Polychrome Developer Tools Index: Financial Planning

An overview of financial planning and reporting, and Q2 update to the Polychrome Developer Tools indices

“Capital allocation is the most important job of the CEO” - William Thorndike

This post is arriving a little late, as Q2 ended on June 30th. Why? Because as soon as Q2 ended, the Polychrome team has been heads down planning for Q3 and the rest of the year. Our public companies also get this luxury; their quarters (mostly) ended in June but earnings have not yet been announced. They have been planning too. This quarter, our developer tools blog post will dive into all this financial planning.

Financial Planning Basics

Each year companies build a detailed financial plan to help them forecast the needs of the business, and to track against, throughout the year to make sure they are meeting their goals. These plans are very detailed, rolling up the Plan for the full Income Statement, Balance Sheet, Cash Flows, and Key Metrics such as NRRR (if you haven’t read it, our Q1 post on NRRR is definitely worth checking out).

To make this more concrete, here is an example of a really basic Income Statement Plan:

As the year goes by, each month and quarter companies compare their progress against Plan, in what is called a Budget Versus Actuals (BVA) exercise. This exercise is really important to keep track of what is going on in the business.

To make this more concrete, here is an example of a BVA after January, using our Plan above:

In a fast moving startup, the Plan you made in Dec ‘20 for 2021 can start to look pretty far from reality by Mar or Jun ‘21. This is where new Forecasts and even Updates are utilized, and why I mentioned we were doing so much planning here in early Q3 ‘21. The way to keep track of all of this is to have strict naming conventions, here’s the best practice:

  • Type. There are three types

    • Plan is set at the beginning of the year and never changes. This way the target never moves and you can always compare back to Plan.

    • Forecast is updated monthly to help you make decisions in real time throughout the year. They are not used to compare against, just to operate against.

    • Update is quarterly or half-yearly depending on the need. You create an Update when things are really going differently than you had predicted and it doesn’t make much sense to do a BVA strictly against Plan anymore.

  • Month. To show which month each version is, use the number of months actuals + number of months forecasted.

    • Examples: Plan 0+12, Forecast 1+11, Forecast 2+10, Update 3+9.

    • Remember the purpose of each type and use them correctly.

Why Financial Planning Is Important

This is all a decent amount of work, so why is everyone bothering? Simply put, determining how resources are used is the most important decision a management team makes. Or as author William Thorndike put it, “Capital allocation is the most important job of the CEO”. Carefully planning the resource allocation, tracking the results, and adjusting your course based on results are critical tasks to managing a business. 

It also helps hold you and your team accountable to results. In most cases it won’t just be for you, there will also be the board and investors looking to hold you accountable. For public companies this comes in the form of quarterly earnings and guidance. 

Guidance and Earnings

You can bet our Polychrome Developer Tools Public 20 Index companies keep a tight eye on their guidance and results. Let’s see how they report earnings and guidance, and what this can teach us. To simplify things I will just focus on Revenue, although guidance is often given for everything down to earnings per share (EPS).

The first thing that I notice is that not one of these companies missed guidance. This is a critical difference between an internal Plan and external guidance. Usually a company's public guidance is a very conservative outlook, this is because Wall Street really punishes you if you miss guidance. The outlook you give to private investors might be a bit less conservative, but you still want to have a high confidence level in your ability to achieve or over-achieve what you share with them. Then there is your internal Plan. This should be your best possible estimate of what will happen - that’s because you’re using this to set goals for teams and to allocate resources. Too conservative and you will probably under invest in growth. Too optimistic and you might find your burn rate getting ahead of the business.

The next thing I took a look at was how the stock reacted in the week following earnings. Below I graphed the comparison of a company's earnings beat vs. stock reaction the following week. I would guess this is not correlated (as long as everyone beats guidance), because analysts know that plans are conservative and know which companies are more or less conservative and react accordingly. Looking at the chart below, it turns out there is some correlation, especially on the low end as a company is close to being within their guided range. Also, there are a million other factors, including those that explain why most of these stocks were down; so this is more an interesting note than a thesis.

