Your survival depends on what you’ve learned.  In the past three months, what have you learned about your customers that no-one else knows? What have your learned about how to enable your customers to achieve more value from your solution than from your competitor’s solutions?

The purpose of this email is to share my learnings and unlearnings, with the expectation that some will be of value to you. This email was 100% written by me – not by AI.  When you send me an email, my response is 100% written by me.

My biggest learnings in the past three months:

• AI has been very powerful in finding fact-based research regarding the issues and challenges I’m dealing with.
• Facts alone don’t tell me what to do. I have to think about the implications and the next steps.
• The facts may also be out-of-date and not relevant in todays turbulent, fast changing, and hyper competitive world.

Sharing my learnings

Below are links to my website containing new and revised points-of-view since my last update. The critical learnings are included. Each article designed to enable discussion among founders, owners, shareholders, investors, CEOs, and boards of directors. The learnings and unlearnings are applicable to any size company, ranging from early-stage startups to large global enterprises.

Links to my points-of-view articles:

Traditional Business Transformation dooms your company to failure. V2

• Most transformation efforts fail and destroy company value.
• The failure is due to leadership flaws with the company leadership: the board of directors, CEO, and C-Suite.
• The leadership has limited understanding of employees and how to gain employee commitment to transformation.

https://koorandassociates.org/business-transformation/5920-2/

Do you need to transform your company? V4

• Many business leaders think that they need to change the direction of their company, in order to be financially viable.
• Transforming while ahead of the competition is more successful than transforming when you are forced to.
• Cost cutting is not the solution to under performance.
• If your company is underperforming, compared to the competition, determine what changes are required to the board of directors and C-Suite,
• Often the board of directors and C-Suite do not know that their company is in crisis or heading toward crisis.

https://koorandassociates.org/business-transformation/do-you-need-to-transform-you-company/

What is business transformation? V3

• There is no commonly agreed upon standard definition of business transformation.
• Your company must create your own definition and criteria for what is business transformation, which everyone understands.

https://koorandassociates.org/business-transformation/what-is-business-transformation/

Is your company planning to fail? V5

• Most companies are successfully executing their plans to fail. Most companies fail or produce poor investor returns. (Read “Your company will fail”, which is the first article under “What further reading should you do?”)
• Plans are comprised of two parts: what is in them and what’s not in them. Plans reflect decisions made and decisions not made.

https://koorandassociates.org/avoiding-business-failure/is-your-company-planning-to-fail/

Your company will fail. V3

• Most companies will: fail, disappear, or provide poor returns to their investors.

https://koorandassociates.org/avoiding-business-failure/your-company-will-fail-v1/

How profitable are search funds? V2

• The IRR for traditional search funds in Canada and the US has been 35.2%.
• Traditional search fund investors provide far more than capital. They also provide coaching, mentoring, board directorships.
• You need to fund between 30 to 45 searchers, to have a high chance of approaching the IRR for the asset class as a whole.

https://koorandassociates.org/selling-a-company-or-raising-capital/how-profitable-are-search-funds/

Personal Update:

• Mentoring a startup at the University of Toronto Department of Engineering. The approach was based on weekly advisory board meetings.
• Continuing as Board Director at a private company.
• Continuing as a Patient Family Advisor at Sunnybrook Hospital.
• Continuing my long-term fundraising for the Geoff Carr Fellowship at Lupus Ontario. Over the past 18 years family, friends, neighbours, and colleagues have contributed almost $270,000. You can use the donation link later in this update
• Continuing with the Angel Capital Association in the US.
• Focusing on my two professional purposes: #1 Enabling current and emerging business leaders to succeed, #2 Enabling business leaders to have a positive impact on society.

The purpose of this article is to share my learnings and unlearnings, with the expectation that some will be of value to you. This email was 100% written by me – not by AI.  When you send me an email, my response is 100% written by me.

My biggest learnings in the past three months:

• The three greatest risks to your company’s success and survival are the talent of: the controlling shareholders, the board of directors, and the CEO/C-Suite. The talent pool as a whole must be competitive differentiated.
• It is impossible to predict or forecast the future. Scenario planning helps your company prepare for the unexpected. Basing all your decisions, plans, and actions on a single, assumed to be perfect, forecast will likely result in failure.
• Your business strategy is about making an integrated set of choices that compels desired customer and ecosystem member actions. Your business strategy, company purpose, and North Star metric are all inter-related.
• Most companies will: fail, disappear, or provide poor returns to their investors.
• The core reason that employees and investors will support you is because they understand “What’s in it for them”.

Sharing my learnings

My website (https://koorandassociates.org/) contains my points-of-view regarding key issues and questions regarding value creation and growth in for-profit businesses. Each point-of-view is a brief article designed to enable discussion among founders, owners, shareholders, investors, CEOs, boards of directors, and advisory boards. I do not address not-for-profits, government, or other non-profit oriented organizations.

 Below are links to my website containing: new and revised points-of-view since my last update in March.

Links to my points-of-view articles:

What is your business strategy? V2

Your business strategy is about making an integrated set of choices that compels desired customer and ecosystem member actions. Your business strategy, company purpose, and North Star metric are all inter-related.

https://koorandassociates.org/strategy-and-strategic-planning/what-is-your-business-strategy/

What are the three greatest risks to your company?

