Posts from management

The back and forth that Elon Musk did over the last few weeks about being public begs the question about whether the challenges of operating a public company outweigh the benefits.

Elon wrote this in a letter to Tesla’s employees:

As a public company, we are subject to wild swings in our stock price that can be a major distraction for everyone working at Tesla, all of whom are shareholders. Being public also subjects us to the quarterly earnings cycle that puts enormous pressure on Tesla to make decisions that may be right for a given quarter, but not necessarily right for the long-term. Finally, as the most shorted stock in the history of the stock market, being public means that there are large numbers of people who have the incentive to attack the company.

I fundamentally believe that we are at our best when everyone is focused on executing, when we can remain focused on our long-term mission, and when there are not perverse incentives for people to try to harm what we’re all trying to achieve.

A few weeks later, Elon wrote this:

After considering all of these factors, I met with Tesla’s Board of Directors yesterday and let them know that I believe the better path is for Tesla to remain public. The Board indicated that they agree.

So which is it?

I strongly believe that being public is the best form of shareholder ownership for the vast majority of companies and advocate for that path to the companies in the USV portfolio that have the opportunity to be a public company.

The pressure of quarter to quarter execution is hard on a team. But running a company is hard. And the accountability that comes from this quarterly reporting is a good thing too. If you have problems in your business, you can’t hide them. You have to come clean about them, deal with the implications of them, and fix them.

The long-term vs short-term thing is the critique I hear most often. But I don’t buy it. The best run public companies manage to think and act with a long-term focus while being public. I think it comes down to leadership, courage, and foresight more than whether you are public or not.

Stock price volatility is a factor no matter if you are public or not. At least when you are public, everyone knows when your valuation is going down. Private companies are able to hide that from their employees, the media, and others. Which is just kicking the can down the road and that always ends badly. I prefer the transparency of being public on this one.

And the short seller argument is nonsense. People are always working against you. Your competitors are working against you. The media may be working against you. The regulators may be working against you. Short sellers are just another group that wants to see you fail. But they are not the only ones and you can make them pay by executing against your commitments and guidance.

For me, it just comes down to leadership, courage, execution, and setting and meeting expectations. All good companies must have those in place. If you do, being public is not only manageable but preferable.

And I am pleased to see more and more high growth tech companies coming to this conclusion and taking the plunge.

I’ve been chairing a $40 million capital campaign for NYC’s CS4All effort to bring computer science education to every school and every student in the nation’s largest school district.

We are just into year four of the ten-year CS4All effort and we are also into year four of the capital campaign.

The good news is I can see the light at the end of the tunnel. Depending on whether you count “soft circles” or not, I think we have about $10 million left to raise.

We started out with a bang, announcing $11.5mm in contributions, including those of my wife and me, at the start of the effort.

Year one went well, with another roughly eight million raised.

Year two was a struggle and year three started out similarly. We made some changes to our team and strategy and message and the second half of year three was much better and we are entering year four with great momentum.

I have learned a lot about running a capital campaign or any sort of large and long fundraising effort and I thought I would share some of the big lessons:

1/ You have to be patient. It is a marathon, not a sprint. No matter how much you want it to go quickly, it won’t.

2/ Cultivation is the name of the game. You have to work the top prospects slowly and carefully and patiently. Most eventually come through but you need to invest a lot of time and effort without any certainty of closure. I found this particularly hard as I always want to be investing my time where it is going to pay off.

3/ You need people around you who are experienced fundraisers. There is an art AND a science to qualifying, presenting, and following up that the best people in the fundraising business understand and bring to their work. Without that, you are going to flounder.

4/ Communicating and engaging your donors is critical. I thought a donor would write one check and be done. It turns out many donors like to start small and grow their committment over time as they see progress and get comfortable with the effort.

It turns out that raising a big sum of money is like a lot of other things in business and life. Slow and steady is a virtue, great people make all of the difference, your best prospects are the people you have already closed, and frequent communication fixes a lot of problems.

I think all of these lessons I have learned in the last three years are applicable to raising capital for your business. Fundraising is a process not a campaign and it needs to be part of a CEO’s daily cadence and calendar.

