Posts from 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

Six Months Later

In early June, I wrote this post explaining that I and we need to do more to reduce the inequality issues for Black people in tech, venture capital, and startups.

I think MLK day is a good time to talk about what has happened since that post.

We have identified a number of areas where we must do better:

  • Increase the number of Black founders we back
  • Increase the number of Black team members at USV
  • Increase the number of Black VCs we work with and support
  • Increase the number of Black board members in our portfolio
  • Increase the number of Black leaders in our portfolio
  • Increase the number of Black employees in our portfolio
  • Increase the number of Black engineers in our portfolio
  • Increase the number of Black investors in our funds
  • Increase the number of Black college graduates going into tech, venture capital, and startups
  • Create pathways for Black students to study STEM and find their way into careers in tech, venture capital, and startups

We have ongoing projects, workstreams, investments, and efforts in each and every one of these areas and we have made tangible progress in almost all of them.

I believe that the inequity issues are so severe and deeply rooted that it will take a concerted effort over a number of years to truly erase them.

But we are making progress and if we keep at it, across many dimensions, we can get where we need to go. Roughly 15% of Americans are Black. Until we can look around the room and see at least one Black person for every six in the meeting, we haven’t done enough. Today is a good day to remind ourselves of that and recommit to the work that needs to happen.

#employment#entrepreneurship#management#VC & Technology

The Work-Life Balance Revolution

Yesterday, I had a gap in the middle of the day. So the Gotham Gal and I took an hour-long walk with our dog Ollie. It cleared my head and when I got back to work, I was full of energy and clarity.

I’ve been working exclusively from home since the end of November 2019 when we left NYC to go to LA. It has been a stretch of incredible productivity for me.

I am not arguing against going back to the office. As I’ve said in many posts recently, I can’t wait to go back to the office. But I am sure that many of us have had the same experience that I have had working from home during the pandemic. It has its advantages.

And in that realization exists the possibility that we are on the cusp on a revolution in how many of us can find work life balance going forward.

My friend Tom wrote this post last week suggesting that a husband and wife can now work a total of 50 hours a week between them and have two full-time jobs and raise a family. This part sums up the idea pretty well:

Why do I think 25 hours/ week is the equivalent of a 50-hour week (counting commuting)?

Given a nine-to five schedule with an hour for lunch, the 40 hour work week was only 35 to begin with.

As an ex-CEO, I think that at least ten hours of each workweek go to socialization, surfing the internet, checking with the spouse or checking up on the children, chatting on smartphones etc. (Mary thinks only five).

Meetings and travel to meetings waste a huge amount of time and money. One reason that Zooming appears not to have reduced productivity is that many of the meetings weren’t productive to begin with.

Office space and often parking are expenses to the employer but they are not income to the worker. If office space and all its attendant costs can be drastically reduced, employers can afford to pay more dollars in salary for the same productivity.

Commuting expense including perhaps even the second car, daycare, clothing and dry-cleaning bills, and paid before and after school activities whose purpose is to supervise school age kids are all expenses which go away when parents can work from home. Even if the WFH employee has less gross taxable income, he or she will have more cash at the end of each month.

https://blog.tomevslin.com/2021/01/newnormal-the-50-hour-family-work-week.html

Even if Tom is off by a bit with his math, he makes a terrific point. Companies can ask for less of a family’s time, pay them more, and get the same amount of work done using the techniques we have perfected during the pandemic.

I realize that not all jobs lend themselves to this approach. But maybe more than you think. Take doctors. We used to have to go see doctors in their offices. Now with digital health services like those offered by our portfolio companies Brave and Nurx, the doctors are seeing the patients from their homes (or wherever they are).

Teaching is another occupation that presents a lot of opportunity to rethink time and location. Many teachers have been learning how to help their students master new things from their kitchen counters over the last year.

I want to say it again. I am not suggesting that we won’t be going to offices anymore. I am not saying doctors won’t have offices anymore. I am not saying teachers won’t be in classrooms anymore.

What I am saying is that we can and should be asking how much of our work time needs to be in person, face to face, and how much can be virtual. And I am certain that we will be asking that. In our year-end reviews at USV, we heard again and again from our team that they wanted to ask those questions. They should. Commuting and business travel are not the necessities they were last century.

And, naturally, this coming work-life balance revolution presents tremendous opportunities for new products, services, and companies. We have been seeing many of them crop up over the last year and have invested in a few of them.

From bad comes good. This pandemic and all of the things that have come with it has been awful. But I believe it will unleash all sorts of new behaviors and businesses that will be for the better. If you squint, you can see them coming.

#climate crisis#economics#employment#enterprise#entrepreneurship#Family#hacking education#health care#management#VC & Technology

Cliff Vesting

It is very typical that options and RSUs that are issued to new employees upon joining a company will have “one year cliff vesting.” This means that the first year of vesting into your options or RSUs will not happen until you have completed one entire year. After that vesting usually happens quarterly or monthly.