The three greatest risks to your company’s success and survival are the talent of: the controlling shareholders, the board of directors, and the CEO/C-Suite.

The talent as a whole must be competitively differentiated.  This does not mean that every single person in the talent pool must be better than all of the competition. Company success requires a team.

https://koorandassociates.org/avoiding-business-failure/what-are-the-three-greatest-risks-to-your-company/

Your company will fail. V2

Most companies will: fail, disappear, or provide poor returns to their investors.

https://koorandassociates.org/avoiding-business-failure/your-company-will-fail-v1/

Why should employees and investors support you?

The core reason for support is that people understand “what’s in it for them”. Support is emotional.

https://koorandassociates.org/creating-business-value/why-should-employees-and-investors-support-you/

Scenario planning – what is it?

It is impossible to predict or forecast the future.

Scenario planning is a process to prepare to succeed in a broad range of futures. It is not an attempt to predict a single outcome.

https://koorandassociates.org/strategy-and-strategic-planning/scenario-planning-what-is-it/

What is a business model canvas? V4

The purpose of your business model canvas is to provide an easy to understand one page framework which communicates who your customers are, why they buy from you, and how you make a profit

https://koorandassociates.org/the-startup-journey/what-is-a-business-model/

Personal Update:

• Preparing for this summer’s startup mentoring at the University of Toronto Department of Engineering. The approach was based on weekly advisory board meetings.
• Continued as Board Director at a private company.
• Continued as a Patient Family Advisor at Sunnybrook Hospital.
• Continued my long-term fundraising for the Geoff Carr Fellowship at Lupus Ontario. Over the past 18 years family, friends, neighbours, and colleagues have contributed almost $270,000. You can use the donation link later in this update
• Continued with the Angel Capital Association in the US.
• Continued to share with you, and on my website, some of what I’ve learned and unlearned, with the intent that some of you will find value. The learnings and unlearnings are applicable to any size company, ranging from early-stage startups to large global enterprises.

I continue to focus my time to maximize the value and impact of my two professional purposes: #1 Enabling current and emerging business leaders to succeed, #2 Enabling business leaders to have a positive impact on society.

Elite Talent – what is it? V2

 What is the purpose of this article?

Enable the investor, founders, board of directors and C-Suite to discuss the role of elite talent in their company’s success.

You can download a PDF of this article from: Elite talent – what is it V2

What are the critical learnings in this article?

• A small percentage of people can generate much of the value within any team or role. This is elite talent.
• A small percentage of roles can generate much of the value within your company. This is high potential elite talent.
• Elite talent is rare. High potential elite talent is even rarer.

What is the value and need for elite talent?

In today’s competitive business environment, there is unlimited capital for companies that have the potential to create major value,  The talent to create major value is rare.

One study of talent across many types of organizations showed that: ¹

• The top 1% of people account for 10% of the organizational output.
• The top 5% account for 25% of organizational output.
• The top 20% account for 80% of organizational output.

Adding one elite performer to a team, can increase overall team performance by 5-15%. ²

Google found that people performance follows a power law distribution, and not a bell curve. Top 1% of workers generate 10 times average output .³

McKinsey’s research on private equity portfolio company CEOs showed that: ⁴

• Top quartile CEOs deliver shareholder returns that are 9% higher than industry peers, every year that they’re CEO.
• In some industries, top quartile CEOs deliver 16% higher yearly shareholder returns.

One company with thousand of employees, found that 37 roles delivered 80% of the company’s EBITDA ⁵

How does “Moneyball: the art of winning an unfair game” by Michael Lewis, illustrate elite talent.

• Billy Beane became the Oakland A’s baseball team general manager in 1997.
• There was over 100 years of baseball wisdom on how to select talent, especially from school. The front offices, managers, coaches, scouts, and players all shared a common point of view regarding the best practices for selecting talent.
• Billy Bean did not follow 100 years of wisdom. He took a fact-based, mathematically analytical approach.
• The Oakland A’s then reached in playoffs in 2000 to 2003. In 2002, the A’s player budget was $44 million U.S., the New York Yankees’ player budget was $144 million U.S.

My observations:

• You don’t need everyone to be elite. One person can change the organization.
• The basis for change was selecting the right talent in the first place. (E.g. out of high school) rather than trying to change existing talent.
• Money alone does not ensure elite results.
• Fact-based analysis is critical. Cambridge physicist Ian Graham developed the mathematical model which was used to select the manager and players for the Liverpool FC rugby team, resulting in them winning the 2018-2019 UEFA Champions League.
• You succeed if you do something both different and better than others.
• But then the other teams copied Billy Beane’s approach. In today’s hypercompetitive world, competition improves, thus elite talent needs to also improve. If elite talent doesn’t Improve, it will no longer be elite.

Why do you need high potential elite talent ?

