Sebastian Fittko’s posterous

Posted by Raj Dash

While companies are starting to adopt Social Media for online marketing campaigns, and even letting employees participate, the question of ROI (Return on Investment) arises, along with doubts about what metrics to measure. How do you know how effective your social media campaigns are if you’re not measuring any metrics, let alone an overall ROI? Below, we discuss ten important Social Metrics for companies.
 
According to 2009 Mzinga & Babson Executive Education study, over 80% of professionals do not measure ROI for their company’s social media programs. Granted, Social Metrics and their measurement techniques are relatively new, and this might account for the lag in tracking. However, there are some organizations measuring social metrics, which enables them to eventually measure ROI. Marketing Sherpa’s survey of 2,000+ marketers shows the following three social metrics at the top of what’s being measured:

1. Visitors and sources of traffic
2. Network size (followers, fans, members)
3. Quantity of commentary about brand or product

These are easily understandable common social metrics. However, with some C-level executives saying that they want to measure ROI from social media but don’t yet know the value of certain types of social media, there has to be more measurement and analysis. Monitoring data is only valuable if metrics relevant to a company are being tracked, analyzed, then applied to improving a Social Media Marketing (SMM) strategy. Each company may have some specific requirements, but here are ten important social media metrics to measure:

1. Social media leads. Track web traffic breakdowns from all social media sources, and chart the top few sources over time. If members of your social media networks are sending referrals, consider measuring this data as well.
2. Engagement duration. For some companies, engagement duration is more important than page views. For example, if you have a Facebook application, how much time are social network members spending using it? Is per-member usage increasing over time? Alternately, if people visit your your company websites from SM (Social Media) sites, how long are they spending? (Also consider tracking which pages they visit.)
3. Bounce rate. Are visitors coming to your site from SM sites but quickly leaving? Maybe your landing page needs better, more relevant copy. Maybe the information they’re seeking isn’t easily found.
4. Membership increase and active network size. This is the portion of your company’s social networks (e.g., Twitter, Facebook) that actively engages with your social media content (e.g., Twitter, Facebook Pages, etc.) Is your collective members, followers, fans network growing, and is there interaction with your content?
5. Activity ratio. How active is your company’s collective social network? Compare the ratio of active members vs total members, and chart this over time. There’ll always be some social network members who are inactive, but if you initiate a campaign to increase interaction, you should also measure the resulting data. Activity can be measured in a variety of ways, including usage of social applications.
6. Conversions. You want social network members to convert: into subscriptions, sales (direct or through affiliates), Facebook application use, or whatever other offerings you have in your overall sales funnel and that can somehow be directly or indirectly monetized. (E.g., subscription to a weekly e-newsletter can be monetized by giving other companies access to your list in the form of advertising.) Measure all types of conversions and chart them over time.
7. Brand mentions in social media. So, you have a highly active social network and members are talking about your company or the company’s brands. Measure and track both positive and negative mentions, and their quantities.
8. Loyalty. Are social members interacting in the network repeatedly, sharing content and links, mentioning your brands, evangelizing? How many members reshare? How often do they reshare?
9. Virality. Social members might be sharing Twitter tweets and Facebook updates relevant to your company, but is this info being reshared by their networks? How soon afterwards are they resharing? How many FoaFs (Friends of Friends) are resharing your links and content?
10. Blog interaction. This is actually more than one metric lumped together. Blogs ARE part of an SMM (Social Media Marketing) toolkit, but only if you allow comments and interact with readers by responding. If you’re doing this, encourage responses either directly in the comments section of blog posts, or via Twitter. (Use a blog widget that allows this.) If your blog’s content is suitable for social voting (Digg, Propeller, Mixx, etc.) or social bookmarking (Delicious, Stumbleupon) sites, install a blog plugin that displays the necessary sharing “buttons”, then track referrals back from those sites.

You can see from the above list that there are both key metrics and variations that you’ll probably want to monitor and analyze, depending on your business objectives. Not all of them are simple metrics to track, and as such do require either or both custom tools and custom reports. Supplement your metrics reports by noting any milestones in your SMM plan. Also, if you run any sort of social campaigns, measure the ROI on specific goals.  Social campaigns could use applications (E.g., Facebook applications like  Mob the Rainbow) to encourage social participation. Measure  application usage and resulting conversions. Finally, the use of complex measurements such as Multiple Moving Averages (MMAs) can show both short- and long-term trends, thus providing you with an overall view of the health of your sites and social networks.

