GrubHubMike

Howdy Partner

Recently, I spoke at an event that highlighted working as part of a founding team. Check out the video here.  Starting a business solo is OK, but I’m a big believer in having a business partner. (Exactly one business partner; teams of three or more are a disaster.) Here’s why: 

A good partner increases the likelihood of a positive exit for a company. This increased chance of an exit more than offsets the 50% dilution. Getting paid a million bucks is sweet for the founder. Getting paid two million is even better, but the lifestyle change that comes with that first big win is a lot more significant than the 2^nd million. This becomes the biggest conflict between investors and entrepreneurs. The entrepreneur wants an exit. The investor wants a BIG exit.

Same & Different

In our first seven years, GrubHub went from 2 employees to over 70. During that time, we raised a total of 3.1 million in venture capital and launched our service in 13 cities.  However, in 2011 alone, we raised 84 million dollars, tripled our headcount, acquired a major competitor, and managed to catapult into 300 cities.  

I intentionally  scaled back my business related posts on my personal blog during this time.  Not because I’ve been too busy or too lazy, but because of the inherent risk that would come with added exposure during this busy year.  There is a lot of potential downside to blabbing about our business, but not a lot of upside.  So, I’ve had to be  much more careful about what I say and write.  And I gotta say, for a blabbermouth like me, that sucks. 

Opportunity vs Focus

Much has been said about the importance of staying focused in a business.  This has been one of the elements of success at GrubHub.  But I’ve always been a little bit uncomfortable with explaining this concept to colleagues.  Occasionally, someone will propose a great concept of a flanking product at our business with solid metrics and unit case analysis.  Often my response to the idea is “well, sounds good, but isn’t in our sweet spot”.  Yet it feels intellectually dishonest to dismiss a potential cash cow on a weak philosophical position.  On the other hand, we can’t evaluate every single idea, so where is the balance?

(Over)compensating with equity

I've been asked recently about how to compensate non founder employees at the beginning of a venture.  But there is a lot of confusion on whether to make everybody involved on day 1 a founder.   Most folks agree there is an upper limit on the ideal number of founders.  So taking that for granted, how do you motivate non founders with equity before you have cash? 

The usual method is to just give them a big chunk of equity  But that can get real hairy because you don't always know how to differentiate quality people vs total hacks.  So don't "give" equity to anyone.  Everyone should earn equity over time.  If you grant it all up front and then find out somebody is a lazy bum the company gets bogged down by a cap table with dead weight. 

GrubHub closes an $11 million round, and we learned something

GrubHub recently closed an $11 million funding round. Check out our official post here.   This is the third VC financing we’ve gone through, but it was the first time I’ve done the Sand Hill road show.  The process of seeking investment is incredibly valuable for a growing business.  It forces the executive team to take a step back and evaluate their business, progress and future plans.  Then you take those things and expose them to the scrutiny of very intelligent, engaged and motivated skeptics.  It's the best consulting money can't buy!  During the course of talking to some of the sharpest minds in Silicon Valley, Chicago and Boston, a number of themes came up repeatedly:  

Lean Startup Economics

 Creating a startup is best done by jumping in with both feet.  Building a minimal product and finding customers early in the process is a great way to create a company from scratch.  The idea of WRITING A BUSINESS PLAN is such a daunting task that most reasonable people aren’t going to go tackle it head on.  

But there is an alternative, take it out one piece at a time.   The central piece of the business plan is the financial model.  The central piece of the financial model is the unit model:  a fancy term for the expenses and revenues associated with producing and selling a single item.  

A Practical Guide to Writing Your First Business Plan

 So you want to start a business.  You’ve heard that you should have a business plan.  You’ve got a vague idea that you should get started on that sometime.  That vague idea has been sitting in the corner getting grumpy as you’ve neglected it.  And now the idea is a mean looking little monster with big pointy teeth.  The best way to get that sucker is to take a step by step approach that breaks down this big “MAKE A BUSINESS PLAN” task into a bunch of smaller pieces.