The definition of a high potential person is someone who can become key driver of organizational performance i.e. “generate exorbitant output that can influence the success or failure of their organization.  This is different from individual career success. Many leaders that advance in their personal career don’t turn their teams or companies into competitively differentiated success. XX

High potential people can impact your company’s success both today and in the future.  High potential people can change to continue to be elite in new roles or changing existing roles.  Yesterday’s requirement for elite capabilities may be different from today’s requirement or tomorrow’s requirements. Someone who was elite yesterday might not ne elite today or in the future.

What are the characteristics of high potential elite talent?

• Cognitive skills
  1. Long-term memory
  2. Working memory: hang onto information while using it
  3. Logic and reasoning
  4. Visual processing
  5. Processing speed
  6. Attention
     1. Sustained – for long periods of time
     2. Selective – without distraction

• Divided – doing two things at once

• Ability to quickly learn and unlearn: paradigms, frameworks, methodologies, data, facts, knowledge.
• Fluid intelligence he ability to solve problems without past experience. This is critical for innovation, which is coming up with new and better solutions.
  1. The future is impossible to predict but actions and decisions are focused on this unpredictable future.
  2. The future will also be different from the past. i.e. there won’t be historical experience to draw upon.
  3. Able to provide direction when there is no map.
• Character
  1. VME (Values, Morals, and Ethics) Warren Buffett supposedly said “…looking for people to hire, you look for three qualities: integrity, intelligence, and energy. And if you don’t have the first, the other two will kill you.”
  2. Courage: It takes courage to make the right decision. The right decision is often not: the cheapest, easiest, lowest risk to the company, lowest risk to you, and what everyone else is doing.
  3. Perseverance, especially against all odds.
  4. Knowing when to stop persevering. One leader told me “If you’re digging yourself into a hole, stop digging.”
• Relationship skills:
  1. The ability to create and sustain a network of personal relationships.
  2. Persuasion and negotiation, which is key to managing different points of view and interests.
  3. Creating and maintaining followers. A leader without committed followers is not a leader.
• Communications activities include:
  1. Write, speaking, singing, drawing, and body language
  2. Speaking and singing also include tones, pitch, etc.
  3. Communications is two way:
• Broadcasting
• Listening, which includes analysis of input
  1. Communications can have a variety of outcomes, including:
• Understanding other people
• Changing the belief, emotions, and behaviours of others.
• Learning such as facts, knowledge, ways of thinking.
• Building trust and relationships.
• Persuading people to take certain actions.
• Gaining the emotional and intellectual support of people.
• Creativity

A Google search of creativity reveals many very different definitions of creativity. Two definitions are:

• “The ability to think about a task or a problem in a new or different way”
• “Creativity involves two processes: thinking, then producing. If you have ideas but don’t act on them, you are imaginative but not creative”

 How do you select elite talent?

• The best predictor of how someone will perform in a job is a work sample test (29%) ⁶ For example, when recruiting board directors, they should serve for one year as a board observer, to enable assessing them.
• The two second best predictors are: are tests of general cognitive ability (26%); ⁷ and structured interviews (behavioural (tell me about a time) and situational (what would you do if) (26%). ⁸
• Four interviews predict whether to hire someone with 86% confidence and each additional interviewer adds 1% confidence. ⁹ This assumes that you are clear on what value the role provides, the specific characteristics of people who can deliver that value, and do a combination of work sample and structured interviews.
• The definitions of elite talent change over time. At the 2023 Collision conference is Toronto, one presentation shared a survey of over 200 Chief Technology officers. The top three things they were looking for in employees: ability to collaborate, ability to learn, ability to problem solve. Coding skills and knowledge of coding languages was not in the top 3. Several years ago, coding skills would have been the competitive differentiator.

 How do you select high potential elite talent?

• You first select for elite talent, using the criteria described above.
• Then you do additional assessment using the seven high potential characteristics described above.
• You’ll have use enhanced behavioural questions and background checking.
• Psychological testing is also required. This can be done by software, psychologists, or some combination

What are your next steps?

• Create the definitions which are commonly understood within your company, including: talent, value, elite talent, high potential elite talent, etc. Your words and definitions may differ from what is in this article.
• Determine which company roles would benefit from elite talent. Consider the time, effort, and skills necessary to assess, select, and develop elite talent.  The initial scope of your analysis ranges from the board of directors through to the most junior entry level employee. Contractors may also be within scope.  If there are investors which control or greatly influence your company, they are also within scope.
• You can also focus on the roles which have the greatest current, or potential, impact on company value. These roles will require high potential elite talent. The you’ll need additional time, effort, skills, and software to assess, select and develop high potential elite talent. These roles won’t necessarily be the highest roles in the organization chart, but will be at many levels. Include the board of directors, CEO, and C-Suite in your analysis
• You will need a process to allocate the extremely scarce high potential elite talent. Years ago, the board of directors and CEO were focused on allocating the very scarce capital – potential capital is now unlimited.  Thus, the board and CEO need to focus on talent allocation. You’ll also need a process to allocate high potential elite talent at the board of directors.