Polychrome Developer Tools Indices Q2 Performance

Now that we know that all it takes to have your stock go up is the classic under-promise, over-deliver, let’s see how well our portfolio companies did in executing that strategy! We have now been following these two indices for 6-months, so each update is quite interesting.

Polychrome Developer Tools Public 20

This list is the most valuable 20 developer tools companies, by market cap, which initially listed their stock publicly within the last 10 years - (as of Jan 1, 2021). The update we will track here is market cap, and compare the performance vs. other indices over the quarter. 

The Polychrome Developer Tools Public 20 index bounced back in Q2, moving from down 6% in Q1 to up 14% for H1. This is great return, but as you can see from the comps it’s generally in line with the market.

The companies are starting to separate themselves in terms of returns when you look at individual stocks. Remember, this is just 6-months though, and we think about these companies as building value over the long term. Check out the H1 performance by the company below.

Polychrome Developer Tools Private 30

This list is the 30 most funded developer tools companies, by dollars raised, which remain private - (as of Jan 1, 2021). This updates total funding, valuation range, and shares a few items to note.

Again, the private company valuations are less volatile as compared to public stocks. Q2 didn’t have quite as much fundraising activity as Q1, but it was still good for this group.

  • Five companies raised nearly $700M in capital in Q2 2021, taking the total funding of the index from $7.4B at the beginning of the year to just over $10.0B (excludes DOCN).

I hope you all enjoyed the read and have a basic understanding of how financial planning works and why it is important! Please comment on the next topic you would like to dive into.

Thanks,

Alex

Improving Net Dollar Retention

In a previous article, my partner Alex explained the importance of a strong net revenue retention rate and its correlation to a public company’s valuation. If you haven’t read that - or need convincing on why you should care about this metric - check it out. 

In this article, we will explore some of the strategies and tactics to measure and improve your Net Dollar Retention Rate. Before we jump in, it is important to note that Alex’s article focused on Net Revenue Retention Rate of public companies. In analysis of public companies, we use revenue to calculate this. While this is great for comps, revenue is a trailing metric. For the purposes of this article (and the betterment of your company), we will be focusing on “dollars” or bookings (defined as the “starting date” or “ending date” of a contract with a customer). Bookings are forward looking and align more closely with day-to-day operations of a Go-To-Market Team. 

Ok, now that we have this public service announcement out of the way, let’s dive in! 

Measuring net dollar retention for your business…

Here is the calculation of net dollar retention:

As you can see from the equation above, net dollar retention allows you to compare your customer base on a dollar basis over time. If you take time to think about the metric in detail, you probably noticed some interesting things:

  • You can calculate this metric over any time period

  • The metric is not impacted by newly added customers, just those you already had in a given period

  • The metric is highly dependent on retention/churn

  • The metric is highly dependent on expansion/up-sell

Considering these variables, there are a few different ways that you can calculate this critical metric for your business. For most organizations, it makes sense to understand your retention rate from different perspectives so you can see the whole picture, but not change the underlying definitions which are critical to being consistent. What’s important is to choose a calculation and definition for the underlying components that are a true reflection of the efficiency of your business. Here are some of the components to consider and a few tips as you think about it for your company:

  1. Expansion vs. Net New: 

    • Is it clear what is considered bookings from a Net New Customer vs. Expansion?

    • Have you considered horizontal (new business units) vs. vertical (more seats, volume, etc.) and how you track them?

  2. Logo Churn vs. Downgrade:

    • Do you track downgrades vs. a complete loss of a customer? Analysis of where dollar churn is coming from and how it can be mitigated is key.

  3. Segments & Product Lines:

    • Do you have a self-serve business that act completely differently from your contracted customers?

    • Do you have different product lines that should be considered? How do you think about attach rates between them?