Are there other metrics you measure that you feel are more important for your company? What tools do you use to measure social metrics? Let us know in the comments.

Its no surprise that most angel investors are successful entrepreneurs. You can see that in the list of names belowJeff Bezos, Reid Hoffman, Marc Andreessen, to single out a few. But are they as successful in the role of angel investor? Bloomberg BusinessWeek asked researcher YouNoodle to analyze the investment track record of this group of well-known tech personalities whose activity as angels has stayed largely hidden until now.

Click column heading once to reorder from highest to lowest. Click twice to reorder from lowest to highest.

2010 Rank	Investor	Number of Angel Investments	Percent of Companies Operating, Acquired, or Public (not dead)	Number of Employees*	Amount of Funding Received (in Millions)*	Best Financial Performance** (Rank)	Most Influential*** (Rank)	Most Diverse Portfolio**** (Rank)	Investment focus
1	Chris Dixon	23	100	3,283	1,071.8	1	11	1	B2B internet services, Consumer Internet
2	Ron Conway	190	97	29,703	3,407.0	2	1	12	Consumer Internet, Mobile
3	Reid Hoffman	49	96	69,796	2,270.9	4	3	24	Consumer Internet, Social Networking, Gaming
4	Esther Dyson	60	98	5,357	480.5	3	16	25	Consumer Internet, Social Networking, Space Exploration
5	Peter Thiel	26	92	69,499	1,577.4	8	2	9	Consumer Intenet, Mobile, B2B internet services
6	Marc Andreessen	53	100	3,835	1,157.6	6	6	20	Cloud Computing, Virtualization, SaaS, Consumer Software
7	Jeff Bezos	18	100	21,028	482.9	5	12	16	Online Marketplaces, Space Exploration
8	Chris Sacca	31	94	593	296.4	16	9	6	Consumer Internet, B2B Internet Services
9	Mike Maples	39	97	3,377	522.6	13	13	8	Consumer Internet, Mobile, Gaming, Retail
10	Andy Bechtolsheim	49	100	31,184	954.8	12	8	19	B2B Internet services
11	Paul Graham	129	84	606	84.4	7	14	21	Infrastructure, Virtualization, Networking
12	Max Levchin	7	100	491	277.5	21	4	3	Consumer Internet, SaaS
13	Aydin Senkut	65	95	933	316.8	9	21	11	Consumer Internet, B2B Internet Services
14	Bill Joy	24	100	5,275	551.1	20	7	7	Consumer Internet, Mobile, B2B Internet services
15	Kevin Rose	12	100	369	229.4	14	19	10	Networking, Infrastructure
16	Dave Duffield	18	89	2,271	219.9	10	15	22	Consumer Internet
17	Andrea Zurek	26	92	1,767	77.8	15	24	5	Consumer Internet, Search, Software
18	Marc Benioff	9	100	74,891	133.4	17	22	4	SaaS, B2B Internet Services
19	Jeff Clavier	52	92	911	276.2	22	5	17	Consumer Internet, B2B internet services
20	Caterina Fake	6	83	77	35.7	24	20	2	Consumer Internet, E-commerce
21	Martin Varsavsky	28	96	2,078	302.5	23	10	15	Consumer Internet
22	Naval Ravikant	21	90	308	187.3	18	17	18	Consumer Internet, B2B Internet Services
23	Joe Kraus	5	100	680	160.0	11	25	23	Consumer Internet, SaaS
24	Eric Schmidt	9	100	129	97.4	19	18	13	Enterprise Software, Consumer Internet
25	Lauren Flanagan	23	96	257	50.5	25	23	14	Healthcare & Biotechnology

^*Figures are total for all companies in the portfolio.
^**Annual growth of investments, companies operating at valuations above $100 million, and the sale of any companies for over $50 million.
^***Co-investment connections reveal how many angels they have worked with, uniqueness of co-investments, and critical bridges between angel groups.
^****Range of industries and countries in the angel's portfolio.

Data: YouNoodle

Whether they're found in a garage or inside an established enterprise, startups struggle with decisions about process and infrastructure. The speed at which a startup can learn is its competitive advantage and the defining factor in its success. But startups can't rely on the processes and infrastructure that their established competitors use, because those "best practices" tend to kill disruptive innovation.

