Posts from management

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.

Board Leadership

I’ve been sitting on private company boards since the early 90s. I have also sat on a few public company boards and a bunch of non-profit and civic boards. You could say that I am a professional board member.

Like all organizations, boards need leadership. It can come from a CEO, but often it comes from a Chairman or a board member who steps up and provides leadership without being named or titled as such.

The board is tasked with governance. The Board doesn’t run things, but it governs who runs things and how things are run. I’ve heard it said many times that a board does only one thing – hire and fire the CEO. While that is somewhat true, it simplifies the role of the board and trivializes it.

A board’s job is to make sure things are going in the right direction and when they are not to step in and make changes in an attempt to get things back on track. While that can and does include leadership changes, it also involves acting as a sounding board for management’s plans and a being a body that management is accountable to.

A good board can provide immense value to a CEO and his/her company.

If you are not getting what you want out of your board, or worse if your board is causing trouble for you and your company, consider addressing the board leadership question. There is nothing worse than a collection of strong minded people who don’t agree with each other all telling you what to do and pulling you in multiple and opposing directions. If that feels like what is going on with your board, you need to find someone on the board to step up and lead the group. It can be the CEO, but if you are the CEO and you aren’t getting what you want out of the board, it is very possible that you need someone else to provide board leadership. The easiest and best way to accomplish this is to find the strongest and most natural leader on the board, take them aside, tell them what you need from your board and what you aren’t getting, and ask them to step into the Chairman role and assist you in organizing, managing, and leading the board. You can do all of this without playing the Chairman card, but it makes it easier to name the role and put someone into it.

The leader of the Board should help you set the agenda of the board meetings. They should help you decide what is important to talk about at the meetings and what is not. They should help you get through the meeting on time and cover everything that needs to be covered. They should make sure the most important topics get the most air time. And they should make sure that everyone who wants to say things get to say them without taking over the meeting and wasting everyone’s time.

The leader of the Board should chair the executive session at the end of the meeting that happens without you. They should solicit feedback from the entire board and then they should share that with you so that you can process it and get value out of it.

The leader of the Board should also help you manage the most challenging and difficult Board members. They should advise you on how and when to communicate with them and what to emphasize and what to ask of them.

Most importantly, the leader of the Board should become your partner in managing your investors, your Board, and your company. They should be someone who can put their interests aside and act with the best interests of the company and management at heart.

If and when you find this person, they will be incredibly important and valuable to you. I’ve seen many people play this role masterfully over the years and I play it from time to time myself. It’s a very time consuming but rewarding job.

Leaders and Executives

I saw the news that Phil Libin has stepped up to Chairman and the Board of Evernote has hired Chris O’Neill to be CEO. I don’t know much about Evernote, I don’t use their product, but I admire the company and I like the idea of a founder leading a company without being its Chief Executive Officer. There are many examples of this working. The most well known is Larry Ellison’s role at Oracle. Larry doesn’t run the business on a day to day basis but his influence is felt deeply in that company. Another great example of this relationship is Reid Hoffman and Jeff Weiner at LinkedIn.

Leadership is different than management. I have said that many times before on this blog and I will say it again. I believe it to be true. Leading is charisma, strength, communication, vision, listening, calm, connecting, trust, faith, and belief. Management is recruiting, retaining, delegating, deciding, communicating, and above all executing. Many CEOs do both for their companies. But getting leadership from the founder and management from a great executive is a model that can work really well.

The key to making this work is having the founder totally bought into the split roles and totally bought into the person who is going to be the executive and provide day to day management to the Company. In the leadership role the founder must step back and allow the executive to manage the business. They need to step in when leadership is required. That is usually when hard decisions are required and the founder’s instinct can be incredibly valuable.

A really good Board can help the founder and the executive figure out when management is required and when the founder’s leadership is required. But the Board cannot babysit this relationship. It has to work and be functional between the two people. If it is not, then someone has to go and that is usually the executive. That is because a founder’s leadership is hard to replace. A strong manager and executive is not easy to find but that talent exists in many places in the market and is not inexorably tied to the company because of the founding relationship.

