December 5, 2012
We had our annual Limited Partner meeting last week (Limited Partners, or LPs, is the legal name for investors in venture capital funds). It was a terrific meeting. We had a bunch of exciting new news to talk about – 2012 has been pretty good to us. And as always, we spent a good deal of time talking about our challenges and failures.
As I reflect now on the feedback we got after the meeting, the theme I am most proud of is exemplified by this comment from an LP, “You guys are always straight with us. There’s always some bad news, and you don’t try to bury it. Instead, you talk about what you’ve learned from it.”
Indeed, in the venture industry, where we build portfolios of very risky bets, there is always bad news. As I structured the story for our meeting last week, I made sure we were (a) direct and honest about that news and (b) put it up front (I’ve always been a “gimme the bad news first” kind of guy).
This is, unfortunately, a very different approach than what I see from most entrepreneurs. In the hyper-competitive, high flying environment that has characterized the past couple years in StartupLand, it seems like everyone feels compelled to tell a story about their uninterrupted run of dramatic success. Entrepreneurs bend over backwards to tell revisionist tales of their history, burying the challenges and dead end strategies burn time and resources in nearly every startup.
I’m here to tell you that if you come to me spinning a tale of uninterrupted progress and positive developments, then I can be certain that you are doing one of two equally unappealing things:
- You’re in denial about your own reality, and aren’t focused as a CEO on understanding your failings and learning from them, or
- You know where you’ve made missteps, but you’re not the sort of person who believes that the best course in such conversations is to be direct and authentic in what you represent to potential partners.
The former is certainly a killer. If you are that blind to reality, you’ll never raise a dime from me, no matter how strong your successes have been. But the latter is equally bad – I just won’t enter relationships with people I can’t be open and honest with.
When VCs invest in startups, we are investing in the formation of a partnership between entrepreneur and investor. When from the get-go that partnership is characterized by the entrepreneur putting the best possible spin on every situation, things are doomed to get irretrievably challenged when times get tough.
What too many entrepreneurs fail to see is what a positive thing authenticity can be. Hiding these lessons learned (or worse, not reflecting on your failings enough to even see the lessons!) denies you the opportunity to trumpet something almost all investors appreciate – your lessons learned from hard knocks taken. The startup ecosystem is built on an understanding and even celebration of failure. So please, let us hear it.
When pitching your business, you can trust that I will listen to you the way my LPs listened to me. We both know that you’ve done a bunch of things wrong along the way. So let’s be honest about that and focus on what you’ve learned and how that is shaping your strategy moving ahead. Think of the difference in customer response between Steve Jobs’ handling of ‘Antennagate’ and Jawbone CEO Hosain Rahman’s handling of the failure of his UP product. How would you rather be perceived?
All the best CEOs I’ve worked with manage to delicately balance two seemingly conflicting things – an overwhelming confidence that often borders on arrogance, and a willingness to acknowledge mistakes, reflect on them, and move on having learned. Most of the bad ones have the former in spades. It’s how the latter gets carefully integrated into that confidence that becomes a real differentiator.
I try to embody that reflectiveness in how we manage our firm and our funds. I think it works, I think people respect us for it, and I think it gets people disproportionately on our side. And that’s a good thing, for we need all the help we can get.
As an entrepreneur, if you stick your neck out too far and cross the line into excessive confidence, rather than winning fans and creating empathy, you end up with a target on your neck. Then, when times get tough, people will take the first chance they get to swing an axe at you.
Unfortunately, Steve Jobs provides an example that seems to empower entrepreneurial arrogance. But there really, truly was only one Jobs. Do we need any more counter examples than Zuckerberg, Mason, and Pincus have provided us in the past year? Yes, they’ve built big businesses. But they’ve done so with a stubborn arrogance and failure to acknowledge failings that has made haters out of legions of otherwise satisfied customers. Their stock performances now reflect the reality of those armies of eager axe-swingers.
So as 2012 draws towards a close, with the financing environment’s chilling paralleling the seasonal turn here in the northeast, I’ll make a plea for humility and authenticity. We’re going to need it, as public and press sentiment starts to turn strongly against startup arrogance (see this powerful, but I think largely appropriate post from Dan Lyons this week).
When thinking about how you carry yourself as an entrepreneur, try taking a page out of Buddy Media CEO Mike Lazerow’s book. Mike carried himself thoughtfully and authentically through every phase of building his company. He earned the respect and admiration of nearly everyone he came in contact with (present company wholeheartedly included, through our work together as investors in Savored), and when he sold Buddy spectacularly this year to Salesforce.com, he was unanimously applauded. And to top it all off, at the peak of his success and influence, he took the opportunity to share this with the world.
That’s the kind of guys we aspire to be, and the sort of entrepreneur we hope to back. Here’s hoping a slightly chillier environment on 2013 inspires a bit of a return to humility.
