Posts from entrepreneurship

What We Don’t Do

Strategy is hard and becomes increasingly important as companies grow and scale.

One thing I advise teams to focus on when they go through a strategy exercise is to identify the things they won’t do.

One way to do this is to make a list of all the things people inside (and outside) the company are encouraging the company to work on.

Then break that list into two lists – the things you will do and the things you won’t do. This should be a group exercise, iterative, and ideally done on a whiteboard or some other similar tool.

The timeline for this list of projects doesn’t matter a lot. It could be for the next year or it could be for the next three to five years.

This exercise identifies the things that are most important versus the things you would like to do but can’t get to right now.

And this process helps solidify the strategy.

I think a company, at least a company that is smaller than 1000 people, should not try to do more than three big things a year. These big things can include a number of smaller things in them. So you might have a list of ten things you want to do this year. If you can organize those ten things into three big focus areas, then that works. If there are literally ten big things you want to do this year, I think that is way too many.

The most successful companies I work with have a clear sense of Mission/Vision>Strategy>Priorities that guides the company quarter to quarter, year to year, and aligns everyone on the team around where the focus is and why.

Saying no to things that are off mission, off strategy, or are not a priority right now is critical to getting this right.

I say this as an investor who has seen his ideas end up on the no list way more often than the yes list. I understand why that is and accept it. I would rather work with a company that knows where it is going and why than one that blindly listens to its investors.

From The Archives: Retaining Your Team

I picked up a bad head cold in SF this week. It’s rainy and cold there and that got the best of me. So I’m running a post from the archives and medicating myself instead of writing today.

Retaining Your Employees

I hate to see employees leave our portfolio companies for many reasons, among them the loss of continuity and camaraderie and the knowledge of how hard everyone will have to work to replace them. Many people see churn of employees in and out of companies as a given and build a recruiting machine to deal with this reality. While building a recruiting machine is necessary in any case, I prefer to see our portfolio companies focus on building retention into their mission and culture and reducing churn as much as humanly possible.

There isn’t one secret method to retain employees but there are a few things that make a big difference.

1) Communication – the single greatest contributor to low morale is lack of communication. Employees need to know where the company is headed, what they can do to help get there, and why. You cannot overcommunicate with your team. Best practices include frequent one on ones between the managers and their team members, regular (weekly?) all hands meetings, quick standup meetings on a regular basis for the teams to communicate with each other, and a CEO who is out and about and available and not stuck in his/her office.

2) Getting the hiring process right – a lot of churn results from bad hiring. The employee is asked to leave because they are not up to the job. Or the employee leaves on their own because they don’t enjoy the job. Either way, this was a screwup on the company’s part. They got the hiring process wrong. The last MBA Mondays post(two weeks ago) was about best hiring practices. Focus on getting those right and you will make less hiring mistakes and experience less churn.

3) Culture and Fit – Employees leave because they don’t feel like they fit in. Maybe they don’t. Or maybe they just don’t know that they do fit in. Another post in this series on People was about Culture and Fit. You must spend time working on culture, hiring for it, and creating an environment that people are happy working in. This is important stuff.

4) Promote from within. Create a career path for your most talented people. The best people are driven. They want to do more, develop, and earn more. If you are always hiring management from outside of the company, people will get the message that they need to leave to move up. Don’t make that mistake. Hire from within whenever possible. Take that chance on the talented person who you think is great but maybe not yet ready. Work with them to get them ready and then give them the opportunity and then help them succeed in the position. Go outside only when you truly cannot fill the position from within.

5) Assess yourself, your team, and your company. We have discussed various feedback approaches here before. There is a lot of discomfort with annual 360 feedback processes out there. There is a growing movement toward continuous feedback systems. Whatever the process you use, you must give your team the ability to deliver feedback in a safe way and get feedback that they can internalize and act upon. You must tie feedback to development goals. Feedback alone will not be enough. Build a culture where people are allowed to make mistakes, get feedback, and grow from them. I have seen this approach work many times. It helps build companies where churn rates are extremely low.

6) Pay your team well. The startup world is full of companies where the cash compensation levels are lower than market. This results from the view that the big equity grants people get when they join more than makes up for it. There are a few problems with this point of view. First, the big option grants are usually limited to the first five or ten employees and the big management positions. And second, people can’t use options to pay their rent/mortgage, send their kids to school, and go on a summer vacation with the family. Figure out what “market salaries” are for all the positions in your company and always be sure you are paying “market” or ideally above market for your employees. And review your team’s compensation regularly and give out raises regularly. This stuff matters a lot. Most everyone is financially motivated at some level and if you don’t show an interest in your team’s compensation, they won’t share an interest in yours (which is tied to the success of your company).