 Footnotes:

¹Tomas Charmorro-Preeuzic, Seymour Adler, and Robert B. Kaiser, “What science says about identifying high-potential employees.” Oct 3, 2017

https://hbr.org/2017/10/what-science-says-about-identifying-high-potential-employees

² Ibid

³ Laszio Bock, Work Rules (New York: Hatchette Book Group, 2015), 182

⁴ Maria Capozzi, Sacha Ghai, John Kelleher, and Kurt Strovink, “CEO alpha:  a new approach to generating private equity outperformance”, McKinsey article March 2023

https://www.mckinsey.com/industries/private-capital/our-insights/ceo-alpha-a-new-approach-to-generating-private-equity-outperformance

⁵ Ibid

⁶ Laszio Bock, Work Rules (New York: Hatchette Book Group, 2015), 91

⁷ Ibid., 91

⁸ Ibid., 91

⁹ Ibid., 103

What is the purpose of this article?

• Share my critical learnings from my three day attendance at Collision 2022 in June 2022. Collision was a North American startup conference with 35,000+attendees, ranging from pre-revenue founders to large established companies, and investors ranging from angel investors to multi-billion dollar funds.
• These learnings may be from a single person or a composite from many people. In many cases, I’m quoting directly.
• I believe that these learnings apply to any size company.
• The learnings in this article are only a tiny subset of my 45 pages of notes.

You may download a PDF of this article from: Critical learnings from Collision 2022

What are the critical learnings in this article?

Partners of investment funds said that there is always money available, they are continuing investments in new companies and portfolio companies

• The key criterion is that companies are solving urgent problems for customers.
• Companies must cut costs asap if they are: not solving problems for urgent customers, losing customers, spending too much to get customers, targeting customers who provide declining profits, etc.

Don’t spend any money on advertising or scaling your company until you have customers who are crying in happiness because they have your solution. Customers should be coming to you.

You need to be constantly talking to your customers, regardless of what stage your company is at.  You need to ask them what they’re doing in the 15 minutes before and after they use your solution.

Every company is a data company

• What do you know about your customers and users that no-one else knows?
• This unique knowledge drives: your solution, the customer/user experience you create, your marketing and sales approach.

What did the CEO do when the business customers’ urgent problems changed, resulting in 60% of customers leaving and CEO terminating 1/3 of the staff?

• The CEO talked with every business customer to understand their new urgent problems and needs
• Using this new knowledge, the CEO then changed the solution, the customer support processes, marketing and sales approaches.
• The result was a hockey stick revenue growth curve.

How did a startup, working from their kitchen table, get their very first sale, to a company with a $15.7 billion market cap?

• Solve an urgent problem that is causing pain every single day.
• Enable the customer to get a 10X performance improvement rather than an incremental 30% improvement.
• Know more than anyone else about the problem, and how the customer can solve it.
• Build strong internal relationships with the customer.
• Take extreme accountability for customer results.

I asked one successful founder (well past the startup stage) “What should an investor do if the startup doesn’t want to talk to customers and users? How can the investor persuade the startup?”  The founder had a two word answer” “Don’t invest”.

The early stage CEO advisor compensation must be 100% equity based. The advisor must have faith in the CEO.

The CEO and investor(s) must have a commonly understood set of expectations for each other. Expectations change over time.

• The CEO must have a job description for the investor.
• There are major differences among: lead investor vs major investor vs smaller investors to fill-out the round.

How did a startup founder get 450,000 users in 10,000 businesses in two years with zero spending on customer acquisition?

• Solve an urgent problem.
• The user can easily understand the value proposition.
• It’s easy for the user to get value quickly – ideally in 0 (ZERO) seconds.
• CEO and developers spend 10% of every single day talking to customers and users.
• Be obsessed with tracking by customer segment: Acquisition, activation, retention, revenue, and referrals.

The fundraising skillset is different from the sales skillset.

One startup raised funds with no product or solution – absolutely nothing. Except, 400 letters from companies stating they’d buy when the solution was available.

Some seed stage VC funds (targeting startups with 2-12 people) are taking a different approach with what is done with the yearly 2% fund compensation fee.

• The cash going into partner pockets is being reduced with cash being spent on people to support portfolio companies e.g. providing part-time Chief People Officer, having an on call CFO, helping to structure interviews and surveys, helping to put in place customer metrics such as Net Promotor Score. Two such funds are Primary Venture Partners and First Round Capital. These funds believe that spending to maximize the long-term 20% performance compensation results in the startups, investors, and partners all making more money in the long-term.
• A partner from one of those funds told me one-on-one that investors considering investment into VC funds should ask how the yearly 2% compensation fee is distributed, and how much goes into partner pockets vs helping portfolio companies.

Some startups said investors should provide a flying squad to help portfolio companies. This flying squad should do actual work (e.g. HR) and not just provide advice.

What are my summary observations after over 40 presentations as well as one-on-one discussions?

• At Collision, successful investment funds and startups of all size talked a lot about customer/user problems, and customers/users getting value from having problems and needs addressed. g. startup founder who got 400 letters from customers wanting to buy, before spending one cent on building/creating a product solution.
• Prior to Collision, many of the companies I meet, ranging from pre-revenue to long-term established, talk a lot about their solution. Many of the startups I’ve met first build something and then hope to find customers that have a problem their solution addresses.

What are your next steps?

• Document your process for understanding customers, including facts, analysis, resulting business changes. Have a third party review and challenge you process, facts, analysis, and resulting business changes.
• The above critical learnings reflect a number of different scenarios. Compare how your company leadership has responded to these scenarios in the past and would respond in the future.

