At Aster, we believe product management plays a crucial role in the long-term success of a startup. Having partnered with more than 70 startups, we have seen firsthand how founders and product managers can face hurdles in deciding how to allocate resources to:

• Ensure a continuous alignment between ideas added into products and the overarching company strategy
• Optimize or launch new products based on usage data and customer feedback
• Build and scale product teams as the company grows

To help founders and early-stage product managers tackle these challenges, Aster decided to host a webinar with three product experts who shared their insights on how to become more product-focused:

• Meredith Bordoni, Head of Product at Swiftly
• Marc Negre, Co-founder and Head of Product at Kraaft
• Sarah Setti, Chief Product Officer at October

This webinar was our first AsterOps workshop, an initiative at Aster to support early-stage startups both in our portfolio and across the broader ecosystem. AsterOps provides a platform to learn from experts on how to approach and address the common operational challenges that startups face.

Here are the key takeaways in case you missed the webinar!

“I believe there is no recipe for success for building a product roadmap,” says Meredith. “If there was a recipe, then there would be many more successful startups out there,” Meredith adds.

Many would define a roadmap as a set of features to get from A to B, but Meredith highlighted that a roadmap can be viewed as a “path to an imagined destination”, which should adapt over time with market validation. Meredith also prefers to think of a product roadmap as an investment map, as it is mostly a set of actions a team will invest time on.

Meredith also shared a “Hows and Whys” framework, which borrows from the 5 Whys for root cause analysis, to help startups align their product investment map with their overarching company vision. At Swiftly, Meredith implements this framework across two processes: first, by setting a top-down vision of what the company wants to realize and addressing the “hows” – using the Objectives and Key Results (OKR) method – and then, asking the “whys” of what you are doing using a bottom-up approach.

“Asking is good, but shadowing is better,” said Marc, highlighted the importance of supporting qualitative user interviews with actual quantitative data on how the product is used to help eliminate bias. Pre-market fit, he typically suggests spending days taking inventory on all user actions to understand their real pains.

 Marc provided valuable advice on how to use product data from inception to product-market fit, and shared additional lessons he has learned at Kraaft on how to become more data-driven in product management. Marc stressed the importance of quickly bootstrapping a first ‘hacky version’ of the product to put it in the hands of the user and see how it is used.

Once product-market fit is achieved, Marc suggested that product teams should then track “one simple success metric and have weekly interactions with customers about this metric” to help prioritize product initiatives. At Kraaft, Marc tracks Net Promoter Scores, and has calls with users on a regular basis to gather feedback about product releases and determine their overall satisfaction.

Marc also strongly recommends other founders and product managers to read about How Superhuman Built an Engine to Find Product/Market Fit, which highlights how product leaders can analyze customer feedback and optimize their product/market fit accordingly.

Sarah highlighted three of the four stages in a startup’s product lifecycle, and addressed the different objectives and required product profiles for each stage:

• The creation of a product: The first product managers are generally the founders at this stage, and are responsible for testing hypotheses, recruiting beta testers, designing interfaces, and overseeing the recruitment of developers and technical members of the company.
• The pre-product/market fit phase: A minimum viable product MVP has been developed. The appropriate profile to recruit at this stage is a full-stack product manager who can manage strategic and tactical aspects of the product. In other words, this product hire should blend expertise in business (market knowledge, monitoring customer data, creating business plans), UX (design pattern knowledge, user research, prototyping tools) and technical dimensions (architecture, data models, APIs, etc.).
• The post-product/market fit phase: The product has achieved market fit and strong user traction, and now requires more development to innovate and address user issues. Product managers needed at this stage are generally passionate about optimization, analytics and growth marketing, and are more specialized on the part of the product they are in charge of.

Sarah also warned the audience about scaling, which can sometimes give the impression of diluting ownership and accountability, leading to a negative impact on employee motivation and retention.

Sign up for our next AsterOps workshop!

