business models
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In a company’s early days, the difference between C-level executives and the rest of the organization is simple — employees can walk away from a failure, but the leaders cannot. Under these conditions, certain kinds of people thrive in leadership roles and can take a company from ideation to production.
While there’s no magic formula for what works and what doesn’t, successful startups share common traits in terms of the way their foundational leadership teams are built.
We’ve all experienced what it looks like on the negative end of the spectrum — people making points simply to hear their own voice, leaders competing for credit and clashing agendas. When people would rather be heard than contribute, the output suffers. Members of a healthy leadership team are unafraid to let others have the limelight, because they trust the mission and the culture they’ve built together.
An honest self-assessment is necessary and this is something that only exceptional and selfless founders are capable of.
We are all imperfect human beings, founders included. There are always going to be moments that leaders can’t predict, and mistakes come with the territory. The right leadership team should be able to mitigate the unexpected, and sometimes make the future easier to predict. Putting the right people in the right roles early on can be the difference between success and failure — and that starts at the top.
Investors love founder-CEOs, and founders are often fantastic candidates for this role. But not everyone can do it well, and more importantly, not everyone wants to.
Startup founders should ask themselves a few questions before they lose sleep over the prospect of handing over the reigns:
An honest self-assessment is necessary and this is something that only exceptional and selfless founders are capable of. In many cases, founders decide they need outside help to fill the role. While a CEO may not be your first hire — or even one of the first five — the person you choose will ultimately occupy your organization’s most critical leadership role, so choose wisely.
What to look for: Ambitious vision grounded in execution reality. Your CEO should have hands-on experience that allows them to see around corners, predict pitfalls and identify opportunities.
What to watch out for: Leaders who lack respect for the founding vision or the ability to hire and balance an executive team quickly. A good CEO should be able to manage short-term cash flow and go-to-market needs without compromising the true north, while building a foundation and culture for the long term.
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HoneyBook, which has built out a client experience and financial management platform for service-based small businesses and freelancers, announced today that it has raised $155 million in a Series D round led by Durable Capital Partners LP.
Tiger Global Management, Battery Ventures, Zeev Ventures, 01 Advisors as well as existing backers Norwest Venture Partners and Citi Ventures also participated in the financing, which brings the San Francisco-based company’s valuation to over $1 billion. With the latest round, HoneyBook has now raised $248 million since its 2013 inception. The Series D is a big jump from the $28 million that HoneyBook raised in March 2019.
When the COVID-19 pandemic hit last year, HoneyBook’s leadership team was concerned about the potential impact on their business and braced themselves for a drop in revenue.
Rather than lay off people, they instead asked everyone to take a pay cut, and that included the executive team, who cut theirs “by double” the rest of the staff.
“I remember it was terrifying. We knew that our customers’ businesses were going to be impacted dramatically, and would impact ours at the same time dramatically,” recalls CEO Oz Alon. “We had to make some hard decisions.”
But the resilience of HoneyBook’s customer base surprised even the company, who ended up reinstating those salaries just a few months later. And, as corporate layoffs driven by the COVID-19 pandemic led to more people deciding to start their own businesses, HoneyBook saw a big surge in demand.
“Our members who saw a hit in demand went out and found demand in another thing,” Oz said. As a result, HoneyBook ended up doubling its number of members on its SaaS platform and tripling its annual recurring revenue (ARR) over the past 12 months. Members booked more than $1 billion in business on the platform in the past nine months alone.
HoneyBook combines on its platform tools like billing, contracts and client communication, with the goal of helping business owners stay organized. Since its inception, service providers across the U.S. and Canada such as graphic designers, event planners, digital marketers and photographers have booked more than $3 billion in business on its platform. And as the pandemic had more people shift to doing more things online, HoneyBook prepared to help its members adapt by being armed with digital tools.
Image Credits: HoneyBook
“Clients now expect streamlined communication, seamless payments, and the same level of exceptional service online that they were used to receiving from business owners in person,” Alon said.
Oz co-founded HoneyBook with wife Naama and longtime friend Dror Shimoni. Oz and Naama were both small business owners themselves at one time, so they had firsthand insight on the pain points of running a service-based business.