Oftentimes, I see founders choosing the calculation that makes their company look best. This can be helpful for raising money & looking good in the short term, but it is a surefire way to miss opportunities to really build a great business in the here and now. Take time to establish these definitions internally and make sure they are reflected in your reporting and systems. Don’t just take definitions off the shelf without questioning what reflects efficiency for your company.

Pro-Tip: If you aren’t sure on a specific definition for your business, remember this. Net Dollar Retention is an efficiency metric. If you are having to work really hard and deploy tons of additional resources for the expansion of your existing customer base, you should generally have a lower Net Dollar Retention Rate. A friend of mine that previously worked at Salesforce (who has a great Net Dollar Retention Rate) told me of a story that I always think about. At one of their annual sales meetings, their CTO came in and said “Your job is to land new accounts. If we had to lay off all of our salespeople tomorrow, the existing customer base will still grow ~40% annually through natural expansion.” That’s efficient. 

Breaking it down

At the end of the day, net dollar retention is improved at the operational level by improving two main parts of your business:

  • Decrease Churn 

  • Increase Expansion 

Here are some best practices for decreasing churn:

  • Ensure that customer on-boarding is a tight and smooth process that delivers value to customers

  • Score customers against potential to expand and map customer accounts w/ resources to ensure they receive the right experience

  • Capture churn reasons and have an “exit-interview” process for key accounts that churn

  • Implement Net Retention Forecasting & Key Account Reviews

  • Set goals to ensure the team is focused on this as a key metric

Depending on the nature of your business and size of customer account, you will most likely focus on a hybrid of “automated/low-touch” and “white glove/high-touch” solutions for each of these initiatives. We will write a more detailed article about each of these activities in the near future.

As for the other side of the coin, here are some best practices for increasing expansion:

  • Review your pricing and packaging to ensure expansion opportunities exist

  • Ensure that sales is contracting new customers appropriately...mind the consumption gap!

  • Assign owners in the business for on-boarding, adoption, retention, renewal and up-sell motions

  • Ensure product strategy aligns to expansion paths that are product-led vs. human-led

  • Set goals to ensure the team is focused on this as a key metric

Hopefully you are already familiar with some of these concepts and you are making strides to improve where possible. We will be writing more about them in future articles and if you have any questions in the meantime, feel free to reach out in the meantime. 

Polychrome Developer Tools Index: Net Revenue Retention Rate

An analysis on the importance of Net Revenue Retention Rate, and Q1 update to the Polychrome Developer Tools indices

“It means that over half of the variance in YoY Revenue Growth is explained by Net Revenue Retention.”

The quarter has closed and it’s time to review our developer tools indices. Following the indices is fun, but diving into the details of these companies is how we will really learn from the exercise. This quarter, we are going to dig into Net Revenue Retention Rate. We will start by defining the metric, and then take a look at how the companies in our index fare with the metric and what impact that appears to have on their success.

Definition of Net Revenue Retention Rate

Call Net Revenue Retention Rate what you want; I call it the key to economic success for a SaaS business. So let’s dig into the metric.

Net Revenue Retention Rate is the amount of money that the customers you had in a previous period are paying you in the current period, divided by what they were paying you in that earlier period. Let’s draw that formula out for clarity:

A few notes that may or may not be clear from the formula: 

  • Most of the time this is compared year-over-year. For example Period A is 2019, and Period B is 2020. Or Period A is Q4-2019, and Period B is Q4-2020.

  • The number in the denominator includes revenue from all the customers that you had in period A, even if those customers are no longer contributing to the numerator.

  • The number in the numerator does not include any new customers. It can only be increased from the number in the denominator by expansion.

  • The number in the numerator can be decreased from the number in the denominator by churn and contraction.

This metric goes by a lot of names, but they are all calculating the same thing. You might come across: Dollar-Based Net Retention, Dollar-Based Net Expansion, Net Dollar Retention, Net Expansion, MRR Retention, or similar variations. 