October 19, 2012
Over the course the late morning & early afternoon I spent back-to-back hours with Fred Wilson and Alan Patricof. Fred, of course, is almost without question the most successful and impactful venture investor on the east coast (and perhaps the country) over the course of the past 10 years. And Alan is no less than the father of the venture business in New York City and a major player in the national venture scene almost since its beginning, having founded two great and enduring firms.
Alan has been a valued mentor of mine for several years now. Fred I don’t know very well, but I sure enjoyed the opportunity to get to know him better.
It was pure coincidence that these meetings ended up scheduled back-to-back; and taken separately, I wouldn’t have thought much about the significance of the conversations. But as a pair, the 2.5 hour chunk of my day they created left me pondering the importance of what each of these guys was doing in those discussions.
Each meeting was, pure and simple, a pay it forward type conversation where Alan and Fred were offering me advice and perspective on building a great venture firm.
Neither of these guys owe me anything, and I have no delusions about my standing in the world – certainly a meeting with Brad Svrluga is not something many people, let along these guys, take out of some sense of obligation.
But both of these guys just get it. They understand how the game is played. They remember the people that gave them formative advice at critical points in their careers. And now they’re taking their turn and paying it forward.
It’s a remarkable gift to me, and a great example that we should all follow. The lesson of these meetings extends into any profession, but I think it is critically important in the entrepreneurial ecosystem.
This ecosystem is so important, it represents such critical potential for our economy, it is so tightly knit and interdependent, and it is comprised of such fragile individual pieces. Our leaders, and everyone, paying it forward and supporting the ecosystem is an essential component of its continued growth and development.
It makes a difference, and I believe is a responsibility of citizens of the tech community at whatever level in their careers. It is no less important for a talented junior software developer to mentor the newest young hacker as they enter the community than it is for the Deans of the VC community to look out for the leader of a smaller, younger firm.
And it’s not purely altruistic. Doing this work will genuinely impact the ‘giver,’ exposing him to new ideas, fresh perspectives, and a heightened awareness of what’s going on throughout the ecosystem. Not to mention that it helps to ensure that the next generation of leaders is on your side.
Too many entrepreneurs live in a ramen and pizza-fueled cave, focusing exclusively on the things that directly and immediately advance the cause of their business. But without exception, all of the best entrepreneurs I’ve worked with have, like Fred and Alan, taken the long view in staying connected to their communities and being generous in contributing to a rising cohort of young leaders.
We do a pretty good job of this in the tech community, but we can do so much better. Everyone has a role in contributing to raising the tide that will float all our boats. What are you doing?
P.S. Speaking of paying it forward, you should definitely have a work at the exciting and massively important work that Fred is doing with AFSE, the Academy For Software Engineering. Was so great to learn more about it. Thanks, Fred!
October 1, 2012
The exercise of articulating an investment thesis, as simple as it sounds, is a critical element of how we work. Starting to work on it early in the process of evaluating a company can be enormously productive in helping to focus our work on the most critical issues. And you’d be surprised by how many things seem exciting at first or second glance, but then fall apart when it comes to actually trying to construct a cogent thesis. If you’re interested in an opportunity but can’t crisply articulate why it might be important, there’s frequently a good reason for that.
We write these things down, share them internally, debate them actively, and refer back to them regularly. And every once in awhile, you make an investment and a thesis plays itself out more or less exactly how you imagined it would. Our investment in Savored, and Savored’s ultimate sale last week to Groupon, is a great example.
Here’s my original investment thesis for what was then called VillageVines, as I shared it with my partners in late 2010:
- Consumers have been thoroughly trained in concepts like daily deals, discount travel sites, etc.
- The restaurant business has a decades-long history of experimenting with online and offline deal and promotion companies, all of which were complex & inelegant in their implementation and user experience.
- Groupon, et al have opened eyes to restaurateurs re: a massive marketing opportunity, but failed to deliver a solution that works for their businesses. VillageVines model is consistent with my belief that there are opportunities to offer deeper, more consistent relationships for restaurants/retailers/service providers.
- Restaurants desire a steady channel through which they can move their daily quantity of perishable inventory – VV is a model with which restaurants build deep, lasting relationships (and even dependency on), and which they can control and tweak to suit their own needs.
- The user experience is clean, simple, and discrete, making it a more compelling value proposition for consumers.
- While not yet implemented, model will be brilliantly suited to spontaneous, mobile usage – should be a major growth opportunity
- This is truly a virtuous, everybody wins model – early restaurants report absolutely loving the service
- Viral growth to date in NYC has been very strong, despite only negligible marketing. The model is inherently well suited to a high degree of virality.
- Super-talented, energetic, highly analytic young founding team who will run through walls to make this win.
In this case, amazingly, it turns out that stuff all more or less proved out. Anti-Groupon vitriol grew steadily in the fine dining world, and Savored became viewed as something of a heroic antidote, leading to rapid growth of the restaurant partner community. The diner user experience got better and better and consumers loved it. Many restaurants became addicted to Savored’s ability to fill their tables.
Sometimes, as with Savored, a team is right enough that the business they set out to beat through competition becomes the logical place to end their entrepreneurial journey. In many ways, that’s as powerful a form of validation as you can find. At the same time, it tends to be particularly bittersweet.
