Posts from Business

The Board of Directors: Guest Post From Scott Kurnit

I am developing a standard format for these MBA Mondays series. I do five or six posts on a topic and then I solicit four or five guest posts to wrap it up. Today we begin the guest posts on the Board Of Directors series we've been doing for the past six weeks.

Hopefully everyone who has been following this series on Boards understands the point that you want independent directors on your Board and that the best choice for independent directors are fellow entrepreneur CEOs who have been through what you are going through.

One of the most sought after independent directors in the world of internet startups is Scott Kurnit who has started a couple internet companies and has sat on eight boards including several public boards. If you are not familiar with Scott, here is an interview he did with me in late 2010 at the Paley Center.

I asked Scott to lead us off in the guest post section because I know that he has some strong opinions about Boards and Board composition. And he shares some of them with us in the guest post below.

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Fred has done his usual fabulous job outlining the critical issues with Boards. Today I’m going to address two concepts that surprise people every time, end up generating lots of head nods, then usually don’t happen. These suggestions clearly fit into the art of the board more than the science. And it’s the unwillingness to depart from traditional norms by those around the table that stop them from happening.

1. Your best friend should be on the Board, and
2. No one who works in the company other than the CEO should be on the Board.

Why would you take a valuable Board seat for your best friend? Doesn’t every seat need to be occupied by people with industry expertise, financial acumen or years of board experience? That’s logical, but what about having someone who you trust with your life? Someone you’ll truly believe when the Board is telling you that you’re not performing or that the financing you seek is wrong or that you’re spending too much or your request for stock options is too aggressive?

Ideally, your best friend has industry or financial or board expertise – but even if not, having someone who has your back… who tells you the unvarnished truth… that you believe in an instant… is in everyone’s interest. This seat is critical. Fill it.

As a repeat CEO and board member, I try to fill this role of CEO pal if a CEO doesn’t have one. I’m well aware of my fiduciary responsibilities to shareholders, but I try to think of the CEO first since if he performs, the company performs and changing out CEOs is a wrenching and often disastrous activity. A CEO should have someone he can tell anything. That makes a better company and a better outcome for shareholders.

Now, for my second point which will certainly raise the hackles of co-founders who are on the board, work their butts off and may have as much stock in the company as you do: The fact is, there’s only one CEO, one leader. And that’s why people who work for the CEO can’t also be the CEO’s boss. Yes, fundamentally, that’s what Boards are… the CEO’s boss.

Here’s the simple logic. The CEO can’t be in charge 29 days out of the month and then report to her subordinates on the 30th day. That screws up the crispness and clarity for the 29 days. A CEO should not be giving compensation or making non-objective decisions concerning subordinates, in order to make sure her own comp and Board decisions get approved on day 30. Ridiculous. You often end up with a horrible combination of dysfunctional board member and insubordinate… subordinate – all wrapped up in one person. You can’t be both a worker and a boss at the same time. Sorry, co-founders… you can observe at Board meetings… but you don’t get a vote. Period. And when the CEO tells you to leave the Board room… well, she’s the boss.

Since I have this awesome space courtesy of Fred, I could go into why Board members should have no ego, need to come to every board meeting in person, need to give performance reviews to CEOs, should only do email during Board meetings within a designated 5 minute block every hour and create an environment where everyone knows everything with total transparency. But, I won’t abuse the privilege of this space or your time.

Just get a pal on the board and keep your pals who work for you off the board. I promise, your company will be better and return higher rewards for all concerned.

Thanks Fred.

#MBA Mondays

MBA Mondays Live: Employee Equity

Tomorrow night at 6pm eastern time I am going to teach the first MBA Mondays Live class. I announced it a month ago and the class quickly sold out. Part of the deal with these classes is that we are going to livestream them and also make them available via an archive.

The livestream will be available here. You can click the green follow button on that page to be notified when the livestream is about to start. The archive video of the class will be available here.

This will be the first time we've ever livestreamed an event in the USV event space, something we intend to do more of. I want to downplay everyone's expectations on how good this livestream will be. We need to upgrade our internet connection. It turns out our Time Warner Cable "wideband" service is actually "narrowband". We measured it last week and we are only getting 3MB upstream. So we will not be livestreaming this class in HD and it may be tough to see what I am writing on the whiteboard.

