Posts from management

CEO 360s

I’ve written about this topic before. It is an important topic and I want to raise it again.

Boards often discuss CEO performance without really knowing how things work inside the company. And CEOs often have very little visibility to how they are doing and what the board thinks about their performance. When you work for one person, your boss, it is typical that you will have regular catchups and at least an annual review of your performance (ideally more frequent). But when you work for a group, i.e. a Board, things can get very “squishy” leaving for a lot of guesswork and worse.

Enter the CEO 360.

This is a process whereby the CEO is reviewed by their direct reports and by the Board members and often a few more people (a few skip levels, some investors who aren’t on the board, etc). It is frequently done annually but it could be done more often if the CEO would like that.

This process can be run by the CEO’s coach, an outside facilitator, or someone else. Our portfolio company Bolster offers an excellent CEO 360 at a very reasonable price.

I am often amazed by what I learn from a CEO 360. I frequently see CEOs who are excellent at managing down and run a very solid leadership team but struggle with managing their Board. These CEOs are often seen as weak when in fact they are strong. The opposite is also true. I have seen CEOs who are excellent at managing up but terrible at leading their team and their Boards love them but their team hates them.

What is even more important for everyone is the insights that come from a CEO 360. Like all 360s, they tell the CEO where they are strong and what they need to work on. Armed with that information and a supportive Board and others (coach, mentor, CEO support group, etc), CEOs can take action to get better at their job. Without this information, it is hard to “level up.”

If you are a CEO and don’t do a CEO 360 annually, you should start doing one. And make it a regular occurrence. It will help you do your job better and it will help everyone around you too.

#entrepreneurship#management

Leading From The Heart

I have watched so many leaders over the years in my various roles as lead investor, board member, board chair, investor, and advisor.

And one thing I have learned from this front-row seat is that leading from the heart is very powerful.

A leader can be the most brilliant product person, strategist, entrepreneur, and business builder, but if they cannot get people to follow them, trust them, and care for them, they will not be an effective leader.

This is a hard lesson to learn. It is a fairly natural tendency to hold your emotions in check when you are in front of a large group of people. We are taught to project strength in moments like this.

And it is also a natural tendency to hold back the most difficult-to-process information, like a fundraising process that is not going well, or conflicts in the board room, or a co-founder relationship that is fraying, or the loss of the biggest customer, or a key supplier relationship that is at risk.

And yet, it is these exact moments where leaders develop that followership, trust, and care from the team.

I am not suggesting that leaders should become deeply emotional every time they talk to the team. I am not suggesting that leaders share every little detail about the business with the team. I understand that some details about the business need to stay confidential until the appropriate time to communicate them. There is a balance to all of this.

I am suggesting that more transparency, more vulnerability, and more honesty is the winning formula and when you are choosing between the two, choose these things.

One of my favorite stories about this comes from a particularly difficult moment in my career where I had to transition a founder out of the company they started. It was the night before the all-hands where the CEO transition was going to be announced. I asked the founder if they were going to attend the all-hands and the founder said no. I then asked the founder what I should tell the team. The founder said, “tell them you fired me because that is what happened”.

The next day I stood up in front of the entire company and told the team the Board had asked the founder to leave the company they started and that the Board had asked a member of the team to step into the CEO role.

After the all-hands ended, there was a line of about twenty or thirty people long to talk to me. And every single one of them waited in line to tell me the same thing which was “thank you for telling us the truth.”

It was a powerful lesson for me. And like most of the lessons I’ve learned in business, I learned it from a founder and their team.

If you are struggling to build the level of trust you want with the team in your company, try a little more transparency, vulnerability, and honesty in your communication style. It will pay dividends.

#entrepreneurship#life lessons#management

The Daily Bolster

USV is an investor in Bolster, a marketplace for fractional and full-time executive talent for startups and growth companies.

This week Bolster launched a daily short (5min) podcast and email with actionable insights and advice from founders, operators, and investors. It is called The Daily Bolster.

I did a Daily Bolster episode and it is featured today. I’ve embedded it below and you can watch it here if you are reading AVC via email.

