Wednesday, November 18, 2009

Good Question! The Eight Best Questions We Got While Raising Venture Capital

Good Question! The Eight Best Questions We Got While Raising Venture Capital

I found four questions particularly interesting, so I am writing them out.

1. What are your unit economics?
For us, this meant explaining what Redfin made this summer on a single home purchase, with a per-transaction account of what we spent on marketing to get customers ($27), on local data ($153), on customer service ($2,906) and so on. We also calculated how much annual revenue we got for every monthly unique visitor. Knowing that the big number is how much we spend on our customer-service team refocused us on making sure we hired the right team and invested in its happiness.

4. What are the explanatory events?
What change in our business had caused revenues to shoot up? We found the real explanatory event was a change in our service a month before – unlimited home tours.

5. Why can’t you grow faster?
Redfin’s Sasha Aickin quietly pointed at the headcount line of our projections and said our rate-limiting factor is probably how quickly we can hire top-notch real estate agents. Everyone nodded. We got back from that meeting and began thinking about scaling agent hiring.

6. What are the accelerating effects?
What separates a potential colossus from other businesses is the capacity to keep growing at 300% rate in years four, five and beyond. For Amazon, the product reviews and personalization history it captured from its first users accelerated its second stage of growth. For Facebook and Twitter, the community itself constantly recruits new users. For companies like Zappos and hopefully Redfin, it’s word-of-mouth about our customer service.

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