We are in the process of getting a much better internet connection into the USV event space and we hope to be able to livestream in HD in the near future. But for tomorrow's class, I am warning everyone that the stream may be flaky and the quality may be poor.

The outline for tomorrow night's class is here. The class will have three parts; issuing employee equity, structuring employee equity, and how much equity to give out. There are links for suggested reading (archived MBA Mondays posts) for each section. If you are attending the class, I strongly suggest you review the outline and check out the required reading. If you plan on watching the livestream, you might want to check out the outline and suggested reading as well.

I am super excited to do this class. I'm a big fan of teching in front of a live classroom, and I am also a fan of allowing a much broader audience to take the class live or via the archive using the power of internet video. This should be fun. 

#MBA Mondays

Cloning Successful Startups

Jeff Leventhal, the CEO of our portfolio company WorkMarket, emailed me yesterday. He said:

i would love to see an avc post about copycats like samwer bros. what do u think of this form of entrepreneurs, etc?

I looked back over my archives and I guess I've never addressed this topic here at AVC. So here goes.

It's a free market out there. People can do what they want. That's even more true globally. If you are successful, you will be cloned. That's life. In fact, it's a sign that you've made it when clones of your website, mobile app, and business start cropping up.

That said, I am not a fan of this behavior and approach to making money. It is devoid of any creativity. It doesn't inspire me. And we avoid doing it and investing in those who do it. As Jeff said to me in an email reply, "the problem is that people make money doing it……..these people should just internally understand that they are not entrepreneurs and not creating true value." I agree with Jeff on that.

Some will say "but you are an investor in Zynga and they copy others' games." I accept that critique but we committed to invest in Zynga when it was just poker on Facebook and that was an entirely new idea. They grown by adapting other games to their social model for sure. That's the history of the games business by the way. Even so, I'm not attracted to or inspired by this approach to making money.

Our approach at USV is to invest in the category creator, the innovator, the market leader. That's what attracts us to startups. And when the category creator executes well, we have found that it can win the market by a long shot and produce fantastic returns.

There are a few examples of USV portfolio companies that were not the category creator. Lending Club is a good example of that. We invested in Lending Club because they innovated around the peer to peer consumer lending model and came up with the winning approach and they are now the clear market leader. That was a late stage investment made out of the Opportunity Fund. I suspect that we will do that kind of thing more frequently in our Opportunity Fund investments.

But in the early stage sector, we are drawn to entrepreneurs who have new ideas, novel approaches, and big visions with long roadmaps. We are not drawn to those who seek to knock off another company and execute it better or in a different geographic market. If that is what you are doing, I am certain you can find investors and I am not looking down on your approach. But we are not the best investor for you and your project.

#VC & Technology

Coming Of Age

I’m out here slingin bringin the drama,
tryin to come up in the game
and add a couple of dollar signs to my name
– Memphis Bleek Coming Of Age by Jay-Z

I'm not going all Ben Horowitz on you. But imitation is the finest form of flattery and I do like how Ben rolls on his blog and in the venture capital business.

I'd like to talk this morning about how hard it is the come up in the venture capital game. I work with a bunch of VCs who are in their early 30s and have less than five years in the business. They work hard, put in ridiculous hours, are on top of all the latest trends, companies, technologies, etc. They meet with tons of companies every week, work hard for their portfolio companies, and are on planes flying around to the important confereneces and demo days. I can assure you they are working harder than I am.

But when it comes to winning deals, they have a distinct disadvantage. They can be working on a deal for a year or more, and then when the entrepreneur decides to raise funds, a more experienced VC such as myself can swoop in, spend a week or two building a relationship with an entrepreneur, and take the deal away from them. I've seen it happen. I've done it myself.

They make rookie mistakes. They let a reporter hang out with them for a week thinking they can trust them. They talk when they should be listening. They overpay for deals thinking that will win the deal for them. They use their phones in board meetings. They fight with entrepreneurs over meaningless things.

When I see these things I cringe. Because I've been there and done that. I spent the first ten years (maybe 15) of my time in the venture business as a young VC trying to make it in the game and not really knowing how. I've made all of these rookie mistakes and more. I feel for them, I often mentor them, and I really enjoy working with young VCs.

When a young person asked me about getting in the venture capital business, I advise them not to. I think VC is an experienced person's game. Startups are not so much. Startups are a great place to be in your 20s and 30s. VC is a great place to be in your 40s and 50s.