 What further reading should you do?

Do you understand your customers?

https://koorandassociates.org/understanding-customers/do-you-understand-your-customers/

Is your company planning to fail?

https://koorandassociates.org/avoiding-business-failure/is-your-company-planning-to-fail/

ou may download a PDF of this article from: Elite talent – what is the purpose

What are the critical learnings in this article?

• Elite talent and elite company performance are rare.
• Beating the competition requires talent that is better than the competition.

What is the value and need for elite talent?

In today’s competitive business environment, there is unlimited capital for companies that have major competitive differentiation. This requires competitively differentiated talent

What are the characteristics of the elite talent that can create and transform companies?

#1 Leading strategy firm (when hiring MBAs) and global early stage investment funds (when assessing startup founders) are looking for the same type of talent”.

• Ability to quickly learn and unlearn: paradigms, frameworks, methodologies, data, facts, knowledge. The founders of the majority of unicorns (startups which achieved a $1 billion valuation) had no previous domain experience.¹ Roche paid $1.9 billion US for Flatiron Health, a cancer electronic records company.  The Flatiron founders (Nad Turner and Zach Weinberg ) had no background in cancer. They came from advertising. ²
• Fast and deep analytical skills.
• Fluid intelligence: the capacity to think speedily and reason flexibly in order to solve new problems without relying on past experience and accumulated knowledge. For example, successful startup founders, identify problems and needs that have not been well addressed before and create solutions that have never existed before
• Curiosity – the passion to learn about the world around them and not be silo focused. This broader ecosystem knowledge provides a context for their deep ecosystem knowledge.

#2 Early stage investment funds also look for:

• The drive and ability to deeply understand customers and users – their problems, issues, emotions, and what influences behaviours.
• Perseverance: passion and energy to overcome all odds and difficulties to achieve goals. For example, Airbnb was short of cash in the early days. To make money they sold Cap’n M^cCains and Obama O’s cereal during the Obama M^cCain presidential run.  The following is a link to the current Airbnb site which still contains the original advertising. (https://www.airbnb.ca/obamaos)
• Values, morals, and integrity: Warren Buffett supposedly said “..looking for people to hire, you look for three qualities: integrity, intelligence, and energy. And if you don’t have the first, the other two will kill you.”

Business performance follows the power law distribution, not a bell curve.

If you want your company to enable your customers to achieve 10 times more value than the competition, some of your key talent must be 10 times better than the competition’s talent.

• The distribution of company economic profit follows a power law. McKinsey’s study of 2,393 large corporations from 2010 to 2014 showed that the bulk of the economic profit was made bay a small number of companies e.g. the top 20% earned 90% of the total economic profit with the top 2% earning more than the next 8%. 60% of the companies earned little economic profit.³
• People performance follows a power law distribution, and not a bell curve. Top 1% of workers generate 10 times average output .⁴
• Half of all senior hires fail within 18 months.⁵

How do you recruit elite talent?

• The best predictor of how someone will perform in a job is a work sample test (29%) ⁶ For example, when recruiting board directors, they should serve for one year as a board observer, to enable assessing them.
• The two second best predictors are: are tests of general cognitive ability (26%); ⁷ and structured interviews (behavioural (tell me about a time) and situational (what would you do if) (26%). ⁸
• Four interviews predict whether to hire someone with 86% confidence and each additional interviewer adds 1% confidence. ⁹ This assumes that you are clear on what value the role provides, the specific characteristics of people who can deliver that value, and do a combination of work sample and structured interviews.

Can your company be competitively differentiated without a competitively differentiated board of directors?

Some people believe that a company can succeed in spite of the board of directors.

What if the board:

• Appoints the wrong CEO?
• Has poor decision making regarding major transactions (e.g. M&A), plans, and policies?
• Demonstrates poor values, morals, and ethics to employees and other members of the companies ecosystem?
• Etc.

A poor board can certainly impact your company’s success.  However, I have seen cases where an extraordinary CEO has enough influence, persuasion, and guidance to overcome a poor board. I can recall one partner from a major private equity firm saying that with one board seat, he can turn the company around.

What are the implications for your company below the board and C-suite level?

• With the right processes, technology, and development programs, your average employees can enable your customers to achieve more value than the competition. What’s key is hiring people at all level who have the potential to learn and unlearn.
• When Google first built their Human Resources team, 1/3 of hires came from traditional HR background, 1/3 from top tier strategy consultants (because good at figuring out problems), 1/3 deeply analytic, with at least a masters degree in analytical fields (physics to organizational psychology).¹⁰ Google took the approach building HR practices with ongoing fact-based analysis rather that commonly accepted best practices. Many best practices are actually myths rather than facts.

What are your next steps?

• Document the past performance of the company, including economic profit, and impact on key ecosystem members such as customers.
• Outline the future scenarios for your company.
• Define the required skills, knowledge, experience, networks, values, morals, and ethics required by each board director and C-Suite member to enable success in the future scenarios.
• Assess your board and C-Suite relative to the above requirements.
• Assess your competition’s board and C-Suite relative to the above requirements.
• Identify: improvements to be made to existing directors and C-Suite, members to exit, and members to appoint.