Top 6 boneheaded misconceptions of first time entrepreneurs

 I’ve had some pretty boneheaded ideas since I started grubhub.com.  As I’ve shepherded my idea to a hobby and then to a real business I’ve had the fortune of being able to recognize some of those mistakes.  Actually, I’ve had the fortune of being surrounded by folks who can point out misconceptions and who have been upfront with me.  This process of learning from bumbling mistakes investors like to call seasoning.

I have noticed that some of these ideas have come up repeatedly.  Many of the other entrepreneurs and would-be CEOs I’ve met have struggled with these same ideas.

 

A Quick Interview

 A student sent me some interview questions for his entrepreneurship class.  I only had about 5 minutes to shoot off some answers. So, this is what popped off the top of my mind:

9 tools for growing a startup from 1 to 50 employees

 Here is a roundup of 9 tools for growing a company from 1 to 50 employees:

Tool #1: Revenue.  Apparently there are business models that are proponents of not making money right away, but I don't get them.  Cash allows an entrepreneur to hire people and resources to get things done.  At first it is all about increasing velocity on the sales -> product -> sales cycle.  Successfully executing that cycle then requires supporting activities... billing,finance,IT infrastructure, etc

The Third Office (50 employees)

 This is the eighth installment in my series on going from 1 to 50 employees.

We outgrew our 2nd office in 18 months when we went from 15 people to 50.  Two things have changed about the nature of the business during this latest evolution.  First, instead of being very scrappy with cash, we've loosened the purse strings.  Second,  vendor relationships have become much more important.

Promoting People (35 employees)

 This is the seventh installment in my series on going from 1 to 50 employees.

My view on management hierarchy underwent a 180 degree flip at around 35 employees.  For a long time I had been a big proponent of "We don't need managers and hierarchy, a flat organization works a lot better."  All well and good, but when you get above 15 people asking you for direction, you become pretty much useless to all of them. 

The Far Flung Sales Team (25 employees)

 This is the sixth installment in my series on going from 1 to 50 employees.

Most of the growth in our employee ranks came from a national sales team.  Once we got to 25 employees, 9 of them were out in different markets signing up customers.  The work experience for these valuable folks is very different from those of us in the office.  They work from home.They have minimal contact with their supervisor. Their compensation is very clear cut and based on performance.  How do you extend company culture to them?  Is that culture relevant?

The Second Office (15 employees)

 This is the fifth installment in my series on going from 1 to 50 employees.

Once we hit 15 employees, a lot of stuff that happened automatically before wasn't so automatic.  We moved into a larger office and communication started to get confused.  Seemingly simple sales and marketing messages all went through a disastrous game of phone tag.  Lots of simple things were added to help communication: cross department meetings, monthly strategy sessions, public calendar scheduling, etc.  All routine things for most businesses.  But they weren't routine for us, they were revolutionary. 

The Office (7 employees)

 Getting our first office was really exciting!  This is a continuation of my series on going from 1 to 50 employees.

One of my original claims to investors was "we operate efficiently without any need for an office".  At some point having an office stopped looking like a liability and started looking like an asset.  An office makes communication easier.  Best practices get shared.  Policies are easier to keep consistent.  At 7 employees, the cost of the office is very small relative to the cost of payroll,but the benefit to each employee is very large. So go ahead and get those  swanky new digs.

The Other Founder (4 employees)

The third installment in my series on going from 1 to 50 employees. After I had things up and running and did all the hard work, the other founder waltzed in.  Actually, that isn't accurate at all, but I like to give him a hard time about it.  Back when it was just a hobby, we spent a lot of time thinking about how to run the business.  As you can see by our detailed business plan to the right. 

 

2 is company (2 employees)

The second installment in my series on going from 1 to 50 employees.  I used this first tool of getting to revenue as fast as possible, and now I have some extra cash to hire employee number 2.  What role should I hire?

