Posts from management

Grinding

It is tempting to search for the one magic move that will make everything better. A new VP of Sales. A new database layer in your tech stack. A new brand for your company. Moving everything to the cloud. More capital in the business.

But it is rarely one thing that a business needs to succeed. It is often a little bit of everything.

Back in the early days of Twitter, we could not keep the website and API up. We would hire advisors and they would recommend something new and we would try it and we would still go down. It was terribly frustrating and threatened the business.

During this period of instability, Twitter purchased a search engine called Summize. Summize was a small team of engineers, most of whom had come out of AOL.

After we cut the deal to acquire Summize, I asked Jack Dorsey, who was running Twitter at the time, how we planned to integrate the Summize team. He looked at me and said “we are not going to integrate them, they are going to integrate us.” And Jack made Greg Pass, Summize’s engineering leader, Twitter’s engineering leader.

It was interesting to watch Greg and the Summize team tackle the “fail whale.” Instead of searching for a magic solution, they instrumented the entire system and just started rebuilding every part that was about to break.

It was a slow and steady approach. It took time. But within six months (or thereabouts), we had a much more stable system. And after about a year of this approach, we had mostly said goodbye to the fail whale.

Grinding isn’t very satisfying. It is hard to stand up in front of everyone and say “we are going to fix things around here bit by bit with a lot of hard work.” Big flashy moves are an easier sell most of the time. But they don’t work nearly as well and are prone to complete and abject failure.

If given a choice between a flashy operator or a grinder, I will take a grinder every time. It is a much higher percentage bet. It requires faith and patience and the results are sometimes hard to see. But if you look at the results from grinding it out over a long enough time frame, you can see the power of that approach.

#entrepreneurship#life lessons#management

Cash Management In Startups

When I was in my mid-20s and had just gotten a job in venture capital, I read a piece on Alan Shugart, the larger than life founder of Seagate, one of the most successful disk drive companies. Alan was quoted as saying that “cash is more important than your mother.” That got my attention because mothers are really important.

Over the years, I have learned what Alan meant. Cash is everything in a startup. It is the fuel that keeps the car running. And startups fail largely because they run out of cash.

I was working with one of our portfolio companies yesterday on a cash forecasting model, a practice that I strongly recommend and appreciate greatly.

Forecasting cash is more art than science, particularly in a growing company where there are all sorts of unpredictable things (revenue, infrastructure costs, hiring pace, receivables, etc).

But like all practices, it is about the practice. You have to engage in cash forecasting, you have to engage in it regularly, you have to adapt to changing conditions on the ground, and you have to internalize the puts and takes and their impact on operations.

When a company gets mature in their business operations, has repeatable revenues, and has a strong balance sheet, you can run the business based on an annual plan or a semi-annual plan.

But early on in a company’s life, you are going to have to operate on an ever changing plan. If the revenues are coming in more slowly, you hire more slowly. If you want to wait another six months to raise more capital, you have to buy that time with changes to the operating model.

That is the back and forth between cash management/forecasting and operating. They go hand in hand.

It all starts with a cash forecasting model. It looks like a forward-looking profit and loss statement. But you do it on a cash basis. And you include balance sheet items like security deposits, equipment purchases, etc in it. Think of it as forecasting your checking account over the next year.

Once you have that, you need to engage in updating the model regularly and it is ideal to do that as a team, or at least with parts of the team, in the room. That makes it abundantly clear to everyone how operational decisions impact cash and runway.

I like a weekly cadence to this process and I like it to happen with the key senior leaders in the room. That may feel like wasting people’s time. But cash is more important than your mother in a startup, so managing it is never a waste of time.

#entrepreneurship#management

No Shenanigans

I was talking to a friend today about company values and how important they are but also how lame so many of them are.

I told him that some of my favorite company values come from our former portfolio company Twilio (which in the spirit of full disclosure I am still a large shareholder of).

Twilio’s founder and CEO Jeff Lawson gave a great talk on company values at USV a few years ago and explained how he approached them. This blog post (and audio post) is about a similar talk he gave at First Round.

Twilio’s company values are shown below:

My favorite of them is “No Shenanigans” which translates to “Be thoughtful. Always deal in an honest, direct, and transparent way.”

It is such a great value. It is memorable. It is broadly applicable. It is interpretable. And I can imagine team members running their decisions against it and getting a helpful result that guides them.

That is what company values are all about at the end of the day – helping people make decisions that everyone in the company will be proud of and supportive of.

Like most things that are incredibly valuable, values are not easy to get right, but they are worth investing a lot of time and energy in.