And so it is with Savored. Ben and Dan set out to build for restaurants a genuine yield management solution that would be the perfect antidote to the unrealized promises of Groupon, LivingSocial, and others. Two years later, they’ve succeeded. And guess what…people noticed. Especially Groupon, who had struggled with restaurants while being desperately interested in developing ways to build more enduring, day-to-day relationships with their merchant partners (witness their purchase this summer of Breadcrumb POS in the restaurant space).
So this week, an investment thesis that hinged on a company positioning itself as a beneficiary of the macro trends that Groupon was leading, but which also was deliberately positioned as an alternative to the legions of Groupon-burned restaurateurs, becomes part of that same company.
Savored will continue to operate under its own brand, and I think Groupon will be very successful with this investment. Regardless what you might think about Groupon, those guys have an amazing sales machine, and unrivaled reach with consumers. Breadcrumb + Savored is a compelling two-pronged foray into restaurants, and a demonstration of just how serious these guys are about the business (if you need any more evidence of their commitment, just look at the fact that CEO Andrew Mason has been spending a night/week actually working in a high end restaurant to get a better understanding of the business!).
We wish Groupon the best with Savored. It’s been a great experience for us, and we’re proud of the work done by co-founders Ben McKean and Dan Leahy in building Savored. We were honored to be a part of it.
A bittersweet reality of my business business is the fact that the interesting & fun companies inevitably get bought, so our relationship with them ends. At least in this case I’ll be able to continue to be a very happy – and regularly satiated – customer.
September 19, 2012
When I wrote a couple of weeks ago about our investment in Routehappy I also introduced some new thinking here at High Peaks about our investment focus, describing our interest in Consumer Empowerment. I also alluded to a second theme we’re excited about, and said an announcement highlighting that theme was coming soon.
Today we are excited to announce that theme and our investment in FieldLens. Started by childhood friends Doug Chambers and Matt Sena, FieldLens is, in short, going to completely change the way that construction projects get managed – from skyscrapers all the way down to condo renovations. And in doing so, it will be a shining example of a whole new generation of b2b companies that we are actively pursuing.
As we think about the rapidly changing b2b application landscape, our thinking has centered around a theme of Simplification. For us, Simplification is about an entirely new world of business applications that are lightweight, inherently social, simple to deploy, simple to use and, very importantly, simple to sell.
All of this is driven by two fundamental and much discussed changes in the technology landscape. First is the iPhone-led mobile revolution.
In a world of 50% smartphone penetration and an app economy that won’t quit, we’ve hit the point where one can reasonably assume that the vast majority of employees in any enterprise carry and are very familiar with the functionality of a smartphone. Further, the realities of app development for 5” smartphone screens has enforced a new sensibility that is changing application design on all platforms. Less is more, and simplicity reigns.
Second is the Facebook & Twitter-led social revolution. There are a billion people on social networks across the world. And while we can debate the relative merits of one network vs. another, there’s no questioning that we have hit the point where Facebook, Twitter, etc. have trained the substantial majority of Americans on the basics of these new social communications modalities. This familiarity is growing and moving up the age ladder rapidly – in the past year the % of 45-54 yr old Americans with a social media presence has jumped from 45% to 54%. From 55-64 yrs old we’re now past 1/3 penetration.
Take these two megatrends together, add in for good measure the fact that cloud technologies and standardized, off-the-shelf components have cut the cost of starting a web-based business by as much as 90% from 10 years ago, and it’s game on for innovation.
In this mobile & social world, we believe the very nature of business communications and collaborations is only in the earliest stages of a massive transformation. We’ve all got smartphones, we are all engaged in social nets. The implications of these realities are arguably as powerful as the dawn of the browser and web 1.0.
One very attractive element of Simplification businesses is that they are so easy to use and thus, easy to adopt. As we’ve seen with Simplification leaders like Dropbox and Google Apps, these applications have a remarkable way of starting out being adopted by individuals or small groups within an enterprise. Frequently their use is free, or at least dirt cheap, in these smaller use cases. But then as their usage proliferates within an organization, it makes sense to bring in some control and standardization, and enterprise sales opportunities open up.
Done effectively, these distribution models flip the traditional enterprise sales model on its head. Talk about something that’s been needing a flip…
The first generation of enterprise consumerization companies were largely focused on horizontal applications – that is, applications for things like file storage and workgroup collaboration that are applicable to almost any business.
We think there is much more ground to cover on Simplification of these horizontal applications, but we are also increasingly excited by opportunities for Simplification of vertical applications. We’ve made plays here already with our very promising investments in Ticketfly and PublicStuff.
Now FieldLens is as good an example as we’ve seen yet of these game-changers – lightweight, elegantly designed, mobile-first, and tapping into elements of the “friend and follow” communication modality of the leading social platforms.
The FieldLens opportunity stems from the fact that in the construction industry, the desktop web revolution never really happened. Why? Simple: No desktops!