Still, startups develop some kind of process — whether it's disciplined, haphazard, bureaucratic or empowering — because building a great product depends on it.

They just need to balance process with innovation. Companies that insist on building a world-class infrastructure before shipping a product are doomed to "achieve failure," because they're starved of feedback for too long. I learned this lesson first hand in a previous company (read the sad story here). On the other hand, companies that take a "just do it" attitude without any process at all are also taking a major gamble. High-profile startup Friendster had first-mover advantage in the social networking space, but created openings for competitors when it could not scale to meet demand.

Finding the right balance requires an understanding of the fundamental feedback loop that powers all startups. It begins with an idea, which is translated into a product via the "build stage." When customers interact with that product, they create data, which startups harvest in the "measure stage." And, with any luck, that data will inform the company in the "learn stage," and that learning will influence the next set of ideas. This three-stage feedback loop sounds simple, but it's powerful nonetheless. It gives rise to this heuristic for evaluating any process or infrastructure change in the context of a startup:

Always choose the option that minimizes the total time through the feedback loop.

In other words, any change that accelerates learning is a win, and everything else is waste. This is very different from the trade-offs that need to be made in situations where the goal is to optimize for profit, margin, or growth.

The lean movement has been preaching waste reduction for many years, and anyone familiar with those ideas will understand how it applies here. The only difference here is that instead of measuring the creation of value by our ability to produce tangible high-quality artifacts, startups measure value by validated learning about customers.

This approach clashes with classic product management and product development. The detailed specification documents that PMs demand go stale too quickly to keep up with a fast-learning team. Massive data warehousing reports used in product dev do what warehosues do well, store data. They don't promote learning, because people learn best when presented with a small number of actionable metrics. And engineers who build heavyweight architectures may design a technical triumph, but lack the agility to adapt when the goal of the system changes radically.

Every process a startup uses operates at one stage of the feedback loop. But lean startup practices have the effect of optimizing the total time through the loop. Practices that are harmful are the ones that optimize our ability to do just one of the three stages well. For example, you can build much faster if you don't "waste time" measuring. That's like suggesting you can drive faster if you close your eyes and hit the accelerator. It's true, but dangerous. The same is true for departmental structures that work like silos. They may work in large companies, but in startups they're dangerous because they encourage people to improve at their specialized job rather than maximizing learning.

Using just the right amount of process can help startups accelerate. But, for the entrepreneur starting from scratch, investments in process and infrastructure are expensive, and take time and energy away from work that directly benefits customers. Even worse, process investments can quickly become obsolete as a company grows, and management challenges evolve. Adapting a process to this ever-changing reality requires a commitment to continuous improvement and incremental investment, which will be the subject of the next post in this series.

Eric Ries is the author of StartupLessonsLearned.com and is an adviser to many startups, companies, and venture capital firms.

My friend, Chris, sent me a link to Why Venture Capitalists Avoid Innovation: They Like Making Money, written by Andy Singleton.  It was interesting reading, but I don't agree with many of the conclusions. 

One of the author's complaints is that VCs "claim to be in the business of innovation, but they also talk constantly, often in the same paragraph, about how much they want to avoid innovation."  However, Singleton is confusing 'innovation' with 'risk.'  There are lots of types of risk with any new venture:  technology risk, team risk, market risk, competitive risk, development risk, sales and marketing execution risk, financing risk, etc.  A brief word on each:

• Technology risk -- The risk that some fundamental new innovation just won't work.  This tends to come up more often with 'hard' technologies like semiconductors, energy, drug development.  This is different from development risk.
• Team risk -- The risk that you either can't build a team with suitable skills or that the team you build won't work effectively together.
• Market risk -- The risk that the market for your product won't appear.  Perhaps you are counting on some market shift in the future.  If it happens, you'll be the big winner because you saw it first.  If it doesn't, you may be dead.
• Competitive risk -- The risk that existing competitors in your market can fill the need that you are trying to fill more quickly than you can.
• Development risk -- The risk that your development team will be ineffective and fail to build a product that works well and/or is done on schedule.
• Sales and Marketing Execution risk --A set of risks ranging from getting the product requirements correct so that engineering builds the right thing to the ability to generate sufficient awareness and demand for the product to the ability to actually get customers to part with their cash in exchange for the product.
• Financing risk -- The risk that you can convince investors, now and/or in the future, to invest in the company in light of all these risks.