Interested in learning from founders and experts on how to approach and address the common operational challenges that startups face? Then come join our next AsterOps workshop! To join, please sign up here.

About Aster

Aster is a leading European venture capital firm based in Paris with offices in London, San Francisco, Tel Aviv and Nairobi. Aster has raised €520 million through multiple funds with major corporations and institutional players. Specialized in digital transformation and new industrial models, we fund companies that are transforming the way we consume and move around, how industries manufacture, and how people work together.

Let’s face it, times are tough. We are in the middle of a major health crisis that, depending on its outcome, could lead to the biggest economic crisis in our recent history. Dark predictions are not popular, yet many of them come true day after day.

Like other VCs, we have spent four busy weeks working hand in hand with our startups to navigate through these uncertain times. Slowly understanding what lies ahead is not enough — there is little or no time to react and act — which is the most challenging.

The only way for startups to navigate through this “fog of uncertainty” is to draw up scenarios and seriously prepare for the worst disruptions and changes in activity. Most importantly, these scenarios must be carefully studied so that startups (and VCs) can reinvent themselves — we are not simply faced with a virus that comes with winter and goes with summer. The World is on the verge of a major power shift that was already well underway before and which the health crisis has only accelerated. Only one thing is certain: the next normal will be very different from the current one and startups have a role to play in defining it.

That’s why we have decided to share our baseline scenario with you. It’s not a prediction but it’s what appears to be, for us, the most likely path at a given time. In our series of articles, which we will post in the coming weeks, we will delve into the impact of Covid-19 on different industries. We hope this will help startups reinvent themselves as soon as the initial storm passes.

Our baseline scenario

Phase 1: Quarantine period — Fighting through the sanitary crisis

The quarantine period will end when the number of infected patients is sufficiently low and when secondary peaks can be managed by measures other than quarantine. In Wuhan, the quarantine period lasted 10 weeks. So, we can say that the best-case scenario for the EU is 10–12 — we expect quarantine to end beginning of June in France and 2–3 weeks later in the UK. Partial quarantine measures may allow to lift lockdown earlier, with specific business activities resuming as early as the end of April, but there is little visibility on that for now ; it could increase the risk of future epidemic peaks. Currently, France and the UK do not plan to partially reopen until the second week of May.

Phase 2: Safe-mode period — Learning to co-exist with Covid-19

Once lockdown is lifted, the world will go through a “safe-mode” period during which the economy will operate at limited capacity. People will return to work, many business activities will resume (with the exception of the travel, tourism and event industries) with the risk of a second epidemic peak.

With the economy running at 85–90%, we also risk a prolonged economic depression. A sharp rebound seems increasingly unlikely, especially since government measures are unlikely to prevent bankruptcies and unemployment. Injecting money and loans will not fully revive an already over-indebted economy, and supply and demand may not return to pre-crisis levels due to the remaining virus risks. This period could end at best by the end of Q4 2020, or even 2021, until a vaccine is developed and distributed at scale.

Phase 2 will be even more challenging than the quarantine period, but this is also where new opportunities will arise. As everyone will be forced to change their behaviour for a extended period of time, new habits will emerge. Trends will die, appear or strengthen in all sectors.

Phase 3: Period of recovery — Development and distribution of a vaccine at large-scale

It is difficult to determine when exactly the period of recovery will begin. It depends primarily on the distribution of an effective vaccine, which is best done after 12 to 18 months (i.e., until 2021). By that time, the trends emerging in phase 2 will have become the new “normal”.

What it means for startups

Phase 1

We are well into Phase 1, so many of these measures and actions should already be in place.

• Focus on cash and on reducing your burn rate, with the sole aim of maximizing runway. At Aster, we recommend that our portfolio companies review their forecasts for the next 24 months and consider the poor outlook of Q3 and Q4 2020
• Communicate regularly with your customers and existing investors, they will both provide you with essential information on what’s next
• If you can afford it, transition parts of your business to support the war economy to keep the country’s economy going while addressing the health crisis. If you can’t afford it, freeze your activities for three months with minimum service or furlough.