Think about it…management of tasks and workflow on a job site is something that can’t be done with even the sexiest & most elegant of browser-based web applications. The guys who run these jobs aren’t sitting at desks, they’re walking around in hardhats.
So when FieldLens CEO Doug Chambers was running huge pieces of projects like the New York Times building and 4 World Trade Center, how did he manage tasks and to do’s on the site? You guessed it – a clipboard and paper notes. Not surprisingly, during one of Doug’s sprinkler system inspections a few years ago one of those pieces of paper got lost, a defect didn’t get reported, and when the system went live for final test a massive flood ensued, wiping out the electrical system for 5 floors of a skyscraper. A very, very costly mistake.
And thus, in a classic “there’s gotta be a better way” moment, FieldLens was born.
You can read the press and see the FieldLens site for more on the specifics of the product, but suffice it to say that its time has come, and by leveraging the best elements of simple mobile applications and efficient, collaborative social communications, this is about as much better as mousetraps get.
Like all great Simplification businesses, FieldLens will be easy to trial, cheap to adopt, and viral by nature.
The platform is valuable for management of a whole building, but also valuable to any individual sub-contractor working on just one corner of the job. So FieldLens use will proliferate organically, frequently bubbling up from the bottom, and spreading virally from job to job and firm to firm, as the networks of organizations involved in any one job interact and connect through the platform. These network effects are an important characteristic of the best examples of Simplification.
We couldn’t be happier to be partnered with Doug, Matt, and the team at FieldLens, and we expect remarkable things from them.
More broadly, we couldn’t be more excited than to be sitting where we are on the front end of the broader theme that FieldLens represents. Simplification is going to continue to dramatically change the landscape in enterprise IT, and we’re very eager to add even more investments in companies tapping into this wave of change.
Our Refined Investment Focus, Part 1: Routehappy, Consumer Empowerment & A Redefinition of Flight Search
September 5, 2012
This morning we were very excited to announce our investment in Routehappy, the world’s first flight experience engine. Partnering with our good friends at Contour Ventures, we’re looking forward to helping Bob Albert and his team save us all from a world of crappy flight experiences. TechCrunch does a pretty good job hitting the basics of the company here, as does GigaOm.
This investment represents a very satisfying manifestation of some hard work we’ve been doing over the past year to refine our thinking and investment focus at High Peaks, and I want to share some of that in this and a second, upcoming post.
Looking back at the history of what we’ve done well and where we’ve succeeded, plus forward to where we see important trends emerging in the technology landscape, we’ve identified a couple of key themes that I hope will dominate our investing activities in the year or so ahead.
As our thinking has coalesced around these themes we’ve been working hard to identify the companies that best marry a manifestation of the theme with talented, experienced management. We’ve been fortunate enough to identify two real standouts in recent months. Routehappy is the first, and I’ll speak to the theme they represent today. The second deal, and a discussion of that theme, will follow in a week or two.
At a high level, our investment strategy starts with a clear focus on the application layer of the web, largely forgoing tech-heavy infrastructure plays. (Important note: like any good rule, we’ll consider breaking it, making occasional exceptions when an infrastructure play is consistent with a strongly held thesis we have about the emergence of an important growth market and also led by a truly exceptional team. See our highly successful investments in TxVia – alternative payments, and Enterproid – enterprise mobile security management.
Within the web/mobile application world we are not, as a rule, investors in what most people think of as classic consumer web companies. Gaming, consumer mobile apps, and e-commerce are not places we’ve played nor do we expect to play. Of course, in choosing to largely steer clear of these sectors we know we are eschewing sectors that have defined some of NYC’s more stellar wins of recent years – OMGPop,Foursquare, Gilt, and Fab.com, amongst them. But we know what we know and what we don’t.
While straight up advertising, virtual goods, or commerce driven consumer plays will not be in the fairway for us, there is a segment of consumer opportunities where we are very interested, and we use the term Empowerment to characterize them. Routehappy is a stellar example of an Empowerment play.
By Empowerment, we mean the following: Groundbreaking consumer experiences that harness existing data to empower broader, better-informed choice through business-class decision tools and game changing user experiences.
OK, so what does that mean? It means that a whole world of new consumer applications and services is being enabled by the easier-than-ever ability to aggregate, standardize and present data from disparate sources. And today, it’s possible to do that in one real-time, multi-platform application that enables a whole new level of data visibility and information. Think of Mint.com as a key 1st generation instance of Empowerment. By aggregating all of your important financial data, Mint empowered consumers with a breakthrough experience – offering the first easily accessible, truly holistic view of our personal financial status. The first time I got all my accounts wired into Mint it was truly a “wow” moment.
Like many of the services that we think will be most interesting in the empowerment theme, Mint is free to consumers, and offers what we call a b2c2b business model. The b2c part isn’t the business model, it’s the engagement experience that enables the business model. The business model emerges because of the way these businesses aggregate and engage consumers, creating new data and insights as well as marketing opportunities for businesses who want to reach these consumers.
