Ready to Level Up? Summer Watchlist for Every Cyber Builder
A Deep Dive into Value Propositions, Meeting and Interviews Techniques, and VC Metrics. Not just for Entrepreneurs, for every one.
Hello 👋
For this week's post, as we are at the core of the Summer, I wanted to enlarge the topics I usually cover and give all Cyber Builders valuable resources. I hope you will enjoy it!
In the world of cybersecurity, being able to articulate the value of a product or program is essential for success. But it's not just about having a compelling value proposition - it's also about asking the right questions to gain meaningful insights from customers. And for those seeking venture capital funding, understanding the metrics VCs seek is crucial. This post will dive into these topics and provide valuable resources for Security Practitioners, Product Managers, CISO/CTO/CPOs, and Entrepreneurs looking to take their products or services to the next level.
Feel free to share this post around you with your fellow Cyber Builders
Value Proposition Unlocked
To create a successful product or security program, it's crucial to have a compelling value proposition that motivates customers to buy. Without this, startups and projects often fail, as customers are content with existing solutions. In this workshop, Michael Skok, founding partner of Underscore VC, presents frameworks to help you articulate and validate your value proposition to ensure it's highly compelling to customers. This workshop was initially presented at the Harvard Innovation Labs.
Underscore VC has provided deeper thinking about these concepts in this article: “How to Write a Value Proposition.” They use several frameworks to go beyond the typical “Better, Faster, Cheaper - Pick 2” many advocates. I love this framework as it provides so much clarity on any project. I encourage you to read their article.
In the meantime, let me cover some key aspects.
Unworkable, Unavoidable, Urgent, Underserved
Underscore suggests using the 4Us to define your value proposition. If you answer yes to most of these questions, you’re on the right track. If not, you should re-evaluate your venture.
Most Cyber Builders will have a significant “Unavoidable” problem: threats landscape pushing to act, new regulations coming, and making some compliance mandatory.
BLAC and White?
When targeting B2B technology markets, such as CyberSecurity, it is essential to address blatant and critical problems as they significantly impact business and can put careers and reputations at risk.
Latent problems are unrecognized and require costly missionary selling, while aspirational problems are optional and make it difficult for B2B startups to sell.
Unique and Compelling
After validating the criticality of your problem, consider what is unique and compelling about your breakthrough. To do this, consider the combination of discontinuous innovation, defensible technology, and disruptive business model (3D) you bring to the table. This should genuinely be compelling to you, your colleagues, and your most skeptical customer.
Innovation Type - 3D Description Discontinuous Innovation Looks at the problem in a new way and offers transformative benefits over the status quo. Defensible Technology Provides intellectual property that can be protected, creating a barrier to entry and an unfair competitive advantage. Disruptive Business Models Offer value and cost rewards that help catalyze business growth.
It's not enough for a product or service to be faster, cheaper, and better. By evaluating it in 3D, you can unlock its potential for a breakout.
Gain/Pain Ratio
Most entrepreneurs focus on product features and forget to consider how difficult it is for customers to learn. The Gain/Pain ratio measures the customer's gain versus the pain and cost of adoption.
If you can't deliver a 10x gain/pain promise, customers will likely choose to do nothing.
As investors, we seek non-disruptive disruptions that offer game-changing benefits with minimal modifications. Startups must be non-disruptive since the risk of betting on a young company discounts the gain. A successful venture provides a tenfold improvement over the status quo.
How to Write a Value Proposition
After completing the defining, qualifying, evaluating, and measuring steps, you are ready to write your value proposition. This following outline is not original—it’s typical for positioning statements to be consistent and reusable as such:
💡 Value Proposition Template 💡
For (target customers)
Who are dissatisfied with (the current alternative)
Our product is a (new product)
That provides (key problem-solving capability)
Unlike (the product alternative).
It might seem a prominent and easy template. I used it many times in my career, and it is mighty if you practice it honestly. Try to be unique. Try to reuse the 3D and 4U frameworks seen before. Try to be different.
You’ll see it is more complex than it feels at the beginning. It takes time to find something that will make sense on the market. It takes even more time to differ from your competitors' crowd.