The key is to proactively look out for new opportunities. In the coming months, many trends will disappear, and many will emerge. Ask yourself the following questions:

• What are my customers facing right now? What is the impact of Covid-19 on their business?
• How can I help them restart their business as soon as possible?
• Who are the people least affected by the crisis?
• Can my existing product be useful to other customer segments? To other markets?
• Are there features I had planned to release in the future that suddenly become more relevant now?
• Can my product be useful to a completely different industry?

It’s important to adopt an even more customer-centric perspective than before. We have seen many 180-degree turns recently as companies shift from B2B to B2C or even change their target customers. This was the case for many food and logistic startups that saw their revenue drop to zero in one week but returned to their pre-crisis revenue levels two weeks later by changing customers.

Finally, if your company’s activity has not stopped, make sure to implement the best health and safety guidelines, in order to keep your team safe and the business up and running.

What does this mean for fundraising?

It’s probably the worst time to be raising funds right now. VC are spending most of their time working hand in hand with their portfolio companies or their LPs. So, we recommend raising later, if you can. If you can’t, it’s really important that you factor the crisis into your forecasts. Assume the worst and build options. You can’t ignore the fact that half of the world’s population is locked in.

Phase 2

• Keep focusing on cash, strict health and safety guidelines and transparent communication with your team
• Constantly reassess your customers’ priorities in order to turn to new products, new features and new customers if needed
• Secure your value chain, ease the work of your partners, customers, suppliers and employees. The goal is to stabilize operations in the light of the ever-present virus. Keep in mind that one of the major challenges will be the refusal of people to go back to work because they don’t feel safe enough. There will also be undisciplined people wo will behave in a risky manner, as if everything was over.
• Consolidate and implement the pivots identified in phase 1, whilst relaunching the “old activities” if any remain
• Develop a Business Continuity Plan with even more levels of contingency than usual

What does this mean for fundraising?

During the safe-mode period, fundraising should slowly return to normal. While the situation of many funds will not be very good, others will have updated their investment thesis with a focus on counter-cyclical sectors that are recovering quickly and on new trends.

Phase 3 (Conclusion)

If Phases 1 and 2 are well managed, this will be the new golden age for surviving startups and VCs:

• VCs are well aware that the post-crisis deals are the best ones: there are less funds, so less competition and you are able to IPO anything you want in 10 years’ time at the peak of the next bubble
• Startups have the opportunity to follow and create new trends in a context of weaker competition

Overall, most countries in the world will suffer tremendously and will have to rebuild a lot from scratch. Some might argue that humans don’t change and that we may simply rebuild as before. However, we believe that many major trends, such as climate awareness and the digital transformation of the industry for instance, will accelerate and become more widespread. And as countries will reinvest in future growth engines, policymakers will need to follow them too.

Seed/Series A startups and corporates are fundamentally different beasts.

The two usually operate on completely different wavelengths on several fronts:

• Inherently risk-prone vs. risk averse
• Quick vs. slow decision-making cycles
• Needs cash to survive vs. cash matters, but not at the same scale

So it’s no wonder that fostering a successful collaboration is often challenging and unfruitful when a startup is looking to engage with corporates.

Yet, as a B2B SaaS startup, landing business with corporates is a matter of survival. But how do you identify and connect with the right corporate client? How do you get your foot in the door? How do you improve your odds when it comes to converting pilots into long-term partnerships?

Having fostered a great deal of partnerships between startups and corporates here at Aster, we’ve decided to share a few tips to help founders at the Seed/Series A stages optimize their sales efforts and make the most out of their relationships with large corporates.

1. Target the right companies — it’s NOT a numbers game

If you are selling SaaS to mid-market companies and large corporates, chances are you have many potential targets. Given the low conversion rates, there is a tendency to believe that the best way to land deals is to maximize the number of companies you engage with.