The daily email contains a short pull quote from the daily podcast which in and of itself is quite useful but is also a prompt to spend five minutes and watch or listen to the daily podcast.

I strongly recommend founders and operators in the startup and growth sectors subscribe to the daily email and podcast. You can do that here:

Subscribe to The Daily Bolster Email

Podcast:

Subscribe on Apple Podcasts

Subscribe on Spotify

Subscribe on YouTube

#entrepreneurship#management

What Will Happen In 2023

I want to focus this post on the macro environment for tech, startups, web3, and climate because that is where my head is at right now.

I believe that sometime in the first half of 2023, the central banks around the world will start backing off the tightening that they have been engaged in as inflation continues to ease and the economy continues to cool. Interest rates will level off in the first half of 2023 and I think there is a good chance of a “soft landing” or a very mild recession in 2023.

With that macro view in mind, what would that mean for tech, startups, and web3?

The largest tech companies will emerge from this downturn leaner and more profitable and growing more slowly. They will be mature businesses that behave like the blue chips that they are. I think these companies, like Apple, Amazon, and possibly Google, will see their stocks come back into favor ahead of everything else in tech. I am hedging on Google because I believe the massive advances in AI/ML that we are seeing right now may be a threat to their core search franchise.

Startups are going to have a tough year in 2023. While many have gotten their burn rates way down, most startups still are losing money and will eventually need to raise capital in 2023. Because most startups avoided raising in 2022, there will be a glut of startup companies in the market for capital this year and while there is plenty of venture capital sitting on the sidelines waiting to be deployed, VCs will be much more selective, instead of funding everything that moves as we’ve done over the last few years.

Good businesses with product market fit, positive unit economics, and strong leadership teams will raise capital although it will be at the new normal in terms of valuation. I believe that “new normal” is more or less where we were in 2015 where seed rounds were done around $10mm, A rounds were done around $15mm to $25mm, B rounds were done around $25mm to $50mm, and growth rounds had a cap at 10x revenues. This new normal will lead to many flat rounds, down rounds, inside rounds, and rounds with a lot of structure on them. None of that is good, but the worst of those options is rounds with a lot of structure. I believe founders and CEOS and Boards should take the pain of a new valuation (flat, down, whatever) over structure.

But there is a huge number of startups out there that have not really found product market fit, have not created positive unit economics, and have unresolved issues in their founding teams and leadership teams. These startups will struggle to raise capital at any price and most of them will fail. This has already started to happen but because so much capital was raised in 2021 and the early part of 2022, it has taken longer for these companies to fail. I think we will see a lot of startups in this category go under or taken out in fire sales in the first half of 2023.

While all of that sounds gloomy and downright horrible, I do think the startup sector will end the year in a much better place. The good companies will have gotten funded, the bad ones will have shut down, and VCs will be back to competing with each other to win deals, which is where founders always want VCs to be.

I think web3 will behave similarly in some respects but different in others.

I think the large caps in web3 (BTC and ETH mainly) will start to attract more interest from investors and should do well in 2023. I am more bullish on ETH personally because it has the best underlying economic model of any web3 asset.

Like the startup sector more broadly, web3 will go through a triage of sorts in 2023. Projects and protocols that have found product market fit, have real token economics, and ship new features quickly will attract new interest and rise in value. But many web3 projects have not found product market fit, have weak or no token economics, and do not execute well and I think we will see many of them continue to flounder and fail in 2023.

There is a much larger overhang in web3 right now when compared to the broader startup and tech sectors. There are entities that are insolvent but have not been restructured. There are funds that are so far under water that they may be forced to liquidate. These kinds of activities will produce ongoing sell pressure on web3 tokens for at least the first quarter of 2023 and maybe for much longer.

While there are compelling values out there in web3, I am not convinced that it is safe to go back into the water just yet unless you have a very strong stomach and a very long time horizon.

