Posts from MBA Monday

MBA Mondays: Culture And Fit

Kicking off our series on People, I am going to talk about the importance of culture and fit in the hiring process. What I have to say on this topic is mostly aimed at companies that are going from five employees to five hundred employees, but I do believe it is applicable to companies of all sizes.

I want to start with something I wrote in another MBA Mondays post, on the management team:

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.

So this is what you want to create in your hiring process. Some entrepreneurs and CEOs buy into "hire the best talent available" mantra. That can work if everything goes swimmingly well. But as I said, it often does not, and then that approach is fraught with problems. The other approach is hire for culture and fit. That is the approach I advocate.

Hiring for culture and fit does not and should not mean "hire a bunch of white guys in their late 20s and early 30s." Diversity should be a core value of the team building process. There are many reasons for this but most importantly you want a diversity of thought, experience, mindset, and angle of attack.

Don't hire a token woman. Hire as many women as you can. Don't hire a token person from another country. Hire from all around the world (and become an expert in our bullshit immigration system). Don't hire a token "gray haired" type. Hire up and down the age and experience spectrum.

But most importantly, hire people who will enjoy working together, who fit well together, who will make each other better. This is what hiring for cultural fit means. You start with the founding team and build on top of that. If your engineering team is serious and likes to work until midnight every day, you want to consider that when hiring new engineers. A new engineering team member who wants to go out drinking after work every night is not going to be a good fit on that team.

You also don't want to create silos in your organization. I see companies where the engineers sit on one side of the office and the sales people sit on the other side of the office. And it is like two different companies. That can create issues and cultural divides. It is tempting to set things up like this because sales teams are loud and animated and engineering teams tend to be quiet and serious. But try to connect these different parts of the organizations in as many ways as you can. Make sure everyone is on the same team and enjoys working together.

So when hiring, you must start with what you already have. Take measure of the vibe of the company, the work habits of the company, the strengths and weaknesses of the current team. It's like a jigsaw puzzle that is only half built. You are looking for the next piece that will fit nicely into what is already there.

This jigsaw puzzle analogy is why it is hard and a bit dangerous to hire up super fast. You can fit one new puzzle piece into an existing puzzle fairly easily. But if the puzzle is a moving target because so many pieces are coming in at once, it gets a lot harder. And it is likely you will make a bunch of bad hires who don't fit well into the organization. And when they leave the company, it will be your fault, not theirs.

It helps a lot to have a one pager that outlines the core values of the company. I just saw our portfolio company Twilio's version of that. They call it "Our 9 Things." I wish I could publish it here but I don't have permission from Jeff and so I will resist the urge. It has things like "think at scale" and "be frugal" on it. You get the idea I hope. This "guiding light" is a framework for the culture and values of the organization and each new hire should be assessed against the framework to make sure the fit is good.

You, as the founder and CEO, can drive this for a bit. Maybe up to the first twenty or thirty hires. But you are going to need help as the company grows because this is hard, really hard. So getting a person hired onto the team who is totally focused on the team and team building is critical. And make sure they are a good cultural fit when you make that hire. Because they are going to be the torch carrier for your culture along with you. It will be among the most important hire you will make in you startup. More on that to come as this series develops.

#MBA Mondays

MBA Mondays Series: Human Capital

When I asked everyone where to go next last Monday, I got a ton of great suggestions. But at the top of the list, with 24 upvotes was this one by Robert Holtz:

How about the job of recruiting talent?

Finding/attracting the right key people, where to go to find good hires, getting headcount dialed in right at various stages of development, in-house versus outsourcing (when to do or not to do each), good hiring practices (i.e. interviewing, evaluating, selecting new hires among candidates), and also the evolving VC's role (some, as you know, are not just advising in this area but actively functioning as a recruitment partner/talent agency).

So over the next roughly ten Mondays we will explore the issue of Human Capital on MBA Mondays. This is indeed a huge one. Possibly the single most important thing you will face in building a business.

