Posts from management

When the going gets tough, the tough get going

It sure feels like the long awaited headwinds have arrived and the tailwinds are behind us for now. A friend sent me this chart today.

You could create a similar chart out of many tech sectors right now but SaaS is as good of an indicator of what’s happening out there as any.

I welcome this new environment. You might think “of course you do, you can buy things less expensively” but I would remind you that USV has a portfolio of investments that are unrealized at this point and subject to a chart like that.

I think any benefits we might get from a better buying environment are negated by the impact on our current positions.

The real reason I welcome the tougher environment is that it will make all of us better. We will have to make better decisions.  The market won’t bail us out. We will have to earn our returns instead of being handed them.

And I’m not just talking about investors. I’m talking about everyone working in tech startups. The going is getting tougher. Time for the tough to get going.

Do You Want Better Board Meetings? Then Work The Phone

I was talking to the CEO of one of our portfolio companies last week. He was preparing for a board meeting that is coming up. He told me that he had scheduled calls with all of his board members and investors that attend his meetings and had completed most of them. He had gotten feedback on what they were thinking about his company, what they are excited about, what they are concerned about, things they want to discuss, etc. He said it had made a big difference in his preparation for the meeting.

I think it will also make a big difference in the meeting and make it a lot better. Soliciting your board member’s input on your agenda is important. But it is also really helpful to have these “one on ones” in advance of the meeting so you can update each board member on the things that they are concerned about. The board members will arrive at the meeting more prepared, they will be more comfortable, and they will also be able to help more. And the CEO will be highly attuned and attentive to the issues that matter most to the group.

This kind of preparation is time consuming. Who wants to work the phones in the SMS era? Nobody to be honest. But it pays huge dividends and I recommend it strongly.

You can keep the calls on the short side, 15-30mins each, and that means it is two to three hours of work for most board sizes and investor groups. I would recommend doing these calls one to two weeks before the meeting so you have time to collect all of the feedback and incorporate it into the agenda and the board materials. But don’t do it too far in advance because you also want your board members and other attendees to be “fresh” in terms of their understanding of what’s going on in the business.

If you have never done this, give it a try on your next meeting. I bet you will be pleased with how well it works. If you do this already, then keep doing it. Because it works.

Get The Strategy Right And The Execution Is Easy

In the mid/late 90s, we had a venture capital firm called Flatiron Partners. Our primary investor was Chase Capital Partners (CCP) and for the first year of our existence we worked out of CCP’s offices in midtown manhattan. I learned a lot from the partners at CCP, they were experienced and disciplined private equity investors. One of the best of the group was Arnie Chavkin and he taught me something that I come back to often. Arnie told me “get the strategy right and the execution is easy.”

Up to that point, about ten years into my venture capital investing experience, I did not have enough appreciation for strategy. I came from the “work hard and surround yourself with smart people and you will succeed” school. That’s how I went about my job and that’s what I looked for in teams to back. But Arnie’s words got my attention. The idea that execution could be easy was tantalizing to me. And it made sense. If everyone knows what the company is trying to do, and what it is explicitly not trying to do, then they can be focused and efficient in their work. It also caused me to look at the companies that I worked with that were working really hard but not succeeding and I could see that many of them were not pursuing an intelligent strategy.

One of my favorite stories about getting the strategy right is TACODA, a company that Brad Burnham and I were angel investors in during the post bubble period in the early 2000s. TACODA made enterprise software for media companies that allowed them to understand their audience and serve more targeted ads to them. TACODA was one of the earliest, if not the first, behavioral targeting companies. TACODA was working extremely hard, with a very gifted and experienced team, and yet four years in, they were struggling to build a business. My partner Brad became obsessed with the strategy and go to market and told Dave Morgan, the founder and CEO, that he was “working too hard and getting nowhere” and encouraged him to rethink his strategy. Ultimately Dave decided to flip the go to market model to an ad network and within a year the business exploded and it sold a few years later to AOL for something like $275mm.

TACODA had the right idea, the right team, the right tech, but not the right strategy. When they fixed that, a ton of good things happened.

