Posts from entrepreneurship

Loyalists vs Mercenaries

One of the things that entrepreneurs, founders, and CEOs obsess over is holding onto their team. When I propose some sort of difficult decision to a CEO, I am often met with the response “the team will freak out and we will lose them.” And I understand where this emotion comes from. You spend so much of your time recruiting, training, and managing a team and getting them into a place where they can execute for you and you can’t imagine having some of all of them walk out the door. Neither can I to be honest.

But teams come in all flavors. There are highly loyal teams that can withstand almost anything and remain steadfastly behind their leader. And there are teams that are entirely mercenary and will walk out without thinking twice about it. I once saw an entire team walk out on a founder. That company survived it, remarkably.

I’ve been thinking a lot about the factors that go into determining whether your team skews loyalist vs mercenary and what you might be able to do about it. Here are some of the most important factors:

1) Leadership. At the end of the day, people are loyal to a leader they believe in. Leading is not managing. Although it is impossible to lead if there is no management. But leading is that special thing. It is charisma, it is strength, it is communication, it is vision, it is listening, it is being there, it is calm, it is connecting, it is trust, faith, and belief. The best founders are great leaders. They may be shitty managers which means they need to find managers to help them. But they are great leaders. One of the things we look for in founders is leadership. If we want to follow them, we believe that others will too.

2) Mission. People are loyal to a mission. I’ve seen super talented people walk away from compensation packages 2-3x what they currently make because they believe in what they are working on and think it will make a difference in their lives and the lives of others. This is why investing in mission driven companies can produce great financial returns. Mission driven companies have something most companies don’t have. They have “why” that keeps the team together through difficult times and when the compensation isn’t close to “market”.

3) Values and Culture. My friend Matt wrote a post about Values and Culture the other day. I read it and responded “values are the house and culture is the furniture”. He thought that was about right. People want to work in a place that feels right to them. They need to feel comfortable at work. In the way that a welcoming home with comfortable furniture is pleasant to be in, a company with good values and culture is pleasant to work in.

4) Location. I spent the past week in europe. In Berlin, Paris, Istanbul, Vienna, and Ljubljana. These are very different talent markets that the bay area or NYC. In the Bay Area and NYC, your employees are constantly getting hammered to leave for more cash, more equity, more upside, more responsibility, and eventually it leads to them becoming mercenaries. It is incredibly hard to hold onto a team in the Bay Area and NYC. If you are building your company in Ljubljana, Waterloo, Des Moines, Pittsburgh, Detroit, or Indianapolis, you have a way better chance of building a company full of loyalists than if you are building it in the Bay Area or NYC.

If you mess up any of these dynamics, you can easily turn your team from loyalists to mercenaries. Changing leadership is the most common one. Almost every time I have seen a founder leave and be replaced by a new CEO, I have witnessed a significant exodus of talent from the company. It is better if the new CEO comes from within, but even then I have witnessed a significant exodus of talent. When the CEO comes in from the outside, it is almost always much worse.

If you move your team from Philadelphia to NYC or from Des Moines to the Bay Area, expect more turnover. Expect to turn loyalists into mercenaries. These talent starved locations create mercenaries. It’s the nature of the beast.

So what can you do to build a company full of loyalists instead of a company full of mercenaries? First you must lead. If you think you are a good leader, get better. If you think you are a great leader, you can get better. Get coaching and focus on becoming the best leader you can be.

Second, build a mission driven company. Make sure you are doing something that matters. If all you are doing is trying to make money for yourself, then all your employees will try to do is make money for themselves.

Third, invest in values and culture. Matt’s post is a good starting place for some tips on how to do that.  Build a welcoming home and put comfortable furniture in it. I mean that metaphorically of course. But the office does matter too.

Finally, think about being somewhere other than the Bay Area or NYC. Yes, they are great places to start companies, find talent, and get investment. But they are also places where others start companies, get investment, and find your talent. It’s a ratrace, a treadmill, and it’s grueling. If you can avoid it, you owe it to yourself to try.

There are many reasons why the startup sector feels stretched to me. But possibly the most significant one of all is the increasing amount of mercenary behavior I am witnessing in it these days. Hopefully this post will help you avoid that as much as possible. It’s hard these days.

Profits vs Growth

One of the things I’ve always struggled with as an investor in high growth tech companies is the tension between getting profitable vs growing more quickly. It has become a central tenet of tech growth investing (in both the public and private markets) that growth is more valuable than profitability and you can always focus on profits once you have “captured the market.” This leads to behaviors like investing heavily in sales and marketing to increase the growth rates of a business beyond what it can grow at “organically.”

