SLA’s - be wary of startups that have them.
I occasionally hear the request for an SLA at Spreedly. Here in general is why an SLA is not useful and should be avoided. Firstly, what are the goals of an SLA? To ensure uptime and to ensure offsetting payments in the case of downtime. So let’s walk that through:
- Downtime: If you service provider is down they are putting their entire revenue stream at risk. If their transactionally focused they’re losing money every minute they’re down. Even if they’re more like a flat monthly subscription they’re risking losing customers and not signing new customers. My point? They don’t need an SLA to be very focused on the importance of uptime.
- Penalties: The penalties for downtime have to be inline with the revenue received for the service. It’s crazy for an organization to put itself out of alignment here. So the penalties offered - even with major outages - probably fall in the 1 month maximum category. Imagine your payment gateway goes down. They collect 3% of revenue. You sell $1 million per day, they make $30,000. Of that 1% is what they make after interchange etc. So that’s $10,000. If they were down for 3 days and therefore triggered their worst SLA you’d see $3 million in lost sales and they’d offset you with $10,000
- Gaming: Companies with SLA’s will make business decisions around uptime vs downtime based on triggering SLA’s. Critical security patch? Can’t implement it this month because we already had some downtime. Any more and we trigger payouts. Don’t set up a system where your service provider is managing their service based on SLA metrics.
- Self Fulfilling prophecy: Your business critical service goes down for a day. That’s a huge pain. So imagine if they went away altogether? How is that going to feel? Well after a couple of days down they’ll lose current revenue, lose current customers and lose future customers. What if they also have to pay out cash due to triggered SLA’s? It could be the straw that breaks the camel’s back.
It’s for that reason I’d say avoid all but the most financially stable companies that offer SLA penalty payouts. It creates the “perfect storm” affect on their finances at the worse possible time.
Much more powerful incentives are in place for your service provider to ensure uptime than an SLA. Punitive payouts when they don’t create a false sense of security at best and may completely exacerbate the situation at worse.
Examining Failed Transactions at a Payment Gateway
The Next LinkedIn
At the risk of showing my age I remember when LinkedIn began. The idea was to build a professional network that had value for all involved. While I admire that LinkedIn gets a monthly fee from me and shows me ads, something neither Twitter nor Facebook has pulled off, I’m really not sure what it is anymore. I use it frequently as a “resume” on steroids if you will. I research the background of people I’m going to interact with. But there’s really no value in the “Linked” in part of LinkedIn to me. It feeds me articles but there’s nothing there I can’t really find in my twitter feed.
Spreedly is a full time job for me. So I’d love someone to solve this problem. It strikes me that there’s real value in connecting with people in such a way that you can reach out to their connections directly. You could be trying to solve a challenging technical problem. You could be looking to connect to a new employee. You could be trying to find your first angel or customer. I get that this is a challenging concept - but if you solve it then you have a huge hit on your hands. Maintain a small, excellent, trusted network and you’ll be able to reach fantastic people in a meaningful way. Someone spams you - they get shammed out of the network (you dis-connect to the referrer of the spammer)
The thing that I get stuck on is you really need to limit the size of your network for it to be powerful. If you don’t keep up a connection (somehow - how do you define that?) that connection drops off. If you’re not communicating with me once in the last 6 months we’re probably not really truly connected. That finite number ensures you only stay connected to truly current and dynamic professional relationships.
But having a small network seems counter-intuitive. It doesn’t seem to have helped Path.
Could you utilize App.Net as a foundation? I don’t know. AngelList could have been the answer but they have pretty strict rules around communicating with folks.
I’m still looking for a service to help me use a trusted professional network to connect to quality people. If it’s already out there let me know!
Any comments may be here: https://news.ycombinator.com/item?id=5542041
Fear of a remote worker planet
Yahoo’s recent decision changing how they tackle remote work has garnered a lot of attention. I won’t be spending any time on that specific decision - mostly because I believe Yahoo to be in a very unique place. Rather, it was a recent comment I saw from an influential startup personality that got me putting fingers to keyboard. It went something like “No professional sports team ever won it all using a remote team”.