I look at Ben and his partner Marc and think "they did it right." They got into the venture capital business when they had all the experience one could ever want working with startups. They don't lose deals to more experienced VCs. They win deals over more experienced VCs.

But of course many young VCs made the decision to get in the game at an early age and are committed to making it work. They are going to have to take their lumps. Make the mistakes. Learn from them. Continue to work harder for less results to show for it. And lose deals they should win.

One of the things I did not do very well that many of these young VCs are doing much better is building relationships with more experienced VCs. As I said, I work with a bunch of them. Teaming up with a more experienced VC can help you win a deal, you can learn from them in the board room, and you can ask them for advice when you screw up.

Going back to where we started this post to end it, I like how Jay-Z and Memphis Bleek partner up in Coming Of Age. That's the way to do it.

[JZ] Hahahh I like your style
[MB] Nah, I like YO’ style
[JZ] Let’s drive around awhile

#VC & Technology

From The Archives: The Poker Analogy

I've written 5,680 posts according to Typepad. There are a lot of gems in the back catalog here at AVC. So I'm occasionally going to feature old and possibly forgotten posts under the tagline From The Archives.

I've been playing a lot of poker while on our ski vacation. The youngsters think they've got game and in fact they do. But I've been holding my own and am up nicely on the week.

Which brings me to a post I wrote in November 2004 called The Poker Analogy. Here it is without the intro and with a few edits.

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Poker is an incredible game.  It is about risk management and knowing when to go for it and when not to.  So is the VC business.

Early stage venture capital is a lot like poker.  The first round is the ante.  I think keeping the ante as low as possible is a good thing.  I like to think of it as an opportunity to play in the next round and to see the cards.  Clearly, we don't ante up to just any deal, but it is very useful to think of the first round as the ante.

For the first year or 18 months, however long the first round lasts, you get to "see your cards".  You learn a lot about the management team.  You learn a lot about the market you've chosen to go after.  You learn about the competition and a whole lot more.

Then you have to decide whether to you want to see "the flop", that is the next year to 18 months.  The price to see that is usually higher.  If you don't like your cards (ie the management team, the market, the competitive dynamic, etc) then you fold.  Cut your losses.  Preserve your capital.  Wait for the next deal. 

In poker folding is simple.  In the VC business, it's not that simple.  Sometimes you can fold by selling the company or the assets.  Other times, you need to shut the business down.  It's not easy and many inexperienced VCs make the mistake of playing the hand out because they don't want to face the pain of folding.  That's a bad move.

If you structure your deals appopriately, you can often get three or four rounds (three or four flops).  As your hand strengthens, the cards get better, you increase the betting, putting more money at risk in each subsequent round.  That's how smart poker players win and its also how smart VCs win.

The poker analogy only works so far.  Bluffing doesn't work in the VC business.  If you've got a bad hand, you really can't bluff your way out of it.  But on the other hand, you can impact the cards you've got.  You can work with management, beef it up, switch markets, buy some businesses, etc.  You can significantly improve your hand if you work at it, something that's not really possible in poker.

This is why I think VC is mistakenly seen as risky.  Sure the ante is very risky.  But if you play your hands right, the subseqent rounds are much less so, and the fact that you can put most of your capital to work in the later rounds makes the total portfolio a much less risky proposition than the upfront ante.

#VC & Technology

The Board Of Directors - The Board Chair

Continuing our series on The Board Of Directors, this week I'll talk about the role of the Board Chair.

The Board Chair runs the Board Of Directors. He or she is a Board member with the same roles and responsibilities as the other Board members. But in addition, the Board Chair is responsible for making sure the Board is doing its job. The Board Chair should make sure the Board is meeting on a regular basis, the Board Chair should make sure the CEO is getting what he or she needs out of the Board, and the Board Chair should make sure that all Board members are contributing and participating. When there are debates and disagreements, the Board Chair should make sure all opposing points of view are heard and then the Board Chair should push for some resolution.

The Board Chair should be on the nominating committee and should probably run that committee. I do not believe the Board Chair needs to be on the audit and compensation committees, but if they have specific experience that would add value to those committees, it is fine to have them on them. Either way, the Board Chair needs to be on top of the issues that are being dealt with in the committtees and making sure they are operating well.