But it is important to consider that large corporates have different and generally more complex approaches when it comes to working with startups. For large companies, a Proof of Concept (PoC) is a must before scaling a startup’s solution within their organization, while mid-market companies take more of a “self-service” approach, moving more quickly from trial periods to commercial contracts.

As a founder, chances are that most of the time you will have only one point of entry into the organization (let’s call him Bob).

If Bob has expressed an interest to test or buy your product, congrats! But Bob will rarely be your only customer or user within the corporate. It’s also unlikely that he’ll be able to commit to buy your product on his own, and even less likely that he’ll oversee the integration of your product into legacy systems.

In reality, going from your first conversations with Bob to the ideal roll-out of your solution throughout the company will involve several decision-makers — all of whom have different interests, agendas, expectations and fears.

The solution? Mentally break up the large corporate into bite-sized chunks. It will make it easier for you to identify the gatekeepers and then turn them into gate openers.

Here is a simplistic scorecard of the different gatekeepers and their own interests:

Source: Aster Capital

The Venture Capital industry is constantly looking for the latest most interesting topics, sometimes making startups look like fashion trends. And like any fashion trend, the reality is different from what we see. Today, startup success seems to be measured by its growth rate and inflated valuation. This is now the norm but to many, including entrepreneurs and investors, the logic doesn’t look always add up.

Venture Capital investors are definitely adding to this frenzy. In fact, the way VCs invest varies tremendously across the industry but there is one question that all of them will ask entrepreneurs pitching for funding: “How do you scale?”

Staying small is perfectly fine

First, it is important to mention that growth is primarily a matter of choice for many business owners. In fact, running a small, profitable business with or without growth ambition is not just perfectly fine, it is also fundamental. SMEs represent the vast majority of our economy and are absolutely critical to the economic fabric of our countries.

Without dismissing their importance, however, VC’s focus is on companies with high growth potential. This is set by the inherent high risk of startup investing. VCs are unicorn hunters. These are rare but are the only ones that will guarantee the positive return of their funds. From Series A onward, VCs are only focused on companies with scaling and growth potential, or in other words, rockets on their launching pads ready to take off.

For entrepreneurs who have a profitable business, it is most often a question of personal choice or ambition to go for high growth. Sometimes, it is more a matter of timing and competition.

Is “scaling” the same as “growing”?

So, scaling is critical to VCs but interestingly, not many entrepreneurs address this aspect in a convincing manner when pitching. Even more interesting, not many VCs can explain what they mean by “scale” in simple terms.

Adding to the confusion, “scaling” is commonly used in the same way as “growing”, although these are two different concepts. One can say “scale or grow revenue”, “scale or grow a business”, but investors always ask “how do you scale?”, never “how do you grow?”. This means there must be a difference!

Indeed, scaling is about increasing revenue generated by one unit of resource, or simply put, doing more with less. It is about making the business more efficient and improving its unit economics over time. It means constantly aligning the rocket to go faster by following the optimum trajectory. Examples of high-level metrics that are signs of scaling companies are: increase in recurring revenue, lead velocity rate or decrease of cost of sales.

Growing, instead, is about acquiring and allocating resources. It is about raising funding and using the funds to recruit sales people or expanding to other geographies. It means adding more fuel to the rocket for it to go farther. The main high-level metrics showing growth are revenue increase, pace of past fundraising rounds or headcounts.

Now that those definitions are set, one can already make one first remark. Nowadays, companies showing high growth are plenty whereas those showing good scaling remain scarce.

Both concepts are obviously linked but they can work together or against each other. Some companies can scale without growing in size, increasing their revenue through means such as automation, digitalization of processes without going into a hiring spree.

The contrary is very common too. Companies can grow without scaling, and the symptoms are quite easily recognizable.