How to run meetings and interviews - The Mom Test
The Mom Test had become a classical book on Entrepreneurship and Product Discovery.
Rob Fitzpatrick introduced "The Mom Test" as a framework for driving meaningful conversations, particularly during meetings and interviews. Designed as an antidote to bias and general flattery, The Mom Test promotes asking robust, purposeful questions that elicit substantial, actionable feedback. It's about guiding conversations toward discussions of genuine behaviors and experiences rather than soliciting polite affirmations.
Turning theory into practice is where The Mom Test truly shines. Its application during meetings or interviews involves carefully curating inquiry that pushes the respondent to revisit their past behaviors or actions, reflecting their true thoughts and perspectives. Instead of posing questions such as 'Would you use our product/solution if we built it?', one might ask, ‘How did you tackle the situation the last time you encountered a similar problem?' or 'What strategy do you currently deploy to overcome this?' These questions are far more likely to represent their opinions and behaviors accurately.
Understand the VC Expected Metrics
When I first entered the cybersecurity industry, I overlooked the importance of VC's expected metrics. It wasn't until I realized that cybersecurity is an enterprise B2B SaaS business, like many others, that I understood the need to pay extra attention to them.
In the SaaS business, metrics are highly valued by VCs and entrepreneurs. Here are some of the most prominent ones:
YoY ARR Growth: Year-over-Year (YoY) Annual Recurring Revenue (ARR) growth is a metric that compares the recurring revenue from subscriptions (typically associated with SaaS businesses) from one year to the next. It helps to track the growth performance over time and to observe trends.
Gross Dollar Retention: Gross Dollar Retention measures a company's ability to retain and grow revenue from its existing customers without considering upsell or cross-sell. It examines the percentage of revenue retained from existing customers in a specific period without considering new sales or customer acquisitions.
Net Dollar Retention: Net Dollar Retention measures the recurring revenue retained from existing customers over a specific period, including the impact of churn, contraction, expansion, and upsells. High Net Dollar Retention means that revenue from existing customers is growing even if no new customers were added.
Gross Margin: Gross Margin is a key profitability metric for a company. It represents the percent of total sales revenue that the company retains after incurring the direct costs associated with producing goods and services sold by the company. The higher the gross margin, the more capital a company has on each dollar of sales, which it can use to pay other costs or satisfy debt obligations.
Free Cash Flow Margin: Free Cash Flow Margin measures a company's ability to convert its sales dollars into cash after accounting for capital expenditures (like investing in plant and machinery). It's calculated by dividing free cash flow by net sales, then multiplying by 100 to get a percentage value. A high Free Cash Flow Margin indicates that a company can convert its sales into cash, suggesting financial stability.
Magic Number: The magic Number is a popular sales efficiency metric that measures how much revenue a company generates for every dollar spent on sales and marketing.
And there are many more. Andreessen Horowitz shared a guide about the metrics they observe on the market. It’s a must-read for any Cyber Builders to understand the dynamic of cybersecurity and other VC-based enterprise startups. Remember that these companies are raising a large amount of money to grow fast and even faster.
Check out the website and play with the various parameters to fit your needs.
On the six metrics described above, if you look at the second-best percentile (it means not the best of the best nor the worst startups), you’ll see have:
YoY ARR Growth - 330% - it means x4 ratio on ARR each year)
Gross Dollar Retention - 90% - no churn, rarely lost a customer.
Net Dollar Retention - 153% - high growth companies
Gross Margin - 83% - a decent number for a software vendor counting the cost of clouds
Free Cash Flow - -87% as the operating costs are high, with an extensive sales, marketing, and engineering team
Magic Number - > 0.75 - and above one is even better. Sales and Marketing should at least come back with their own cost; VC money covers the other investment (engineering, CAPEX, operations, etc..)
Once again, a gold mine for Entrepreneurs to understand the top US VC funds.
Conclusion
In conclusion, I hope this post provides valuable resources for all Cyber Builders, Product Managers, and Entrepreneurs. From understanding value propositions to running effective meetings and interviews to understanding VC metrics, these resources can help take your product or service to the next level.
Don't forget to share this post with your colleagues and fellow builders!
Laurent