Small boards (three or less) don't really need Board Chairs. In many cases the founding CEO will also carry the Chairman title, but in a small Board, it is meaningless. Once the Board size reaches five, the Board Chair role starts to take on some value. At seven and beyond, I believe it is critical to have a Board Chair.

It is common for the founder/CEO to also be the Board Chair. I am not a fan of this. I think the Chair should be an independent director who takes on the role of helping the CEO manage the Board. The CEO runs the business, but it is not ideal for the CEO to also have to run the Board. A Chair who can work closely with the CEO and help them stay in sync with the Board and get value out of a Board is really valuable and CEOs should be eager to have a strong person in that role.

When a founder/CEO decides to transition out of the day to day management but wants to stay closely involved in the business, the Board Chair is an ideal role for them, assuming that they were responsible for recruiting or grooming the new CEO. If the founder is hostile to the new CEO, then this is a horrible idea.

When Boards get really large, like non-profit boards, the Board Chair is even more important. I've been on a few non-profit Boards over the years. I don't really enjoy working in the non-profit world, but I do it from time to time. I have had the opportunity to watch a couple amazing Board Chairs at work and I've learned a ton from them. The partnership between Charles Best and Board Chair Peter Bloom at Donors Choose is a thing of beauty. Same with the partnership between John Sexton and Board Chair Marty Lipton at NYU. For profit CEOs and Board Chairs could learn a lot from watching these masters at work.

When it works, the Board Chair role is hugely impactful. It allows the CEO to spend their time and attention running the business and not worrying about the Board. The Chair will manage the Board and when the CEO has issues with the Board, the Chair will be clear, crisp, and quick with that feedback and will help the CEO address those issues.

Many CEOs find working with a large group of people who have oversight over their work and performance challenging. It makes sense. Who has ever worked for six or more people at the same time. How do you know where you stand with all of them? How do you know what they want you to do? How do you know what is on their minds? The Board Chair's job is to give the CEO a single person to focus on in dealing with these issues.

The Board Chair job is hard, particularly when the company is in crisis, but it is also extremely gratifying. It is an ideal job for entrepreneurs and CEOs to take on when they are done starting and running companies and want to move into something a little less demanding. I'm always on the lookout for people who can take on this role in our portfolio companies. The good ones are few and far between and worth their weight in gold.

#MBA Mondays

The Management Team - Guest Post From Phil Sugar

Continuing our MBA Mondays series on The Managemet Team, we are deep into the guest post phase. This guest post comes from AVC regular Phil Sugar. I've never met Phil, but his comments here at AVC tell me that he's a very experienced entrepreneurial manager. And so I reached out to him to ask for a guest post. And he responded with this post below. There are so mant great lines in here, I'm tempted to reblog a bunch of them.

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Best Friends, Buddies, and Co-Workers

Since there is no way I am going to be more insightful than Matt or JLM about management process, I am going to go through three early stages of company growth and describe some of the management challenges I’ve faced at each.  As Fred pointed out in his original post, a company’s management evolves.  This is purely environmental, it’s going to happen and you are much better off knowing what to expect. 


At a very early stage: a couple of gals in a garage, nothing gets done unless somebody goes out and does something.  No customers are going to call, no partners are going to want to meet, no bankers, lawyers are going to reach out.  Everything is outward.  Nothing happens unless you do something and frankly anybody calling in to you is probably suspect but that’s another post.  You know exactly what each person is doing because there are so few of you.

As the company becomes a leader in its market with a hundred or so employees, everything is incoming.  Everybody wants a piece of your time, everybody is calling.  You have departments with managers that are larger than your original company.  Managing is critical because of the leverage; the difference between a dozen well managed people in a department achieving goals and a dozen people going in different directions is huge, people specialize in very distinct areas.

It is a gut wrenching challenge to go from one to another.  Once you decide to make the leap from one stage to the next, going back is excruciatingly painful if not fatal.  You can’t hope to meander from one stage to the next because it is a chasm.  It doesn’t mean you have to go to the next stage, many companies are better off not leaping, they are a “lifestyle business” serving a small market, but you better know, not hope the market is big enough to go to the next stage.  Once you scramble these eggs it’s tough to go back, the producers will burn out and the management layer will try to hang on for dear life when you’re caught in the middle.