Bigger doesn’t mean better

At a later funding stage, companies usually use multi-million funding rounds to grow, expand or conquer new markets and countries. With a war chest in the bank, many of those soon-to-be unicorns are tempted by a “growth-first” strategy in order to preempt market shares. This is also often encouraged by their own investors. The consequence of this strategy is that it does not address scaling, which can lead to big pain points that might backfire down the line if the growth is not sustainable.

Early symptoms of growing companies that are not scaling are quite easy to identify. Here are a few examples below, bearing in mind that this is happening at the same time as high revenue growth rate:

• Cost of sales increasing/decreasing margin
• Quality management getting out of control
• Worsening of customer satisfaction
• More and more fragmented company culture, often occurring during international expansion
• Lack of communication within the team or management team losing sight of what is happening.

The consequences can be deadly if the causes of the symptoms are not treated or contained early on:

• Uncontrolled losses in the company, in specific markets or globally
• Demotivated team, and ultimately, key people leaving and high turnover.

If those pain points materialize and scale faster than the business itself, the survival of the startups is down to investors’ confidence, which is in any case putting founders in a pretty uncomfortable position.

So, in the end, what are VCs looking for?

The theoretical answer is quite obvious. VCs are looking for both scale and growth. The reason is extremely simple. Although growth is what drives the exit valuation, companies with a scalable model will progress faster and with less pain (always good to take!) as soon as funds are invested. The reality is obviously less straightforward, and some VCs can prioritize growth for several reasons.

First, no company has nice and shiny metrics from day one, these are built over time through trials and errors. Also, each step in the life of the company brings new challenges that can disrupt those metrics. In early stages, investors evaluate the potential of scalability, which may never materialize but as long as there is growth, founders keep the chance to convince more investors.

Second, there are actually many examples of companies that adopted a “growth-first” strategy and who still managed to exit. In fact, some of the largest IPOs in history were companies who only figured out how to scale after going public. Such exits remain however dependent of market conditions and the confidence of investors on the public market remains much more volatile than on the private one.

Therefore, generally, we will always prefer companies who have built scalability in their model. During high growth phases, we will also recommend and assist founders to prioritize “scaling” over a “growth-only” strategy. We believe this statement should be obvious to founders: if your company struggles to scale, growth will only spark fires that you have to deal with down the line.

VC-investing is a really particular job: most young companies out there do not need VC-money, and most companies invested with VC-money will fail. Yet, the right association between rocket-fuelled entrepreneurs and supportive investors will move mountains and reshape entire markets for good. This quest for outliers drives a VC-investor’s motivation on a daily basis, and has strong implications on its daily organization. Here’s what I have learned 1 year into the job!

First, let me introduce Aster: we are a 15+ year old Paris-based VC firm investing across Europe, the US and Israel in Seed and Series A. Our DNA is all about finding market leaders in the Mobility and Industry verticals; and helping them create business opportunities through our network of large corporate and SMEs.

I joined the team almost a year ago, which gave me the time to:

• Exchange with more than 200 entrepreneurs
• Help my colleagues on a hundred of other investment opportunities
• Deep-dive (sometimes unfriendly) markets such as Hyperconverged Infrastructures, Hydrogen for mobility, DevOps automation, Flight ticket distribution and Urban Logistics
• Map the whole UK incubator/accelerator/VC ecosystem

In the meantime, I also:

• Spent too much time studying some investment opportunities that we ended up dropping for basic reasons
• Missed some opportunities because of bad timing
• Lost myself into studying some market’s underlying structures and dynamics

From this, it may be the right moment to take a step back & give some of the first insights!

1. What is VC about?

Endless possibilities, limited time

The first thing I learnt during this VC-journey, is that time efficiency should be the absolute priority on a daily basis.

Firstly, because there are thousands of companies that may fit our investment scope out there, hundreds of events to attend each month and an infinite number of resources (reports, research papers, articles) available.

On top of that, the investment process itself is time-constraining: the best deals can be closed in the blink of an eye and entrepreneurs often have limited time to achieve their fundraising process.

