by:

• • • Maintaining focus on the vision, mission, and core values
    • Engaging all stakeholders (employees, board, etc.) to maximize their contributions
    • Helping to base short-term decisions on long-term strategy

Five Common Pain Points

Before the webinar, we had multiple conversations with founders and leaders of Norwest portfolio companies to learn what governance issues were top of mind for them. Here were the top five issues, and our perspective on them.

1. Workforce Rightsizing

How you treat your team, your staff, and your suppliers during tough times will be remembered. If and when rightsizing becomes an issue for you, be as thoughtful and rigorous and humane as possible. It’s important to remember that people and the role they play in building and upholding company culture are central to good governance, and a poorly conducted downsizing can make ongoing operations challenging.

2. Share Structures, Voting Rights, and Equity Valuation

Everyone recognizes that we are in a very different environment today than we were a year ago, which raises challenges regarding equity-based compensation. (A recent Norwest blog explored best practices for designing the optimum retention equity program.)

We want to emphasize that employee morale is a very important consideration when you look at adjusting options. At the same time, you need to consider the shifting dynamics of your investors. As much as possible, be intentional with all your stakeholders about what the future of your company looks like. Transparency is always the best policy, even if you can’t be transparent about everything.

3. Documentation and Compliance

It may seem obvious, but complete, accurate, and secure record-keeping is essential to any business. We’re talking about a central repository for:

• • • • Financial statements
      • Employee records
      • Board and stockholder minutes
      • Stock and options ledger
      • Tax filings and records
      • Secretary of state filings

You are going to need one person (with job security) to make sure all these records are kept in order, and that you have one shared calendar of record-keeping requirements for the entire C suite. Designating this person from the start—even if it is secondary to their primary job—is a wise decision, and if you don’t have this person yet, it’s never too late to appoint someone.

4. Cap Table Management

We’re surprised by the number of times someone has said to us, “my cap table started off so simple, but got complex really quickly.” It is important to keep your cap table clean and up to date, as it’s the first view of your ownership structure that investors are going to see and that first impression counts. Nobody wants a messy sheet to parse through.

Here’s a summary of how you can maintain your cap table:

Prepared by Lucid Capitalism

5. Revenue-Based Financing

Now might be a good time to think about what you want from your capital structure over the next three to five years, especially if your team has a strong CFO and if you are not too worried about current market conditions. For example, do you want a bit more debt in your cap table? One option might be revenue-based financing, in which investors provide capital in exchange for a percentage of the company’s ongoing revenues. This might be attractive, say, for a SaaS company with strong recurring revenues. It could give you a bit more power to share equity with your employees.

This chart summarizes some of the differences between revenue-based and equity-based financing.

Prepared by Lucid Capitalism

Final thoughts

Silicon Valley is littered with businesses that have yet to break even because they didn’t take actions to ensure the sustainability of their business. That’s why we devoted this webinar to governance and the critical roles people and culture play in making a company successful.

What the general partners of VC funds think about first and foremost is governance. “Is this an organization I trust? Do they have the track record? Have they demonstrated high integrity through multiple downturns, and are thus better able to make it through a choppy market?”

We leave you with two driving ideas:

• • • Your future success will depend in part on how you handle present challenges.
    • Governing responsibly and treating your people right will foster resilience.

Lisa Ames is Norwest’s CMO and Operating Executive. She leverages her more than 20 years of B2B SaaS marketing experience working shoulder-to-shoulder with portfolio companies to help them thrive.

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