A few months ago, I blogged about a formula I came across at a board meeting a while back that says your year over year growth rate plus your pre-tax operating margins need to be at least forty percent. Meaning you can grow at 100% per year and have operating margins of -60%. Or you can have flat growth and have 40% operating margins. Or you can grow at 20% per year and have 20% operating margins. There is no magic to the forty percent target, but I do like establishing some relationship between acceptable levels of profitability (or losses) and growth. Too many times I have seen companies invest in growth for growth sake without having any constraints or sanity checks on that investment and the losses that result from that investment.

We have worked with/invested in a few super high quality companies over the past decade that did not make this tradeoff. They got profitable early on in the life of their company and then were able to use their profits to reinvest in the business and continue to grow at very high year over year growth rates without having to burn money and raise capital. is probably the best example of this group but we have had a number of them and they are all special companies that I have enormous respect for.

These experiences lead me to question the orthodoxy in the world of technology that says if you are not investing heavily in growth (and losing money), then you are not maximizing the potential value of your business over the long haul. It doesn’t have to be that way. Now maybe you need to have a very special company that has real structural competitive advantages in the marketplace to avoid this tradeoff. Or maybe you just need to be a really sharp and experienced business person to be able to do this (that’s how I would describe Paul and Rony, the founders of, for example).

I also think the profit motive, generating more revenues each year than the expenses you are spending to do that, is a really valuable constraint on a management team. It forces them to think creatively and logically about the investments they want to make. It roots out bad investments in people, product, sales, marketing, and elsewhere in the business and helps to maintain a lean and mean highly functioning organization. If you don’t need to make money because there is plenty of capital available to fund your losses and you are “investing in growth”, then you can also avoid making the hard decisions that focus an organization and insure a high quality team where everyone is pulling their weight.

I don’t want to come off as a positive cash flow freak. It is our business to invest in companies to allow them to run operating losses in order to get a product in market, grow the business and team, and create value for the founders, management, and shareholders. Most of our portfolio companies lose money and we are used to reading income statements with lots of red on them and staring at runway calculations showing when the money runs out.

But I’m a bit sick and tired of the objective of every operating plan I see is to get the business to a point where it can raise money at a much higher price. That’s nice and it’s how the VC/startup game is played. But at some point I’d prefer to see an operating plan that has the objective of getting to sustainable profitability. And I do mean sustainable.

Because, as I said earlier, some of the very best companies we have worked with at USV got profitable early on in their life and maintained profitability while revenues grew100% year over year for a number of years. It can be done. Maybe the reason that many entrepreneurs don’t think it can be done is nobody is telling them it can. So I’m doing that.

Does It Tell A Story?

The Gotham Gal and I were having breakfast today and talking about a pitch deck one of her portfolio companies had sent her for a critical review before going out on the road to raise money. She told me that she made a bunch of suggested changes because it “needed to tell a story.”

Her point was, and is, that a pitch deck is like any other marketing document, it has to have a narrative and a storyline. The receiver needs to be drawn into the story and enjoy it and be moved by the ending.

Too many decks (and pitches) are full of facts and figures but lack a cohesive narrative that makes them compelling. Dressing the deck up with beautiful visuals can help, but even if you do that and you don’t “tell a story” you are not putting your best foot forward.

So when constructing your pitch and deck think about the story you want to tell. It’s probably not your personal history although that can be part of the story. It’s more likely the story of a problem and a market that you have an idea of how to change. Walk the reader up that mountain and show them the promised land on the other side. That story, when told well, generally does the trick most times.

MBA Mondays Illustrated

I’ve encouraged folks to use the MBA Mondays content in whatever ways they want. It is all creative commons licensed and available to be used freely as long as there is proper attribution. This past week Jason Li emailed me about his illustrated version of MBA Mondays. I took a look and was very pleased to see a curated version of the work with fun illustrations on the table of contents and every post. He also included the best of the comments!

This is an example of why creative commons is such a powerful model. He didn’t have to ask my permission to do this. He added value to my work and created a new and possibly better version of it. His work is also creative commons so anyone can take what he did and add to that.

This is how knowledge should work in the digital age. It should be fluid and iterative. The text book is the old model, GitHub is the new model. So thanks Jason for doing exactly what I had hoped would happen with MBA Mondays.

The Buffalo Bet

Last year I went up to Buffalo and talked to their startup community and got a tour of the emerging startup community there. I was impressed by what I saw. Like many cities around the country, Buffalo is betting on tech and tech startups to give their economy a boost.

Part of this bet is the $5mm startup challenge called 43North. I wrote about this last year and it is happening again.

43North is the world’s largest business idea competition. Once again they are awarding $5 million in cash, in the form of a $1 million grand prize, six $500,000 prizes and four $250,000 prizes. Winners also receive space in the 43North incubator, mentorship and access to START-UP NY, which allows companies to operate free of New York State taxes for 10 years.