I’ll start with three management philosophies that stay constant for me.  Understand that once a company gets past 100 or so employees, my skills don’t apply I’m the guy leaving so the company can scale.

I am in charge of recruiting.  I will have somebody managing the process as we grow; departments do the interviewing, but bottom line, if my people are better than your people I win.  College football is a great analogy.  Look at the top coaches.  They always win because they have the best talent.  In college the players pick the team, in the pro’s the teams pick the players.  You bet Nick Saban goes on recruiting trips.  Don’t for a second be lulled into the notion that you are picking employees.  They are picking you and you better be the one they want to pick.  You better have an on-boarding process and it better be good.  My biggest legacy is the network of people I’ve hired and what they’ve gone on to do.

I go on as many sales calls and customer visits as I can.  I’ve been told that once I hire a Head of Sales, I should stay out of the process.  I totally disagree.  I am not going to be the one managing the process, but I want to hear what the market is saying directly.  A salesperson can’t be objectively assess the market, they are too close, their livelihood depends on the sale, same for the VP.  They have to be optimistic, they have to try and make the fit whether it’s pushing the company to do something or pushing the customer to accept something.  The best information you are getting from them on your market is second-hand hearsay.  I’ve sat on boards and watched as projections get trashed as sales get pushed from one quarter to the next and the CEO sits by helplessly, not knowing why as they weren’t on the calls.  I am not going to be that guy.

The top producer makes more than the manager.  If the only way people think they can make the most money is to manage you lose your best producers in sales and development, and they generally don’t make good managers, they are just too good at doing.  This is the only way you can keep the producers happy, it’s the same in pro-football: great players make more than the coaches.  The very important corollary is that everybody knows everybody’s salary no matter how hard you try, so you can’t fake it.

Best Friends:  When you are a handful of people trying to make something out of nothing there are no management challenges.  Everybody knows what everybody is doing and everybody does anything.  The real challenge is do you have a team with the right skill-set to complement each other and just get the job done and is the market there?  Nothing less than total blind commitment works at this stage.  If you achieve your goal, get traction and the market smiles on you remember these people.  They are the team that you came on the field of battle with against great odds and succeeded.  You don’t leave the field without them.  You help position and grow them.

Buddies: This is when you have up to twenty people.  People say you can only manage eight, but I think if you’ve hired great people that can stretch to twenty.  You are going to have department leads but they aren’t really managers as much as they are the leading producer or a manager that is back in the role of producing.  In this stage the biggest challenge is getting the right mix.  You need people that are willing to work their tail off to get to the next level and you need people that are used to working at the next level that are willing to go outbound because they believe in the vision.  I.e. roll up their sleeves and code, carry a bag etc.   A big challenge is some of those senior people don’t fit into your current salary structure because of their work history.  The lesson I’ve learned over and over is to either pay the salary and move other people up or not pay the salary.  Paying the salary and not moving people up means:  “I put in huge sacrifices and now you bring in some guy from outside and pay him what?”  

You are going to have to start tracking commitments because there is going to be interplay between small departments.  Don’t run the company with email, setup a process.  Set the stage where the only people that can make commitments are those that are delivering.  Sales can’t be committing for development, development has to take sales input.  Orchestrate between the departments.  Don’t let one area dominate over the others.  That’s tempting to do especially in the area where you are strong.  

Keep administration as simple and lean as possible, try and think how do I make things simple and cheap? Not we need to act big and big is complicated and expensive.  Remember your biggest strength is your agility, don’t lose it.  You can make the wrong decision three times and get it right on the fourth faster than BigCo can make a decision.  Keep meetings short and tight, there should be minimal meetings of internal employees only, nothing happens inside your office.   If you are like me you need to find a good operations person, one that manages all of the details.

Co-Workers: Now you’ve decided to make the mad dash from 20 to 100 employees.  The reason it’s a mad dash is because you will have to put in all the overhead of formal departments and management but you won’t have the revenue and people to offset the cost.  

People are going to try to build fiefdoms.  Keep it lean, keep it flat.  Always make sure that you have one less person in each department than people think you need.  Keep politics out of it.  Make sure people realize that if they complain about somebody without going directly to them first, they most likely might be the person in trouble.  

There are going to be resentments if people get passed by, hopefully they’ll be few; there are going to be issues where the first employees feel like it’s not the place it once was because what was a company where you could go grab a beer with friends at a table, has grown past the stage where buddies can just show up to a bar, and has graduated to the point where you need to plan events for employees.  