Public companies even tweak the formula slightly based on their business. Particularly some businesses will split out divisions that are included or not included. A common one is for businesses to publicly report the Net Revenue Retention Rate of just their cloud business. For a new SaaS business it’s probably best to track this as an overall metric, and a metric for sub groups of your business (divisions, customer sizes, or cohorts). Play around with the sub groups and find what is meaningful. This will help you understand the business as a whole, and which parts of the business are shining or need some attention.

Why Net Revenue Retention Rate is Important

There’s lot of SaaS metrics that people like. Why is this one so important? I like this metric because it is the all encompassing measure that shows if you have a handle on churn, expansion, and contraction. That really helps you understand how your SaaS business is doing; it’s an indicator for customer satisfaction, product-market-fit, pricing effectiveness, competition, and more.

It is also extremely powerful! If your Net Revenue Retention Rate is greater than 100%, that means that your business is growing even without adding new customers. And that growth compounds! Less than 100% means that your business is default shrinking, it’s a leaky bucket you have to keep filling. Filling that bucket costs a lot in sales and marketing. 

Tomasz Tunguz wrote an analysis that illustrated how each additional 20% increase equates to a doubling of revenue in 5 years. Below I have modeled out the difference for a company’s revenue, all else equal, with 90%, 100%, and 110% Net Revenue Retention Rates over 5 years. These sound like small changes, but the impact is big!

Comparing Net Revenue Retention Rate

Since public companies share their financials and select metrics, we can use the Polychrome Developer Tools Public 20 as a sample set to learn more about the importance of this metric. Luckily almost all of them also share their Net Revenue Retention Rate. First, let’s look at the data. Here is the Public 20 chart with Net Revenue Retention Rate for each company.

* Companies who report their Net Revenue Retention Rate on only a portion of their business, or the data available is out of date.

The first thing to note is that all of these companies have impressive Net Revenue Retention Rates. It shows the power of both SaaS and Developer Tools. But there are still differences, and as explained above, a small difference in Revenue Retention can have a big impact. So let’s plot these against revenue growth rates and see if there is a correlation. For this, we have to exclude the asterisks.

The correlation, or R, of 0.734 shows how directly related the two are, something we probably naturally understood. However interpreting the R² of 0.539 is the more interesting point. It means that over half of the variance in YoY Revenue Growth is explained by Net Revenue Retention. This is amazing, over half!

That should make any founder step back and think if they are proportionately investing in retaining and growing their customers vs. getting new ones. The R² gives you a simple guide - it should be about half of your efforts!

Polychrome Developer Tools Indices Q1 Performance

The impressive Net Revenue Retention Rates of these companies has been a key factor to their success; and it’s a big reason we love the space. With Q1 closed, let's continue our journey following these companies through the lens of our two indices.

Polychrome Developer Tools Public 20

This list is the most valuable 20 developer tools companies, by market cap, which initially listed their stock publicly within the last 10 years - (as of Jan 1, 2021). The update we will track here is market cap, and compare the performance vs. other indices over the quarter. 

It was a tough quarter for technology, and the Polychrome Developer Tools Public 20 is down for the quarter. Take a look as compared to other indices.

The story varies a little bit when you look at the individual companies, but overall the public markets were harsh on tech in Q1.

Polychrome Developer Tools Private 30

This list is the 30 most funded developer tools companies, by dollars raised, which remain private - (as of Jan 1, 2021). This updates total funding, valuation range, and shares a few items to note.

Private companies valuations are less volatile as compared to public stocks. From the look of these companies, the quarter was pretty positive.

  • One of the companies went public! DigitalOcean had its IPO on March 24th at $47.00 per share, raising $900M, and giving it a market cap of $5B. Their 2020 Net Revenue Retention Rate was 103%, and their Q4 2020 YoY Revenue Growth rate was 23%.

  • Eight companies raised almost $2B in capital in Q1 2021, taking the total funding of the index from $7.4B to $9.3B (excluding DOCN).

I hope you enjoyed the read and have a better understanding of Net Revenue Retention Rate! Please comment on the next topic you would like to dive into.