I believe these six things (communicate, hire well, culture matters, career paths, assessment, and compensation) are the key to retention. You must focus on all of them. Just doing one of them well will not help. Measure your employee churn and see if you can improve it over time. A healthy company doesn’t churn more than five or ten percent of their employees every year. And you need to be healthy to succeed over the long run.

From The Archives: The Board Chair

One of the things I am spending a lot of time on these days is Board leadership. That usually means Board Chair, but can also mean “Lead Director.” If you have a Board of five or more and are struggling with managing your Board, get a Board Chair or a Lead Director asap. Here’s a post from the archives about this.


Continuing our series on The Board Of Directors, this week I’ll talk about the role of the Board Chair.

The Board Chair runs the Board Of Directors. He or she is a Board member with the same roles and responsibilities as the other Board members. But in addition, the Board Chair is responsible for making sure the Board is doing its job. The Board Chair should make sure the Board is meeting on a regular basis, the Board Chair should make sure the CEO is getting what he or she needs out of the Board, and the Board Chair should make sure that all Board members are contributing and participating. When there are debates and disagreements, the Board Chair should make sure all opposing points of view are heard and then the Board Chair should push for some resolution.

The Board Chair should be on the nominating committee and should probably run that committee. I do not believe the Board Chair needs to be on the audit and compensation committees, but if they have specific experience that would add value to those committees, it is fine to have them on them. Either way, the Board Chair needs to be on top of the issues that are being dealt with in the committtees and making sure they are operating well.

Small boards (three or less) don’t really need Board Chairs. In many cases the founding CEO will also carry the Chairman title, but in a small Board, it is meaningless. Once the Board size reaches five, the Board Chair role starts to take on some value. At seven and beyond, I believe it is critical to have a Board Chair.

It is common for the founder/CEO to also be the Board Chair. I am not a fan of this. I think the Chair should be an independent director who takes on the role of helping the CEO manage the Board. The CEO runs the business, but it is not ideal for the CEO to also have to run the Board. A Chair who can work closely with the CEO and help them stay in sync with the Board and get value out of a Board is really valuable and CEOs should be eager to have a strong person in that role.

When a founder/CEO decides to transition out of the day to day management but wants to stay closely involved in the business, the Board Chair is an ideal role for them, assuming that they were responsible for recruiting or grooming the new CEO. If the founder is hostile to the new CEO, then this is a horrible idea.

When Boards get really large, like non-profit boards, the Board Chair is even more important. I’ve been on a few non-profit Boards over the years. I don’t really enjoy working in the non-profit world, but I do it from time to time. I have had the opportunity to watch a couple amazing Board Chairs at work and I’ve learned a ton from them. The partnership between Charles Best and Board Chair Peter Bloom at Donors Choose is a thing of beauty. Same with the partnership between John Sexton and Board Chair Marty Lipton at NYU. For profit CEOs and Board Chairs could learn a lot from watching these masters at work.

When it works, the Board Chair role is hugely impactful. It allows the CEO to spend their time and attention running the business and not worrying about the Board. The Chair will manage the Board and when the CEO has issues with the Board, the Chair will be clear, crisp, and quick with that feedback and will help the CEO address those issues.

Many CEOs find working with a large group of people who have oversight over their work and performance challenging. It makes sense. Who has ever worked for six or more people at the same time. How do you know where you stand with all of them? How do you know what they want you to do? How do you know what is on their minds? The Board Chair’s job is to give the CEO a single person to focus on in dealing with these issues.

The Board Chair job is hard, particularly when the company is in crisis, but it is also extremely gratifying. It is an ideal job for entrepreneurs and CEOs to take on when they are done starting and running companies and want to move into something a little less demanding. I’m always on the lookout for people who can take on this role in our portfolio companies. The good ones are few and far between and worth their weight in gold.

The Department of Homeland Security International Entrepreneur Rule

From GeekWire:

The Department of Homeland Security has officially enacted a provision to make it easier for immigrant entrepreneurs to build startups in the U.S. The rule, proposed by President Barack Obama last summer, takes effect exactly one week before he leaves the Oval Office.

The initial rule outlined a “parole” period that foreign entrepreneurs could apply for, granting two years in the U.S. to grow a startup. To qualify, the founder had to prove that the startup met certain requirements and demonstrated the potential for “significant public benefit.” After the initial parole period, the founder could apply to extend his or her stay in the U.S. for an additional three years, if the startup met additional benchmarks.