Full disclosure. My startup, Spreedly, is based in Durham/Raleigh NC. We are a secondary tech market in the US. I can never build the team I want entirely from local people if our ambitions remain uncapped. It’s too restricting a set of assumptions for my startup. So when I say “I’m for building a company where remote workers will play a critical role in our success” you could easily answer “What choice does he have?!” And you’d be right. But only partially. I’ve spent 10 years in the Bay Area and 6 years in Boston. I’d be more inclined to take this approach if we were there for reasons that will become apparent.
The argument for having the entire team in one location is pretty well known. Any startup is facing a huge challenge to be successful. It requires long hours and the entire team pulling in one direction at the same time. Even the most “successful” early startups lurch from emotional highs to emotional lows in the space of hours. The strength of the bonds built by the close work and play environment help weather the lowest points. Nothing replaces the ability to all quickly huddle together in response to an immediate opportunity or threat to the business.
You can accept/agree with all of these points. I do. The real question is - is this the best model to achieve success or simply a good model. There are three reasons why I think, on the balance of things, the remote worker model will win out:
1) Labor Pool: No labor market, even one as large as the Bay Area, can win out against selecting from the global market. Think about it. The company that truly nails the remote model can select their employees from anywhere. That has very powerful implications for talent and cost. Drawing from such a large pool of talent has huge implications for product direction. You’ve got “feet on the street” in markets all over the world. You don’t have to scour Twitter or blogs to understand the very latest mobile trends in Beijing or Vienna. Your team tells you.
2) Loyalty: “If you sneeze in the Bay Area your developers get the flu” Every startup has good periods and bad periods. It’s much tougher to keep the team together when your developers have 5 - 10 new opportunities within an hour radius of their home. A loyal team might stick with you through 2 or 3 bad quarters. A non loyal team might leave after 60 - 90 bad days. Your downward lurch turns into a terminal nose dive.
3) Fear/Control: Startups are by definition chaotic. They have very little control over much of what happens to them. Losing a key customer might be a blip for a larger competitor - it might mean the end of the road for a startup. With so little control of their external environment the startup looks to control the few pieces it can. People. VC’s tend to be the most honest about this. “We’ll write you a big check but you have to move to the Bay Area so we can keep a close eye on you” Again, I understand the reasons why but in general I don’t think a fear driven model wins out over the alternatives - not in the long run.
There’s a precedence for this. Great dispersed sales teams close to their customers always outperform sales teams stuck at HQ. It’s harder to manage those teams but if you manage them well the performance of that team is superior.
So what would the characteristics of the first real company to nail this model look like? How would we really know it was here? It would have to be a net new company less than five years old. It would be developer focused as developers are the most comfortable online group today. The labor force would be skewered young. People under 23 have an entirely different perspective on communication. To them digital is the norm - F2F is the unusual exception. They would have avoided taking VC money early so that they could establish this new model without the early pressure to crowd together.
To know it’s working you’d want them to have scaled to at least 100 employees and feel like they can scale it out to 1000+ in the same way. Oh, and you’d know it was working if not a single person quit.
Getting everyone together in one geographical location is still a very viable model and not going away anytime soon. The very things being built by these startups will continue to reduce the value add of this model. And the economic horsepower of those companies that unleash the functional remote model is much more compelling than the geographically constrained one.
Why healthcare in the US should be thought of as warfare (politically speaking)
Obamacare created an incredibly strong negative reaction from a very vocal group of Americans. Most seemed to equate the increased role of government in healthcare as indicative of a broader slide into a “European” like country marked by high taxes and more dependence on the state for goods and services. So the chances seemed good for a major Republican win and a dismantling of Obama’s policies.
Yet the last elections showed we appear to have reached a tipping point on healthcare. When it comes to healthcare, more and more American’s are ignoring their general preference for smaller government and slowly, but steadily, embracing a larger role for government. What created that tipping point and what does its existence mean for both sides?