 Footnotes:

¹ Ali Tamaseb, Super Founders, New York, New York , Hatchette Book Group, 2021, 49

² Ibid., 53

³ Bradley, Martin Hirt, and Sven Smit, “Strategy to beat the odds”, McKinsey Quarterly February 2018, https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/strategy-to-beat-the-odds)

⁴ Laszio Bock, Work Rules (New York: Hatchette Book Group, 2015), 182

⁵ Ibid., 294

⁶ Ibid., 91

⁷ Ibid., 91

⁸ Ibid., 91

⁹ Ibid., 103

¹⁰ Ibid., 361

What is the purpose of this article?

• Generate discussion among founders, investors, boards of directors, and C-suite regarding the characteristics of billion dollar startups.
• Enable the discussion to be fact based rather than base on myths and anecdotes.
• This discussion should be held whether you are startup or a long established global company.
• This article refers to three fact based analytical books and reports and includes only a small amount of the enormous collection of factual analysis.
• This article doesn’t tell you what to do. Just because information is correlated, does not mean there is a cause and effect relationship.

You may download a PDF of this article from: Billion dollar startup characteristics

What are the critical learnings in this article?

• A billion dollar startup requires a large number of customers who believe: they have urgent problems and needs; are willing and able to pay to address those problems and needs; and that they can obtain better value from your company that the competition.
• Success depends upon understanding customers better than the competition. This understanding must be fact based using interviews supplemented by survey and analysis of customer actions.

Characteristics of unicorns – startups which achieved over $1 billion U.S. valuation.

Ali Tamaseb studied over 200 unicorns founded between 2008 and 2018.¹

What were the founders’ backgrounds?

• A founder’s age doesn’t correlate strongly with success. Median age was 34. ²
• The #2 person had an even wider age distribution, from 16 to 76 at time of founding. Founders of health and biotech companies skew older. ³
• 20% of unicorns had a sole founder. 36% had dual founders, 3 co-founders 28%; 4 co-founders 12% more than 4, 4%. ⁴

What was the founders’ education?

• Education: 36% had bachelors; 22% had MBA, 33% had another advanced degree. College dropouts less common than founders with PhDs. ⁵
• Of those that went to university: about 35% each went to global top ten vs not in global top 100. About 30% went to global 11 to 100 universities. ⁶

What was the founders’ work experience?

• 30% of unicorn founders had only worked for themselves before.⁷
• 58% of those who had worked for other companies, (i.e. 70% of all founders), had worked for Tier 1 companies with rigorous hiring processes and reputation for hiring the best. 28% had worked for Tier 2 companies (large and well known). 14% had worked for companies not well known.⁸
• Over 50% of founding CEOs and founding CxOs had less that 1 year of relevant industry or work experience. ⁹
• 75% of healthcare and biotech founders had directly relevant industry experience; 40% of enterprise technology; and 30% of consumer unicorns. ¹⁰
• What seems to matter was: quickly learning about a new space with unbiased mind, soft skills like building a network, managing a team, hiring and firing, raising money. ¹¹

What was the founders experience with previous startups?

• 59% of unicorn founders had been a previous founder, sometimes successful, sometimes not. ¹²
• Those who had run a company before, experience ranged from a year to 27 years. Most common was 2-3 years (about 25%), about 54% were up to 5 years experience. ¹³

How severe and urgent were the customers needs and problems?

• Two approaches: Pain killer (well defined and deeply annoying pain point) or vitamin (customers get better value, efficiency, entertainment or joy) ¹⁴
• 68% of unicorns were pain killers. ¹⁵
• Close to 40% of unicorns address productivity; about 20% address saving time; 11%-15% each are: convenience, entertainment, health. Safety and security are around 2-5% ¹⁶
• Close to 50% of unicorns were system integration (bringing together existing technology. Value add comes from unique business model or marketing strategy). About 25% were technical i.e. fair amount of engineering. About 25% were deep tech i.e. it’s all about being able to create the new technology or drug. ¹⁷
• Over 2/3 of unicorns were highly differentiated from competition. Less than 1/3 were incrementally differentiated. ¹⁸

What was the market demand?

• More than 60% of unicorns started in large markets with well established demand. They either took market share or expanded the market. About 25% started in medium sized markets. About 15% started in small markets. Few unicorns created new demand or waited for the market to mature. ¹⁹
• 68% of unicorns competed for market share. 32% created a new market. ²⁰

When did the founders enter the market?