#entrepreneurship#management

Priorities

It is planning season when management teams work to develop the roadmap for the coming year.

The truth is that it is hard to do more than two or three big things at a time, no matter how large you are.

So it is important to put all of the things that the business needs or wants to do on the table and have a vigorous debate about them and then pick a few priorities to focus on.

Saying no to things that you really want to do is the telltale sign of a good planning process. Saying yes to too many things is the telltale sign of a poor planning process.

What makes this process particularly hard is that there are often a few things that the business has to do and there is no way to delay them. These must do efforts can often crowd out the should do projects and that leads to a lack of forward progress.

The lens through which I evaluate plans is as follows. First there should be a few well defined priorities. I like two or three but four can work. Five starts to be a problem. At least one and possibly two should be must do things the existing business requires and cannot be put off. And there should be at least one big new effort that will move the business forward.

Planning is so important. When you get the plan right, execution becomes so much easier. I have found that poor execution is most often a function of poor planning and trying to do too much without clear priorities. Even the strongest operators struggle in a situation like that.

#management

What You Do Is Who You Are

This past summer I read a proof of Ben Horowitz’s new book, What You Do Is Who You Are, and I even blogged about it here without naming the book.

What You Do is about culture, how you make it, how you keep it, and how the big decisions you make and how you explain them set the culture in your organization.

To explain this Ben tells the story of four different cultures that were set by strong leaders:

– the leader of the only successful slave revolt, Haiti’s Toussaint Louverture

– the Samurai, who ruled Japan for seven hundred years and shaped modern Japanese culture

– Genghis Khan, who built the world’s largest empire

– Shaka Senghor, a man convicted of murder who ran the most formidable prison gang in the yard and ultimately transformed prison culture.

https://www.amazon.com/What-You-Do-Who-Are/dp/0062871331/

These stories really make it clear how you set and keep your culture. You will come away from this book with a clear understanding of how your actions will set the culture in your company.

I read Ben’s interview with Connie Loizos and I like what he said here about why he wrote the book:

First, it was the thing that I had the most difficult time with as a CEO. People would say, ‘Ben, pay attention to culture, it really is the key.’ But when you were like, ‘Okay, great, how do i do that?’ it was like, ‘Um, maybe you should have a meeting about it.’ Nobody could convey: what it was, how you dealt with it, how you designed it. So I felt like I was missing a piece of my own education.
Also, when I look at the work I do now, it’s the most important thing. What I say to people at the firm is that nobody 10 or 20 or 30 years from now is going to remember what deals we’ve won or lost or what the returns were on this or that. You’re going to remember what it felt like to work here and to do business with us and what kind of imprint we put on the world. And that’s our culture. That’s our behavior. We can’t have any drift from that. And I think that’s true for every company.

So if you leading your company and you are thinking “ok, great, how do I do that?”, then go get this book and read it. I think you will come away with a much better understanding of what culture is all about.

#entrepreneurship#management

Principles Over Profit

I was pleased to see NBA Commissioner Adam Silver say this with respect to the controversy over Houston Rockets’ General Manager Daryl Morey’s tweet in support of the protest movement in Hong Kong:

The NBA will not put itself in a position of regulating what players, employees and team owners say or will not say. We simply could not operate that way.

The NBA faces the potential of a backlash in China that could impact the league’s business interests there.

That could reduce the profits of the league and players and owners.

But the NBA is putting principles over profits here and that is a good thing.

We have faced this issue a number of times over the years at USV and we have tried to do the same.

We have also been on boards of companies that have faced this issue over the years and we have advocated for this approach.

It is not an easy choice. Companies have employees to pay, families to feed, and customers to serve. And principles are not always shared by everyone and the lines are not always clear

But one thing is for sure. The search for profits can lead a founder, a CEO, a team, a Board, and a Company to forget their principles and that is never a good thing.

#entrepreneurship#life lessons#management

Why Positive Cashflow Matters

Venture backed companies have a strange relationship to positive cashflow. Because they have financial backers who can and do finance losses, they tend to operate in the red for a long time.

In the early days it makes sense to burn cash. If you do not have revenues, you can’t generate cash. And if you can’t grow your revenues without investing out ahead of income, then you also need to be able to operate in the red.

But I have often felt that this muscle memory of investing for growth at the expense of profits can become, and does become, a habit that is hard to break.

If you have positive cashflow, you can control the timing and terms of your capital raises.

If you have positive cashflow, you can buy back your stock if any comes into the market at prices that you and your Board feels is below fair value.