Very few argue that we should privatize our national defenses. In general both sides of the political spectrum - at least until you get close to the extreme ends of each side - believe the government should control our military services. Inefficiency and cost don’t appear to have a real role at the policy table either. Ask yourself this question. If you were running the military and I told you “Your budget can be X times greater than our nearest spending rival (in this case China)” What number would you choose for your budget? Twice as big? Four times as big? Well it’s actually close to 17 times as large as China’s. That doesn’t seem rational nor horribly efficient. Yet it exists and is never seriously challenged by either side.
Why then does our military spend largely enjoy broad political support across nearly all groups? Fear - spread equally amongst all groups. The idea of a foreign invasion and occupation is equally scary to young and old, rich and poor alike. A foreign invasion results in a loss of liberty, property and life. It can and does tear families apart. Wealthy people value all four of these as much or more so than poor people. And having a large degree of wealth is unlikely to protect you in the case of a foreign occupation. On the contrary it may draw additional attention to you. So this is one reason there is rarely a debate around privatizing our national defenses. (You won’t hear too many mayors winning on privatizing their police force either btw)
What else has the potential to impact your life like warfare? If you have poor or no health insurance illness. A severe illness or accident can turn a family upside down in a very short period of time. In the worse case it can cause premature death. A major illness can see a family lose their property, income, liberty and be separated and living apart.
This was always the case for the poorest of the poor. What’s new is how many more American’s have been recently confronted with this reality. What caught people off guard was the two tier system in the US based upon the fact that many people receive insurance via their employer.
In the US, many people receive their health benefits via their employer. Those with employee based health care are largely immune to the rising costs of healthcare. They’re having a completely different interaction with healthcare than their non employer insured neighbor. If they were in the market procuring individual coverage and watched their premiums rise by 10-20% per year, as their employer does, there would be less of a delta between the two sides on this debate. It was largely this group that thought the threat to US principles around small government was more important than government led healthcare reform.
The deep, long, recession caused many in the US to come face to face with the reality of healthcare. They were now 10 years older than when the last paid for a plan. They had a family. When they were young and single they were paying $150 a month. Now they were looking at $1200 - $1500 a month just to stay in COBRA. It’s like losing the war and then having to pay repatriations at a time when you’re economically weakest.
Again, the combination of the extent of the recession and the increased amount of healthcare costs created a tipping point. For some, healthcare costs, once hidden, were now equivalent to 30% to 50% of their mortgage. They understood that the healthcare system now forced people to make decisions that involved trading off their health with their ability to keep a roof over their head or their family together. They knew more and more people who simply went without.
A majority of the electorate now had direct, or indirect, experience with the current state of healthcare. They understood that a major illness could now destroy people’s lives, cause a loss of property, and/or tear families apart. They were scared - the same way people fear a foreign invasion. And it happened quickly too. It caught those opposing Obamacare off guard. It’s not even clear that they prefer having government run healthcare. It’s just clear that the felt the current system broken and the only new proposal was more government involvement.
If you’re deciding policy it’s important to understand this new mentality. It’s that lack of understanding that shocked the very vocal anti Obamacare. We’ll probably continue to have this problem until all individuals operate within the same marketplace. While a large portion continue to enjoy the “nuclear umbrella” of employer insurance while others face imminent warfare we’ll continue to have a very bi-polar electorate.
As the CEO of a small startup (Spreedly) I know we waste too much time and energy worrying about healthcare as individuals and healthcare as a company. I don’t like tying our employees to us to their healthcare. I would like this to be a government service that’s largely detached from our status. Or I’d like it to be something all individuals procure in the marketplace so that the marketplace feels the impact of all those consumers (vs being muted through an employer)
Either way, it’s important that policy makers and advocates realize that employer based benefits have created two super distinct class of users.
Spreedly and Pin Payments
Great post from Grant Bisset at Pin Payments. How we work together as they attempt to change the way online payments happen in Australia.
Post is over at Spreedly’s blog
101 for Angel Investing
A nice succinct overview on how the Angel Investor thinks - http://leoexplor.es/angel-investing/2013/03/13/what-do-angel-investors-actually-do-part-1/
Moral Compass - Hustle vs sleight of hand.