So if you are working really hard and have a strong team and aren’t getting where you want to go, take a hard look at your strategy. As Arnie told me, once you get that right the execution will be easy.

Tenacity

One of the things I admire most in companies and their leaders is tenacity. I don’t mean sticking with a failed idea for too long. That is a mistake I see a lot of entrepreneurs make in the Seed and Series A stages. That does nobody any good.

I mean years 5-10, or years 10-15, of building a company. I am talking about the period long past when you find product market fit, long past when you raise your first eight digit round, long past your first revenue check, maybe even long past your first profitable month.

Every successful company I have been involved in has gone through periods where things didn’t work, where something important took too long (a re-architecture project, an important business deal, a fundraising process) and the doubts start to creep in. Employees start to lose faith, the media turns cruel (sometimes deservedly so), and you’ve got to hold it all together. “You” is the founder, CEO, and/or the leading investors and board members.

Most of this holding it together falls on the founder and/or CEO. The investors and directors can help a lot during this period, and, conversely, they can hurt a lot too. An aligned founder, CEO, and board can make these rough periods go a lot easier. A misaligned founder, CEO, and board can be devastating.

So now I’m going to tell some stories to make my point more real.

Yesterday our portfolio company SoundCloud announced that they had finally concluded a licensing deal with the music industry’s largest rights holder, Universal Music Group. In the TechCrunch story about that news Ingrid Lunden noted:

SoundCloud .. inked its first partners deal in August 2014 when it launched On SoundCloud. It announced its first big label deal only in November 2014, with Warner Music. An agreement with Merlin — which represents some 20,000 independent labels — came in June 2015

What Ingrid didn’t say is that the conversations with the music industry that led to these deals started at least a year earlier at the start of 2013. So SoundCloud has been working with the music industry for over three years to get a license in place to allow them to do things that have never been done before.

Alex Ljung, the CEO of SoundCloud, said this in that TechCrunch piece:

if you look at SoundCloud generally it’s the first time someone has tried to do something of this scale. We have over 100 million tracks on the platform and play over 10 million artists in a given month. We are really trying to create a platform that embraces all kinds of creativity, something that never existed before. There is no off-the-shelf solution for licensing for this. We had to work with the whole music industry to create something that never existed before, and that takes a little bit of time.

A little time? Maybe a very long time would be more accurate.

For the past three years the narrative around SoundCloud has been that it was stuck in the mud, that remixes and other derivative content were getting taken down, that labels were forcing artists to take their content off the service. All of which was true, but the real narrative was that SoundCloud was going through a difficult and complicated process of developing a new business model for audio content in partnership with an existing industry that has done things a certain way for a long time. Through all of that period, however, SoundCloud’s user base and listening time grew larger and larger and during that period it became one of the top music apps in the world

music category

Through all of that period, which isn’t entirely over, the leadership of SoundCloud, Alex, his co-founder Eric, and the entire senior team stuck together, kept the business moving forward, built a strong management team, and kept the Board aligned and informed. I believe they have emerged much stronger for the experience.

Another story is Return Path, a company that I have worked with since 2000. Return Path’s founder and CEO Matt Blumberg has started, built, sold off, and built again a number of email services for the enterprise that has become a very large business. Matt has gotten the business profitable three or four times only to choose to incubate and build several new businesses and go back into the red. He has survived at least three of our near death experiences where the company was on fumes and it wasn’t clear how we were going to make it another month. Each time he pulled something off, often with the help of his Board and investors.

It was at Return Path where I learned the value of an engaged and aligned Board. Matt put together a real Board early on, with strong outside directors with operating experience, and he has always leveraged his Board to help him through the tough times. Matt has also built a strong culture inside Return Path which is often cited as one of the best places to work in corporate America.

The lesson from Return Path for me is you can survive the tough times and the near death experiences if you have a team that believes in each other and a Board that is equally engaged and aligned. I doubt Return Path would be around today without both of those things.

Another example is Foursquare. Maybe no USV portfolio company (with the exception of Twitter) has taken it on the chin more for being the “hot company that fell out of favor.” And yet sitting here today, Foursquare has built a very real business that is growing nicely and has a very bright future. They survived a move that almost killed the company (the app splitting decision almost two years ago that is still getting critiqued daily and will certainly be critiqued in this comment thread). Their financing processes have played out in the press with a transparency that few companies could tolerate.