Climate, where USV has been actively investing for the last three years and now has two funds dedicated to the sector, has mostly been spared the carnage that has hit the other parts of USV’s portfolio. 2022 brought largely good news to the sector in the form of the oddly named Inflation Reduction Act (IRA) that will flow billions of dollars of capital into the sector over the next decade. Many leading VC firms have dedicated climate funds now and we see huge amounts of capital available for climate startups with strong teams and novel approaches.

Last year I predicted 2022 would be a big year for carbon credits and while we saw a lot of growth in the market for these credits, particularly among the large tech companies, I was way too optimistic about how fast the market would grow. That said, I think 2023 will bring more growth in this market which provides the underlying business model to many of the new climate startups VCs are funding right now.

We are also seeing a noticeable movement of tech and startup talent into the climate sector in search of new problems to solve, more meaning in their work, and many more job openings too. I think 2023 will be a big year for this talent migration.

There is a pattern to much of this and it is that 2023 is going to be a tough year for most but those that get through it should find themselves in a good place, with leaner cost structures, less competition, and healthier employer/employee dynamics. Surviving is thriving in 2023.

So to everyone who is reading this, Happy 2023. Buckle up, hang tough, and be smart.

#blockchain#climate crisis#crypto#economics#employment#entrepreneurship#management#stocks#VC & Technology#Web/Tech#Web3

What Happened In 2022

I like to bookend the New Year holiday with two posts, one looking back at the year that is ending and one looking forward to the year ahead. This is the first of these two posts. The second one will run tomorrow.

What happened in 2022 is the bottom fell out of the capital markets and the startup and tech sector more broadly.

Back in February 2021, I wrote a post called How This Ends. In it, I wrote:

I believe it ends when the Covid 19 pandemic is over and the global economy recovers. Those two things won’t necessarily happen at the same time. There is a wide range of recovery scenarios and nobody really knows how long it will take the global economy to recover from the pandemic.

But at some point, economies will recover, central banks will tighten the money supply, and interest rates will rise. We may see price inflation of consumer goods and labor too, although that is less clear.

When economies recover and interest rates rise, the air will come out of the asset price bubbles that have built up and the go go markets will hit the brakes.

I went on to say that I had no idea when all of that would happen, but I was confident it would.

Well, it happened in 2022.

The air came out of the asset price bubbles that had built up over the last decade and were accelerated/exaggerated by the pandemic. There have been a number of other factors at work, like a war in Europe, that made things even worse, but it is my view that most of what happened in 2022 was entirely predictable, expected, and necessary.

In the areas that USV works in; tech, startups, and web3, there have been a number of important downstream effects of the popping of the bubble and they are worth enumerating.

As the capital markets, including crypto/web3, came undone, companies reacted by adjusting their burn rates to reflect that the growth at any cost phase was over and it was time to get on a path to breakeven. That has meant layoffs across the tech, startup, and web3 sectors. The voracious appetite for talent has waned. Spending for growth has largely stopped and most tech companies and startups are growing more slowly but with better unit economics and lower cash burn.

Some startups have failed, particularly the ones with upside-down unit economics or with a lack of product market fit. I think we have just seen the start of this trend and I plan to talk more about this in tomorrow’s post.

The sector with the largest impact, obviously, has been web3. Many large centralized entities; lenders, exchanges, crypto funds, etc, blew up when the value of web3 assets declined 70-90% over the course of 2022. The carnage has been massive and reminds me of what happened to the web sector in 2000/2001. Some of this has been markets doing their thing, but not all of it was. There was fraud, mismanagement, irresponsible risk-taking, and more, at play in the web3 sector.

And yet, I am not aware of any leading decentralized protocols blowing up in 2022. The smart contracts that run these protocols did what they were programmed to do and they have come through intact. It is a testament to the power of decentralized protocols over centralized entities and, for me, the major lesson of 2022 in web3.

I used the word necessary a few paragraphs ago to describe what happened in 2022. I understand that this year has been painful for most and devastating for many. I am not immune to it. Our family’s net worth has taken a massive hit. The carrying value of USV’s assets under management has been cut in half this year. And yet, I am fine, my family is fine, and USV is fine. Many are not. I understand that and have a lot of empathy for those who lost so much, including their jobs, this year.