Routehappy will work this way. As their platform rolls out and becomes more robust in the coming months, I have little doubt that it will become your go to first stop when you’re looking for plane tickets for your next trip, be it business or pleasure. And like any online travel tool, it will be free to you. There will be the obvious booking fee revenue stream, of course, but in the process of offering consumers massively more information to guide travel decisions, Routehappy will also be building a completely unparalleled collection of consumer preference data. Nobody else will be able to use real flight purchase information to generate empirical data that exposes just how important things like wifi, premium seating, and in-seat entertainment are in driving purchase decisions. Routehappy will hold the keys to this data, and that’s a powerful place to be.
Stay tuned for more news and thinking about our interest in Empowerment. We’ve got a couple of promising opportunities in the hopper on this front and hope to announce another deal or two before the end of the year. in the meantime, I’d love to hear your thoughts and ideas on the theme in general, and about your experience with Routehappy more specifically. Bring ‘em on.
August 14, 2012
At High Peaks we spend all of our time looking at investment opportunities in the application layer of the web. Mostly it’s business apps (though for us that generally means very lightweight, “consumer-ish” business apps), but we also get excited about data-rich, consumer analytic applications.
In the context of evaluating applications, we consistently end up in discussions about stickiness. I’ve found that when entrepreneurs talk about their applications and why they will develop valuable, enduring customer/end user relationships, they consistently overemphasize features – their app is cool, and that’s going to bring people back.
The reality is that coolness – or even directly addressing a customer pain point – is not a driver of stickiness. Certainly not an enduring one. Applications – be they business or consumer applications – that successfully build the deepest, most enduring, most valuable relationships with their users require a lot more than the right features.
Here’s a simple framework that we use when thinking about application stickiness. We consider three types:
- Feature stickiness, where the delivery of application features that are tightly aligned with user needs brings users back.
- Data stickiness, where user data becomes deeply embedded in the application.
- Network stickiness, where multiple users and networks of users actively interact within the application.
Within that framework, we have a clear point of view as to the hierarchy of these differing types of stickiness.
- Feature stickiness is table stakes. If you don’t build applications that your users find compelling, that make their lives easier, then you’re dead before you’ve started. But features on their own will not keep users coming back again and again. Your application will always be at risk of being usurped by the next big thing, as there won’t be much reason for users not to switch to the shiny new penny. As a result, feature stickiness is illusory, and not enough to drive overall application success.
- Data stickiness is a great step forward from feature strength. With data sticky applications, users actively, or by default, build more and more of their personal and usage data into an application as they use it. That data becomes a valuable asset that makes their user experience more powerful. When combined with a solid feature profile, data stickiness can make for powerful, enduring relationships. Users of Mint.com are familiar with data stickiness. When you register and begin using mint, you put a lot of energy into connecting your accounts, inputing data, and building a personal profile within the application. And then they’ve got you. How much better would a new personal finance application need to be, feature-wise, to get you to switch from Mint? The same holds for business applications like finance programs and CRM systems. Once your data is in Salesforce.com, it can be god awful painful to leave. That said, it’s doable. Given a compelling enough reason to move, some portion of users will do the work to pack up their data and go.
- Which is why network stickiness is the most powerful, but also the toughest to build. Network sticky applications get their power from users interacting with each other within the application. The power of the application is the power of the network. Skype, LinkedIn, Yammer (and all the successful consumer social apps). These applications have features that draw you in, but then it’s the network of people you interact with there that keeps you there. Even in the Web 1.0 world we had apps with network stickiness – think of the MSFT Office suite? Why did we all end up using Word and Excel? Were they definitively the best word processor and spreadsheet? Not at all. But they were what everyone else used, and once email made file sharing a daily experience, the world collapsed onto one “standard.”
The very most powerful and enduring apps manage to play to all three types of stickiness. Think of LinkedIn. Lots of great features that get us engaged. Then from a data standpoint we’ve got our core electronic CVs, which have grown and evolved over time, plus probably some recommendations of us and by us. So there’s some data work to be replicated if we want to move. But then the network stickiness would stop any would be LinkedIn abandoner in her tracks. Similarly, Salesforce.com and other historically data sticky apps are increasingly building in network stickiness both within and outside of the enterprises they sell to. This success is a big part of why I think they will continue to dominate their market.
As we look at new applications every day, the three flavors of stickiness is an important framework for us. We see a lot of applications fall far shy of having even two strong flavors of stickiness, let alone the elusive third, and when they do, they’re an easy pass. But on the rare occasions when we find all three flavors of stickiness being driven by a strong founding team, we’re all over it.
July 10, 2012
I spent two back-to-back days last week interviewing a string of CEO candidates – one slate for one of our portfolio companies, a second slate for an organization I work with outside of my day job.
It was an exhausting couple of days. Across the two searches, my fellow board members and I met a total of 9 incredibly qualified candidates. I walked away totally spent, but also as excited as ever about the future potential of each organization.
As I reflected on the experience, I couldn’t help but have one dominant thought: “companies should do CEO searches every year!”