You are never not raising money when you are running a company or any sort of business endeavor that requires capital, which is basically everything.

I am not reading Bad Blood, the book about Theranos, but many of my friends and colleagues are.

One of the many “tells” that Theranos was not a good company was the board chock full of trophy board members.

A “trophy” board member is someone with a big name who, in theory, brings credibility and connections to your company. They are often out of the world of politics, or a Fortune 500 CEO job, or Wall Street.

I dislike trophy board members and advise our portfolio companies to avoid them. But they don’t always take our advice.

One good example is Lending Club, a very good company run by a very good entrepreneur, who got thrown under the bus, in my view, by his trophy board.

USV is an investor in that entrepreneur’s new company which says all you need to know about where we come out on that one.

Trophy board members are more concerned about their reputations than your company and will often react badly in times of crisis and challenge, which is exactly when you need your board members at your side more than ever.

Trophy board members often miss board meetings, show up unprepared, and frequently don’t take the time and effort to truly understand your business.

I am a huge fan of independent directors to complement the founders and investors on a board. The quality of the board is highest when there are more independents on it than investors and founders. Try to get that ratio right on your board as soon as practical.

But don’t put “names” on your board. Put operators, ideally very seasoned operators, who have done everything you want to do, ideally multiple times, and can help you spot the issues before they become problems and spot the opportunities with enough time to go after them.

These ideal board members are often not big names and they usually don’t have big egos. They are solid, steady, and worth their weight in gold. They come in male and female varieties and across the racial and ethnic spectrum too. It is true that it takes a bit more work to build a diverse board of operationally focused board members but it is worth it.

But whatever you do, stay away from trophy board members. They rarely help and often hurt.

We spent the last week getting a project we’ve been working on for two years over the finish line.

I find that the last 10% is so much harder than the first 90% of any project.

That is true whether it is software, an event, a construction project, or really anything that requires a lot of planning and then a lot of execution.

I also find that you have to have a “ship it” mentality and be willing to make hard decisions at the end in order to meet the “ship date.”

One time I asked a bunch of founders and CEOs whether they insisted that their teams meet “ship dates” and the answers were all over the map, but the ones I liked best were of the variety that ship dates are respected and met but features get pulled to meet them.

Pulling features is an example of the mess that happens at the end as you are trying to get something out the door.

I’ve also found that knowing that there will be bugs to get cleaned up and “punch list items” to be resolved is helpful to getting something out the door.

Perfection is not just the enemy of the good, it is the enemy of the ship date.

That is not to say that critical bugs (security, performance, etc) can be ignored in the effort to ship on time, but there are always clean up items to be dealt with after the fact.

Hitting dates is so important. And it takes someone, often more than one person, with the willpower and commitment, to get it done.

This relates to my post a few days ago on Heartbeat.

Hitting dates is important. Shipping is important. Getting stuff out the door is important. And the final push to do all of that is hard, often brutal. But you just have to gut it out and get it done.

The Gotham Gal and I got to see Patty McCord give a talk a few months ago and I was blown away by her pragmatic, no-nonsense, calling out bullshit approach to managing people. Patty helped Netflix build their culture and left about six years ago to advise companies, small and large, how to manage people better.

She’s a breath of fresh air in a world of corporate speak. I think you’ll enjoy her as much as I do.

The best companies I work with have a heartbeat, they operate on a pace and a cadence and a rhythm that is perceptible to everyone in and around the company.

I am not talking about just product and engineering, although you can’t have a company with a heartbeat if you don’t have it in product and engineering. A company that doesn’t ship product regularly builds clogged arteries and that becomes pervasive in the culture and you end up with low morale, a lack of confidence, a revolving door, and a mess.

There are many ways to get this beat going and sustain it. There are techniques like agile product development, monthly and quarterly OKRs, weekly show and tells at the all-hands meeting, metrics meetings, etc, etc.

What it comes down to in my view is a mindset around getting stuff done on a regular cadence and then letting that rhythm become a wave and riding that wave.