HoneyBook’s software not only helps SMBs do more business, but helps them “convert potentials to actual clients,” Oz said.
“We help them communicate with potential clients so they can win their business, and then help them manage the relationship so they can keep them,” Naama said.
The company plans to use its new capital toward continued product development and to “dramatically” boost its 103-person headcount across its New York and Tel Aviv offices.
“We’re seeing so much demand for additional services and products, so we definitely want to invest and create better ways for our members to present themselves online,” Alon told TechCrunch. “We’re also seeing demand for financial products and the ability to access capital faster. So that’s just a few of the things we plan to invest in.”
The company also wants to make its platform “more customizable” for different categories and verticals.
Chelsea Stoner, general partner at Battery Ventures, said her firm recognized that the expansive market of productivity tools to serve small businesses and entrepreneurs was “a market of discrete and separate productivity tools.”
HoneyBook, she said, is a true platform for SMBs, “providing a huge array of functionality in one cohesive UX.”
“It unites and connects every task for the solopreneurs, from creating and distributing marketing collateral, to organizing and executing proposals, to sending invoices and collecting payments,” Stoner said. “The company is constantly innovating and iterating in response to its members; we also see a lot of opportunity with payments going forward…And, due to COVID-19 and other factors, the company is sitting on pent-up demand that will accelerate growth even more.”
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Software-as-a-service (SaaS) is now the default business model for most B2B and B2C software startups. And while it’s been around for a while now, its momentum keeps accelerating and the ecosystem continues to expand as technologists and marketers are getting more sophisticated about how to build and sell SaaS products. For all of them, we’re pleased to announced TechCrunch Sessions: SaaS 2021, a one-day virtual event that will examine the state of SaaS to help startup founders, developers and investors understand the state of play and what’s next.
The single-day event will take place 100% virtually on October 27 and will feature actionable advice, Q&A with some of SaaS’s biggest names and plenty of networking opportunities. Importantly, $75 Early Bird passes are now on sale. Book your passes today to save $100 before prices go up.
We’re not quite ready to disclose our agenda yet, but you can expect a mix of superstars from across the industry, ranging from some of the largest tech companies to up-and-coming startups that are pushing the limits of SaaS.
The plan is to look at a broad spectrum of what’s happening with B2B startups and give you actionable insights into how to build and/or improve your own product. If you’re just getting started, we want you to come away with new ideas for how to start your company, and if you’re already on your way, then our sessions on scaling both your technology and marketing organization will help you to get to that $100 million annual run rate faster.
In addition to other founders, you’ll also hear from enterprise leaders who decide what to buy — and the mistakes they see startups make when they try to sell to them.
But SaaS isn’t only about managing growth — though ideally, that’s a problem founders will face sooner or later. Some of the other specific topics we will look at are how to keep your services safe in an ever-growing threat environment, how to use open source to your advantage and how to smartly raise funding for your company.
We will also highlight how B2B and B2C companies can handle the glut of data they now produce and use it to build machine learning models in the process. We’ll talk about how SaaS startups can both do so themselves and help others in the process. There’s nary a startup that doesn’t want to use some form of AI these days, after all.
And because this is 2021, chances are we’ll also talk about building remote companies and the lessons SaaS startups can learn from the last year of working through the pandemic.
Don’t miss out. Book your $75 Early Bird pass today and save $100.
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When a friend forwarded this tweet from Paul Graham, it hit close to home:
Startups are subject to something like infant mortality: before they’re established, one thing going wrong can kill the company. Hardware companies seem to be subject to infant mortality their whole lives.
I think the reason is that the evolution of the product is so discontinuous. The company has to keep shipping, and customers to keep buying, new products. Which in practice is like relaunching the company each time.
I don’t know if there is an answer to this, but if there were a way for hardware companies to evolve more the way software companies do, they’d be a lot more resilient.
Looking back on our startup journey at Minut, I remember several moments when we could have died. However, surviving several near misses we learned to tackle these challenges and have become more resilient over time. While there will never be one fully exhaustive answer, here are some of the lessons we learned over the years:
While you can sell hardware with a margin and make important early revenue, it’s not a sustainable business model for a company that requires both software and hardware. You can’t cover an indefinite commitment with a finite amount of money.