Hopefully the vast majority of those that were with you at the early stages can look back and say: “Look what we’ve built and how I’ve grown!!”

#MBA Mondays

The Management Team - Guest Post From JLM

Next up on our guest posts on the subject of The Management Team is AVC community regular JLM. For those that don't know, JLM runs a public company and before that built and sold a large real estate operation. He's also written one of the best guest posts ever on AVC. With that intro, here's what JLM has to say on the topic. I love the way he ends the post.

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Congratulations, you have built a prototype.  Got it to work.  Debugged it.  Even sold a few copies.  Have some real customers.  Now you are ready to scale up and make some real money.

 

You have crossed that Rubicon from having an idea to having a product and customers.  Now you have to build an organization, a real company, to manage the entire process.  Or your fledging little company has to evolve from crawl to walk to run.

 

You may look yourself in the mirror and say — “Well, I know a lot about my product, even its market and competitors but what the heck do I really know about building a company?”  Can I do this?

 

The simple and truthful answer is “Yes, you can!”  If you don’t think so, here are some tips to take you from the garage to the executive suite.

 

Bad news — your generation did not invent sex.  It does not have to invent the crafting of companies either.  Someone else has also done this before.

 

Create a clever and insightful graphical representation of the business model which will become your company.

  1. Identify who the customers are and why they will pay money for your product.  This is the revenue side of the model.

  2. Identify the elements which must be incorporated into your product to create it.  This is the expense side of the model.

  3. Identify all the management functions which are necessary to transform the ingredients into the product and to educate the customers and to make the sale and to manage the money.

  4. Identify the competitive forces that are lurking in the darkness wanting to destroy you — the ones that are real and the imaginary ones.

Make a drawing of all of this on a single very large piece of paper and then marvel at what you have done.  Do it about ten times until you have perfected it.  It keeps getting better each time.

 

This is the company you will have to create.  The one that can operate this business model.  The one which can deliver your product to the marketplace and make a buck in the process.

 

Make an organization chart which shows each of the functions that are necessary to operate the business model.

  1. Make it a functional chart and don’t worry that it turns out very close to what every company ever created looks like.  That is good.  Remember, you did not invent sex.

  2. Identify the functions which are “essential” and those which are “nice to have”.

  3. Now identify what you can afford and what you can stretch to afford and those which are simply out of reach for the time being.

You have now identified your immediate, short term and long term organizational imperatives.

Take the business model and the organization chart and color code it to identify your own personal strengths and weaknesses.  If you have a co-founder, put his up there also.  Now you have identified those elements of leadership and management that you can provide and those you will have to hire from the outside.  Be tough on yourselves; don’t undertake a task you hate just for the ego enrichment of it all.

 

Be prepared to hire people who are fabulous in their fields.  Hire a Chief Financial Officer you cannot possibly afford and tell him he is the “financial conscience of the company”.  Meet with him weekly and never miss a meeting.

 

Now take the business model and the color coded organization chart and create a schedule of how you will build the organization.  Which functions will be added first and why?  The business model will tell you what and the color coded organization chart will tell you who and the schedule will tell you when.

 

That is really all there is to it but you will want to consider the following considerations:

  1. It will not be perfect out of the chute.  You will do some stuff that does not work.  Just re-engage and do it over.  It’s going to be OK.  Really punish yourself — just kidding.  Learn to laugh at yourself.

  2. Understand that everything in life is iterative.  You do something.  Get better at it.  Get better at it some more and one day you laugh to remember how naïve you were when you started.  Ever learn to ski or snowboard?

  3. Do the formulaic and fundamental stuff and get it done but only do what you really believe.

Vision, Mission & Values

  1. Vision — big dreams and little dreams all cost the same, so go with the big ones so that if you only accomplish fifty percent, it will still make your Momma proud.

  2. Mission — simple, direct and jettison every extra word.  The mission of the Infantry — “Find ‘em. Fix ‘em.  Kill ‘em.”

  3. Values — sweat this one because you will have to live this one.  If you are going to take risks and run with the bulls, this is where you let everyone know.  Don’t be afraid to say that “frugal” is a value.  I like frugal.