And through all of this the founder Dennis Crowley and his team have taken the hits and kept moving forward. They have built technology for detecting locations that is state of the art. They have a location API that I believe is the most used location API in the business. They have kept improving and evolving the best localized mobile search experience and the most fun local social experience. And they have built a real business that is sustainable and has attractive economics.

You can say what you will about Foursquare, and don’t bother because it most certainly has already been said and not very nicely, but it has survived and is thriving. Very few understand that, but those close to the company do. Which is the hallmark of a tenacious and durable founder and leader and his or her company.

I’m almost done but before I wrap this longish post, I’d like to say something about the now public USV portfolio companies. I can’t and won’t talk specifically about their businesses because they are public and I don’t want to go there. I also own large positions in each and every one of them. Their stock prices are all, without exception, in the dumps. And yet I believe in each and every one of them and their leadership and their prospects. They are all led by tenacious leaders and teams who I believe will keep their heads down and execute and get through the negativity and second guessing that is coming at each and every one of them. I admire these companies more today than ever.

Building and operating a business is not easy. I believe it gets harder, not easier, as the years pile up. That is where tenacity and believing in yourself and your team and your business is required. The leaders who exhibit that have a special place in my heart and my head.

Ch-ch-ch-ch-changes

Ch-ch-ch-ch-changes, Turn and face the strange  David Bowie

Just this week I’ve been on the receiving end of a half dozen of those emails. They start with the news that a valued colleague has made the decision to move on. It goes on to thank everyone for a wonderful experience and ends with best wishes.

It’s that time of year. Year end bonuses have been paid. Quotas have been earned. Options have vested. And so people are moving on. Or arriving.

I grew up an army brat. Every spring my dad would come home from work and tell us where we were moving to that summer. I didn’t know that people lived any other way. Each fall I’d find myself in a new school, facing the strange.

So I’m a fan of changes. I crave them. And so when I get one of those emails, I’m happy for the person and hopeful that they will find new challenges and new colleagues and friends in their next endeavor.

But what about the company that is being left behind? Well every departure is an opportunity to rethink the role and the organization. You can’t find an exact replica of the person who has left. But you can find a person who will bring different things. You can split the role in two. Or you can even choose to eliminate it.

My advice to the leaders of our portfolio companies is to embrace change and the possibilities it brings. And, even more importantly, I advise leaders to be open and transparent about the change and how it opens up opportunities for the organization.

The thing I caution against is the tendency to get upset at departures and departing employees. I’ve seen leaders take the mob boss approach of “your are dead to me now” with departing employees. The better approach, which I think is a hallmark of great companies, is the idea that departing employees who leave on great terms are roving ambassadors for your organization. After all, you never know when you are going to come across someone again in business. And it might be a situation where you need something from them.

It sucks to lose a valued colleague or employee or boss. It creates anxiety in the organization about what is going to happen next. But if you are working in or leading a startup you signed up for a boatload of change. Accept it. Embrace it. Make it work for you. Because you can’t make it go away.

Uneasy lies the head that wears a crown

That line is from From Act III, Scene 1, Shakespeare’s Henry IV, Part II, in which the king laments his inability to sleep. Leadership is a burden, whether you are the President attempting to calm the nation in the wake of an act of terrorism, or a CEO taking questions at the all hands meeting about the financing everyone knows is going on but hasn’t happened yet.

I work with leaders all day long. I sometimes advise them. I sometimes critique them. And mostly I support them. Someone has to. Because everyone is relying on the leader but who is the leader going to rely on?

The team around the leader is critical. In the case of the CEO that is the executive team, usually the direct reports but sometimes a few more, and the Board who the CEO is accountable to. Get those two groups right and leadership becomes a bit less of a burden.

If you are a CEO and you are feeling that uneasy head right now, look around you. Do you have the support you need from your team and your board? If the answer is no, do something about it. Because you can’t be a great leader without a great support system.