Many hardware companies don’t consider subscriptions early enough. While it can be hard to command a subscription from the start (if you can, you might have waited too long to launch), it needs to be in the plan from the beginning. Look for markets where paying subscriptions is the norm rather than markets that operate on a one-time sale model.
It’s tempting to set low prices for hardware to attract customers, but in the beginning you should do the opposite. Margins allow for mistakes to be rectified. A missed deadline might mean you have to opt for freight by air rather than boat. You might have to scrap components or buy them expensively in a supply crunch. Surprises are seldom positive, and you don’t want to use your venture capital to pay for them.
Healthy margins can also be used to cover marketing costs while you learn what kind of messaging works and what channels you can sell through. If that wasn’t enough reason, starting with relatively high prices will help you avoid another common mistake, selling too much at launch.
This might seem counterintuitive — why wouldn’t you want great success out of the gate? The reason is that you will inevitably make mistakes with your early launches, and the bigger the launch, the bigger the blow. There are plenty of companies who achieved amazing crowdfunding success and then failed to deliver even the first units. Startups tend to chase growth at all costs, but for hardware startups in the first few years there is such a thing as too much of a good thing.
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If I were to pick one thing that unites the global tech scene in terms of culture I would point to the respect and reverence accorded to startup founders.
After all, creating your own company is an ambition many of us harbor. It can bring with it unparalleled freedom, a lasting legacy, prestige, wealth and the ability to do good. Across social and traditional media the feats of founders big and small are lauded for their genius on a daily basis. Many entrepreneurs go to great lengths to showcase their backbreaking hard work and eye-popping success. An outsider would be forgiven for believing that every founder is living the dream as a result of their talent and toil.
Of course, as with nearly every image projected online, the reality is quite different. There is a seldom talked about price of being a founder — the impact on one’s mental health.
A recent study by the National Institute of Mental Health found that 72% of entrepreneurs are directly or indirectly impacted by mental health issues. This compares to 48% of the general population. The damage can also affect loved ones — 23% of entrepreneurs report that they have family members with problems, which is 7% higher than the relations of nonentrepreneurs.
I am in no way a mental health expert. But what I do know from both my own experience and speaking to scores of business owners I work with is that being a founder is an inherently lonely job. Pressure is high and uncertainty pervades every decision. Fear of failure is ever present. Unaddressed, these issues can take a serious toll.
The unpalatable truth is that the situation appears to be getting worse. A similar study conducted in 2015 by Dr. Michael A. Freeman found the rate of mental health issues among founders to be lower — at 50%. While comparing different research pieces is inexact, we only need to look at how the global recession has damaged many companies and how working from home has contributed to feelings of isolation, to know that the environment for startups has got harder this year. Added to this mix is how social media continues to promote an unhealthy fetishization of hustle culture and founding myths.
A number of founders have told me that they have constant feelings of inadequacy and guilt when they compare themselves to the startup gurus who celebrate working 24/7, are constantly selling, raising money or making their millions. They feel they should be working harder or be doing better — just like all the people they read about.
So how do we address this? The first step is talking about it. This means having an environment where we can be honest that not everything is always fine. Speaking to a fellow founder, not about commercial concerns, but about personal worries can be revelatory. I’ve seen it happen in our community. It’s like an “Emperor’s New Clothes” moment.
The myth of the bulletproof, genius, hustling founder can disappear in a puff of smoke as people suddenly realize they are not alone. They find that the concerns, anxieties and uncertainties they feel are almost universal.
Experienced founders can provide invaluable support to people new to the startup scene. They can share their experiences, both failures and success, and reveal some of their coping mechanisms. I would strongly advise founders who are experiencing some of the worries I’ve outlined to actively seek out advice from both their peers and potential mentors — much in the way they may seek out commercial guidance.
Next, we need to address how we tackle the culture and myths around being a founder. Business owners need to know that many of the extraordinary “success stories” they see celebrated online are exactly that — extraordinary.