If you have positive cashflow, you can borrow against it to purchase other companies or finance capital requirements.

If you have positive cash flow you can offer cash incentive compensation in lieu of ever more expensive equity compensation.

I could go on, but I suspect you get the point. Positive cash flow puts you on control versus the capital markets.

And that is a very valauble position to be in and one that a number of high flying tech companies probably wish they were in right now.

#entrepreneurship#management

Scaling In Lower Cost Locations

This is a topic I’ve written about a bunch over the years. I feel like it is becoming more urgent every day.

Last week I heard some shocking numbers about salary levels for certain kinds of engineers in the bay area. I checked them out with a few of our bay area portfolio companies and they were more or less corroborated.

The tight technical labor markets in the bay area, NYC, and a number of other regions in the US are making it hard to scale software businesses without burning massive amounts of cash.

At the same time, we see a growing number of our portfolio companies succeeding with scaling engineering/technical teams in secondary labor markets in the US, as well as going outside of the US to build engineering locations.

I feel that the ability to spin up and then successfully operate remote engineering locations is a skill that technology companies need to develop earlier in their development than used to be the case.

It seems to me that once you get to 100-200 people (or 50+ engineers), you should be thinking about this. The most important thing is not where you put your first remote location. The most important thing is learning how to do this successfully. Because once you can do it in one location, you most likely can do it successfully in multiple locations.

This post explains how Stripe (a USV portfolio company) started with remote engineering hubs in Seattle, Dublin, and Singapore, and then evolved into a structure that supports remote workers anywhere.

The move from a centralized engineering structure to a decentralized one is a process and takes time to get right. And so I think it is best to start building those capabilities long before they become necessary.

#entrepreneurship#management

Risk Tolerance

Startup companies go through a number of phases as they mature from an idea, to a small team, to a growing team, to a small company, to a big company.

And along this journey, the leadership team you need changes. You need little to no leadership structure when you have a small team, you need some sort of leadership structure when your team is growing, you absolutely need a leadership team when you become a “company”, and the leadership team becomes incredibly important when you become a big company.

In the last week, I’ve had several conversations with CEOs in our portfolio who are leveling up their leadership teams and are recruiting executives from larger organizations.

I’ve counseled them to make sure that they hire executives who have a lot of risk tolerance.

High growth companies that emerge from a startup situation tend to be volatile. They have a lot of turnover in their organization, they have moments when the cash balances get low, they sometimes face existential risks.

If you have executives that you need to spend a lot of time comforting and solidifying, that’s not good. Ideally your leadership team is your steadying force and if you are steadying them, then your setup is suboptimal.

It is always tempting to bring in people who have operated at a scale well beyond where you are. And I am not saying you should not do that. You should. But just make sure they can handle the heat in the kitchen because it’s gonna get hot sometimes.

#entrepreneurship#management

Striking The Right Balance

I was talking recently to a friend who advises a lot of boards. I asked him his view on boards overall.

He said that he saw two styles, both of which he found problematic.

The first style is the “rubber stamp board” that does whatever the CEO asks of them.

The second style is the “meddling board” that acts like it is running the business.

He told me he sees very few boards that manage to strike the right balance.

I sit on a lot of boards and have been doing so for thirty years now. I have been on rubber stamp boards and I have been on meddling boards. And I agree that both are problematic.

What I have learned over the years from those not great experiences is that boards must respect the line between governance and management and never cross it. But they also must govern. They must push back on things that don’t make sense and they must exercise the authority that has been vested in them by the shareholders.

This need to strike the right balance exists in many other contexts in our lives. It is the essence of good parenting. It is the essence of good management.

To a large extent boards reflect the CEOs that report to them. Strong willed successful CEOs can often construct rubber stamp boards because that is what they want. And weak ineffective CEOs find themselves with meddling boards who are trying to manage the poorly managed company from above.

Neither of these situations is good. The weak and ineffective CEO should be replaced by the board instead of trying to manage from above.

And the strong willed CEO must have checks and balances placed on them, no matter how well they are doing.

A great board chair can be transformative for a board. They can stop the meddling and force the necessary management changes. And they can stand up to a strong willed CEO and build the trust and respect that can lead to a well functioning board.

This is why I do not believe that CEOs should chair their boards. They should find someone who has a lot of board experience, knows how to strike the right balance, and vest in them the authority to lead the board to the right place.

I have been on boards that do strike the right balance and are chaired properly. It is a pleasure to work on these boards and a well functioning board is a thing of beauty. Every CEO should want one.

#entrepreneurship#management