Its Just Me (1 employee)

The first installment in my series on going from 1 to 50 employees.  You've got to start hiring somewhere.  So, start by hiring yourself. 

Blog Series: From 1 to 50 employees

Bootstrapping my business from 1 to 50 employees has been a wild ride.  The nature of the business has changed a lot.  As it has, I've had to stay on my toes to adapt to the new realities.  There have been shifts in the nature of my work as I've needed to raise my own game and continue to be the right person to move the business forward. 

Creativity and Focus in the Planning Process

So, we just finished our 2010 budget. As an organization, it was an incredibly productive experience.  One of the really great things was the process we used: A period of creativity and possibilities followed by a period of focus and tough choices

The Entrepreneur's Boss: Being The Internal Referee

In addition to being responsible to shareholders,employees,customers and the brand, the entrepreneur must be the internal referee to each of these groups.   While I have a legal/fiduciary responsibility to the shareholders, that doesn't exist in a vacuum.  In fact, a lot of effort must be applied to aligning those interests.  But every once in a while a conflict exists that must be arbitrated.

The Entrepreneur's Boss: The Brand

Entrepreneurs have responsibilities to a lot of groups of people.  There are also some more abstract, but still critically important areas to be cultivated in a startup organization.  Even while aligning and representing the interests of customers, employees and shareholders, an entrepreneur must maintain the quality and consistency of the brand.  Not just the consumer facing brand, but the tone for communication throughout the entire organization. 

The Entrepreneur's Boss: The Board

The entrepreneur is bound by contract to represent the interests of the shareholders as represented by the board of directors.  In most startups, where the entrepreneur is on the board, there is an additional legal and fiduciary responsibility to represent the shareholders interests.  Ain't nothing wrong with that.  When it works well, this is capitalism at its best.  Now, just to be clear, this does not mean that the shareholders are represented to the exclusion of employees and customers. In fact, if such an exclusion exists, the company is already a failure.  Usually, this means a few things:

The Entrepreneur's Boss: The Customer

The closest thing to a boss that an entrepreneur has isn't the shareholders or board or employees.  The buck stops with the customer.  When it comes down to it, all the gizmos and gadgets and patents and hard work won't keep the competitors at bay.  At the risk of sounding quaint and old fashioned, the only real competitive edge is getting loyal customers by providing value with integrity. In practice, here are the principles I've followed:

The Entrepreneur's Boss: The Employee

The entrepreneur doesn't have a boss, but they are responsible to others.  Legally, the board and management have a fiduciary responsibility to the shareholders.  But, in reality, the responsibility is wider than that, especially with regards to employees. A company where the shareholders interest and the employees interests are mutually exclusive has already failed both fiscally and morally. How does the entrepreneur serve their employees?

The Entrepreneur's Boss

One of the best things about starting your own business is not having a boss.  It is also a horribly inaccurate lie.  The reality is, one gets much more freedom, but a disproportionately more amount of responsibility.   While its true I don't have a boss, I do have responsibilities to different groups of people. 

Bootstrapping Effect #3: Attachment

In addition to changing the economics and speed of early business growth, bootstrapping can have a very serious negative side effect: attachment.

I'm all for being passionate about a business and giving it 100%.  In fact, it really should be an obsession.  But attachment; safety blanket, clinging, totally irrational attachment, can really kill a business.  It happens when you grow your baby from a fragile idea to a real business with robust revenues.  Risks become subtly and imperceptibly more difficult to accept. 

Bootstrapping Effect #2: Competition

Last week I mentioned Valuation as a difference between a bootstrapped business and a seed stage funded business.  Another is competition.  Bootstrapped businesses are more vulnerable to it.

Bootstrapping Effect #1: Investment and Valuation

Bootstrapping a business has some effects on getting institutional investment.  A disclaimer here: I'm working from a pretty small sample size: my own experience, and my conversations with other entrepreneurs.  Having said that, I think it boils down to a pretty simple concept.  If you bootstrap your business, you will increase the probability of getting investment while simultaneously decreasing your valuation.