Similarly, those that promote the principle that working all hours is the only way to be successful are at best talking about what works for them, and are at worst, engaging in a performance to achieve attention. We need to think carefully about how we respond to these posts. There is a fine line between being supportive and enabling unhealthy or damaging behavior and philosophy.
After all, success in the startup scene is all relative. For some owning a small business that makes them a decent income with a good work-life balance is the goal. For others, it is simply being able to do what they love in the way that they want. Very few will get the exit that makes them a millionaire, and an infinitesimally small minority will build the next Facebook . I cannot stress enough how important it is for founders to keep their aims and ambitions in perspective and ignore the noise they hear online.
More broadly, the industry, including the media, does need to get wiser about how it views and represents founders. For example, a pervasive myth is that some of the biggest tech companies in the world started in garages with no money, then through the genius and sheer bloodymindedness of their founder they were grown into a massive corporation.
The reality is that the vast majority of these tech companies benefited from substantial seed capital from family or connections almost from day one. These founders were also quickly surrounded by highly talented people who did a lot of the heavy lifting and, whisper it, a truckload of good luck. In short, the idea of the superhuman founder perpetuated in the industry is, in nearly all cases, nonsense.
In a similar vein, there are also issues around how we frame success and failure.
Success, as I’ve mentioned earlier, is nearly always couched in the most basic numerical terms. The “unicorn” label is bandied about so often that many people fail to realize that it’s simply a valuation that a few investors have given a company. It does not reflect whether the business is actually successful in the traditional sense, i.e., making money. Generally, the startup scene celebrates and idolizes founders who make big exits or achieve “unicorn status” — less is spoken about the thousands of SMEs that employ people, develop and patent new tech, make a tidy profit and pay taxes.
With failure, there is an altogether different problem. The startup scene downplays failure as par for the course. It is, on the face of it, one of the industry’s great virtues. It enables people to try without fear of embarrassment. However, in practice, it can actually minimize real-world fears nearly all founders have. Failure cannot just be brushed off if you’ve devoted years of your life, spent a lot of money and have staff who rely on you. By simply thinking of failure as part of the process we cannot address and talk about this real source of concern in an open way. “Fail fast” only works for those who can afford it.
Individually, these issues may seem like nothing but white noise and the cure for suffering founders may simply be to get off social media. Unfortunately, it isn’t that simple. Social and traditional media is amplifying startup culture, not creating it. The same tropes are on display at every tech conference and meetup. To fit in, the founder is expected to be a fearless, genius visionary. Deviation from this norm, such as by displaying vulnerability around mental health, is by inference, failure.
Despite its shortcomings in relation to diversity, the startup scene is generally one of the most progressive, collaborative and open industries in the world. These virtues are ideally suited to tackling the reluctance to discuss mental health and creating the network of support that ensures people don’t suffer alone.
To make this happen, we need to dispense with the myths and hagiography around being a founder and be more honest about what the reality of running a business actually entails.
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There is no one-size-fits all model for building a startup.
At TechCrunch Disrupt, we heard from a handful of founders about alternative approaches to creating a sustainable company that ensures more than just VCs and early founders benefit from its success.
One way is building a cooperative, which Driver’s Seat CEO Hays Witt described as “a kind of corporate entity that both allows and requires that we return the majority of our profits to our members, and that our members have a majority of governance.”
Driver’s Seat helps ride-hail drivers use data to maximize their earnings. It works by requiring drivers to install an app that educates them about how the co-op collects and uses their data. In exchange, the app gives them insights about their real hourly wages after expenses and how those wages relate to different driving strategies.
“At a community level, what we do is sort of align everybody’s interest so that as gig workers come into our co-op, as they generate data, the value of that data in the aggregate gets higher and higher,” Witt said. “The dividends that we’re able to return back to drivers gets higher and also the kind of insights we’re able to give communities about work gets higher at the same time. So we kind of align all of our impact and mission goals. And our business model is through our co-op structure.”
That’s not to say Driver’s Seat does not create returns for its investors — investors are just one group of many that benefit from the company’s success. Witt said a desire for accountability made him decide to form a co-op.