And I am not even talking about supporting portfolio companies, which does not affect junior VC-investors; but this becomes the absolute priority of an investor after several years.

Asymmetry of information is everywhere

On average and if everything goes well, there are 5–10 weeks between the first meeting with a startup and the issue of a termsheet. This period is crucial for both the entrepreneur and the investor:

• For the entrepreneur, it is about “selling” his vision (1st) and his company achievements (2nd) to potential future investor(s), and to convince the most meaningful ones to go on board
• For the investor, it is about building trust on a startup’s potential to create and hold long-term value on a market
• For both, the objective is to align interests and lay the foundations of a future partnership

Unlike in poker, bluffing shouldn’t be an option, neither for the investor nor for the entrepreneur

A year in the job, this is what fascinates me the most about VC: it is really complex to evaluate the potential of a young company that is, by essence, a work in progress, without any cognitive biases. To make it simpler:

• It is not because you would (or wouldn’t) use a product/service that it will (or won’t) succeed
• It is not because you begin to get impressed by a founding team that the investment is worth it
• At the same time, our job is not (only) about evaluating metrics and financials; assessing the human potential of a team is one of the key elements we look at

This list could be long, but in the end it comes to reducing the asymmetry of information to an acceptable level and to acquire solid convictions about a potential to create value on the long run.

2. Are there any cheat codes?

Spend time meaningfully

VC-investing is about cutting through possibilities to find, understand and invest in the most promising companies out there. Doing so requires setting up time-allocation methods and choices; in order to ultimately spend 90% of your time with the 1% outliers you want to invest in.

I’ve discussed this topic with several VCs: Some of them spend hours reading about markets and discussing with experts, because they think deep-understanding of a trend is the most important thing to do. Others spend most of their time with people (founders, teams and future employees), because they think VC is only about people.

Of course, there is no secret sauce and both types are right. The one question an investor should constantly ask himself is: “How can I find the most promising startups out there; and bring the most value to them once I’ve invested?”

Acquire insights and thrive in contradiction

To end up with a more actionable feedback I’d say that at a junior level, practice makes perfect. The best way to build independent convictions is to confront your beliefs with opinionated people, should they be entrepreneurs, industry leaders or other VCs as often as you can.

I usually spend 5–10h/week diving into specific markets, either by reading or discussing with industry professionals. This is even more crucial at Aster, as we are mainly dealing with technical topics such as industrial automation, satellite networks or cybersecurity.

But in the end, being able to say “I don’t know” and to hunt for clarity will always be as important as building market expertise. Asking questions and truly understand their answers is key to avoid superficial reasoning and build meaningful relationships.

Israel is known as ‘The Start Up Nation’, a place where a lot of companies are developing new ideas and breakthrough technologies that can bring a real change to the world we live in. The small country with a population of 8.5 million people, is a home for over 5,000 startups. You probably know some of the technologies that were established and invented in Israel, such as WAZE, Mobileye, Wix and Netafim (drip irrigation). Being the world leader in R&D investments as a percentage of the GDP (4.25%), around 300 top global brands across different sectors opened a R&D center in Israel. Other brands like Volkswagen Group, Coca-Cola, ENEL, Citi Bank and more are operating an innovation activity in Israel to accelerate their business with young Israeli innovative companies and to play an active role in this vibrant ecosystem. Also, as a state with domestic VC funds raising over 1B annually, some brands like Verizon, Intel, General Electric or Visa prefer to have a VC presence in Israel.

So, the global community is aware of the Israeli added values, but still find it challenging sometimes to do business with Israeli companies and entrepreneurs, due to cultural gaps.

As an Israeli who works frequently with foreigners and has experienced such cultural differences, I decided to write some tips to the non-Israeli audience, which can be used while doing business with Israeli companies to minimize the potential struggles and the misunderstandings that can occur. It’s relevant to all types of business communication you might have, no matter if you’re the seller, the buyer, the investor or the one to be invested in.