There are probably other risks (add in the comments), but these are the main ones I think about.  One problem in Singleton's post is that he equates innovation to risk, and most likely technology risk.  I look at it differently.  I think that an investor looks at any early-stage company and weighs the risks versus the potential upside.  If they can mitigate the risks and the upside is big enough, they invest.  If the risks look too big and the upside doesn't justify them, they pass.

How would you mitigate some of these categories of risk?

• Technology risk -- Is there a proof of concept or prototype that demonstrates the technological achievement?  Has the team demonstrated the ability to project the technology advance in the past?  Is there independent diligence that validates the planned technological advance?
• Team risk -- Have you worked with the team before?  Have some of them worked together before?  Does that validated track record give you the confidence that they can execute the plan?
• Market risk -- Are there early market trends that will tell you if the market is shifting in the direction you are hoping for?  Is there a fallback or interim plan that will keep the company going if the market shift happens later than you predict?
• Competitive risk -- Can you gather some competitive intelligence that will give you a hint of what the competitors' plans are?
• Development risk -- Similar to team risk: Does the technical team have a validated track record of developing similar projects with high quality and on time?
• Sales and Marketing Execution risk -- Another team risk:  Does the Sales and Marketing team have a validated track record in specifying the product correctly, building awareness and demand, and closing profitable business?
• Financing risk -- Does the plan give the company sufficient cushion to ensure that they can get far enough to attract additional investment?  Will an objective new investor be attracted to this opportunity?  Is there room for a reasonable valuation step up in valuation while still leaving room for a new investor to make sufficient money?

From my experience, the most common reason why a venture-backed IT company fails isn't technology risk but sales and marketing execution risk.  Products are poorly specified, requirements aren't honed sufficently, products are positioned poorly and undifferentiated, sales teams are ineffective, etc.  It's hard getting all this right.  If you don't, even the best product won't sell.  In fact, great sales and marketing execution can make a success out of a mediocre product.

The second most common reason is market risk.  Oftentimes start-ups are projecting that a new market segment will open up that they can capture.  If it doesn't happen, or doesn't happen before the start-up runs out of money, you are in trouble.  Hopefully, there is some sort of fallback plan.  If not, you are probably dead in the water.

Most VCs take on some level of technology and development risk as history shows that many times these can be overcome.  In fact, the first thing I read after reading Singleton's post was about Bloom Energy.  If that's not VCs backing innovation, to the tune of $400M, I don't know what is.  Of course, I am sure that these VCs see gigantic potential upside and had plans on how to mitigate the risks before they invested.  And, there are many others in clean tech, drug discovery, etc.

Some of Singleton's comments on the state of the VC business are accurate, but don't impact the calculus around these risks.  Some firms are more risk averse, but they still evaluate deals along all these axes.  An innovator has creative ways to mitigate these risks.  That's the type of innovation that VCs are looking for.  There are very few deals with no risks and big upside.  Instead, most VCs are looking at how some or most of these risks can be overcome.  It may be a high bar and may not always sound reasonable.  Perhaps they are looking for business innovation rather than just technological innovation.

Before you present your company to an investor, make sure you have thought through all these risks and what you would do to mitigate them.

1.  Get the first round right:  The terms of your Series A deal are very important. Not just because of the impact on that first round, but because many of those same terms are likely to carry through to future rounds.  It’s tempting to concede on some important terms because you’re thinking “well, that’s just life…and it doesn’t seem like that big of a deal.”  Try to resist that temptation.  One of the things I’ve learned is that when negotiating the term-sheet for your Series B or Series C round, the “base” terms (the starting point of negotiations) is whatever terms were in your Series A.  So, if you agree to some non-favorable terms on the “A” round, you’re not just paying the price for that concession in this round, you’re likely going to continue to pay in future rounds as well.  Factor that in. 

2.  Avoid valuation infatuation:  Entrepreneurs often become obsessed with the pre-money valuation on the deal.  Though this is certainly an important element of the transaction there are other factors at play that have significant impact on the raw direct economics of the transaction including the employee stock option pool (and who pays for it). If you get close to finalizing a deal, it is imperative that you have a spreadsheet that helps you understand the economics of the deal.  You should read Jeff Bussgang’s article on the topic.  It is worth your time.

