Bets

Drew and I spent a lot of last weekend working on a deck for our upcoming board meeting. Like every business, Intelligems is focused on growth, and ideally ‘non-linear’ growth. One of the key questions we were reflecting on: Which bets that we’ve made recently are delivering growth? And which bets did we want to double down on? 

I’ve talked here before about the idea of “big swings,” so this topic feels related and also gives me a chance to share a little bit about our approach, along with some nuances associated with all of it.

So here we go: 

Our core business is healthy and growing, but we’ve got a ton of different initiatives running simultaneously—from product development to new marketing efforts—in order to continue and accelerate that growth. It’s measurably a lot easier to grow 5X from $1M to $5M in revenue than it is to grow from $5M to $25M. And it’s been valuable to struggle with the challenge of saying, with certainty, how any given thing (even this newsletter, for example) is contributing to the growth and by how much. 

Hence all the reflection.

My first conclusion: you can’t take a binary (“it worked” vs “it didn’t”) approach to evaluating these bets. How satisfying it would be to be able to look at a bet like a turn at roulette, where you either win or you lose. Oh, and the payouts are precise and measurable. Trying to look at each opportunity and measure the outcome with such a discrete approach simply won’t work in the context of a complex business.

While some bets are pretty cut and dry, it’s not uncommon for one to be hard to read (it doesn’t appear to be stunting growth, but it’s also not clear that it is accelerating or, at least, helping maintain our growth rate). Those bets, for as much as you want them to produce readouts as step changes themselves, are a bit more incremental in terms of getting there, and the value to gain from them lives in the iterative execution associated with them. 

Which brings me to the second conclusion: bets are also not finite or time bound. At Intelligems, we’ve always used the term "layered bets” to describe the continuous funnel of new ideas we’re trying. It's still very much a work in progress, but here's the essence: Instead of thinking of investments as binary decisions, we view them as a funnel with multiple phases:

1. Early Validation Stage: Have a few conversations, test assumptions, see if there's something worth pursuing.

2. Light Investment Stage: When something looks promising, put a bit of time and resources behind it.

3. Growth Stage: Once you've seen real usage and data, commit more substantial resources.

The "layered" part is the big one. We always want to have multiple bets at each phase of the lifecycle. So instead of thinking of these bets with discrete outcomes to be paid out in a fixed time, we need to think of them on a continuous spectrum of success to be constantly re-evaluated after many iterations in time.

I know we are following this approach well when we end up with a bunch in the early validation stage and progressively fewer in the light investment and growth stages, because most won’t pan out. The upside, though, is that if you do cut the ones that fail, you’ll continuously have a pipeline of items that help you find the next growth lever.

One example to see this at Intelligems is on the product side: our content testing product began with just one product and one developer exploring the concept. It  stayed that way for a few months, but the demand for it kept picking up and it became clear that it needed more resources. So, it graduated. 

To the contrary, we’ve also tried (and killed) outbound sales a whole bunch of times. Between starting writing this and this current revision I’ve learned we’ll give it yet another try with a different spin – the circumstances are different, so maybe it will work this time!

We’re also experimenting with marketing. Intelligems has been a relatively product-focused company for some time, and we’re testing how much we allocate resources to marketing efforts. We’ve been lucky to grow primarily via people using product and/or telling people about it, so how much faster can we grow if we don’t just wait for that word of mouth to kick in?

Which brings us to conclusion three: the outcome spectrum is probably not financial. When we do pick bets to layer in, I’ve begun to appreciate the need to not just focus on the dollar scorecard. A lot of this stuff needs to be viewed through the lens of leading indicators. 

The reason for that is two-fold: 

1. It can be easier to understand the bet’s impact if you work backward from the end goal to its first-order impact.

2. Financials, like revenue and profit, can be lagging indicators.

If you’re trying to force step changes, then, you need a read on the bet as quickly as possible, so you can grab the full value of it as soon as possible.

So the process of writing and reflecting in this newsletter has provided a sense of comfort ahead of an exciting investment and growth opportunity. For each investment we make, I know that a) the outcomes are a spectrum that b) pan out over time, but c) we’re going to keep our pulse on leading indicators to know whether or not we keep pushing on each. And if we keep doing that diligently, we’ve hopefully set ourselves up for it all to have paid off.