The competition is open to applicants ages 18 and over from anywhere around the world, in any industry, with a few exceptions, like bricks-and-mortar retail and hospitality. It is free to apply and the first round application is a high-level business summary that takes 20-30 minutes to complete. Applications are due at by June 24.

Last year’s winners hailed from places like Taiwan, Miami, Brooklyn, Toronto and Atlanta and had businesses ranging from biotech to a virtual fitting room. All 11 winners are located in Buffalo and most of them in an incubator facility located in the heart of the Buffalo Niagara Medical Campus in free space with services, classes, training, support and mentors.

This is all part of NY State Governor Andrew Cuomo’s Buffalo Billion, a huge investment in Buffalo, which once was the 8th largest city in the US. The decline of the manufacturing and related transportation businesses in the midwest in the 20th century changed all of that. But we are in a new era, one defined by technology, and Buffalo wants a part of that. If you want to be part of that resurgence and get some much needed capital for your business too, check out 43North.

Rinse And Repeat

I’d like to call out a really great blog post (and talk) my colleague Nick Grossman delivered last week. He called it Venture Capital vs Community Capital, but to me its about the endless cycle of domination and disruption that plays out in the tech sector. This bit from the post rings so true to me:

So there’s the pattern: tech companies build dominant market positions, then open technologies emerge which erode the the tech companies’ lock on power (this is sometimes an organized rebellion against this corporate power, and is sometime more of a happy accident).  These open technologies then in turn become the platform upon which the next generation of venture-backed companies is built.  And so on and so on; rinse and repeat.

So, all that is to say: this is not a new thing.  And that seeing this as part of a pattern can help us understand what to make of it, and where the next opportunities could emerge.

Nick wrote the post and did the presentation for the OuiShareFest, an international gathering of folks interested in the peer economy. Nick starts out noting that the early enthusiasm for the peer economy has moderated with the understanding that a few large platforms have emerged and have come to dominate the sector.

Nick’s presentation and post, therefore, was a reaction to those emotions and a reminder that what goes around comes around eventually. That is certainly what I have observed in the thirty plus years I’ve been working in tech. Rinse and repeat. Same as it ever was.

Women Entrepreneurs

There is gender bias in the startup sector. Anyone who believes otherwise has their head in the sand. And yet there are vast numbers of women entrepreneurs out there. The Gotham Gal has been profiling one a week on her blog (Women Entrepreneur Mondays) for five years and never has a shortage of women entrepreneurs to profile. So the truth is women are starting companies every day and participating in the startup sector. But it isn’t easy to be a women entrepreneur and they face a set of challenges that is unique to their situation.

Sukhinder Singh Cassidy, a serial entrepreneur in Silicon Valley and a former Google executive, surveyed a bunch of successful women entrepreneurs and penned a post with all that she learned from that work. It’s a good read and full of stats about the differences between men and women entrepreneurs. It also has a great list of actions we can all take at the end to make things a bit easier for women in startup land.

Through the work of women, like Sukhinder and Sheryl Sandberg, and my favorite – The Gotham Gal – women are making their voices heard in startup land and things are changing for the better. But there is still a lot of work to be done and Sukhinder’s list is a good place to start if you want to help make a difference on this issue.

The No Stack Startup

There’s been a lot of discussion in recent years that the “full stack approach” is the future of startups. My friend Chris Dixon articulated the reasons for going “full stack” very well in this post from last year. But like many things, the best approaches are at both ends of the spectrum. Either go “full stack” or go “no stack.”

My partners Andy and Albert have been writing about the no stack approach this past week and it is the topic of the week at

At USV we have never been excited by the full stack approach. It is well suited to investors who have unlimited amounts of capital to invest and a need to put all that cash to work. We aren’t that kind of investor. We like low capital requirements and low burn rates and extremely high rates of return on invested capital. So no stack seems like it will suit us well.

Our partner Brad said in an internal email about this today, “We need to think through defensibility, margin sustainability, and not having control of some infrastructure.” So that’s what we are doing now. And if anyone would like to weigh in on this, the comments here at AVC is a good place as is the topic of the week conversation.

Well That Sucked

I just wrote a longish post on the plane to SF this morning, hit publish, and lost everything.

Normally WordPress autosaves the post when an error happens but it did not this time.

So I’m not going to have time to rewrite that post today.

So maybe we can talk about the topic instead.

I wrote about the best legal/tax structure for social entrepreneurs. I am seeing more and more social entrepreneurs adopt the for profit corporation for their social enterprise. With innovations like the B Corporation for aligning interests, and with more investors understanding that financial returns and social impact are not mutually exclusive, it seems like this may be the better structure for social enterprises that can create a sustainable business model.