Of course I don’t actually mean that – no board would actually want that kind of turnover. There’s no substitute for great leadership, and obviously having consistent vision at the helm of any organization is invaluable.
But that said, a well-run CEO search process is an incredibly powerful experience for a board, and I’m now thinking hard about how to bring some of the best elements of the process into the normal work of all my boards.
What is so great about a CEO search? I see four key things:
- It forces a board to step back and consider the forest. Much as we don’t want to admit it, most boards lose themselves in the detail, and rarely do the important work of stepping back and considering the bigger picture of how the company is positioned and where it’s trying to go. A CEO search serves as a natural forcing function for stepping back.
- The process of writing and building consensus around the spec for a new CEO inspires a range of conversations that happen otherwise far too infrequently. These discussions generally lead to unparalleled honesty and candor about a company’s strengths and weaknesses, challenges and opportunities.
- There is no better bonding experience for a board. A CEO search is the most urgent and important task of any board. It gets everyone’s attention, forces critical issues to the surface, and leads to hard conversations that build consensus. Reacting to candidates post-interview, debriefing, debating their relative merits – more fodder for rich debate. I consistently find these debates bringing boards closer together.
- It’s a powerful networking experience for the company. By definition, the process results in the board, and likely some members of senior management, reaching out and getting to know a number of talented, well-positioned individuals from around their industry. Every good candidate represents opportunities that go beyond their mere candidacy for the CEO chair. I’ve seen a number of fruitful business partnerships and other relationships emerge as a result of CEO interviews.
Hiring a CEO is a unique experience. Done right, it involves opening the kimono pretty wide and making yourself thoroughly vulnerable. After you’ve shown some skin, the best interviews – and the best candidates – are the ones that make you feel a little uncomfortable. They come in with an understanding of your company and your market and hold a harsh light and a mirror up to you. They don’t gloss over the tough stuff and they ask great questions. If you’ve got warts, they’ll see them in high resolution and want to talk about them. If they’re truly exceptional candidates, they come armed with good ideas and incisive questions that lead to your own new ideas.
It’s not always easy or comfortable, but if you’re open-minded about it you’ll learn a ton.
Unfortunately, this is an experience that is only afforded to companies that are dealing with a circumstance that is by definition suboptimal. You need a new CEO because you have a good one who’s moving on, or you had a bad one whom you’ve asked to move on. You think IBM’s board was excited that it had to start thinking about who would replace Sam Palmisano? Is Yahoo’s board glad to be CEO hunting again right now? It’s an obvious no to both. But those searches almost certainly will be/were powerful experiences for the boards. (Let’s at least hope it is for Yahoo this time!).
So absent a CEO search, how can we create these sorts of experiences for boards more often? To all the CEOs in our portfolio, don’t worry, I’m not going to suggest that we make our CEO jobs one year, non-renewable terms.
But I am powerfully reminded that some real, step back, big picture thinking should be an essential part of every board’s work at least once per year.
And these recent CEO searches make me think that having boards write a CEO spec once/year, whether they need a CEO or not, is a terrific exercise.
I’m going to try the “if we had to find a new CEO today we’d look for X” exercise with a couple of companies and see where it leads. And if you’ve got ideas on other ways to reliably bring these same sorts of conversations into the board rooms, I’d love to hear them.
June 27, 2012
I’m deep in the midst of a search for a partner to help me build the next chapter at High Peaks. It’s been a fun and fascinating process. Since starting the process with a very public casting call a couple months ago, I get asked almost daily by a friend or colleague “so how’s the search going?”
I generally reply, “I’ve met a bunch of people I really like and am having a lot of interesting conversations, but I have no idea how it’s going.”
“Yeah, I don’t really know. I’ve got a handful of prospects I’m very excited about, but it’s impossible to say how it’s going overall. After all, when you really think it through, at this point each one of them is more likely to not work out than get all the way to the altar.”
I’m actually really excited and optimistic about the outcome of my search. But I also know the importance of being realistic about any individual candidate.
The thing is, most people don’t really understand the way probabilities work. They have a couple of good conversations, think things feel good, and get overly excited. But outcomes are generally dependent on multiple variables, and multivariate probabilities are deceiving. They’re multiplicative, and that leads people to consistently, and often dangerously, overestimate the likelihood of a given outcome.
Let’s imagine I was pretty far along in discussions with a particular candidate and things were feeling good. Is that person likely to become my partner? The reality is that even if things are looking quite good, the answer is probably no.
Any outcome like candidate X becoming my partner is dependent on multiple variables, each of which has its own probability. Again, probabilities multiply. And when they do, things become unlikely to happen surprisingly fast.
Let’s consider a discussion with hypothetical candidate Sally. What has to happen for Sally to become my partner? There are at least three major elements, each with their own probabilities
- I have to decide I want Sally to be my partner
- Sally has to decide she wants to work with me
- Sally and I have to negotiate terms for her joining the firm that work for both of us
Pretty straightforward. But now let’s do what most people fail to do in assessing outcomes – think through the individual probability of these three independent variables:
- Based on our discussions thusfar, I think there’s a 2/3 chance that I’m going to decide Sally is the one.