And yet, I know that the unwinding of an unhealthy and unsustainable growth at all costs/cheap capital environment was necessary and will be healthy in the long run. We already see many of our portfolio companies operating at much more sensible cost structures with clear paths to profitability at much lower growth rates.

The ending of the war for talent in tech also is incredibly healthy. Some leading tech company CEOs I know believe they can operate with much lower headcounts in product/engineering/design than they have been for the long term. That talent can move into new startups and new growth areas, like climate and healthcare, that need it.

Like all transitions, this is messy, painful, disruptive, and ugly. And this year has been all of that and more. I am happy to see it in the rearview mirror and looking forward to better things in 2023. Which will be my topic for tomorrow.

#blockchain#crypto#Current Affairs#economics#employment#entrepreneurship#management#stocks#VC & Technology#Web/Tech#Web3

Face To Face

As we all prepare for the fall back to school/back to work season, I thought I’d touch on a topic that has been top of mind for me for the last six months.

The covid pandemic taught many of us that we can be productive and our companies can succeed in a fully remote work environment. But just because you can does not mean you should.

In the venture capital business, this has meant making investments in teams we don’t meet face to face. For founders, this has meant raising rounds from their offices instead of getting on planes.

As the pandemic has eased and offices have gradually reopened over the last year, we are meeting more founders face to face. But we have not gone back to a world where we meet every team we back in person. I don’t think we will ever go fully back to that world.

But even if the way we work has changed permanently, it does not mean that it has changed for the better. I believe that all change has positive and negative impacts. We can meet more founders than we used to. And founders can meet more investors. That is good. But matches are now being made over video and that is not always great.

We know that humans are better to each other in person. We know that in-person interaction is more meaningful, we are more present, and we connect in more fundamental ways.

So I believe that we must work in the coming years to get out of our offices (or homes) and see each other in person more often.

That means we should run fundraising processes that include meeting in person. We can do the initial screens (on both sides) over zoom, but the final selection process should include face-to-face meetings whenever possible. And board meetings should be done in person at least a few times a year. And those in-person meetings should include some social time in addition to business.

For companies, this means hiring should include a face-to-face meeting. Teams should meet in person regularly. Going to the office should be a regular occurrence for those that live near one.

It is time to get back to the office, at least some of the time. It will make for better business. And I also think it will make us happier at work.

#entrepreneurship#management#VC & Technology

Remote, Hybrid, or In-Person?

We have been watching our portfolio of ~130 technology companies wrestle with this decision for the last two and a half years. Brought on by the covid pandemic and the work from home moment that it created, there has been a sea change in the way that technology companies organize themselves to get work done.

Ben Horowitz observed this in a piece last week where he described A16Z’s decision to embrace a hybrid model that he called “HQ in the Cloud.”

It turns out that running a technology company remotely works pretty darned well. It’s not perfect, but mitigating the cultural issues associated with remote work turns out to be easier than mitigating the employee satisfaction issues associated with forcing everyone into the office 5 days/week. 

https://a16z.com/2022/07/21/a16z-is-moving-to-the-cloud/

Most people are happier having a lot of flexibility around where they work. We have seen that people who are raising families have benefitted from the flexibility of working closer to where their families are and the ability to be somewhere quickly. But that is only one example of why flexibility around where you work is so powerful. Many job functions require, or at least benefit from, the ability to concentrate without interruption or distraction. A quiet home office is vastly better than a busy open workspace for that kind of work.

And then there is the commute. I am writing this on a commuter train heading into NYC. For a time in my life, I took a train like this into the city every morning at 6am and got back on it to go home at 6pm. It was almost an hour each way, so I spent almost two hours a day, five days a week, commuting. This can be a productive time, particularly if you are commuting on mass transit like I am right now, but many people don’t have convenient mass transit options in their lives and must drive to and from work, often in traffic. Eliminating the need to commute to the office might be the single best reason that people are happier having a lot of flexibility around where they work.