It is not my sweet spot. I'm more of a product, strategy, finance person. But I've developed a huge appreciation for the role of human capital in a startup over the 25 years I've been in the venture capital business and I spend as much time on this as anything else these days. So I am going to give it my best shot and then call in the experts.

Here's a basic outline (taking a lot from Robert's comment):

– The importance of culture and fit when hiring

– Where to find strong talent

– Optimal headcount at various stages

– Best hiring practices

– How to leverage your partners (including your investors) in the hiring process

– Guest posts from several top HR/CPO executives

– Guest posts from several recruiters

– Guest posts from several CEOs who excel in this area

It should be a good series. I am looking forward to it.

#MBA Mondays

MBA Mondays: Where To Go Next?

We just wrapped up a series on The Board Of Directors which was preceded by a series on The Management Team. I have come to like the series format for MBA Mondays because it allows me to plan out a series of up to ten posts in a row and then work on them one at a time. It is a lot easier than coming up with a new topic every week.

I have done a total of 114 MBA Monday posts including a number of series; Accounting, Budgeting, Employee Equity, Mergers and Acquisitions, Financing Your Company, The Management Team, and The Board Of Directors. Looking back at all of those posts, we've covered a lot. It's been rambling at times and highly structured at times. There is a lot there.

But the question for me is "where do we go next?" What topics interest all of you? I'd like to keep going in the series format, so ideally these topics would be meaty enough to justify a series and not just a post.

Please leave your suggestions in the comments.

#MBA Mondays

MBA Mondays Live: Employee Equity - Archive and Feedback

The first MBA Mondays Live class was last monday night.

I had an incredible time and I can't wait to do it again. There isn't much better in life than standing up in front a bunch of eager learners teaching something you know well.

The archive and photos from the event is permantly hosted on this link.

Here's the video of the entire class.

I'd like to get feedback on the class so I can improve it. So I've created a google form with a few questions on it. If you attended or watched the class and have five minutes to give me feedback please click here and fill out the form. I appreciate it.

I have watched the first fifteen minutes of the class and I've got some work to do on my delivery, speed (I was rushing), and crispness. And there are two math mistakes on the whiteboard. That really bugs me. The final dilution number for the founders in the dilution table should be 58.5% not 64.5%. And the number of shares to issue the CFO should be 75k shares not 46k shares. This first class feels a lot like the beta that it was.

My plan is to teach this same material live again, probably a couple more times. If I don't sell out, that will tell me that everyone who didn't get into the first class watched the livestream or the archive and that I should move on to a new topic. But I'm not sure that is the case so I will test that out. I don't plan to livestream this class again since we already have a video version it.

As I develop additional classes, I will livestream and archive the final class on the topic when I've got the material and pacing nailed down. That was a big takeaway from this experience.

All in all, this went extremely well. The basic setup of an in person class with a livestream and an archive is a format that works. I plan to use it to teach as much of the MBA Mondays material as I can in the coming years. That's exciting to me.

#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

MBA Mondays Series: The Board Of Directors

John Revay sent me an email suggesting I write a post on The Board Of Directors. I've got a better idea, a whole MBA Mondays blog series on this topic. I have come to enjoy the series format for MBA Mondays. It works well.

So I will write a a few posts on this topic:

– the role and responsibilities of the Board Of Directors

– how a Board Of Directors is selected, elected, and evolves

– the role of the Board Chairman

– Board chemistry and why it is so important

– Board meetings, how to make them work well

– Board committees – audit, comp, and governance

If I'm missing something important, please let me know in the comments.

Then I'll invite several guest posts. I have a few people in mind who I've come across over the years who know a lot about this topic. I'll probably end with three or four guest posts.

It should be a good series. I'm looking forward to writing it.

#MBA Mondays

M&A Case Studies: ChiliSoft

The AVC community's very own Charlie Crystle has a great story about the sale of ChiliSoft at the height of the late 90s bubble. I've asked him to tell it as case study number one in the M&A Case Studies on MBA Mondays.