Virtually every successful startup needs one or two founders who know how to “hustle”. To me, hustle is doing whatever it takes to achieve a goal you know will advance your startup. Hustlers aren’t afraid to call, email, tweet, drive, code all night, fly or wait in a lobby - if that’s what needs to happen to achieve said goal. Hustlers know time is the enemy. We feel that urgency at Spreedly.
There’s an inherent assumption here of course. That the behavior in question is ethical. Not necessarily legal, but ethical (more on that below). There are generally two reasons why “hustle” becomes unethical. Desperation (the startup is on its last legs) or cultural (the individual or group of founders manipulate the system and couch their behavior in “hustle” terminology) Let’s focus on the second one.
By now many people know the story of the 19 year old who lived at AOL for two months after his incubator program concluded. His badge still worked, he wanted to continue to work on his startup and he realized he could live for almost nothing. That was illegal. However, ethically it’s hard to muster much of an argument against it. The biggest risk to AOL was that he broke his neck slipping on the stairs at night and his family sued because AOL didn’t do enough to prevent this from happening (This is the U.S, this stuff happens all the time) In general though there was no harm and therefore no foul. He became a short term celebrity and people admired his “hustle. This is a pretty extreme example of hustle but is still hustle none the less.
What if the company though wasn’t AOL but rather a smaller startup? What if this individual knew the owners of the company and understood that their landlord was looking for any reason to evict them so he could break the lease and put in a much higher paying tenant? To me the exact same behavior crosses the line into “unethical” The landlord could use this violation of their lease agreement (person living on a commercial property) to break the lease and push out the entire company. In this case I wouldn’t applaud the hustler I’d bemoan his/her selfishness. I also understand it’s a fine line that relies on human discretion.
Many many years ago my old CEO started up a hardware reselling business. He couldn’t even afford a computer initially. He had a phone and a keyboard. When he got an inbound call he tapped furiously away on a keyboard connected to nothing (the caller thought he was checking inventory). He’d agree to the price and amount, hang up, and furiously call around to actually fulfill the order and make some margin. That’s hustle. The method was unusual but the customer got the goods they ordered at the price they agreed upon. After awhile he built the business to the poin where they keyboard really did connect to an inventory management backend.
There’s a tremendous amount of pressure to succeed when you start a company. That may sound obvious but I don’t know if people realize just how all engulfing that pressure really is. That pressure - felt from family, friends, employees or investors - to succeed can easily warp perceptions.
What happens if you realize the startup you’re working for has the unhealthy form of hustle? That it’s really narcism wrapped in the bubble of “hustle” for consumption? Well, I’m not going to tell you that this startup is doomed to fail. Many of those startups actually do well. They can bluff and cover their way all the way to a successful exit. Once they do that, and make money for their investors, they’ll be able to tap that pool of investors for the next one. Remember, if this type of behavior never worked it wouldn’t be repeated/done.
Here’s why it’s important to determine whether you’re going to stick around with the magicians vs true hustlers.
Company’s that use this approach develop a certain reputation. Employees from those companies get defined by that company. If the startup you work for is successful and has a reputation for “bending the rules” you’ll attract future companies wanting to replicate their success and scare off future companies trying to avoid that type of culture. Basically, you’re branding yourself. “Oh, she works/ed over there? Those guys have a unique ‘culture’ let’s just say. You might want to make sure you thoroughly vet her before making an offer. Just in case. That’s all I’ll say” That’s all an investor needs to say to a startup CEO for them to make the offer to the other candidate.
If your founders have the wrong kind of hustle just accept it (vs fight it) and decide what you’re going to do about it relative to the company and your role. Just don’t be indifferent to the type of hustle going on around you. It’ll rub off on you one way or the other.
If you’re a founder understand the same rules apply. You too are building your own brand. Don’t take short cuts unless you have the desire to stay on that treadmill and stay constantly one step ahead of what you’re leaving behind you. Once your brand is established it’s very difficult to change it.
Heroku updates their Add On’s and the Impact on Spreedly
Spreedly raises seed round, pivots
Super proud of the team. A lot of work here is behind the scenes: Credit card vaulting in the cloud: