1. Prioritize recruitment
In the early days of any organization or start up the last thing you want to do is to spend time in lots of interviews. You want to get out there and run the business.
However, in my experience, building your direct team is the most important thing you can do as a leader.
In the first 6 months at LOVEFiLM, I probably spent over 30% of my time getting the right team together. One that could work together, had similar values and would stay together.
Of course, there are always differences and arguments just as there is in any family.
In fact if you recruit people with passion then you should expect this but you must ensure they have respect for each other too.
One of the most important lessons I learnt in recruitment is that ‘first division people recruit first division people, however second division people recruit third!’
Why is that?
People who are not so good and so confident don’t like to get people better than themselves in their team.
That is a recipe for a downward spiral in quality. Therefore always be clear what you want, both in terms of the behaviors as well as the experiences and then set a very high bar in recruitment.
If they are not better than yourself at what you are hiring them into do then don’t hire them ! ( In my experience it is always easier to ride a forward going horse than one you have to keep ‘legging on’ all of the time.
2. Manage your cash conversion carefully
One of the key metrics we considered at LOVEFiLM was cash conversion, i.e. how quickly we could get cash into the business and how slowly could we let it out.
This led us to have so many more promotions where we only paid partners on a ‘performance basis’.
That meant we could do the promotion first, see what the results were and then pay the partner.
Customers came in first and paid us, and then after 30 days or so, we paid our partners.
That really helped cashflow, which is critical in the early days of any company but especially us at the rate we were growing.
It also meant we didn’t have to raise even more cash and therefore were not subject to even more dilution.
3. Keep an exit event in mind
When you work with Venture Capitalists (or Private Equity) investors you need to know right at the start that there is going to have to be an exit event at some stage.
Their business model is based upon investing smaller amounts and selling for larger amounts.
Not all of their companies achieve this exit event so the ones that do need to cover the ones that don’t quite make it.
Therefore you need to plan and prepare for the exit event as early as you can ( this does mean sell as early as you can).
The learning’s from LOVEFiLM’s sale to Amazon are as follows:
- Identify potential exit partners early on and make sure you build a relationship with them.
- Constantly update your ‘elevator speech’. You will be asked at least a hundred times during any selling process to give your short five minute version of the reason why your company is worth much at all.
- When you are working with companies looking at buying you, think about the culture of their business and how it matches with both you and your company’s.
- Be patient but recognize the importance of timing.
- Don’t forget the staff. You need to bring them along with you so spend time getting the communications right.
- After the exit event has happened and the deal is done don’t forget it is day one, not the last day and now is the time to deliver against the deal promises.