We will be discussing this case in the comments. There's a bit of shorthand in Charlie's story and not everyone will understand it. Please join the discussion, ask any questions you have, and the community and I will answer them. Do not be shy. I have a busy day today, first day back after two weeks away, so I may not be active in the comments until this evening.


When Fred asked me to post about the ChiliSoft acquisition for MBA Mondays, I immediately thought “I don’t have an MBA”, and “it was such a weird set of experiences”. I hope it's useful to someone. Here’s part of the story, skipping lots of details. (For an invite to my latest startup, see the end of the post).

ChiliSoft sold for $100 million in 2000. Or $70 million. Or $28 million. It depends on the date you choose, the built-in triggers, and ego. Notably, from December 1999 to May 2000, my stake dropped from 40% to 15% when the deal closed. Most employee stakes dropped as well–but not all employees.

My point at the end of this post will be something like this: sweat the details.

Some context.

I started ChiliSoft in 1996 out of my software services company in Lancaster, PA. I had no money, and Dad had just passed away days before. It was a tough time, but I saw this huge opportunity for adding functionality to web servers so I took the deep plunge.

I tried raising money nearby, but in those days there wasn’t a firm like First Round in PA that really got the space, so I headed to the West Coast with a credit card, deeply believing in our mission to take over the world. Tip: try to take over the world.

To save money, I slept on Ben’s (my attorney) floor as I bounced around the Valley trying to get meetings and raise money. Ben finally got me a meeting with DFJ, and a few months later Warren Packard and Steve Jurvetsen produced a term sheet. Tip: floors are cheaper than hotel rooms.

Warren and I signed the term sheet for $1.4 million on a Sunday night at 11 pm at a bar in a casino in Las Vegas–completely emblematic, it seemed. But I was out of debt–DFJ saved my life, in a way. Tip: try not to run up debt–it’s unlikely you’ll be saved by Series A.

That Series B deal was nuts–$3.7 million on $19 million pre-money, with about a million in revenue, perhaps, and a cap on the preference. That meant if we sold for more than $42 million, Series B simply got its pro rata share–and everyone would be thrilled. Tip: don’t create the wrong incentives.

Over the next year and a half, we fired the CEO, and I ended up taking the CEO job back. I wasn’t a popular guy with investors for that, but my gut (informed intuition) said that we needed to cut the bullshit and sell software. I figured they’ll like us when we win. Tip: they’ll like you when you win.

The chill set in, so I focused the company on sales, and kept sending reports to the board. We increased revenue in that next quarter by 3 times the prior one, and things thawed. Tip: communication matters with investor relationships.

I started a CEO search; I really didn’t want to run the company, but also didn’t want to see someone run it into the ground. A few months later, we had our guy. Tip: run the company, get help with ops.

At the same time, we were lower on cash than was comfortable, and I had the choice of cutting from 35 people to 9, or bringing on the CEO and making sure he had cash in the bank. DFJ and the other firm offered an onerous bridge: monthly escalating warrants, and a controlling board seat. I didn’t really grok the meaning of the warrants. Tip: sweat the details.

I didn’t want to send people home and our pipeline was strong, so I chose to keep the ride rolling and go with it. Everyone was surprised when I wasn’t fired right away, but there I was, still employed. 

That Fall a great sales/biz dev guy, Brian Pavicic, asked me to attend a conference with him. He was incredibly excited about a potentially big licensing deal with Cobalt Networks, which made linux servers for ISPs. ChiliSoft had a number of large ISP partners, like PSI and ATT, and that kind of distribution at the time was a big win.

Somewhere in the conversations the talk turned to a merger–Cobalt saw our application server as a strategic edge, and admired our traction with major customers like Excite. And that’s where it gets murky for me; I had been focused on launching a suite of small business apps on top of ChiliSoft, and the talks went on without me.