And get a coach. I’ve written about that frequently here at AVC. The leadership team and the Board, as important as they are, have complicated relationships with the CEO. A coach should be a person who can be completely and totally focused on supporting the CEO. There are many good ones out there.

I also encourage CEOs to join a CEO support group. Meeting regularly with peer CEOs is a great way to vent with each other about the nonsense that goes on in a company, but it is also a great place to get actionable advice and learn from each other.

Most org charts have the CEO on top and then a triangular outline of the team underneath. But the correct visualization is the CEO on the bottom with a triangle outline of the team on top of them. That’s leadership. And it is not easy.

Bonus:

Jason Wright posted this into the comments. Thanks Jason. I’m posting it here too.

Tightening Your Belt

In the wake of the Thanksgiving weekend, this post could be about something else. But I’m talking about getting a handle on your company’s spending.

A number of our portfolio companies have recently reviewed their spending (largely without any prompting from their board and investors!) and have concluded that things got a bit out of control. It is amazing how easy it is to take costs out of your business after two or three years of hypergrowth where the focus was on hiring, growing, expanding, and retaining the team.

In many cases, these efforts to reduce spending have been done without impacting headcount. There are a lot of vendors who can be renegotiated, replaced, or done without. In other cases, companies let attrition happen without replacing everyone. And in other cases, companies choose to part with folks who are not working on things that are truly critical to the business. In all of these cases, our portfolio companies have found that they can continue to hit their goals with a lower spend. That, in and of itself, is an important realization for an organization.

The thing of it is that most employees appreciate it when these hard decisions are made. They run their own personal budgets and understand the concept of tightening the belt too. They feel better when their employer is making hard and important choices. Many managers worry about the signal they are sending when they go through belt tightening. It can be a negative signal if it isn’t explained properly. But it can be a very positive signal when the proper context is placed around the spending cuts.

When the business becomes profitable more quickly, when the cash runway extends by a year or more, when the budget is no longer stretched and new initiatives are now possible, the team understands the value of belt tightening and embraces it as much as the investors do.

If you’ve been a growth spurt for the past few years and have not taken the time to do some belt tightening, it might be a good time to do that.

What Are We Doing?

I’ve been told over the years that the number one reason employees leave a company for another job is that they don’t know where the company is headed and they don’t know what their role in that roadmap is.

Apparently a bad boss and below market comp and long working hours all come in lower than that one.

Which tells me that if people believe in you and your plan and have a role to play in it, they will put up with a lot of other stuff.

I am not advocating for a hostile workplace or below market comp.

What I am advocating for is the value of having a clear and intelligent plan, communicating it often and often, and, most importantly, mapping that plan to each team and each person in your organization.

This is pretty easy when you are five people. It gets harder when you are fifty people. And it’s really hard when you are 500 people.

The communication plan is very important particularly as the size of the company grows. And making it matter to everyone is quite challenging.

But it all starts with a plan. I know companies that are great at communicating but don’t really have a coherent plan. All the communicating in the world won’t help them.

So figure out where you are taking your company. Answer the basic question on everyone’s minds, “what are we doing?”, and you will be on a path to building a loyal, hardworking, and motivated team.

The New Tech CEO Archetype

When your tech company was in need of new management you used to go get a proven executive, like Lou Gerstner or Meg Whitman, who had experience running large companies.

But now, it seems, you go get a strong technical person who rose up the ranks of product management and knows how to ship great products.

The new tech CEO archetype is a computer scientist who got into product management early in their career, led large product teams at a big important tech company, is in their 40s, and has great taste in technology, tech talent, and most of all tech products.

Marissa Mayer, Satya Nadella, and Sundar Pichai are examples of this archetype.

It’s not really different from what we look for in startup founders. Most of the time, the founders we back come from product backgrounds. They have a track record of building and shipping products. They are technical and can go toe to toe with their engineering team. They understand where technology is headed and they understand how software products are made and evolve.

When young people tell me they want to start or run a tech company, I always tell them to go work in product at a big tech company. I believe that product is the heart and soul of tech companies, it is where it all comes together. You can’t build a great company without great products (or great people).

So it’s heartening to me to see that the next generation of technology leaders is coming from product management. I think that bodes well for those companies and the tech industry in general.