⚙️ The Ops Playbook #11

Insurance, Managing Startup Risk & Creating a Vision

THE OPS PLAYBOOK #11

Insurance, Managing Startup Risk & Creating a Vision

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Read Time: 4.7 Minutes

Good Morning Operators ⚙️

After getting feedback over the past week, I’ve changed the format.

Moving forward, expect four tips from the best operators on building, managing, and scaling your startup. I hope you enjoy the new format!

If you could provide feedback, please respond to this email!

Let's dive into what types of insurance you should get, managing startup risk, and creating a vision for your team to follow.

1. How do you pay when you get sued?

Insight from Stripe

Imagine that your latest software upgrade disrupted your client's business. Thanks to you, your client lost tens of thousands of dollars. Your client is going to sue you to recoup lost revenue.

But what if you were protected? Professional liability insurance, sometimes called errors and omissions insurance, can bail you out.

How does this insurance work?

  • Pay $1000 to start an annual policy. The policy limits for E&O policies generally start at $1 million. That should be enough when starting out

  • As you grow your revenue and employees, the price scales up

  • If you get sued, you forward relevant details to the insurance company. This is called opening a claim

  • The insurance company will take over responding to the lawsuit. This will most likely result in a settlement to avoid the expense of a trial. Trials are pricey!

Software companies are rarely sued. Insurance companies report that the risk is less than 1% per year. When renewal time comes around, review if you have adequate coverage.

2. How to manage existential startup risk

If you are building a startup, you have core business risks.

There are usually 2-5 core problems to conquer.

When reviewing the core problems to cover, try this:

  • Take a whiteboard and plot the critical risks in order of degree of difficulty

  • Calculate the skillset that gives you an unfair advantage in solving that risk

  • Go hire or internally assign a DRI (directly responsible individual) to each risk

Revisit the prioritization in a year. Your problems may have shifted.

An example of this was when Keith Rabois built OpenDoor.

His core risks were pricing homes using data, needing real estate knowledge, and building a top-tier product.

Keith hired a world-class data scientist and a CEO with real estate and product-building experience to combat this.

The earlier you map people against the most critical challenges, the more likely you will succeed.

3. Inspire your team with a vision

Early on, a shared sense of purpose is optional. Building together is enough.

But you will get too big.

When you cannot confidently say everyone knows what you are building towards, it's time to write your vision statement.

The vision statement puts together the past, present, and future. This includes your purpose, the product, and logos to tell the company's full story.

When writing your vision statement, be sure to:

  • Ignore constraints on your vision. Get comfortable with writing something someone might roll their eyes at. You started your company because you know something someone else doesn’t.

  • The best vision statements are personal. They include explaining why you decided to solve the problems your company is tackling and how you hope the world changes. Take a look inward. What do your heart, gut, and soul say you should be working on?

  • Take a look outward. Where do trusted team members, top users, and partners think you should go?

A great example is from Facebook’s Little Red Book.

“With each step forward (in this industry), the landscape you’re walking on changes. So, we have a pretty good idea of where we want to be in six months, and where we want to be in 30 years. And every six months, we take another look at where we want to be in 30 years to plan out the next 6 months. It’s a little bit shortsighted and a little bit not. But any other approach guarantees everything you release is already obsolete.”

No matter how far away the finish line is, and no matter how implausible getting there seems, a solid vision statement can help your team make the impossible feel possible. 

4. How to make your financial budgets useful

Insight from Secret CFO 

Budgets have no relevance in their own right.

Think of your budget as a backstage pass—it gets you in, but the real action happens on stage.

To create real action, we must perform a monthly performance review.

You want to ensure that this monthly rigor gets replicated at each level within the team.

The tighter the process, the more control over performance.

Here is a summary of the 11 key principles for running effective financial performance reviews:

1. Monthly Cycle: Monthly reviews provide a robust view of financial performance.

2. Right Timing: Reviews should be held 3-5 days after management accounts are published.

3. Mandatory Attendance: Schedule meetings well in advance to avoid absences.

4. Pre-Meeting Tension: Set the tone for the meeting with a clear message once monthly results are published.

5. Appropriate Materials: Ensure materials for the meeting are well-prepared and structured.

6. Right Attendees: Include key roles such as Chair, Agitator, Performance Owner, Truthmeister, Contributors, and Secretary.

7. Balance of Challenge and Support: Manage the meeting effectively to surface issues and find solutions.

8. Root Cause Analysis: Understand the true drivers of variances in performance.

9. Action Plan Agreement: Define actions clearly with ownership and deadlines, avoiding vague strategic ideas.

10. Post-Meeting Follow-Up: Circulate actions by email and reinforce key messages.

11. Zero Tolerance on Broken Commitments: Hold people accountable for their responsibilities

Operators Library

  • How 25% of Freshworks customers represent 84% of total ARR (Link)

  • How to talk about your valuation with investors (Link)

  • Building a Super App isn’t as easy as it seems (Link)

  • What happens when you go bankrupt? (Link)

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