Bootstrapping Series: Hire Slow

I've been going on about getting the right people: partners, advisers, and first employees. But how do you actually figure out who the right people are? This is the most important thing a founder does in a company.  The key principle is to be very demanding and deliberate in the hiring process.

Bootstrapping Series: Hiring First Employees

We just explored surrounding yourself with good people.  But how do you start? Hiring the right first employees is critical.  The first few folks at a startup are entrepreneurs in their own right.  As such, they are motivated by different things than employees at a big company.

Bootstrapping Series: Surround yourself with good people

Since you've read my previous post you understand the delicate tension between do it yourself and having a big team around you.  Since you are such an entrepreneurial rouge, though, you're thinking you can figure it all out yourself.

Bootstrapping Series: In a pack or lone wolf

I'm continuing my series on  bootstrapping an internet business. Growing a business is mostly about getting the right people and getting out of the way.  But, before you go hiring a pile of people, you've got to figure out if you want business partners.

Bootstrapping Series: Perfection is the enemy of growth

Last week I started the series bootstrapping your business. So if you are reading this, you probably have a business up and running and are wondering what to do next.

The thing to do next is improve.  But don't be a perfectionist. Trying to get everything perfect can lead to two extremes: pointless frantic activity or analysis paralysis

Bootstrapping Series: Full Time vs Part Time

I'm continuing the series bootstrapping your business. Its really important to run a business full time.

When I started thinking about my hobby as more of a business I was still doing it part time and doing a "real job" full time.  I was very busy, but not overwhelmed.  I distinctly felt that I could continue to work on the idea, make sales, and improve the product on about 20-30 hours a week.

Bootstrapping Series: Spend the Money

Last week I started the series bootstrapping your business.  First you create a product, then you sell it.  Now, you gotta spend some money.

One of the most stressful parts of bootstrapping a business is the available cash.  I was extremely aware of the bank account balances on an hourly basis.  Over time I got comfortable with having the bank account approach (but never drop below) $0.  Once we started doing well, it was really hard for me to spend the money.  I developed sort of a scrooge mentality. 

Bootstrapping Series: Secrecy is for Sucks

You're bootstrapping your business.  You've got a great idea. 

Keep it Secret! Keep it Safe!

Hell no! Shout it from the rooftops!

Bootstrapping Series: Making a Bunch of Sales

Once you've sold a few times, you come to the same realization that all those who have become before have had.  Selling a product to a lot of people is the most important thing you can do for your business.   Creating a product takes a certain fixed cost.  Selling needs to happen again, and again, and again.  Making customers happy and getting new customers quickly becomes the primary focus of almost all businesses.

Bootstrapping Series: Make the First Sale

Yesterday I started my series Bootstrapping an Internet Business  with the topic of Creating a Product.
Today I want to talk a little about making that first $1.  

As soon as you've got a product that is barely worth selling go sell it to someone.  Don't wait till its perfect.  It won't get perfect until you've tried to sell it a few times, so that's a waste of time anyway!  Its a long journey from the idea to the first $1.  But, its very satisfying.  And, as soon as you sell something, you've got customers.  And once you've got customers, you have the most valuable data available about how to make your product better.  

Bootstrapping Series: Creating a Product Somebody is Willing to Pay For

The first step of bootstrapping a business is creating a product somebody is willing to pay for.  One needs a laser focus to get from an idea to that critical first $1. 

Its easy to get distracted here.  How do you know what is worth doing vs leaving for later?  At this point, its all about creating future benefit and increasing upside.  Later on, once you are making money, its more about reducing risk and downside. Patent applications, legal frameworks, employment handbooks, municipal registrations, etc  are all about reducing risk.  Do the absolute minimum necessary to stay legal.  Don't get bogged down.  Focus on the upside.  Get a product worth selling. Everything else comes later. 