• 30% of the time unicorn was first to the market. 30% of the time 2-5^th in market.  40% later than 5^th in the market. ²¹

 What are the characteristics of companies which achieved $1 billion in revenue?¹

• More than 60% of new public companies between 1980 and 2010, no longer existed in 2010. 4% of new public companies achieved $1 billion in revenue. 34 public companies a year achieved $1 billion in revenue, regardless of economic cycle.  Only 4% of $1 billion revenue companies make it to $10 billion in revenue. ²
• 11,000 companies did IPO since 1980 and to end of 2007. Only 4% (410) grew to $1 billion in revenue, but 72% of all IPO taxes, 63% of IPO employees (i.e. 9 million), 64% of market value (i.e. $2.6 trillion), and 69% of all IPO revenue (i.e. $3 trillion).³
• Failing companies had blind passion, did not self correct, did not adjust to changing customer needs, ran out of cash.⁴
• Exponential growth companies continue to grow through tough economic times and recessions.⁵
• Exponential growth companies created and sustained break through value propositions – High order benefits or exceptional value as perceived by customers ⁶
• Exponential growth companies exploited high growth market segments: created new markets, redefined markets, or created category killers (i.e. killed incumbents). Imported ideas from other industries. Kept redefining market segments. ⁷
• Growing to $50 million revenue requires brute force speed. Create and grow customer advocacy community and market momentum as quickly as possible. After $50 million in revenue, have thoughtful speed.⁸
• The key to growing a startup to $10 million revenue was based on analyzing 2,000 business plans.⁹  Create a powerful value proposition. It must address a deep, frequent or changing unmet need. The company has a unique ability to deliver on that need. Contrast the company benefits to the competition. Talk with customers to understand the “frustration” or “What’s not working well”.¹⁰

What are the characteristics of SaaS unicorns which became public?¹

This researched examined 1,000 SaaS companies in Canada and the U.S.s 400 of which became Unicorn by going public. Many of these went public after 2013.

• On average, companies needed $125 million in revenue to become a unicorn when they went public. This required $212 million of invested capital. ²
• The TAM (Total Addressable Market) size when going public needs to be at least $25 billion.³ The % of TAM at IPO time can range up to 2.2%⁴. Facebook’s yearly revenue at the time of its 2012 IPO was $4.2 billion. The prospectus stated the addressable market was $588 billion, thus % revenue was about 0.7% of addressable market.
• Most startups do not reach the IPO point but are acquired. The TAM required for acquisition is much smaller than $25 billion.
• You need a 50% differential in how customers measure competitive differentiation. Customers perceive quality, speed and cost. The customer’s costs may be far higher than what they pay your company. ⁵
• You have product market fit when your net promotor score is at least 30 and the % of customers that would be very dissatisfied if they did not have your solution is at least 40%.⁶
• Current year marketing and sales as % of current year revenue. ⁷ About 63% when revenues are $10-50 million. About 52% when revenues are $40-$250 million. About 38% when revenues are over $250 million. The implication is that unicorns usually lost money for many years. Investors provided the capital because lifetime customer profitability exceeded the one time customer acquisition costs.
• Current year marketing and sales as a % of next year’s revenue should be less than 33% at IPO time. ⁸
• The higher the growth rate, the higher the valuation, in terms of revenue multiple. ⁹

 What are your next steps?

• Assess your understanding of your customers e.g. how they perceive you, the value they obtain from you, their profitability, etc. Improve your understanding of your customers.
• Review the facts in your plans. Identify the source of each fact.
• Review the assumptions in your plans. Determine if there are facts and analysis which would change your assumption. Be clear on which assumptions are opinions and guesses.
• Be clear on the urgent problems and needs of potential customers and determine how many are actually willing and able to pay for a solution.
• Recognize facts, assumptions, and analysis are only input to the judgements and decisions you make. E.g the amount of revenue you need to be a unicorn when you IPO may be very different from the average.

Footnotes

¹ Ali Tamaseb, Super Founders (New York: Hatchette Book Group, 2021)

² Ibid., 15

³ Ibid., 16

⁴ Ibid., 17

⁵ Ibid., 32

⁶ Ibid., 34

⁷ Ibid., 44

⁸ Ibid., 45

⁹ Ibid., 49

¹⁰ Ibid., 51

¹¹ Ibid., 52

¹² Ibid., 60

¹³ Ibid., 67

¹⁴ Ibid., 114

¹⁵ Ibid., 114

¹⁶ Ibid., 117

¹⁷ Ibid., 118

¹⁸ Ibid., 122

¹⁹Ibid., 131

²⁰Ibid., 133

²¹ Ibid., 145

¹ David G. Thomson, Mastering the 7 essentials of high growth companies (Hoboken, New Jersey: John Wiley & Sons, 2010)

² Ibid., 3

³ Ibid., 9

⁴ Ibid., 21

⁵ Ibid., 22

⁶ Ibid., 32

⁷ Ibid., 33

⁸ Ibid., 75

⁹ Ibid., 163

¹⁰ Ibid., 164

¹ Charles Plant, “Unicorn Math  an Algorithm for Rapid Growth”, Narwhalproject.org, Charles Plant, https://narwhalproject.org/wp-content/uploads/2020/06/Unicorn-Math.pdf

² Ibid., 3-4

³ Ibid., 5

⁴ Ibid., 6

⁵ Ibid., 7

⁶ Ibid., 10

⁷ Ibid., 11

⁸ Ibid., 11

⁹ Ibid., 15

 What further reading should you do?

• Read the two books and website article referenced by the footnotes.
• Do you understand your customers? V2

https://koorandassociates.org/understanding-customers/do-you-understand-your-customers/

What is the purpose of this article?