Over the past five months, DHS has been collecting public feedback on the proposal to inform the final rule. That comment period led to a few key changes to the final rule, enacted today.

Instead of a two-year period followed by a three-year period, the rule now says entrepreneurs can apply for an initial parole of 2.5 years, followed by an extended period of 2.5 additional years.

The proposed rule said startups needed to have investments of at least $345,000 from qualified U.S. investors to apply for parole. DHS has reduced that minimum required investment to $250,000. The official rule also gives entrepreneurs more time to land funding — 18 months instead of one year.

The final rule also reduces the ownership stake the founder needs to have to qualify. Instead of 15 percent, entrepreneurs need to own only 10 percent of the startup to qualify for the initial parole period. To re-apply for an additional 2.5 years, founders just need 5 percent ownership.

In the proposed rule, a startup had to generate at least 10 jobs during the initial 2.5-year parole period to qualify for an extension. That number has been reduced to five jobs in the final rule.

This is really good thing. I know of a number of founders who have been unable to stay in the US even though they started a company here that is growing and hiring people in the US. Tossing people out who are starting companies that are creating new jobs in the US is nuts but that’s what we have been doing. This rule changes that, at least temporarily, and that’s a good thing.

Here’s the rule in its entirety:

International Entrepreneur Parole by GeekWire on Scribd

What Is Going To Happen In 2017

Happy New Year Everyone. Yesterday we focused on the past, today we are going to focus on the future, specifically this year we are now in. Here’s what I expect to happen this year:

  • Trump will hit the ground running, cutting corporate and personal taxes, and eliminating the preferential treatment of carried interest capital gains. The stock market has already factored in these tax cuts so it won’t be as big of a boon for investors as might be expected, but the seven and half year bull market run will be extended as a result of this tax cut stimulus before being halted by rising rates and/or some boneheaded move by President Trump which seems inevitable. We just don’t know the timing of it. The loss of capital gains treatment on carried interest won’t hurt professional investors too much because the lower personal tax rates will take the sting out of it. In addition, corporations will use the lower tax rates as an excuse to bring back massive amounts of capital that have been locked up overseas, producing a cash surplus that will result in an M&A boom. This will lead to an even more fuel to the fire that is causing “old line” corporations to acquire startups.
  • The IPO market, led by Snapchat, will be white hot. Look for entrepreneurs and the VCs that back them to have IPO fever in 2017. I expect we will see more tech IPOs in 2017 than we have since 2000.
  • The ad:tech market will go the way of search, social, and mobile as investors and entrepreneurs concede that Google and Facebook have won and everyone else has lost. It will be nearly impossible to raise money for an online advertising business in 2017. However, there will be new players, like Snapchat, and existing ones, like Twitter, that succeed by offering advertisers a fundamentally different offering than Facebook and Google do.
  • The SAAS sector will continue to consolidate, driven by a trifecta of legacy enterprise software companies (like Oracle), successful SAAS companies (like Workday), and private equity firms all going in search of additional lines of business and recurring subscription revenue streams.
  • AI will be the new mobile. Investors will ask management what their “AI strategy” is before investing and will be wary of companies that don’t have one.
  • Tech investors will start to adopt genomics as an additional “information technology” investment category, blurring the distinction between life science and tech investors that has existed in the VC sector for the past thirty years. This will lead to a funding frenzy and many investments will go badly. But there will be big winners to be had in this sector and it will be an important category for VCs for the foreseeable future.
  • Google, Facebook, and to a lesser extent Apple and Amazon will be seen as monopolists by government and individuals in the US (as they have been for years outside the US). Things like the fake news crisis will make clear to everyone how reliant we have become on these tech powerhouses and there will be a backlash. It will be Microsoft redux and the government will seek remedies which will be futile. But as in the Microsoft situation, technology, particularly decentralized applications built on open data platforms (ie blockchain technology), will come to the rescue and reduce our reliance on these monopolies. This scenario will take years to play out, but the seeds have been sown and we will start to see this scenario play out in 2017.
  • Cyberwarfare will be front and center in our lives in the same way that nuclear warfare was during the cold war. Crypto will be the equivalent of bomb shelters and we will all be learning about private keys, how to use them, and how to manage them. A company will make crypto mainstream via an easy to use interface and it will become the next big thing.

These are my big predictions for 2017. If my prior track record is any indication, I will be wrong about more of this than I am right. The beauty of the VC business is you don’t have to be right that often, as long as you are right about something big. Which leads to going out on a limb and taking risks. And I think that strategy will pay dividends in 2017. Here’s to a new year and new challenges to overcome.