Thanks,

Alex

Architecting Your GTM Motion: Part 3

The interview

In our second post in this series, How to set up your interview process, we discussed the importance of setting team values, how to structure your entire interview process, and what projects you can give to fully vet their skills. In this post, Carina and Julio share what traits they look for in a solutions and a technology sales person, as well as what their favorite questions to ask are in order to ensure they have the right sales humans for their teams. Carina and Julio make sure to ask questions to not only evaluate their skills and how their brains work but also to see how good of a culture add they will be. 

There are many questions that overlap no matter if your product is a technical sale or a solutions sale, but depending on the sales motion, you definitely want to dig in more in certain areas so you can learn about their fit selling your product.

Solution Sales:

Solutions sales professionals are typically more senior and have been in the sales game for a longer period of time than technology sales humans. This can mean they might be better at interviewing, and therefore asking the right, layered, questions is even more important.  In order to vet these professionals, Julio stresses the importance of digging deeper in the areas where you could see their answers are the lightest. For example, if you can see the individual is Type A, and you want to get to know them better, ask them questions such as what their favorite book is or what the last thing they learned for fun was... and if they are Type B, and you want to see their analytical side, inquire about their sales process and metrics they’ve built out. 

According to Julio, here are a few traits he looks for in a solutions sales person: 

  • Strong organizational and note taking skills 

  • Excellent at project management

  • Very curious and understands how to layer questions and use the answers to those questions to convey value 

  • Understands how to work with both internal and external stakeholders to progress deals 

  • Familiarity with demoing themselves and a willingness to jump right in and start selling 

  • Comfortable asking for big dollar amounts 

  • Comfortable asking the prospect if they are ready to buy

  • Can creatively get deals done that are both good for the business and the customer 

Below are some of Julio’s favorite questions to to better understand the candidate:

Technology Sales: 

When interviewing for a technology sale you will be looking for many similarities as the solutions sales human, but the key traits such as having worked complex deals, strong project management skills, and ability to navigate multiple stakeholders internally and externally aren’t as applicable. 

According to Carina, the best technology sales humans have the following traits: 

  • Highly analytical and knows how to prioritize time

  • Understands and implements high velocity frameworks based on activity and smart campaigning

  • Uses all available technology and tools as efficiently as possible

  • Looks for and improves highly scalable plays and processes

  • Knows how to eliminate friction during her/his work day

  • Knows when to include his / her manager to escalate problems or share best practices with the team

Here are some of Carina’s favorite questions to help her identify the best people for her teams: 

Here are a few additional tips for you to make sure you nail this:

  1. Have the same interview panel for each interview asking the same questions to your candidates. This way the interviewer can truly get a feel for a great answer, an ok answer, and a bad answer. 

  2. Make sure to save 5-10 minutes at the end of each interview for candidates to ask questions. If the candidates don’t have questions, this is a red flag! 

  3. Show up on time and don’t go over time (if possible). Be respectful of your colleagues’ and the candidates’ time. 

  4. Refresh yourself on the candidates’ legal rights during the interview process. 

Hopefully  this breakdown of traits and questions better prepares you for hiring the right person for your business. You can still ask the candidate to sell you that pen, but now you’ll have other questions to ask as well :) 

In the next post we’ll be outlining how best to make the offer so you can close the candidate. Thanks so much for reading and let us know what you think! 

Lost in translation: What I learned from my wife about why companies exist. 

My wife Sabine is German.

Despite my last name suggesting that I was born in Germany too, I was born in the US (Seattle) and learned to speak German after I met her. In a lot of ways beyond language, she’s made me a way better person, dad and leader. 

One example of how she’s made me better in my work is pretty simple. 

When I first met her in Germany in 2006, her English was good, but nowhere near what it is today. I was in college at the time and I’ll never forget a conversation we had. We were talking about what I wanted to do after college and I said that I’d like to start my own business. As the conversation progressed, she asked me a question I’ll never forget:

“What do you call the people that is the reason a company exists?” 

Thinking I knew so much about business, I responded back with a few answers:

“Employees!”

“Investors!” 

“Founders!?”