3.  Raise more than you need:  Regardless of how much capital you raise, chances are, you’re going to have wished you raised a little bit more (or perhaps even a lot more).  Within reason, if you have access to capital and the terms are decent, raise more than you think you need.  Don’t get hung up on dilution.  To help you overcome this fear of too much dilution, build yourself a simple spreadsheet that models the actual financial impact to your person bottom-line based on various outcome scenarios.  What you will likely find is that if things go really well and your startup is the spectacular success it deserves to be, the extra dilution is not going to change things all that much.  And, if things go really poorly, it won’t matter either (because those extra common shares aren’t going to make you money).  You might be thinking “I’ll just raise the additional capital in a future round, at a much higher valuation” — which is somewhat right.  But, what you should keep in mind is the transactional cost of the additional round.  Raising a venture-round is a very time consuming process and when your bank balance is getting low, you’re going to really want to just keep working on the business instead of shifting focus back to the funding game.  In short:  If you have the ability to raise a slightly larger round, and the terms are reasoanble, you should probably go ahead and take the extra money.

4.  Know what “market” is:  It’s possible that you’ll encounter some not so favorable terms during your VC negotiation — terms that are not that common.  It’s also possible that your potential investor is just pushing on the edges a little bit to see what they can get away with.  You need to know which terms are actually rare/uncommon.  Your strongest line of defense against weird, non-favorable terms is a line that goes something like “that’s not market”.  This is sophisticated VC-speak for “what you’re asking for isn’t very common in VC deals right now.”  This line of defense has two advantages:  1) it works  2) it demonstrates your savviness. To figure out what the common deal terms are now, track down the report that one of the larger law firms that does a lot of startup transactions publishes periodically.  The report usually includes (among other things), what percentage of transactions have specific deal terms (like participating preferred).

5.  Orchestration is important:  Try to keep the interested parties moving along at as close to the same pace as possible.  You don’t want to get a term-sheet from one VC and have had the first meeting with others.  Orchestration is not easy, but it’s important.  The reason is that to really get great VC terms in a round, the single largest contributing factor is competition.  If you can get two or more VCs competing to invest in your company, you’ll get much better terms.  As it turns out, this is not easy to do because to really get credible competition going, you’re going to need to have several VCs at the “termsheet” stage of the conversations.  If one VC delivers a termsheet to you, but you still haven’t had the second (or third or fourth) meeting with some of the others, it’s going to be tough to get that competing termsheet.  Meanwhile, the VC that gave you the first termsheet is going to be “anxious” for you to accept.  This anxiousness could manifest as simple “prodding” or as an out-right “exploding termsheet” (i.e. a termsheet with a deadline).  So, try to keep your conversations moving forward with several VCs are a similar pace.  The good news is that nothing accelerates the process of other VCs more than knowing that you’ve already gotten a termsheet.  Once you get that first termsheet, you’re likely to get more as the VCs try to jostle for position. 

6.  Beware deal fatigue:  Even in good times, fund-raising is an arduous process.  Be prepared for yet another round of meetings, yet another level of due diligence and yet another round of negotiations.  Don’t try to sprint to the finish line and be exhausted when you get there — you may have another lap to go.  And, it might be the most important lap.  Much like any large negotiation, there are often relatively important deal terms that get finalized in the final stages of the deal.  You need to maintain your energy so that you don’t just give-in on some of these seemingly unimportant “details”.

7.  Don’t Use Your Uncle Larry As Your Lawyer:  As entrepreneurs, it’s not often that we need to engage legal counsel.  In fact, if this is your first startup, it’s possible you’ve never actually hired a lawyer before.  If you’re raising venture capital — you need a lawyer.  And, your uncle Larry who helped you out with that lease agreement last year is not good enough.  You need a lawyer that has done many venture financing deals before.  This is a high stakes game.  VCs are super-smart and they negotiate financing deals all the time.  They do this for a living, you don’t.  You need someone that has competency in this area.  A great lawyer understands the nuances of this game both from the perspective of which deal terms are important, what “market” is (#4 above) and when to stay firm and when to concede.  I’ll say this one more time for effect:  You need great counsel that has tons of startup financing experience.  Don’t be penny wise and pound foolish on this.  Oh, and by the way, you might want to know that you’re likely going to pay for the legal fees of the VC as well (it comes out of the funding round).  I’m not sure why this is, and I don’t like it one bit, but it’s common practice. 