What Did And Did Not Happen In 2016

As has become my practice, I will end the year (today) looking back and start the year (tomorrow) looking forward.

As a starting point for looking back on 2016, we can start with my What Is Going To Happen In 2016 post from Jan 1st 2016.

Easy to build content (apps) on a cheap widespread hardware platform (smartphones) beat out sophisticated and high resolution content on purpose built expensive hardware (content on VR headsets). We re-learned an old lesson: PC v. mainframe and Mac; Internet v. ISO; VHS v. Betamax; and Android v. iPhone.

And Fitbit proved that the main thing people want to do with a computer on their wrist is help them stay fit. And yet Fitbit ended the year with its stock near its all time low. Pebble sold itself in a distressed transaction to Fitbit. And Apple’s Watch has not gone mainstream two versions into its roadmap.

  • I thought one of the big four (Apple, Google, Facebook, Amazon) would falter in 2016. All produced positive stock performance in 2016. None appear to have faltered in a huge way in 2016. But Apple certainly seems wobbly. They can’t make laptops that anyone wants to use anymore. It’s no longer a certainty that everyone is going to get a new iPhone when the new one ships. The iPad is a declining product. The watch is a mainstream flop. And Microsoft is making better computers than Apple (and maybe operating systems too) these days. You can’t make that kind of critique of Google, Amazon, or Facebook, who all had great years in my book.
  • I predicted the FAA regulations would be a boon to the commercial drone industry. They have been.
  • I predicted publishing inside of Facebook was going to go badly for some high profile publishers in 2016. That does not appear to have been the case. But the ugly downside of Facebook as a publishing platform revealed itself in the form of a fake news crisis that may (or may not) have impacted the Presidential election.
  • Instead of spinning out HBO into a direct Netflix competitor, Time Warner sold itself to AT&T. This allows AT&T to join Comcast and Verizon in the “carriers becoming content companies” club. It seems that the executives who run these large carriers believe it is better to use their massive profits in the carrier business to move up the stack into content instead of continuing to invest in their communications infrastructure. It makes me want to invest in communications infrastructure honestly.
  • Bitcoin found no killer app in 2016, but did find itself the darling of the trader/speculator crowd, ending the year on a killer run and almost breaking the $1000 USD/BTC level. Maybe Bitcoin’s killer app is its value and/or store of value. That would make it the digital equivalent of gold and the likely reserve currency of the digital asset space. And I think that is what has happened with Bitcoin. And there is nothing wrong with that.
  • Slack had a good year in 2016, solidifying its position as the leading communications tool for enterprises (other than email of course). It did have some growing pains as there was a fair bit of executive turmoil. But I think Slack is here to stay and I think they can withstand the growing competition coming from Microsoft’s Teams product and others.
  • I was right that Donald Trump would get the Republican nomination and that the tech sector (with the exception of Peter Thiel and a few other liked minded people) would line up against him. It did not matter. He won the Presidency without the support of the tech sector, but by using its tools (Twitter and Facebook primarily) brilliantly.
  • I predicted “markdown mania” would hit the tech sector hard and employees would start getting cold feet on startups as they saw the value of their options going down. None of this really happened in a big way in 2016. There was some of that and employees are certainly more attuned to how they can get hurt in a down round or recap, but the tech sector has also used a lot of techniques, including repricing options, reloading option plans, and moving to RSUs, to mitigate this. The truth is that startups, venture capital, and tech growth companies had a pretty good year in 2016 all things considered.

So that’s the rundown on my 2016 predictions. I would give myself about a 50% hit rate. Which is not great but not horrible and about the same as I did last year.

Some other things that happened in 2016 that are important and worth talking about are:

  • The era of cyberwars are upon us. Maybe we have been fighting them silently for years. But we are not fighting them silently any more. We are fighting them out in the open. I suspect there is a lot that the public still doesn’t know about what is actually going on in this area. We know what Russia has done in the Presidential election and since then. But what has the US been doing to Russia? I would assume the same and maybe more. If your enemy has the keys to your castle, you had better have the keys to their castle. And as good as the Russians are at hacking into systems, the US has some great hackers too. I am very sure about that.  And so do the Chinese, the Israelis, the Indians, the British, the Germans, the French, the Japanese, etc, etc.  This feels a bit like the Nuclear era redux. Mutually assured destruction is a deterrent as long as both sides have the same tools.
  • The tech sector is no longer the belle of the ball. It has, on one hand become extremely powerful with monopolies, duopolies, or nearly so in search, social media, ecommerce, online advertising, and mobile operating systems. And it has, on the other hand, proven that it is susceptible to the very kinds of bad behavior that every other large industry is capable of. And we now have an incoming President who doesn’t share the love of the tech sector that our outgoing President showed. It brings to mind that scene in 48 Hours where Eddie Murphy throws the shot glass through the mirror and explains to the rednecks that there is a new sheriff in town. But this time, the tech sector are the rednecks.
  • Google and Facebook now control ~75% of the online advertising market and almost all of its growth in 2016:

  • Artificial Intelligence has inserted itself into our every day lives. Whether its a home speaker system that we can talk to, or a social network that already knows what we are about to go out and purchase, or a car that can park itself and change lanes on the highway automatically, we are seeing AI take over tasks that we used to have to do ourselves. We are in the age of AI. It is not something that is coming. It is here. It may have arrived in 2014, or 2015, but if you ask me, I would put 2016 as the year it had its debut in mainstream life. It is exciting and it is scary. It begs all sorts of questions about where we are all going in the next thirty to fifty years. If you are in your twenties, AI will define your lifetime.

So that’s my rundown on 2016. I wish everyone a happy and healthy new year and we will talk about the future, not the past, tomorrow.

If you are in need of a New Year’s Resolution, I suggest moving to super secure passwords and some sort of tool to manage them for you, using two factor authentication whenever and wherever possible, encrypt as much of your online activities as you reasonably can, and not saying or doing anything online that you would not do in public, because that is where you are doing it.

Happy New Year!

Audio Of The Week: Positively Gotham Gal

Back in 2005 and 2006, The Gotham Gal and I did a weekly podcast called Positively 10th Street. At the time we lived in a townhouse on 10th Street in Greenwich Village and we would record it in our kitchen with our kids participating from time to time. The hosting service we used, Libsyn, took down the podcast when I cancelled our account and I can’t find the mp3s anywhere on our network. So these podcasts may be gone which is a shame. There were some great ones (and plenty of bad ones). I do have a dream that I find all the mp3s in a folder on a hard drive somewhere. That would be great.

We were a decade too early for the podcast thing. But now podcasts are a thing. Many interesting people, like Malcolm Gladwell, are doing them. And yesterday saw another interesting person join the ranks. The Gotham Gal has taken her Woman Entrepreneur Monday series which ran in blog format from November 2010 to August 2016 to the airwaves with a weekly podcast series called Positively Gotham Gal, a nod to our way to early attempt at podcasting.

Here is the first episode of Positively Gotham Gal featuring Margit Detweiler, Founder & CEO at Gyrate Media & TueNight.com. It’s a really good conversation about the joys and challenges of being a woman entrepreneur in the latter half of your career.

Going Public

The news broke yesterday that Snap (fka Snapchat) has confidentially filed to go public and is aiming for a March IPO. I am very happy to see this. Snap is a great company led by a creative and ambitious founder and they have a loyal and growing use base. I think Snap can be an excellent public company. There are the obvious questions about valuation, long term growth prospects, profitability, etc. Those will determine how good of a business and a stock it will be over the long run.

But the thing that makes me happy is their decision to open up their cap table to all investors, to become more transparent with their numbers, and to follow the path taken by so many great tech companies over the past five decades.

Going public used to be a rite of passage for high growth tech companies. It was what every founder wanted to eventually do with their company. That all changed after the tech/internet bubble burst in 2000 and for the last fifteen years it has been conventional wisdom to delay the IPO for as long as possible or even forgo it in lieu of a trade sale or something else.

I appreciate why some founders want to avoid being public. I spent the last day and a half being a public company director. There are parts of that job that suck. 

But having seen this movie (going public/being public) many times now, I think there is a lot less to fear than most entrepreneurs think. It’s good for the company to be held accountable, it’s good for the employees and investors to have liquidity, and it’s good to join the ranks of the best companies in the world.

I am very pleased to see Snap going for it.

Fun Friday: What Is Exciting These Days In Tech and Startup Land?

I figured I’d follow up a post taking a shot at the AVC community with one that should engage the AVC community, including me.

And what better to talk about than what excites us these days?

It is no secret to the regular readers that it is hard for me to get excited about the current state of tech and startup land. David said as much in his comment yesterday.

With the exception of blockchain stuff, which seems very early and not yet investable except for fools and the foolhardy (me), I am struggling to find things to get excited about in tech and startup land.

So, let’s all jump into the comments and talk about what excites us about tech and startups right now. Not yesterday, not last year, not five years ago, right now. And if its your startup you are excited about, that’s cool, but please don’t turn the comments into a pitch fest. That’s my life already 🙂