Posts from management

Office Utilization

I saw a statistic from one of our larger portfolio companies yesterday. They have had their offices around the world open for some time now with office usage optional. They are seeing office utilization rates of around “20-30%.” They are also seeing “flexibility” as the number one issue in recruiting new talent.

That was interesting to me because we are seeing a much higher office utilization at USV. We kept our offices open for much of the last 18 months and encouraged a return to the office once we were all vaccinated in early April. On most days, we see about half of our team coming into the office. I think that number was higher in the spring and will be higher in the fall. We also see friends in the VC business and startup world working at our office from time to time and that has been fantastic.

We have also seen that office utilization is much higher for our team members that live in NYC vs the suburbs, which is not surprising. This chart says it all:

We surveyed our portfolio companies last month on the topic of their work environment plans. We got 56 responses which is a tad under 50% of our active portfolio so this data could be off a bit. But it is interesting. Pre-pandemic, 75% of these respondents were fully “in office” with most of the rest using some sort of hybrid model. Very few were fully remote. Now the distribution looks like this:

That is a dramatic change from the pre-pandemic norm. I am sure that there will be some movement back to the office when we get to a new normal, whatever and whenever that is, but no matter what, tech companies have moved away from the “fully in-person” model and that will mean very different office utilization models.

We also asked our portfolio companies about “seat to employee” ratios and got these responses:

For those companies that will continue to have an office, it looks like the average seat to employee ratio nets out around 65%. And that is for the 75% of the respondents that plan to have some sort of office.

At USV, we are taking a contrarian approach to the office. We plan to build a new office that can seat 100% of our employees and we want to be able to host board meetings and other events frequently. We are also looking at other ways to invite the broader “community” to work and be at USV regularly.

But that does not mean we will expect our employees to be at the office every day. We understand that those with long commutes and children or parents at home need more flexibility and we have seen that providing that flexibility builds loyalty and commitment. So we will continue to support that way of working.

Startups and high-growth companies seem to have embraced fully or partially remote models for the most part in an attempt to attract and retain talent and leverage the increased productivity that comes from eliminating long and painful commute times.

But that doesn’t mean an office isn’t a good thing from time to time. It may be that organizations that support startups and high-growth companies, like USV, can step into the mix and be part of that answer. That is an interesting idea to me and one that USV is looking at right now.

#Current Affairs#management#VC & Technology

Sticking With The Plan

Managing a business is about having a plan, sticking with it, and not panicking or looking for hail mary passes. There are no silver bullets or shortcuts to success in life. You need to have a five to ten-year plan and you need to stick with it and execute against it day after day, week after week, year after year.

I was reminded of this watching my NY Knicks navigate the off-season after making the playoffs for the first time in eight years. The Knicks front office stuck with the core of the team, kept all of their young talent, and upgraded significantly at point guard and small forward. They also do not have a guaranteed contract that extends beyond the 2022-2023 season.

I am sure it was tempting to think about accelerating the plan after a season that went better than anyone was expecting. I am sure that they thought about taking bigger risks and going for broke now. But I am glad they did not do that.

Instead, they rewarded players like Derrick Rose, Alec Burks, and Nerlens Noel who were a big part of getting them into the playoffs with multi-year contracts, they got Kemba Walker and Evan Fournier as upgrades at point guard and small forward, and kept all of their youngsters.

That’s a model for how to think about building a business and a leadership team. It is much more likely that you can get a win with a five-year plan than a one-year plan. And you need to build your team over time, developing promising talent, and making smart upgrades when they are required.

There are times when you need to throw in the towel on the plan, blow things up, and execute a turnaround. That usually comes with new leadership at the top and a new five-year plan. But that should be rare and done only when it is clear that the current plan is not working.

When the current plan is working, even better than expected, it is best to stick with it, make incremental improvements here and there, and keep at it.

#management#Sports

Leaving Well

I have watched countless companies and leadership teams manage transitions over the years and I have come to believe that companies and leaders should do everything they can to promote “leaving well.”

What I mean by “leaving well” is a smooth transition of a leader out of a role/company. This typically means that a departing leader gives a company a heads up that they are planning to transition out, that news is shared broadly internally, allowing for a transparent process to find a new leader. A similar process is used to transition a leader out when a new one is needed.

For this to work, companies need to do their part to facilitate this process. This means reacting well to the news that an executive would like to move on. It can also include a financial incentive to stick around during a transition. A culture that embraces leaving well puts everyone in a better place during transitions.