Be direct

Israelis have a very direct communication style, which can be so straightforward that they might come off as rude or pushy. Nevertheless, this is a cultural characteristic of the startup nation — saying whatever one thinks, speaking on issues and expecting others to be responsive and direct as well. This mentality is also known as “Chutzpah” (the Hebrew word to ‘insolence’), which is considered to be a positive characteristic and part of the fuel that motivates and inspires the Israeli entrepreneurial ecosystem.

Therefore, don’t hesitate to be direct just as your Israeli colleagues are! If you think their idea is not the best, tell them. If you don’t see a future of doing business with them, tell them. If you have some comments, tell them. You’ll be highly appreciated and get your Israeli partner’s trust if you honestly share your thoughts and intentions, so don’t be shy!

Be creative

When you work with Israelis, it is natural to wonder if their idea has the potential to succeed. Sometimes you might be amazed how the vision of the entrepreneur sounds weird and with very low chances to have a real market. Sometimes their idea will sound different and random, since they might transfer different needs and solutions from one sector to another. Also, having unusual ideas of models to collaborate is part of the creativity that might frighten you in the first place. So, changes in plans and schedule might occur but often prove to be more efficient.

Try to stay open minded and creative in areas you didn’t expect to. Thinking out of the box or inventing a totally new box is what makes thriving innovation. Try to adopt the ability of being flexible with your mind!

Be quick

Life in Israel is very vibrant. Israelis like to be spontaneous and to move fast, also when it comes to business. Businesses are fast paced and often you might feel under pressure due to the sense of urgency they might have. No worries, it’s just the cultural tempo. Answering quickly to emails, moving on with processes, creating action items and complete them on time and taking quick action to resolve issues are some of the things that Israelis will appreciate.

If you’re interested in doing the deal, don’t wait, take action!

Be a friend

When you visit Israel, you can easily notice that the sun is very strong. Its high temperature is not only of the climate, but also in the Israeli people’s blood, who are very warm and welcoming. Personal relationships are very important to Israelis, so it is natural that colleagues and business partners will become close friends, socialize together and create strong connections. It is a very connected ecosystem where people get to know each other and create relationships that stay relevant across sectors. In this relationship-oriented culture, it might be surprising to find out how honest emotions are primary, while objective facts may be secondary. Personal opportunities can also be created by the informal and casual culture: when you’re doing business with Israelis, be ready to get some new friends and to be part of the Israeli community!

Culture is deep in people’s blood and usually influences their behavior in all aspects in life. This is also true when it comes to business, which can be a barrier when people from different cultures are trying to negotiate or work with Israelis.

In the article above, I’ve tried to give some tips for those who are wanting to do businesses with Israelis and are not very familiar with the Israeli way of life. Rest assured that Israelis are aware that they are assertive and persistent people, and to the fact it is not always easy to do business with them.

Over the last 5 years, mostly for early stage, average pre-money valuations have increased by 50 to 100% in the US and by 25% to 50% in Europe [1]. Such an inflation is arguably caused by increasing liquidity in the market — both at early and later/growth stage — which makes it possible to raise larger deals with the consequence of more cash hitting the bank accounts of startup companies.

Given the above, it might seem counter intuitive to still bother about burn rate: if more money is available why should you keep control of costs? Burn rate instead should still matter for both VCs and founders for at least a bunch of reasons.

First is dilution

The less money the company raises the lower the dilutions that the founders will suffer until an exit. According to some stats, founders on average will suffer 55% dilution from seed to Series D/Exit, mostly due to fund raising. Imagine if you — as a founder — could reduce by 5% such a dilution: for an exit at $500 [2] m it would mean ca. $25m more in your bank account at the end. Moreover, the less the need of raising money, the bigger the negotiation power founders could command when setting the valuation each funding round, further reducing their dilution.

Second is more capacity to make key hires

The lower the founders’ dilution, the more the equity that can be awarded to key hires the company will need to make down the road. This can have a positive effect on the capability to grow and to yield to a successful exit.