A month later I  got the voicemail from Ben. “Just make it easy, accept the severance, you’ll make a lot of money in the sale…”. I sat down in the CEO’s office and acted like I didn’t know anything, and talked about how excited I was about the company, and how he was doing so well, and…he could have at least had the balls to tell me himself. Tip: You won't always be indispensable.

I imagine they wanted me out because I was dogmatic about the direction of the company–I wanted to make the engine free and sell apps into it, like the CRM system I was building–and they wanted to get the company sold and get liquid. Besides, CRM wasn’t going to be big or anything. But I was difficult, admittedly.

So I left, a bit bitter and burned out, and spent a few weeks more in Seattle to take in the WTO riots and plan my trip home. Tip: stay away from riots after getting fired from  your startup.

Fast foward to the deal.

The deal was struck at $100 million In January 2000. But the VCs insisted on fixing the number of shares, not the value of the deal. A month later, they looked like geniuses: the deal was worth $135 million. Next month, $70 million. It closed in May at $28 million, 72% down from the deal price. Tip: fix the price, not the stock.

The management team also threatenend to quit if they didn’t get an additional 10% of the deal. JLM's rule is "if anyone goes to the pay window, everyone goes to the pay window" and I bet he'd add "and no double-dipping." 

The US doesn’t allow management to hold a company hostage in a transaction like that without suffering a massive tax consequence, unless they get approval from the majority of shareholders. That would be me and a few others.

From my perspective they already had better than average option allocations, and I didn’t believe they would walk. But at that point I basically decided to stop paying attention to the details, and just get it done, after a threatening call from the Cobalt CFO. Fun stuff.


So how did my stock drop by 62% in 6 months? Three things: escalating warrants, management shakedown, and the timing of one of the dips in Cobalt’s wild ride in 2000. The deal closed below the $42 million threshold at $28 million, which triggered more magic. The management shakedown took another 10%. Tip, again: sweat the details.

And the escalating warrants? Let’s just say it made DFJ very happy. They made ( I think) over 15 times their original investment, with a big boost coming from the bridge deal). Overall I owe a lot to those guys–learned a lot, made a lot, and don’t regret much of it. Tip: you don’t have to accept a bad deal–at least try to negotiate.

Some final tips: Run your company–you’ll figure it out. Get good advisors, but follow your gut. Don’t touch anything with escalating warrants. Be generous with employee options and make them meaningful.

And once you close your acquisition and get your stake? Don’t let it ride, especially in a bubble. I did. Then Sun bought Cobalt and dropped 97% in value. I sold enough stock to invest in a few startups and support some great nonprofits, but it was a huge, huge hit.  Founders love to take risks, but we’re notorious for taking stupid risks with our own money.

My Next Big Thing? Something new around search–get an invite here. I’m raising capital and building a team, and would love to hear your thoughts on it. 

I hope some of this has been helpful!

#MBA Mondays

The MBA Mondays Curriculum

I've gotten a number of suggestions about turning MBA Mondays (including the amazing comments from all of you) into a textbook. That's not going to happen. I don't want to publish these MBA posts in yesterday's technology. I want to publish them in tomorrow's technology. And I want them to be free and available forever to anyone with an internet connection.

So I am thinking outloud about how best to do that. I am thinking of publishing them in mediawiki or maybe something like Moodle. I want to use open source software that is hosted in the cloud. I am happy to pay for the hosting and probably will do that to insure the content stays online. I want a content/learning management system that can handle the comments which are supplemental to the original posts and that recognizes the supplemental material. I want the comments to include attribution as they do now.

I want the content to be easily, quickly, and tightly searchable. I want it available on any device that contains a web browser. I'd like the content to be optimized for browser based reading devices like android tablets and iPads. And I want the content to be discoverable by any search engine that crawls the web.

I may want to make the content available as an app in the major mobile and web app stores so it can be discovered via those search and discovery mechanisms too.

I think those are my basic requirements. I'd love to get everyone's suggestions and opinions on how I should do this. Please leave them in the comments so I have a single place to browse all of your suggestions.

#MBA Mondays#Web/Tech