She looked at me puzzled and said:

“No-no. The people for which a company must exist.”

I sat there in silence and thought for a while...

Fast forward to today and I’m currently working with 5 founders of different B2B Software companies ranging in topics from an operating system for robotic fleets to cloud manufacturing as-a-service. As I get started with founders, we tend to focus on figuring out the current state of growth and where they are struggling in Go-to-Market the most. Having usually just raised a round of funding, a lot of founders are wired to quote how fast their revenue is growing or how many employees they have, but very few are able to articulate some of the most fundamental questions:

“Who does my company serve?”

“What problem does my company exist to solve?”

“Why should my company exist?”

“What problem in the world (that’s bigger than my piece of software) will be a problem for a really long time?”

When I realize that the founders struggle with these questions, I do something that almost all of the founders I work with hate. I ask them to work with me on aligning their company through organizational clarity. 

For the people out there that don’t believe in this, you might not be ready. For those that are, I’m going to try and walk you through what I believe to be the most valuable framework for helping companies unlock potential and really serve the market in which they want to exist. 

Step 1: Understanding Internal Variance

To help companies figure out how aligned they are in terms of what they want to achieve, you can create a very simple internal survey that asks all employees the following questions:

  1. What is our mission? 

    1. What is the problem that we exist to solve in the world?

  2. Who do we serve?

    1. Who is our target customer? 

  3. Define our culture.

    1. What makes working at our company special? How do we act as a team?

  4. What do we do?

    1. Elevator pitch; describe the product or service!

  5. What is important right now?

    1. What are the 2-3 key objectives that we are trying to achieve as a company in the next 2 quarters? 

Depending on the stage of the company and speed at which the company has grown to date, the responses can vary quite a bit. 

Step 2: Agree... for now.

One thing that we believe in at Polychrome is that nothing is set in stone; so things can change. 

As you get the results back as a leadership team, the emotions can range from “how are we so far off as a team!?” to “wow, that’s better than I thought we’d be.” Wherever you are at, the goal in the next 2 weeks should be to get to a collective answer on these questions that you feel great about...for now. 

A few tips about each of the questions:

  1. Mission: Don’t choose something that people can’t get behind as being realistic for what you actually do. Double check it with your engineering team (great skeptics) and customers (who you are trying to serve anyway) for sanity checks. You will likely have versions that are very lofty and very boring...aim to strike the middle, but be honest with yourself. If you don’t save the manatees...that’s all good, you can still solve a problem in the world that matters to someone. 

    1. Example of a company that we run: Flagsmith.com

    2. Mission: Empower any engineering team to ship faster and continuously improve their products. 

    3. Why: we chose not to mention the product, feature flags, but rather the problem we exist to solve for our customers. That problem exists before and after our product and allows us to solve more problems with content, products and services down the line that they are facing. 

  2. Who we serve: A lot of founders are forced to get honest with themselves that the people their company exists to serve are pretty different from themselves. This is especially true as you grow beyond early adopters. If you are struggling, find a way to be genuine to yourself while still serving your customers or your market...and hire people on your leadership team that augment your weakness here. 

  3. Define your culture: if you haven’t already, one good idea here is to send a separate survey to all of your employees. Ask them to highlight their colleagues and the values that they have and how that represents your company. You’ll LOVE reading this stuff and your team will love celebrating these values. 

  4. What do we do: Ask customers to explain how they would describe your product and why they bought it. You might be surprised that it’s different from what you think. 

  5. What is important right now: Some are big into OKRs, others aren’t. I’m a fan of whatever is lightweight and gets people focused on the day-to-day. The most important thing is that everyone on the team understands how their work supports what the company exists to accomplish. 

If you don’t love the answer you arrive at for one of these topics, agree to revisit them as a leadership team in 3 months. Push your team to agree on something that is close, but not perfect and commit to the process of improving it over time. 

Now that you’ve agreed on these five critical questions as a leadership team, it’s time to get to work! 

Step 3: Go!