Every new employee hears the values part of the company from you and only you.  Wear a suit and a crisp white shirt and a tie and tie shoes.  Do it in the first five minutes of their employment.  They will never forget that.  Don’t discuss them, tell them.  Difference between a tattoo and magic marker.

  1. Job descriptions — don’t hold out for a Pulitzer but put some thought into it.

  2. Copy the absolute best exemplars you can find out there.  They are out there.  Be a copy cat.  Read Drucker.

  3. Make all your decisions about equity upfront and don’t be afraid to say that you have to “earn” it.  Understand that equity is an element of compensation and sometimes it is not even in the top three.  

A good comp plan includes: 

  1.     Salary;
  2.     Benefits;
  3.     Short term incentives (measurable performance based bonus);
  4.     Long term incentives (equity); and,
  5.     Something special (work from Colorado two weeks per year).
    1. Develop a philosophy of management.  Write it down.  Try it out on some folks whose wisdom you admire.  Put it to work.  Live it.

    2. Get a mentor, a rabbi, a gray haired eminence who is willing to work with you.  Golfers get swing coaches but great swing coaches work on the golfer’s head as much as his back swing.  Get a professional coach.

    3. Do not be surprised that everyone in the company does not share your passion.  That is the curse of being an entrepreneur — you see and care about things other people don’t even know exist.  I would rather be a Captain of a rowboat than the second in command on the QE II.

    4. Do not make changes, conduct experiments.  Nobody can resist an experiment.  Experiments that work well have a thousand fathers and mothers.  It becomes their idea.

    5. Brainstorm at least once a month.  Honest to God, uninterrupted brainstorming.  There are no bad ideas.

    6. Learn to critique yourself.  Learn to talk yourself down off the ledge.  Be thoughtful.  Take the lowest echelon of the company to lunch once a month.  And then talk to them.  Listen to them.  Make one change they came up with and you will become a legend.

    7. In any organization, you rarely receive power.  You take power.  You wield power.  The most powerful people will things to be done they don’t order them to be done.  That is real power.

    Ooops, I see the hook.  So I must go.  Good luck.  Remember — you can do it.

    #MBA Mondays

    The Management Team - Guest Post From Matt Blumberg

    Now that I've completed three posts on The Management Team over the last three MBA Mondays, it's time for four or five guest posts on this topic. The first one is from Matt Blumberg, CEO of our portfolio company Return Path. I've been on Matt's board for over a decade and I've watched him develop into one of the finest managers I've had the pleasure to work with. Here are Matt's thoughts on this topic.

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    When Return Path reached 100 employees a few years back, I had a dinner with my Board one night at which they basically told me, “Management teams never scale intact as you grow the business.  Someone always breaks.”  I’m sure they were right based on their own experience; I, of course, took this as a challenge.  And ever since then, my senior management team and I have become obsessed with scaling ourselves as managers.  So far, so good.  We are over 300 employees now and rapidly headed to 400 in the coming year, and the core senior management team is still in place and doing well.  Below are five reasons why that’s the case.

    1.       We appreciate the criticality of excellent management and recognize that it is a completely different skill set from everything else we have learned in our careers.  This is like Step 1 in a typical “12-step program.”  First, admit you have a problem.  If you put together (a) management is important, (b) management is a different skill set, and (c) you might not be great at it, with the standard (d) you are an overachiever who likes to excel in everything, then you are setting the stage for yourself to learn and work hard at improving at management as a practice, which is the next item on the list.

    2.       We consistently work at improving our management skills.  We have a strong culture of 360 feedback, development plans, coaching, and post mortems on major incidents, both as individuals and as a senior team.  Most of us have engaged on and off over the years with an executive coach, for the most part Marc Maltz from Triad Consulting.  In fact, the team holds each other accountable for individual performance against our development plans at our quarterly offsites.  But learning on the inside is only part of the process.  

    3.       We learn from the successes and failures of others whenever possible.  My team regularly engages as individuals in rigorous external benchmarking to understand how peers at other companies – preferably ones either like us or larger – operate.  We methodically pick benchmarking candidates.  We ask for their time and get on their calendars.  We share knowledge and best practices back with them.  We pay this forward to smaller companies when they ask us for help.  And we incorporate the relevant learnings back into our own day to day work.