8.  Partner personalities matter:  Yes, ideally you’ll be raise funding from a top-tier fund that’s a great brand.  But, what’s more important is that you fundamentally like the VC partner that is investing in you.  This is a long-term relationship and life is short.  You might part ways with one or key team members along the way (which is never fun), but your venture investor will almost certainly be with you until the very, very end.  If you have the luxury of choice, you should put strong weight on the person you take money from, not just the firm and not just the deal-terms.  I followed my own advice on this in our funding rounds.  We had higher offers than the deal(s) we took, but we solved for the best overall deal and the best partner. 

9.  Switching Partners Is Hard, Do Your Homework:  It’s likely that in the early stages of your VC process, you’ll get introduced to a particular partner at a firm.  Usually, this is based on what area that partner invests in (i.e. which one you “fit” with).  But, in many larger firms, there might be more than one partner that could conceivably do your deal.  Or, you might get bucketed wrong (because your startup straddles a couple of areas of intest for the firm).  If that’s the case, you need to work hard to figure out who the best partner would be (from your perspective) and try to connect with that partner as early in the process as possible.  Once conversations begin in earnest, it’s very, very hard to switch to a different partner within the firm. 

So, what do you think?  Are you going through the arduous process of raising venture capital now?  Or, have you been through the pain before?  Any of this stuff ring true?  Would love to read your thoughts and experiences in the comment.  Oh, and if you have questions you’d like me to address my upcoming webinar (which will spend a fair amount of time on funding), leave them as a comment.  I’ll pick a few and address them.  Thanks.

via onstartups.com

(Editor’s note: Answers OnStartups is a Q&A site for entrepreneurs founded and moderated by Dharmesh Shah and Jason Cohen. This semimonthly feature highlights popular discussion topics on the forum and gives a sampling of answers from site members.)

 It’s easy to identify a startup’s founder — she’s the first one in the office, the last to leave and the only one not taking a paycheck

We founders are used to the abuse. And it’s ridiculous to expect employees to take the same amount. But still, this is a startup. Isn’t it appropriate to expect more than the standard 40 hours/week from employees?

This topic came up recently on Answers OnStartups in this question from one of our members: If you have a developer who works 40 hours/week and does a good job, how can you (and should you) motivate him to work 60, as was clearly stated when he was hired?

Even among hard-working, nose-to-the-grindstone, bootstrapped entrepreneurs, most people found it despicable to expect an employee to take on such a workload. Among the thoughts:

• Are you going to pay him 50 percent more for working 50 percent more hours?
• You’re going to burn people out.
• You won’t get that much more productivity, but you will piss people off.
• In the USA it’s not clear that unpaid overtime is even legal for software developers because they are not “exempt employees” (like management).

The most common theme was what might seem the obvious one: Focus on results, not hours. While a manager may feel they’re getting more out of an employee by keeping them there for extended hours, they could be cheating themselves out of productivity.

Ask yourself what actually matters in the long run. Is it that a certain butt is in a certain chair at a certain hour or would you prefer version 1.0 gets released on time? Would you rather an employee punches a card or he writes code with minimal bugs? Do you want someone who has no life or someone who brings fresh ideas to the office?

It’s true that startups require super-human amount of output. And, yes, sometimes it’s necessary to work an extra-long week or fix a server that’s down on Sunday at 3am. Employees should be expected to create more results than the average person, perhaps even more than they would be expected to create at more established companies. Part of the joy and pain of a startup is the infinite amount of work to do and the intense environment.

But hand-in-hand with that is responsibility and pride of ownership. The founders shouldn’t be the only ones who feel personally connected to a startup.

When you mandate hours instead of simply having large expectations, you’re not just setting up incorrect incentives, you’re also insulting your employees, their loyalty and their love of you and your company.

They already want to work too hard. They already want to devote themselves to the cause. And they already feel like they own a piece of the company’s future. By converting that zeal into a shop where hours mean more than results, you’ll kill that enthusiasm quicker than any burnout can.