There are certainly times when leaving well is not possible. If an executive is terminated for reasons that require an immediate departure, there is no way to execute a smooth transition.

It is also the case that an executive could get an offer that requires an immediate start date that they feel that they have to accept. This is exactly the kind of thing a tradition and culture of leaving well is designed to prevent. Generally speaking, it is preferable to run a process to find your next role versus accepting an offer that comes in unsolicited. If a company has a culture of leaving well, executives will feel that they have the option of running a process versus accepting an offer that comes at them.

It is best to set this culture up at the very beginning. Precedent is powerful. If people see that others have been treated well on the way out, they will be more comfortable being open and honest. If people see the opposite, then they will be more mercenary in their actions.

Cultures that allow for open honest transitions are better places to work and easier companies to manage. Nobody likes a fire drill. Sometimes you have no choice, but if your company has them all of the time, it is a tough place to be.

#life lessons#management

Startup CXO

On Monday, a copy of Startup CXO, my friend Matt Blumberg’s new book, arrived at the USV office. I picked it up to take a quick look and thought “this a heavy book!”

So I texted Matt, congratulated him on getting the book out, and then asked why it was so heavy. He replied “because it is 640 pages, there is a section on every C-level function in that book.”

That’s when I realized that Startup CXO is not really a book. It’s a “field manual” to scaling a leadership team and company. It is the kind of book you will keep by your desk and pull out from time to time to figure out how to approach an issue or to help one of your senior leaders figure out how to do that.

And in that context, it’s a very valuable resource for CEOs and leadership teams as they scale a company and find new challenges around every corner.

The book is now out in Kindle and Hardcover. I recommend the Hardcover so you can keep it handy and pull it out from time to time when you need a quick primer on something.

#Books#entrepreneurship#management

Golden Handcuffs

Stock-based compensation plans throughout the startup and tech sector are based on “golden handcuffs” – the idea that an employee can’t leave because they would be giving up too much money if they do.

I’ve never loved that concept. It feels like staying in a bad marriage for the kids.

So I have been involved in a number of efforts to rethink that practice and one of those efforts came to light earlier this week when Coinbase, where I am on the board and compensation committee, blogged about their new compensation strategy.

This line in particular stands out to me as a powerful way to think about retaining employees:

Some may say eliminating 4-year new hire grants could hurt retention; we disagree. We don’t want employees to feel locked in at Coinbase based on grants awarded 3 or 4 years prior. We want to earn our employees’ commitment every year and, likewise, expect them to earn their seat at Coinbase.

We operate in an open market for talent. We all know that. Letting that market operate efficiently and not trying to game it makes a lot of sense to me.

#management

In-Person vs On-Screen

Last week I spent three hours with my six partners in a conference room talking through what we are investing in and why. It was a terrific session and I had more “ahas” in those three hours than I have had in many many months. There really is no substitute for sitting together with your colleagues working things out face to face.

This week our team met with a founder in Singapore via Zoom. It was midnight in Singapore and noon in NYC. In one hour we learned enough from the founder to be able to make a decision on whether or not to invest in the founder’s company.

In the last year, events like the latter one have been commonplace. Events like the former have been non-existent. And there are many in the tech sector and broader business sector (and other sectors too) that have come to believe that on-screen interactions will be the primary way we engage going forward.

For certain things, like raising capital and investing capital, on-screen works pretty well. Founders have figured out that they can raise capital from their kitchens, bedrooms, and offices in weeks vs roadshows that lasted months. I don’t think we will see founders going back on the road in any material way ever again. And founders in Singapore can access capital markets in NYC with ease. And investors in NYC can access investments in Singapore with ease. These are all important and disruptive changes to the startup, tech, and business sectors.

But in the last month, as I have been going into the USV offices most days, I have come to realize what we have been missing with the on-screen work model vs the in-person work model. Many things are more efficient on-screen but some things are way better in-person.

Understanding which is which and then figuring out how to continue to do the in-person things will be critical to leaders and teams navigating the new normal.

I got an email from a founder/CEO about six months ago saying that his company was going back to the office completely when the pandemic was over. I had not heard many CEOs taking that strong of a stance at that time. Since then, I have heard the same from a number of our portfolio company leaders. They are in the minority but they are not non-existent. When we survey our portfolio we find that about 20-25% will go back to full-time in the office work, another 20-25% have gone entirely remote, and the balance will try to figure out a hybrid model that makes sense for their company.