- Sally has indicated that she’s quite interested in the position, but she would also be leaving a pretty good current gig, so I’d say she’s no more than 2/3 likely to say yes if I ask her to join me.
- If we both want to do it, I think we’re pretty reasonable people, so it’s highly likely that we’d be able to find terms that work. 90%.
So is Sally likely to become my partner? I doubt it.
It’s amazing how human psychology works – the vast majority of us are natural optimists, it seems. Most people hear 2/3, 2/3, and 9/10 and get excited, thinking it’s probably about 2/3 likely to happen.
But when you do the math and actually multiply out these probabilities – multiplying .67 x .67 x .9 – you end up at 40%. There is in fact a six out of ten chance that Sally will NOT become my partner.
It’s a surprising and important reality. In fact, in any three variable probability tree all you need is a 79% probability for each variable and you dip below 50% likely to achieve the final outcome. Sobering, isn’t it?
Of course this sort of math is unrealistically precise for the purpose of definitive, concrete analysis of any real world scenario. We never actually know the exact probability of any individual variable, after all. But the point is not in the precision, it’s in making sure that you understand how probabilities interact to effect outcomes in complex decision processes, even when you are evaluating things at a very rough level.
Entrepreneurs are by their nature optimists. It’s an absolutely essential component of their success. But I’ve seen that same optimism all but bring down a few companies in the past as entrepreneurs bet the ranch on outcomes they believe are going to emerge but which they can’t ultimately control. It happens with big partnerships, estimating product shipments, and assessing sales pipelines. Very painfully, it happens all the time around critical hires, as managers fall in love with one candidate, thinking that individual is going to join the company and solve all their problems. They fail to cover themselves by maintaining alternative candidates, and when the lead guy drops out of the running the company is, at least temporarily, up a creek.
So I simply ask you to remember a little bit about the laws of probability when making important planning decisions. Keep multiple candidates engaged in any hiring process. Don’t bet the farm on that big partnership with Apple/Google/Whomever. Remember that for it to come to be you’ve got to decide it makes sense for you, they have to decide they want to do it, and then you need to find mutually acceptable terms.
Even if those pencil out at 90%, 90%, and 90% you’re still <75% likely to get there. Is it probably going to happen? Sure. But is it so in the bag that you want to bet the company on it? I sure hope not.
June 15, 2012
Much has been made over the years about Google’s amazing employee perks, most notably their incredible company cafeterias, with their sushi bars, hand tossed pizzas, and made-to-order omelettes.
Google feels incredibly strongly about the importance of this perk – enough so that I know of two companies recently purchased by Google where literally the morning after the transactions closed the Google “Food Team” rolled into the acquired company’s offices to set up snack stands and lunch service stations. Google HR didn’t want these new employees to have even a single day pass in their lives as Googlers where they didn’t experience the full compliment of perks.
It sends a powerful message to employees about how the company is going to treat them, and I think that is a good thing. These cafeterias also encourage Googlers to stay in the office and eat with their colleagues, which no doubt makes some real contributions to inspiring collaboration and innovation.
I’ve had lunch at Google a few times, and it is indeed great. But this week I experienced a version of company-sponsored dining that taught me some brand new lessons about company culture.
A friend of mine is an angel investor in a NYC-based mobile wellness company called Noom. These guys are doing some really interesting stuff using highly sophisticated mobile experiences to promote wellness. The company is still pretty early stage, but they’ve got millions of active users of their cardio fitness and weight loss apps, and based on my playing around with the product, I think they’re on to something. But while their products are cool, what I think they’re most uniquely onto is building a powerful company culture that is rooted in values that are core to the business they are building.
A minute after walking into the Noom office I knew I was somewhere special. It’s a very comfortable, relaxed, and homey feeling place. The kind of environment that makes you want to sit down with a book or a sketchpad or a blank Word document and start thinking, learning, and creating. And wellness is all around you, with shelves stocked with books on wellness, yoga mats & balance bells, and a general healthy, zen-like vibe.
As co-founder Artem Petakov gave me a tour, it was clear that this was a very happy, connected, and productive bunch.
Artem explicitly invited me to come at lunchtime. A few minutes after my arrival, i understood why, as that enabled me to witness what I suspect is the keystone on which much of this tight-knit culture depends.
Around 12.15, a few team members came into a large meeting room that is adjacent to an open kitchen, broke apart the big conference table into two pieces, and arranged chairs around them. They set the table, and then called in the rest of the team. Jane, the company’s amazing chef, had laid out a gorgeous buffet of interesting and magnificent looking & smelling dishes. In keeping with the mission of a wellness company, everything was organic and very healthy.
The team dropped their work, filled their plates, and sat themselves around the tables. Artem and I joined them. It was a wonderful experience that felt far more like a family gathering than a business event. Thanksgiving dinner came to mind. The conversations were all over the place – some about work, but most not.