Now that you know the answers to these questions, take a quick inventory of your efforts as a company. Are you living up to those answers? How are you reinforcing that in your day-to-day? Here are some simple ideas on how to start aligning your company:

  1. All-Hands: If you have a regular Friday meeting to wrap-up the week, highlight things you noticed people doing that support the reason why you exist and how you want the team to be acting day-to-day. 

  2. Marketing: Take a look at your homepage. Does it speak to the people that you exist as a company to support? If you aren’t ready for that, look at the last 5 pieces of content that your team produced. Do they line-up? 

  3. Sales: Is your sales team doing outbound? If so, do they have educational content that helps the people in your space improve even if they aren’t ready to buy your software? Remember - Flagsmith isn’t a feature flagging company. We are a company that helps engineering teams ship faster and continuously improve their products...we can help customers with content & thought leadership just as much as with our software. Once they are ready to use feature flags and they feel that we’ve provided value in their work life, I’m sure they’ll consider us. 

  4. Product: Look at which customers and prospects your product team is interviewing for feedback on the next product release. Is it the person that you exist to solve problems for? This can be extremely painful to make these trade-offs, but if you have chosen the right person/industry to solve problems for, your company will build amazing products. 

  5. Hiring: When you look at the next 5 hires you are planning, do they move you closer to being the company in your space that solves important problems? Are you staffing for experts in your field to go deeper? Does your org chart align to this?

If you find an area in your business where the answer is “no - this doesn’t align”, adjust those efforts and work towards that together with your team. Hold your team and yourself accountable to living up to these new standards. BTW - if you are having issues between teams (marketing & sales, product & go-to-market), this misalignment is often the root cause. Let these answers be the tiebreaker.

My experience with this in my career

When I joined Amplitude, we didn’t really have a common focus externally except to beat our nearest venture-backed competitor. In choosing a competitor as our benchmark, we were basically saying to our team that “we exist to provide incrementally better analytics than what the market is currently using”. While this type of a focus definitely helped the company in the early days, it didn’t set the direction for where we wanted to take the market long-term. The good news was that our CEO, Spenser, invested a ton of time and energy with the leadership team at off-sites to get our alignment right. We talked about it regularly until we got it to a point that we could act on it. After a while, we decided as a leadership team to choose a problem in the world to solve that was bigger than our competition...our mission became to “Help Companies Build Better Products”. Sounds pretty basic, right? That’s the best part! 

Because of the simplicity, everyone remembered it and it narrowed our focus to Product Managers...the people inside of companies that struggle to do this day-in and day-out. As a company, we agreed that we wanted to be thought leaders to help PMs and Product Teams improve at their job...regardless of whether they bought our software or not.

Take a second and compare the breadth of topics that we could talk about with the competitor analytics mission vs. the build better products mission. As a company, we could really invest into the problem of the customers that we existed to serve vs. just building an incrementally better product. 

This alignment permeated through the company and showed up in everything we did. Instead of us outbounding prospects to take a demo of our incrementally better product, we now created full experiences focused on Product Managers learning and invited them to attend events with industry peers. Our content transformed into detailed playbooks and how-tos on topics that were tangential to analytics, but critical to creating better products. We were living up to what we wanted to be in the market. The results spoke for themselves and the company is still executing on a version of this mission today. 

One of the coolest experiences as a leader at Amplitude was when we would ask the company “why does Amplitude exist?” and just about everyone at the company would respond in unison “to help companies build better products”. 

In the end, everyone that spends 8+ hours a day on anything wants it to matter and wants it to be about something more than just the product they are selling. After working in companies for the last 15 years, I now know what my wife was trying to ask me way back then... it’s the customers and their problems that allow a company to exist. By getting everyone in your team aligned on that fact and by de-prioritizing the noise of your last fund raise, I’m sure you can have a similar story to tell.

-Matt Althauser

—————————

About Polychrome:
Polychrome is a new type of investment firm. Our mission is to help companies unlock the next level of growth through our GTM expertise. Check us out at polychromecapital.com

Loading more posts…