At USV, where we have landed for now, and maybe forever, is a bias to be in the office, particularly on the days we meet in person, but we are also way more open to on-screen work and we have an expectation that some team members will choose to work on-screen for multiple days a week, possibly the majority of days a week. We see that working parents benefit from the flexibility that on-screen work allows and younger team members benefit from the socialization and camaraderie that an office provides. We also see that those who commute long distances benefit significantly from being able to reduce the commuting load by working on-screen multiple days a week.

Our business has a natural rhythm of two days a week when we meet as a team; Monday and Thursdays. So those tend to be the days that team members try to be in the office and those are the days we do things like cater in lunch and maybe go out after work together. That allows us to retain the team dynamic and culture while being more open to on-screen work going forward.

We definitely have not figured this all out, but we are starting to see some patterns and some benefits of both work modes, and we are trying to navigate to a good middle ground.

Each company needs to figure this out in a way that works for their team and culture and I believe that there is no “right way” for everyone. But I also believe that in-person interactions remain critical to making better decisions, better products, better cultures, and better companies and so I would encourage everyone, including the fully remote teams, to figure out how to make in-person interactions happen on some regular cadence.

#entrepreneurship#management

Paternalism In The Office

Jason Fried, CEO of Basecamp, posted a message to his team yesterday in which he outlined a bunch of changes they are making to the way they run the business. Some will be familiar as others have done similar things (no more politics on the company’s communication channels, no more committees, rethinking the review process).

I think it is a good thing to revisit the ways a company does things and make changes when issues arise. And posting these changes publicly so that others can see them and think about them is very helpful. I had chats with a number of portfolio CEOs yesterday about this post. It is making people think. That’s a good thing.

One change that got my attention was this one:

2. No more paternalistic benefits. For years we’ve offered a fitness benefit, a wellness allowance, a farmer’s market share, and continuing education allowances. They felt good at the time, but we’ve had a change of heart. It’s none of our business what you do outside of work, and it’s not Basecamp’s place to encourage certain behaviors — regardless of good intention. By providing funds for certain things, we’re getting too deep into nudging people’s personal, individual choices. So we’ve ended these benefits, and, as compensation, paid every employee the full cash value of the benefits for this year. In addition, we recently introduced a 10% profit sharing plan to provide direct compensation that people can spend on whatever they’d like, privately, without company involvement or judgement.

That does not feel right to me. If you care about the mental and physical well-being of your team, I believe it makes sense to support them by investing in that. Companies can do that tax efficiently and employees cannot. Paying employees more so that they can then make these investments personally sounds rational but I don’t believe it will be as effective as company-funded programs that employees can opt into or not.

It is also the case that companies carry much of the cost of insuring their employees health in the US. While that may not be great health care policy, it is what it is right now. And so companies do have a vested interest in the health of their employees that goes beyond wanting them to be well and feel well.

It may be paternalistic, but I believe that companies can and should invest in the health and wellbeing of their team. I think it makes good business sense to do so.

#management

The Bolster Board Diversity Survey

Last June, I wrote about board diversity and suggested some things we are doing and that you can do to diversity your board.

In the ten months that have passed since I wrote that I am pleased to say that we have seen a noticeable increase in board diversity in our portfolio. I have personally stepped off a few boards to make room for diverse board members and I am prepared to do more of that. A number of my partners have done the same. It is that important to me and USV.

But I can also tell you that the state of diversity in startup/growth company boards and our portfolio is still awful.

Our portfolio company Bolster connects fractional executives and board candidates to startup and growth companies. They have done some of the board searches for diverse candidates in our portfolio and they are going to do a lot more.

They have been surveying the startup and growth sector over the last few months to determine the state of diversity on boards. They published the results today. The numbers are embarrassing.

We can do better and we must do better.

Here is how:

1/ Make room on your board for independent directors at the very start and fill those seats with diverse candidates.

2/ Ask your investor directors to become observers to make room for independent diverse candidates.

3/ Prioritize this.

4/ Use Bolster or other service providers to surface great diverse board candidates.

There are so many qualified diverse candidates out there for you to bring onto your board. I have participated in many of the board searches in our portfolio in the last year and I am blown away by the diverse talent that is out there waiting to help you grow your company. You just need to make room for them and ask them to join your board.

Just do it.

#entrepreneurship#management#VC & Technology

The Vision Thing

A well-known entrepreneur turned VC, who will go unnamed because I am not sure he would want me to share this conversation publicly, once told me “if you remove a founder, you must sell the company within a couple of years or it will start to decline in value.”

I don’t entirely agree with that and my experience with it has been different, but it brings up an incredibly important topic about leadership.