I am a fan of cliff vesting because if either the employee or the company made a mistake and the employment ends quickly, no equity has been spent on it.

But there are a couple of caveats that come with cliff vesting that I think should be understood by everyone.

The first is that while the letter of the agreement will say that the first year of vesting is not earned until the anniversary of the grant, if employment is terminated by the employer for anything other than cause within a few weeks or even months of the first anniversary, some accommodation should be made for the vesting upon termination. It is hard to put this in writing for a whole host of reasons, but best practice is for the employer to make some adjustment if the termination is close to the cliff vesting date.

The second point is that many companies include a cliff vesting provision in retention grants. These are grants that existing employees get to supplement the sign-on grant and help with longer-term retention. I do not believe it is appropriate to put cliff vesting into retention grants. The very fact that an employee is getting a retention grant suggests that the match has been a good one for both the employee and the employer and that the cliff provision is not necessary.

Many companies, particularly younger companies without experienced and sophisticated HR organizations, don’t understand these nuances and don’t factor them into their equity compensation programs. That is a mistake and it harms both the employees and the employer because a fair and equitable equity compensation program is of great value to a company.

#entrepreneurship#management

Bolster Your Management Team And Board

I have had the great pleasure of working with Matt Blumberg and the senior leadership team of USV’s former portfolio company Return Path (which was sold in 2019) for much of the last twenty years. Matt and many members of his leadership team got the band back together early this year and started a new company called Bolster in partnership with Silicon Valley Bank and the early-stage VC firm High Alpha. A few months later, USV joined that investor group along with our friends at Costanoa.

Matt is a great CEO and has even written a book about leading and growing a company called Startup CEO. Their new company Bolster is all about scaling and building a great management team for your startup. The Bolster team believes that scaling a high growth company means that you need to adapt, grow, and supplement your management team continuously along the way. And a big part of doing that is accessing “fractional talent” which means people that don’t work for your company full-time and permanently. All of this is outlined in the Bolster Founding Manifesto which explains why they started this company.

Fractional talent can be a fantastic independent board member, fractional talent can be a CFO mentor for your VP Finance that you want to grow into a great CFO, fractional talent can be a VP Product that can cover for your VP Product while they are on family leave, fractional talent can be a part time Chief Revenue Officer that you want to “date before you get married”, fractional talent can be a part time Head Of Insights that will allow you to understand if you need a full-time Head Of Insights. I could go on and on because there is no end in sight for the various ways a CEO can leverage fractional talent to make their company and their management team better.

Bolster came out of stealth and into a beta period today and is opening up its marketplace to companies that want to access fractional talent and to executives who want to work at high growth companies in interim, fractional, advisory, or board roles. Bolster also will allow venture capital firms and startup investors to participate in its platform as super users. If you are any of the above and want to engage with the Bolster network, you can sign up here. The full marketplace will launch soon.

We have already introduced Bolster to a bunch of USV portfolio companies and the enthusiasm for this model is really high. I love the idea of USV investing in a company that can help our portfolio companies do things better. We have done that before with Twilio, MongoDB, Carta, Sift, and a host of other companies. It’s a double whammy and it pays off in so many ways.

#entrepreneurship#management

Pay and Precedent

We are finally in an era where an equal role comes with equal pay. This is a very good thing but it comes with some hard lessons. One of them is about pay and precedent.

You cannot make a hire and a compensation commitment without thinking very deeply about the precedent you are setting.

Let’s say your company is now fifty people and you can see that you will need to be a hundred and fifty people in a couple years. You decide it’s time to build a proper senior leadership team. And you want to start with a CTO. That first “C level” hire will set a precedent for what you should be prepared to pay (in cash and in equity) for all of your C level hires. You do not have to pay every C level executive the exact same amount but they need to be in a band and I would argue that they need to be in a tight band. And there needs to be a strong rationale for the compensation for each role.

Let’s say you are bringing on your first independent director and that person is so great and you want to give them a very generous equity grant. You can do that but you should know that you ar setting a precedent for what the next independent director will get.

Let’s say you want to bring on a mentor and advisor for your VP Finance to help her “level up” to a CFO. That advisor will want and should get some equity compensation. What you do for that advisor will set a precedent for all other advisors you bring on.

Many times I hear founders say “this is good enough for now and we can fix it later.” But fixing compensation issues later can be very hard and sometimes impossible, particularly if your company significantly increases in value between the problem you want to fix and when you need to fix it.

These are some of the most painful errors you can make in a startup. It is very important to be thoughtful, diligent, and precise in your compensation decisions and approach and you have to start early in a company’s life. Getting a strong and experienced head of people onboard early on will help you avoid these issues. And trust me, you want to avoid them.

#entrepreneurship#management