And it starts with the CEO. They are the drummer in the band. They set the beat and keep the beat. And everyone plays around it.

If you have been in a company that has a heartbeat, you know what I am talking about.

If you haven’t, then you need to find one and join it and learn how it feels.

Becuase a heartbeat is what you want in your company.

In yesterday’s post, which seemed to touch a nerve, something I certainly seek to do from time to time, I mentioned the “talent organizations” of our portfolio companies. These are the people who help a founder/CEO build and lead the people who make up the company. It’s an undervalued and under-discussed function.

I have heard multiple founder/CEOs tell me that the biggest sigh of relief they had in building their companies was when they finally hired a really strong leader to sit at their side and help them with the people side of the business. It is not even accurate to say “people side of the business”. People are the business!

I recently listed to two Reboot podcasts in which my friend and former partner Jerry Colonna talked with two people leaders, Nathalie McGrath at Coinbase, and Patty McCord, former people leader at Netflix.

It is worth spending the almost two hours it will take to listen to these two podcasts.

What you will hear from Nathalie is the challenge of marrying a high stress, high performing culture and the concept of work-life balance. It is a near-impossible challenge, but simply trying to make it so is a where you must start. You can’t fake it. It has to be something you want to do and need to do.

What you will hear from Patty is a disdain for the platitudes and processes that you get from most organizations. She and her partner in this work, Reed Hastings, wanted to do it their way and in the process created a culture that is the envy of many tech companies.

And, I hope, you will come away from the two hours of listening, with an appreciation for the job of leading the people team. The people who do this work well are rare and valuable and if you don’t have one by your side, you should go find one.

I am a fan of looking at something from all sides and understanding how each side thinks about it.

Consider a neighborhood school. There are students, parents, teachers, administrators, non-teaching staff, taxpayers, the community, homeowners (whose home value is impacted by the quality of the school), and possibly other stakeholders.

In theory every one of those stakeholders has a vested interest in the success of the school but in reality there is often conflict between them.

The teachers would certainly welcome a pay raise, for example. But the taxpayers may not. Or maybe they would because it would keep the quality high and thus the values of their homes.

What if the school wanted to start later and end later? The parents might oppose it because it would make it harder for them to get to work on time in the morning. But the teachers, administrators, and non teaching staff might welcome it because they would find it easier to get to work on time in the mornings.

All complex systems have many stakeholders and while they all want the system to succeed, because they have a stake in it, they rarely view success in the same terms.

Stakeholder analysis is extremely helpful in running a company and governing it (the work of the Board).

And the stakeholders of a company are not just the stockholders. Even when a Board and management is tasked with acting in the best interests of the stockholders, it is wise and prudent to act in the best interests of all of the stakeholders.

Doing so, however, is often impossible because of these conflicts between stakeholders.

Done properly, a stakeholder analysis attempts to determine what each and every stakeholder desires and the impact to them of an important decision. It is like a scorecard. It is often helpful to look at short term, medium term, and long term impacts.

I find that it is often the case that conflicts are the most extreme in the short term and that if you can frame a decision and the impact of it over a very long time horizon, it can be easier to get alignment.

But regardless of whether you can get alignment, a CEO must act and act decisively. And a Board must make sure that the CEO is acting wisely and in the best interests of the stockholders and stakeholders.

So doing a stakeholder analysis, understanding where the issues are and will be, and making a fully informed decision is the best course of action. And you will want a communication plan to mitigate the fallout of the decision as much as possible.

You never want to surprise or be surprised by your stakeholders. They may not like you, agree with you, or even support you. But they must be understood, respected, and considered in your decision making process.

I have been recommending our portfolio company Code Climate‘s relatively new Velocity product in most of my recent Board meetings.

I hear from management teams again and again that they want to understand their engineering utilization and velocity and benchmark it.

Everyone feels like they are not getting enough production out of engineering but have no way of knowing if that is just how they feel or the reality of the situation.

Velocity is a great tool to figure all of that out.

Becuase you can’t manage what you can’t measure.

If you feel like you need more visibility into your engineer team’s production, check out Velocity.