I like to keep things simple and in my simple mind, leadership comes in two flavors, visionary leadership and operational leadership. Founders are almost always visionaries (if they aren’t, run in the opposite direction) and hired CEOs are almost always operators.

What this VC was saying is that once you replace visionary leadership with operational leadership, the Company will stop innovating and start to lose value. I agree completely that companies that stop innovating will start to lose value. What I don’t agree with and have seen first hand, is that you can have a team that can provide both operational and visionary leadership.

Leaders who can provide both operational and visionary leadership are a rare but special breed. When you find one, get on their bus and stay on it for as long as you can. It will be an incredible trip.

It is also the case that you can pair visionary leadership with operational leadership and I have seen that model work very well for long periods of time. Most commonly, the visionary leader is “in charge” and the operational leader runs the business on a day to day period. That can be an Executive Chairman (visionary) and a CEO (operator) or it can be a CEO (visionary) and President/COO (operator). Most commonly in this model, the visionary leader is the founder and the operator is a hired executive.

Small early-stage companies can succeed without operational leadership but not forever. That is why founders who are great visionaries but weak operationally can be very successful for a while at least. Once a company gets into the hundreds of employees and is headed to the thousands, it needs operational leadership and this is where many visionary founders struggle. And this is when operational leaders are hired and the work starts to find the right long-term sustainable operating model.

Some founders are this rare breed of visionaries who can operate too. Most are not. So this work to find the right pairing is critical and is a lot of the work that board members do with the founders and their leadership team in startups.

But going back to my friend and his advice that I started this post with, it is true that operational leadership alone will not get the job done. And it is also true that operational leaders will have a hard time getting “the vision thing” from below. It has to come from the top. Operational leadership, fortunately, does not.

#entrepreneurship#management

Commercial Real Estate

With new Covid cases down 30% in the last two weeks and partially vaccinated people approaching 50%, NYC seems ready to start getting back to work.

I have been going to the office several days a week for the last two weeks and will be there again today. As my USV colleagues get fully vaccinated, they are joining me and our office is starting to fill up.

But our Flatiron neighborhood still feels empty and there is not one good restaurant open for lunch during the week.

As we head back to work, what will the new normal be?

That is a huge question looming over the commercial real estate sector in NYC and around the country.

According to this NYT piece from last week, the vacancy rate in commercial office space in NYC is almost 20% and that number is north of 15% across the largest cities in the US. And in the face of these historically high vacancy rates, more new office buildings are coming to market increasing the supply of space.

We have surveyed our portfolio companies and we understand that many will reopen their offices this summer and fall, but most will not expect their employees to be back in the office five days a week. Some will not expect their employees to be in the office at all.

I think this Jamie Dimon quote I read in the NYT piece is about right:

Jamie Dimon, chief executive of JPMorgan Chase, the largest private-sector employer in New York City, wrote in a letter to shareholders this week that remote work would “significantly reduce our need for real estate.” For every 100 employees, he said, his bank “may need seats for only 60 on average.”

We used to have 10,000 square feet in our old office that we left last month. We moved into 6,000 square feet and it feels like plenty. I think many/most companies will feel that way too.

Many of our portfolio companies let their leases expire during the pandemic, as did we. And they are now thinking about what to do going forward. I have a few suggestions:

1/ Take something temporary for the next year or two. Figure out what the new normal is before entering into a long term lease. This is what USV did. We took a nine month sublet to allow us to figure things out.

2/ Shop around and be aggressive in your offers to sublet or lease space. Many landlords will not engage in your bottom fishing. But some will, particularly in the sublease market.

3/ Avoid expensive office buildouts and focus on spaces that are extremely flexible. We have invested in office and conference pods in our sublet to reduce the need for expensive office buildouts. And the Gotham Gal and I made an entire co-working space in Brooklyn with office pods.

4/ Figure out how to integrate remote workers into your office environment. We have been investing a lot more in our conference rooms/video setups. I even suggested that we put some webcams in our office so our remote colleagues could see who is in the office at any time. I am not sure we will do that. Some feel it is creepy. But I think it’s a good idea.

5/ Offer perks to encourage your employees to be in the office. We have been ordering in great food for everyone in the office the last few weeks and everyone seems to appreciate and enjoy that.

I think occupancy expense will be a smaller percentage of our portfolio companies’ P&Ls in the future and those savings can be invested in our teams instead. That feels like a great trade and one that will lead to better companies and happier employees. And that is a very good thing.

#Current Affairs#management#NYC