Enable a company’s leaders and investors to begin the discussion on how to prepare the company’s value creation plan.  This article outlines the principles that can be used to create and manage the discussion.  This article is not intended to be 100% comprehensive in both breadth and depth. The principles apply to any size company.

You can download a PDF of this article from: How do your grow your company’s value V3

What are the critical learnings in this article?

• Growing you company’s value requires a competitively differentiated value creation plan, addressing the critical members of the company’s ecosystem e.g. customers, but not only customers.
• Your company requires competitively differentiated talent in order to develop a competitively differentiated value creation plan. g. if the board of directors and C-Suite are less capable than the competitors’ boards and C-Suites, the company fails at value creation.

Who in the company’s ecosystem are you creating value for?

Ecosystem members could include:

• Customers
• Employees
• Board of Directors
• C-Suite
• Shareholders
• Suppliers and partners
• The communities in which the company operates
• Broader society

What is the value you enable your ecosystem members to achieve?

• Value to customers might include: productivity, saving money, entertainment, improving health, and improving security.
• Value to employees could include: compensation, enabling their life’s purpose, increasing their value to the current company as well as long-term market place value.

What value do ecosystem members provide your company?

• Customers might provide: payment, recommending others to your company, and improving your company’s reputation.
• The community may provide the company with the social license to actually operate. Natural resources companies in many countries now need to consult or even get the support of local communities

How do you share the value obtained by the company?

• Sharing customer payments includes: deciding how much to charge customers, how much should employees be paid, (for example, should full time employees and full-time contractors be able to make a living income), how much should the board of directors be paid, how much should be allocated to dividends and share buy backs), how much should be spent on activities which improve local communities but generate no income, etc.

How do you decide on how to share the value?

• The decision process may include consideration of: the company’s purpose, the company’s values, morals, and ethics, laws and regulations, expectations of shareholders and local communities.
• The board of directors may make these decisions directly, through board approved policies, or delegate some of this decision making to the CEO.

How do you create value for ecosystem members?

• The specific way your company creates value depends upon your company’s specific situation and characteristic.
• The assets your company has available include: people (board of directors, C-Suite, employees, contractors, consultants, advisors), processes, technology, intellectual property, trade secrets, supplier/partner relationships, relationships with ecosystem members, and capital.  The reason I put capital last is because there is unlimited capital available for companies that are success at value creation.

What are your company’s challenges is achieving value growth?

Your company is facing competition, often from around the world.  Competitors are always working to be better than your company at:

• Enabling customers to achieve value and perceive a superior value proposition.
• Enabling talent (including the board of directors, C-Suite, employees, and contactors) to achieve value. This impacts how talent is attracted retained, developed, and exited.
• Being productive or lower cost.
• Attracting the best suppliers and partners.
• Having better support from the ecosystem.

It can be difficult to assess the root causes of historical value growth.

• Was success due to competitively differentiated talent and processes OR poor talent and processes but lucky?
• Was failure due poor talent and processes OR competitively differentiated talent and processes but unlucky?

What are the two most important things to focus on to enable value growth?

• Meeting the problems and needs of customers better than the competition. This is a combination of growing the number of customers and increasing the problems and needs which are being met. Without customers and without cash, the company does not exist.
• The most important thing to focus on is the talent. The talent creates and executes the plans to achieve results. There are two groups of talent that must be competitively differentiated: the board of directors and the C-Suite. They company will fail if board the board of directors and C-Suite are less capable than the competition.

Your next steps to create your value creation plan.

In the next three months, you will understand the process to develop your value creation plan.  You’ll go from beginning to end, making whatever assumptions are needed to complete within three months.  Your focus will be on customers and talent – specifically the board of directors chair and the CEO.  In future, you’ll consider more members of your company’s ecosystem.

• Document your company’s purpose and your company’s values, morals, and ethics. These will guide your decision making and execution.
• Determine what your customers believe is the value they obtain from your company and how your company is competitively differentiated. Be specific regarding the problems and needs being addressed and the benefits they achieve. You’ll have metrics associated with then.
• Define internal company customer metrics such as life-time profitability, and customer acquisition costs.
• Outline future customer scenarios. Describe what is driving changes to: customer problems and needs, the number of customers willing and able to pay for your solution, what customers will be paying.
• For each scenario, outline the changes and milestones for your company in the next five years in order to grow the total value customers achieve from you and thus grow your profits.
• Determine the implications of the future scenarios on the required capabilities and characteristics of the board chair and CEO. This requires describing how the board chair and CEO enable company success in the above scenarios.
• List the changes required to the board chair and CEO selection, assessment, development, and succession processes. This includes describing the type of coaches the board chair and CEO require.
• Create the ongoing process to monitor, validate and update the value creation plan.
• Determine which additional elements of the company’s ecosystem need to be included and which assumptions need to be validated as the value creation process evolves.

Further reading

There is overwhelming evidence that most companies are successfully executing their plans to fail and to not grow their value.

https://koorandassociates.org/avoiding-business-failure/is-your-company-planning-to-fail/

Do you understand your customers?

https://koorandassociates.org/understanding-customers/do-you-understand-your-customers/

How can the board of directors create value?

https://koorandassociates.org/corporate-governance/how-can-the-board-of-directors-create-value/