“If we are always accountable to our co-op members, and our co-op members are gig workers, then we’re going to know that we’re accountable to the right things,” Witt said. “Now, we have investor members, too. We’re accountable to them, too. But our structure means that the gig workers always have at least that 51%. [ … ] it’s certainly not the only way to build a business. But, you know, for us, it was the way that we would build a business that would align with our mission of really changing the gig economy.”
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I’ve been following consumer audio electronics company Nura with great interest for a few years now — the Melbourne-based startup was one of the first companies I met with after starting with TechCrunch. At the time, its first prototype was a big mess of circuits and wires — the sort of thing you could never imagine shrunk down into a reasonably sized consumer device.
Nura managed, of course. And the final product looked and sounded great; hell, even the box was nice. If I’m lucky, I see a consumer hardware product once or twice a year that seems reasonably capable of disrupting an industry, and Nura’s custom sound profiles fit that bill. But the company was unique for another reason. A graduate of the HAX accelerator, the startup announced NuraNow roughly this time last year.
Hardware as a service (HaaS) has been a popular concept in the IT/enterprise space for some time, but it’s still fairly uncommon in the consumer category. For one thing: A hardware subscription presents a new paradigm for thinking about purchases. That is a big lift in a country like the U.S., which spent years weaning consumers off contract-based smartphones.
That Nura jumped at the chance shouldn’t be a big surprise. Backers HAX/SOSV have been proponents of the model for some time now. I’ve visited their Shenzhen offices a few times, and the topic of HaaS always seems to come up.
In a recent email exchange, General Partner Duncan Turner described HaaS as “a great way to keep in contact with your customers and up-sell them on new features. Most importantly, for startups, recurring revenue is critical for scaling a business with venture capital (and will help appeal to a broad set of investors). HaaS often has a low churn (as easier to put onto long-term contracts).”
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When Uber and Lyft went public, it wasn’t the drivers who got rich — it was the executives, investors and some early employees. In an era when it has become clear that tech executives and investors are frequently the only ones who’ll reap rewards for a company’s success, cooperative startups are getting more attention.
Depending on how it’s set up, a cooperative model offers workers and users true ownership and control in a company; any profits that are generated are returned to the members or reinvested in the company.
Co-ops aren’t new: The nation’s longest-running example is The Philadelphia Contributionship, a mutually owned insurance company founded by Benjamin Franklin in 1752. In 1895, the International Co-operative Alliance formed to serve as a way to unite cooperatives across the world. Some colleges have student-run housing co-ops where cleaning, food preparation and other responsibilities are shared. Today, there are many well-known large-scale co-ops, including outdoor recreation store REI, Arizmendi Bakery in San Francisco and Blue Diamond Growers, one of the world’s largest tree-nut processors.
What’s novel, however, is applying the co-op model to technology startups. Start.coop, an accelerator for cooperative startups, is just one group trying to facilitate that practice.
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Our French startup Digicoop is a remote-first worker cooperative. We started the company in 2015, based on our shared values and passion for technology. The goal was simple: make good products that will have a positive impact on companies. The road to funding, not so simple.
Due to our unique business model, which focuses on building a sustainable company, we had to forego venture capital and convince lots of players to take a chance. The effort paid off. Here’s a look at why we chose to be a co-op, how we got the funding and how it drives our product development.
Unlike many startups, Digicoop wasn’t founded because of a particular product. Our story is a bit different. In 2015, a few friends and former colleagues came together to work on projects they were passionate about. Initially we didn’t know what those would be, but we quickly figured out the theme: collaborative work tools for teams.
Making that our focus was no coincidence. We recognized that the workplace was changing: distributed teams were becoming more common, and with that more transparency and an increased cross-team collaboration necessary. We became frustrated with traditional work tools and processes, as they were no longer enough.
We saw an opportunity to develop products suitable for the digital future, but that wasn’t our only driver. Being passionate about technology and the impact it can have on the society, we set out to build tools that could make a positive difference. The idea was to empower employees, not only managers.
Our shared values and vision of the workplace were the reason we decided to go against the grain and structure Digicoop as a worker cooperative (called SCOP in France), giving each employee a real stake in the company.
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