The numbers are telling. As of this spring, only 38% of NYC office workers were in their office on a given day based on this survey by the Partnership For NYC (a leading business group in NYC). The numbers are similar in the Bay Area and Los Angeles. Some cities around the US have much higher numbers but I have not seen any city higher than 70% on this score.

The Partnership concluded that remote work is here to stay:

Remote work is here to stay, with 78% of employers indicating a hybrid office model will be their predominant post-pandemic policy, up from just 6% pre-pandemic.

https://pfnyc.org/research/return-to-office-survey-results-may-2022/

But I want to return to Ben’s quote and talk about the cultural issues. I don’t believe we (the tech sector broadly) have done a good job of “mitigating the cultural issues with remote work.” I think a lot of the challenging morale and retention situations in our portfolio and across the tech sector suggest the opposite is true.

Here is the quandry we face:

People are happier with flexibility around where they work.

Companies, teams, and organizations are happier when people are working together.

Aren’t companies just collections of people? Yes. But groups of happier people are less happy together when they don’t get the face time that makes group dynamics easier.

We all know that people are nicer to each other in person. Email and slack and zoom don’t bring out the best in people. Having a meal together does.

So what should we do about this quandry?

I don’t think the answer is restricting flexibility around where people work. That feels like table stakes now for knowledge workers. I think the answer is figuring out how to get people back together more frequently in ways they want to convene in person.

There are many ways to do this and we have seen some good ones.

At USV, we have two days a week where we meet together and as a group with founders (Mondays and Thursdays) and those days tend to be much more popular to be in the office. We don’t require people to come to the office on those days, but we do see that most people opt into coming in those days. We also make sure to order a great lunch on Mondays and Thursdays. We could and probably should add an after-work happy hour and/or sports teams/leagues to make those days even more attractive to the team. The basic idea is to make coming to the office an attractive option a few days a week.

One USV portfolio CEO suggested a great idea in a CEO zoom we organized on this topic a year or so ago. He said that he wanted his teams to come together for a week at the start of a project and again for a week at the end of a project. He wanted them to be together to kick it off and again to ship it. I think that’s a great idea and have been encouraging the teams that I work with to do that.

Our portfolio companies used to do exec team offsites a few times a year. A few of them are now doing them monthly. That makes sense to me. I can’t imagine an effective exec team that isn’t in person together at least once a month. And yet so many of the exec teams I have exposure to are not spending nearly enough time together right now and have not for the last few years. This same thought can be extrapolated to any team in any company.

Those are just some examples of things that can be done and should be done to get people working together again in an age of remote work that is not going to end. I am sure there are many other great techniques and if you lead a company and/or an HR team, you should be collecting and using as many of them as you can right now.

At USV, we feel pretty strongly that getting people back to working together in person is important to the success of our portfolio companies and the broader tech sector. So we recently opened our new office in NYC that is designed to host individuals and teams from our portfolio and the broader tech ecosystem that need somewhere nice to work together. Think WeWork meets SohoHouse meets VC firm. We are still working out the kinks this summer and plan to open it up more broadly in the fall. Stay tuned for more on that here and elsewhere.

All change has good and bad downstream effects. The broad-based adoption of remote work in the tech sector (and beyond) is allowing people to balance work and home life in ways that are extremely beneficial to them. But team morale and the broader cultural needs of companies have suffered and we need to recognize that and address it. We can’t accept that as the new norm. It is unacceptable the way it is right now. A hybrid model that provides continued flexibility while creating a lot more face time is the long-term answer and we must keep innovating until we find the right balance.

#employment#enterprise#management#VC & Technology

A Return To Fundamentals

I wrote a fair bit last year about the disconnect between how companies were being valued and the fundamentals of those businesses. It seemed to me that many companies, from the founders, to the leadership teams, and the rank and file employees got more focused on raising capital and valuations than the basics of a business (people, product, customers, revenues, profits, etc).

That is starting to shift. I can feel it. With the public markets bringing high flyers back to reality, you can now buy the best companies out there at multiples of earnings and profits that make some sense in a historical context. And we are seeing reports that many mutual funds and hedge funds are leaving the private markets because the values in the public markets are so compelling. All of this is healthy.