If a founder can find their manager/executive inside of their company, that is ideal. Because going with a known relationship vs a brand new relationship produces a higher likelihood of success. But you don’t have to do this. Jeff Weiner was hired from outside of LinkedIn. And, I believe Chris O’Neill was hired from outside of Evernote. Both approaches can and do work. But if you have a strong manager/executive inside of your company, I would strongly suggest trying that. It is lower risk.

I have also seen a fair bit of talent churn out after the founder steps up to Chairman, particularly in the senior team. That’s a reason that many founders are nervous about doing this. My advice is to go ahead and do it. The first year of any new CEO’s tenure is going to be super hard and will require rebuilding the senior team, no matter what. But that can be healthy for a business too.

I admire Phil Libin’s conviction that he is not the right CEO for the next stage of Evernote. And I would encourage him to stay deeply involved in the company, providing the kind of leadership that only a founder can provide. And by supporting his chosen CEO who will need it in spades. I wish them both success in this transition.

Founder Led Businesses

I’ve written about this issue a number of times on AVC. There are some advantages to having a non-founder run the business, but over the long run it seems that founder led businesses are the best businesses.

This rant about Apple by Bob Lefsetz is a fun read and regular readers will know that I am mostly in Bob’s camp on this issue.

The ending is great.

There’s a fiction that corporations rule in America.

The truth is it’s all about individuals. Sure, a group can effectuate the vision, but it always comes from one person, maybe a team of two, certainly not a committee.

Jeff Bezos is Amazon.

Mark Zuckerberg is Facebook.

Larry and Sergey are Google.

Daniel Ek is Spotify

Evan Spiegel is Snapchat.

Who is Apple?

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.

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.

Monday Morning Quarterbacking

Reading the comment thread from yesterday reminded me of something fundamental and true. It is easy to critique but hard to do.

A big part of my job is to sit on boards and when you do that, your primary role is to evaluate the performance of senior management, particularly the CEO.

As someone who has never had an operating job, and never been a CEO, it is easy to sit there and say “she didn’t do this, he should have done that, she didn’t articulate that very well” and I have found myself doing that from time to time. But I try to remind myself that running a company is a hard job and the people who do it well are few and far between.

That doesn’t mean we should be soft on the management team. I believe it is our job to be constructively critical, but also supportive and positive. Everyone can and should work on getting better at their job. When you stop doing that, it surely is time to hang up the cleats and retire. But calling for a CEO’s head is not something I do lightly. You can’t really backtrack from that position once you take it. So I try like hell not to go there unless it is absolutely required and there is no ambiguity about it in my mind.

I was talking to an entrepreneur yesterday and somehow the topic of Netflix came up. I told the entrepreneur that I had enormous respect for Reed Hastings. He said he did as well and bought Netflix when it IPO’d back in the 90s. He told me he would listen into the quarterly earnings calls for the first ten years he owned the stock. And Wall Street was so negative on Reed, his strategy, and the company’s performance. But Reed hung in there, had conviction about the business and where it was going. Twenty years later, Netflix has built one hell of a business and proved most, if not all, of the skeptics on Wall Street wrong.

When Wall Street calls for a CEO’s replacement, they might be right but they might be wrong. A good board will not be pressured by Wall Street. A good board will be attentive to the business, will hear the critiques and try to understand them, will make sure they know what the culture and dynamic is inside the company, and will understand the business model, the financial levers, and the financial performance. A good board will evaluate all of that, provide clear and unambiguous feedback to the CEO so he or she knows exactly where they stand, and will support the board and the management team privately and publicly until they decide it is time to make a change.

I will end with this. Being the CEO of a highly public company (whether it is traded privately or publicly) is particularly hard. You are constantly getting criticized and talked about in the press/blogs/communities. I respect the people who take these jobs. And I root for them to succeed. It’s about the hardest job you can have.