Bootstrapping an Internet Business

I gave a quick 15 minute presentation about getting funding for an internet business at BarCamp Chicago a couple of days ago.  There was a nice long Q&A session afterward.  A lot of the questions people asked me were more about starting out with a business. Specifically, people were interested in 'booststrapping' . I wrote about this before, but I thought it might be a good series topic.  So over the next 4 or 5 weeks, I'm going to write about bootstrapping an internet business.  Here are the topics I'm thinking about:

Create a product somebody is willing to pay for
Make the First Sale
Sell it a bunch of times
Secrecy is for sucks

Disciplined Spending
Full time vs Part time
Perfection is the enemy of growth

In a pack vs lone wolf
Surround yourself with good advice
Hiring First employees
Hire Slow

Bootstrapping Effect #1: Investment and Valuation
Bootstrapping Effect #2: Competition
Bootstrapping Effect #3: Attachment

Stand on principle; Swim on style

The last few weeks have been all sorts of interesting for me at work.  Our company has grown in size. And with that growth, we've seen a few of the things that one would expect as an organization gets larger.  Friction betwixt departments that develops from difficulties in communicating; evolving a new company culture as new personalities enter the organization; helping our new folks feel comfortable and our old salts excited about the change. 

Show me the data

I was speaking to a member of our team last week. He had a really great point about how we should be doing something that I totally agreed with. So, I told him to go back to the drawing board and convince me. What!

The slowdown...

As the startup I'm involved with has grown from 2 to 20 to 40 people, I've noticed that decisions take more time than they once did.  This has been a positive change.   There are a few legitimate reasons that we've become more deliberate:

Great Reading

I've read the Seven Habits of Highly Effective People a couple of times over the last few months.  I gotta say. Wow. What an incredible book.  I was skeptical at first.  Primarily because the book has been so extensively read, reviewed and discussed. Further because it is a little bit dated.  But then I realized that shouldn't matter.  Neither the source nor date of an ideas origin has any impact on its truth.  So, instead of sheepishly admitting I read this book, let me say it more clearly.  This book is amazing. 

Conscious Incompetence vs Complacency

I had a discussion last week with a coworker about complacency.  We were discussing the importance of continual professional improvement.  Being complacent is very bad. If I'm not improving, I'm being left behind. But, its also a perception issue.  Whether its my employees, my board of directors, or our customers, the perception of complacency can be cancerous. 

Playing Nice at Work

I think one of the keys to being effective at work is being a pleasant person.  Primarily its about not being self focused.  "Seek first to understand before being understood"  Probably the most important point from the very good book: Seven Habits of Highly Effective People.  It is nearly impossible to set goals and share execution strategy with folks if you are bickering about the strength of the coffee. 

One In a Million Crazy

I'm a big fan of giving good customer service. If a company is going to do it, they need to do it right.  That said, there are some serious crazies out there.  Let me be perfectly clear, I'm not talking about individuals who have mental illness. My heart goes out to them, and as a community we need to provide support.   Also, I'm not referring to customers who have had a bad experience and are angry and irritated by a failure.

Measuring Service

I'm very focused on measurement.  As far as I can tell, if there is no way to measure an initiative, its very hard to understand the value.  Customer service can be particularly tricky with this.  One can measure the number of times that a customer comes back after having a good service experience.

The difficulty is that this kind of measurement shortchanges the real value of a commitment to customer service.  Seth Godin would say its building a tribe.  Nordstrom would claim that it is the central offering of their company.  Zappos would relate that their entire business was built on hard to track word of mouth.  Measuring ROI is just so frakking tough with this stuff. I had some very personal experience with this recently:

Why have core values for a company?

One of my coworkers mentioned to me about a year ago that it was really hard to make decisions of a moral nature in a company because each person in the company has a different value system.  The problem is compounded because pretty much everybody unconsciously assumes that everyone else around them is working from the same system.  Expectations and reality are way different.