Vitalik Buterin, the founder of the Ethereum project, said this at ETH Denver this past week.

The winters are the time when a lot of those applications fall away and you can see which projects are actually long-term sustainable, like both in their models and in their teams and their people

Vitalik was talking about a “crypto winter” but the basic point is more broadly applicable.

Business models need to be sustainable. Teams need to stick together and ship things. The fundamentals need to be in place for a business to succeed. All the money in the world at eye-popping valuations won’t do that for you.

I have no idea if we are in for another crypto winter. I have no idea if the stock market will continue to go down. I have no idea if the slump in the public markets will seep into the private markets. All of those questions are above my pay grade.

What I do know is that the businesses that focus on the fundamentals will succeed in any market, up or down. And I do feel that there is more of that going on in 2022 than we saw in 2020 and 2021 and that’s a very good thing.

#entrepreneurship#management#VC & Technology

NFPs

Early in my career, I was taught that any team member was replaceable and that as long as you had sufficient time to find a suitable replacement, you would be fine. I have operated on that basis since then, imparted that wisdom to the founders and teams that I work with, and have always advocated for that approach to management.

But I have learned that on any team there are always a few members who are extremely difficult to replace. While most team members are “fungible”, there are always a few “non-fungible people” and retaining these NFPs can be incredibly important to the long-term success of the business.

The first, and most important, NFP is the founder. The person who originally conceived of the opportunity, recruited the first few team members, scoped (and often built) the first product, brings immense value to the business, mostly around long-term vision, setting the culture and values, and knowing when something is “off.” Retaining the founder’s interest in and involvement with the business is critical. There are times when the founder is bringing more difficulty to the business than value and they should depart. But those situations are to be avoided if possible because of how important a founder is to the business.

NFPs are usually individual contributors, not managers. The management function is much easier to replace than a uniquely skilled individual. A common mistake that I and others have made is to promote an NFP into management when they are much happier not managing people. A classic role for an NFP is the CTO of the business. In this role, the person sets the overall technology direction of the business, makes the hardest technical decisions, builds technology themselves, but does not manage the engineering function. In many companies, the CTO has no direct reports.

You can find NFPs in any part of the company. They are not limited to technical functions. You can have an NFP in customer service, finance, legal, marketing, really anywhere. The key is to identify them and recognize them, reward them, compensate them, and retain them.

More and more companies are moving to compensation models where critical individual contributors can make as much, or more, than their manager or any manager. This has long been common in sales where commission models create such opportunities and where there are often NFPs, but I am seeing more and more companies recognize that simply compensating people on the basis of their management level is incorrect and leads to their best people moving into management, underperforming in that role, and departing.

NFPs are pretty rare. Most people are easily replaceable given sufficient time to do a proper search. But there are always a few people who are not replaceable. Identifying them and retaining them should be a key goal of the management of the business.

#management

The Pull Forward

I saw two charts last week that showed the same thing:

This chart was in the deck I shared here last week called Consumer Trends 2022. It shows that after a big lift in 2020 and a bit of a lull in 2021, the e-commerce trendline is back to its old baseline.

This is our portfolio company DuckDuckGo‘s search traffic curve, available here, on a ten-day moving average. You can see after a huge move up in late 2020, it had a pullback in early 2021 and has now gotten back on its normal growth curve.

Both of these are examples of what is called “the pull forward”, an event or a series of events that draws a large and unsustainable boost of new users. It is often followed by a lull where growth is flat or even down for a while, but then the normal growth pattern resumes.

We have seen curves like this throughout our portfolio this year as the pandemic and other factors (in DuckDuckGo’s case the presidential election also played a big part) have whipsawed growth curves. It feels great when things are growing faster than ever. It feels bad when things are flat or down.

My suspicion is a lot of these odd-looking curves are going to resume their normal shapes in 2022 when things gradually start to normalize.

The last two years have been a challenge to manage through. There have been endless curveballs coming our way. Boom and bust. It is important to see things for what they are and not get too up or down in times like this.

#management