Third is value creation

If you are pretty sure about your product/market fit and you master your channel and your growth quite well, then probably this can apply less to you. But at the early stage, you don’t know how much value each dollar spent would turn in terms of margin or other relevant metrics of value creation. However, this is a metric that is key for an investor and would penalize the company that will fail to deliver that. A mastered burn rate will help you achieve that and will make it easier to raise at an up-round valuation next time.

Fourth is the capability to navigate risk

While in these days you see a lot of liquidity in the market and relative easiness to finance private early stage companies, a downturn, especially with global capital markets at all time high, can always be around the corner. And if the market dries up, then it will be much more complicated to raise the next planned fundraising. What a controlled burn rate would allow you to do is at least: 1/ extend your runaway to push further down the road your next capital increase and give you more time to demonstrate the worth of the company; 2/ demonstrate capacity of founders to care about money and hence to be able to navigate well into downturn times, 3/ it gives more flexibility and higher chances to be able to survive if things don’t go well in some periods, which is a risk any startup might face.

Now, assuming we understood the importance of a controlled burn rate, then how to get there is not always an easy task.

When you are a small startup and you want to reinvent or disrupt a large market, you might want to do thousands of new things at the same time. But what is essential? What is crucial so that if cracked, would bring the company to the next level?

Your customers

Especially in the early days, you might be tempted to spend for engineering the product, build the sales team, create a smart marketing campaign and a distinguished positioning. These are all good things to think about, but you need to make sure that what you have already in hands really works. Before looking inside your company and look for the resources to make things happen, make sure you look outside your company first!

Do you have customers that are paying you, do you fully understand what needs they have? Do you master the sales cycle and what does need to really happen before your customers could buy massively from you (including what needs to change/happen in their organization for the purchase to happen)? Especially true for B2B companies, sometimes sales cycles could end up being quite long. Customers, especially large ones, are slow to make decisions, and you need to last long enough to wait, efficiently, before the decisions are made.

Now, once the above is well mastered, make sure you’re embarking on something that is of priority and whose consequences can be directly linked to value creation. Make sure you assess the capability of the company to deliver before starting something new and that everybody is aligned to your strategy so that your sales team can sell what the product team can produce (it could seem obvious, but sometimes is not).

Recruiting

Clearly most of the burn rate of a startup will be dedicated to people, so as a founder you need to manage the evolution of your organization well. Some founders might be tempted to hire long time professional managers early on, but in reality, you don’t necessarily need managers until you reach a certain critical mass. Founders should manage people for as long as it is practical. Certainly, your employees will be continuously asking for more people, it is an instinct to pretend more people below. Yet keep firm and don’t give up on this until it becomes essential.

But of course, as some point you need management roles to be filled in, and certainly hiring is faster, it gives you the impression you have the skills you need at the time you need. This is clearly in some cases the best option, but don’t overlook the need to nurture leadership and promotion from the inside: long time employees are in general more loyal and grow with a sense of ownership and alignment with the founders.

There are several other topics that might be worth investigating when burn rate is concerned. Listing a few, as I have done above, is not exhaustive, but gives some clear examples of what is at stake regarding this topic, even at times of plenty of liquidity in the market. And at the end of the day what really counts is the founders’ attitude. Treat the money you raise from investors as your own. That will completely turn the mindset and will make sure expenses will not go out of control without anybody noticing it.

In fact, the vocation of a startup is actually… to fail! As the Startup Genome Report say, 92% of startups raising some sort of seed money end up failing. And no matter how much you raise, if you don’t control your burn rate you might end up failing.

[1] Considering evolution of deal size and assuming similar founders’ dilution

[2] Assumptions: 10% final equity ownership of the founder at exit being the base case; improvement by 5% FD would mean ending up with 15% FD, hence for an exit at $500m, $75m for the founder vs. $50 base case.