Twenty-25 minutes later everyone finished eating, cleared the tables, and went back to work. Jane did the dishes and then laid out snacks and set leftovers for the team to eat throughout the afternoon and evening.
I sat there for a bit afterwards, pondering what I had just witnessed in a mild state of awe.
It was so simple, after all – get the whole team together for lunch around a family table, give people a structured break from work, and foster connectivity and community amongst the team. This simple ritual completely reinforces the mission of the company – promoting wellness – by ensuring that every employee eats a highly nutritious meal at least once/day. (Not surprisingly, several employees commented that their delicious and healthy lunches had inspired them to change the way they ate outside of the office, too!)
It’s not cheap to do this, of course. Noom spends good money to offer such a high quality experience. It could likely be effectively done at half the cost, but Noom is making an I think reasonable choice to over-invest in exceptional natural cuisine as a way of doubling down on their company mission and values. For other companies, though, I would think that simple salads and sandwiches would do the trick.
But even at Noom’s high price, I’d bet the ranch that through the obvious value of the perk of a great lunch and, much more powerfully, the enhanced sense of community amongst the team, that extra expense will have a very material payback on employee retention over time. Again, this place genuinely felt like a family – something that is pure gold for a startup.
I’m going to talk to the CEOs of our companies about this and hopefully inspire some of them to adopt the “family lunch.”
Culture and community is such a critical element of startup success, and employee retention is so challenging in this hyper-competitive startup labor market, I’m not sure you can afford to NOT spend a little extra to inspire your team to truly become a family.
May 25, 2012
Back when I was single, like most of my single peers, I had a pretty good image in my head of my dream girl. I won’t bother with the specifics, but after working my way through a handful of serious relationships, by my mid-twenties I thought I had a pretty good picture of what worked, what didn’t, and why.
My sense is that most people go through some degree of reflection on this topic – it’s a natural instinct, it seems, to create some idealized composite of what we’re seeking in a partner. And while most of us probably don’t think about it explicitly this way, having an ideal creates an implicit framework through which we can run every date we have. Having a good time but she’s a real mismatch on a couple key elements? Probably time to go back to the well. Find a nearly spot on match? Stop wasting your time and start ring shopping.
I think companies should think the same way about their customers. And so when I meet with companies, one of my most common questions is “Who is your absolute perfect, ideal customer, and why?” This is relevant for b2b or b2c companies alike, and it’s a question I would expect that anyone who has been thoughtful about their market would consider a total softball.
But too often it’s no softball. I am consistently amazed by how frequently I get a response along the lines of “Hmmm. . .that’s an interesting question. . .let me think. . .” When I hear that lack of certainty, I immediately know two things about the company. Number one, they have a product first, not market first strategy. Number two, they lack focus.
Neither of those, ladies and gentlemen, are good things.
There is almost nothing more important for a startup than exceptional product development and management. Most great tech companies are product-driven, be they b2b or b2c. Companies that can inspire “holy sh&# that’s fantastic!” responses from their audience usually win. Salesforce, Intuit, Apple, Google, Uber – they’re all brilliant, product-driven companies.
Being product-driven doesn’t mean that your strategy is product-first, though. The companies above build products that are brilliant in their ability to address real market needs. Their magic lies in the marriage of product design to genuine market need.
Deploy a product-first strategy and there’s a small chance you’ll get lucky enough to meet the market in the right way. Go market-first and all you have to do is execute on product to win (well, it’s not quite that simple, but you get the point).
Even Steve Jobs, famous for his disdain for market research, took a market-first approach. He disliked market research because he thought he intuitively had a much better feel for consumer needs than consumers could ever describe to a researcher. And he was right. But while he ignored research, he was probably more committed to building products that he believed would deliver against real market needs than any product guy in history. Jobs knew just how his products would be used, and why they would delight customers.
As for focus, there are few things more important to a startup. And if you can’t clearly articulate just what you’re focused on, I think you’re lying if you tell me you actually are focused. Sounds obvious, but you’d be amazed how many companies can’t do it. If you can’t describe your ideal customer to me, then how do you know which customers to direct your sales and marketing efforts at?
I recently met with a talented entrepreneur who had developed an interesting product that had applications for both consumer packaged goods companies and the retailers who sold those goods. I thought it was a pretty compelling bit of technology, but I wasn’t sure how he was focusing his go to market strategy, so I asked him, “If you could snap your fingers and have any one customer in the world, who would that be?”
He stumbled a bit, not coming up with an answer. I tried to save him. “Would you rather have Wal-Mart, or Kraft?” He replied, “Boy, I’m not sure. . .they’d probably both be great.”
And right then, I knew he was in for an uphill battle, and that I wouldn’t be fighting that battle with him.
As a startup, you must be able to answer the Dream Girl question. Not because I’m going to ask you, but because the process of answering it will ensure that you are building the right product to meet the market need you’re after, and that you have the relentless focus that is so crucial to the success of every resource-constrained startup.
Start with a clear image of that perfect girl (or guy), then build the right team, the perfect product, and find the ideal channel. Then go get her.