    4.       We build the strongest possible second-level management bench we can to make sure we have a broad base of leadership and management in the company that complements our own skills.  A while back I wrote about the Peter Principle, Applied to Management that it’s quite easy to accumulate mediocre managers over the years because you feel like you have to promote your top performers into roles that are viewed as higher profile, are probably higher comp – and for which they may be completely unprepared and unsuited.  Angela Baldonero, my SVP People, and I have done a lot here to ensure that we are preparing people for management and leadership roles, and pushing them as much as we push ourselves.  We have developed and executed comprehensive Management Training and Leadership Development programs in conjunction with Mark Frein at Refinery Leadership Partners.  Make no mistake about it – this is a huge investment of time and money.  But it’s well worth it.  Training someone who knows your business well and knows his job well how to be a great manager is worth 100x the expense of the training relative to having an employee blow up and needing to replace them from the outside.

    5.       We are hawkish about hiring in from the outside.  Sometimes you have to bolster your team, or your second-level team.  Expanding companies require more executives and managers, even if everyone on the team is scaling well.  But there are significant perils with hiring in from the outside, which I’ve written about twice with the same metaphor (sometimes I forget what I have posted in the past) – Like an Organ Transplant and Rejected by the Body.  You get the idea.  Your culture is important.  Your people are important.  New managers at any level instantly become stewards of both.  If they are failing as managers, then they need to leave.  Now.

    I’m sure there are other things we do to scale ourselves as a management team – and more than that, I’m sure there are many things we could and should be doing but aren’t.  But so far, these things have been the mainstays of happily (they would agree) proving our Board wrong and remaining intact as a team as the business grows.

    #MBA Mondays

    The Management Team - While Building The Business

    This is the third and final post on the subject of the management team. The final phase of company development I am going to cover is "building the business." Building the business largely means building the management team. They are one and the same.

    Many founders are naturally talented at building product and building the user base. But building the company comes harder to them. I once discussed this with Roelof Botha and he made a fantastic suggestion. Founders should think of the business as yet another product they are building. It is the ultimate product they are building because from the company can come any number of additional products and any number of additional initiatives. The company, if built correctly, will be more important than any single product it can create. Think about Steve Jobs and all the amazing products he created. But Apple is the most important thing he created. So building the business requires a deep commitment from the founder. At the appropriate point, they must turn their attention to it and make it their top priority.

    Let's quickly review the three stages so founders will know when they must turn their attention to building the company. The first stage is building the product. That is before product/market fit has been obtained. The second stage is building the user base. That is the period where you, either through organic growth or sales and marketing, build the user base to a level where you are certain you can build a long term sustainable business. Once you've built the user base to the point you know you can build a business, you enter the building the company stage.

    As I said before building a company means building a management team. You start with a senior management team. You will need leaders for every part of the business. You will need a leader for your engineering team, you will need a leader for your product team, you will need a leader for your customer support/community team. You will need leaders for finance, marketing, sales, and business development. And to help you build and manage all of these people, you will need a experienced and talent HR leader.

    Many founder/CEOs don't look for a partner to help them build the company. I think that is a mistake. The HR leader can be this person. But you need to recruit someone senior and experienced enough and make them an integral part of the senior team if you really want a partner to help build the company. I have also seen founder/CEOs recruit a strong number two, a President or COO, to help them with the company building piece. That can work too if the President or COO is a strong manager and team builder.

    Companies are not people. But they are comprised of people. And the people side of the business is harder and way more complicated than building a product is. You have to start with culture, values, and a committment to creating a fantastic workplace. You can't fake these things. They have to come from the top. They are not bullshit. They are everything. There will be things that happen in the course of building a business that will challenge the belief in the leadership and the future of the company. If everyone is a mercenary and there is no shared culture and values, the team will blow apart. But if there is a meaningful culture that the entire team buys into, the team will stick together, double down, and get through those challenging situations.

    Building a company is the most interesting work I know of. It is what every entrepreneur should set out to do. A company is a self sustaining entity that expresses the hopes, dreams, vision, values, and culture of the founder and leaders. It is an amazing thing and I have been blessed to watch a number of incredible companies be created.

    Some startups won't reach this stage. That is the way it is. But for those that do reach this stage, I challenge all of you to step up to the work of company building with a passion and commitment for it. It will not be easy. It will be among the hardest things you will do. But the rewards are so great. Atoms and bits can be assembled to create fantastic things. But it is the things you build with people that are the most fulfilling of all.

    #MBA Mondays