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Friday, January 20, 2012

The Four H's

Organizational Performance via Cultural Consistency, Part 1.

When I first became a CEO, I thought I’d struggle with operational questions such as which products and services should we focus on; how we should take them to market, etc. But I found that I was able to address those reasonably well through well-designed high functioning teams.  However, I was surprised to find out how hard shareholder/board communications are for me.  

Much has been written about shareholder best practices, so I know what I should be doing, but nonetheless find that my energy is focused on either what’s in front of me or what’s next.  I just never think to stop and tell shareholders how things are going. We of course have a great CFO who does financial reporting, but only I can give them a sense for where my head is.  One would think that if things were going poorly one would avoid the painful discussion.  And while that certainly has been true for me, I have also found that I just never think to do shareholder communication even when things are going well. Tactics I’ve tried include calendar reminders, email shortcuts, coversheet to fin packet, etc., but I just feel myself resisting.  Part of the resistance comes from blowback. It seems when you do send out an update, there is often follow up questions that require time/energy that I’m spending elsewhere.  As a shareholder/LP, I try to be very quiet because I feel the pain of having to explain yourself over and over again.  I don’t think I’d like working in politics.

So, when I first became a CEO, I was surprised how much organizational energy goes towards activities that are something other than creating new products and selling them.  Also, the employees wanted to know what they could expect of me.   I hadn’t had time to prepare, so I said if an organization takes on the values of its leader, then they could expect the 4H’s = Honest, Hungry, Humble and Happy. 

Thursday, January 19, 2012

DDD: Download, Discuss and Decide

You may have heard of double D, but triple D?

Having led my fair share of meetings over the years, I've noticed that there are some better practices than others.  I'm not a big fan of pre-announced agendas by rather have found that 'live' agendas work better.

Much of my thinking in this area has been heavily influenced by Bernie Dana (Ind Psy, Phd) and Patrick Lencioni's "Death by Meeting."

At the beginning of the meeting (Weekly Crime Drama, in Lencioni terms), I write on the whiteboard Download in the upper left, Discuss at the middle top and Decide in the upper right hand corner.  Then all meeting participant's write up what they want to Download, Discuss or Decide.  This is usually done by :05 past the hour.

As the meeting organizer, I can then quickly allocate the time across the topics presented.  I usually start off with the Download section.  This is just headlines, telling the group some facts so that we are all operating with the same set of facts for further discussions or decisions.  During the Download section, clarifying questions are ok, but substantive questions create a new item in the Discussion section. An example of a Download may be "We are switching our healthcare plan from Kaiser to TriNet" and the clarifying question may be "Is that effect the first of this month or next?" If a team member asks, "Have you considered X?" that would likely create a new item under Discussion.  This section should be done by :15 past the hour.

Next, I like to go to Decisions that need to be made at this meeting by this group.  If the decisions are too big to be handled during a weekly meeting, then the champion of the decision needs to set a 'movie meeting' to focus on just that decision.  For example, "Should we change our pricing metric" is too big of a topic for a weekly meeting, but might be covered well in a 2-3 hour meeting (with great prep.)  If the idea is too big for the movie meeting (for example, annual planning) then scheduling a 'mini-series meeting' (a full day or multi-day offsite) is the right type of meeting to address a topic that large and complex.   But in most weekly meeting, there are zero or a few relatively quick decisions to be made.  For example, approving a new marketing channel vendor and the associated spend. (Should we spend X to test advertising on Linkedin?  Should I start a hiring process for a new kind of employee?)  Decisions can usually be resolved by :25 past the hour.

This leaves :30 minutes for discussion.  The key is that whoever initiates the discussion has the authority to end it.  For example, the CFO may ask, "I'd like your perspectives whether we should grant options to all employees and if so how many under what terms?"  When the CFO has had enough input, he or she simply says "Thanks, I got what I need."  This is important to prevent the hijacking of a functional decision by the broader team.  As the leader of the team, you may also call the end of a discussion. I try to at least spend a few minutes on each discussion item to make sure I understand the topic, but given about 30 minutes of availability, it's best to focus on 1-2 discussions per week.

Deciding whether something is a functional or team decision ("Who makes which Decisions") is one of the best questions in business, but that is a topic for another day.

Wednesday, January 18, 2012

Co-Founder Dynamics/Mousetrap, GTM, FinOps

Yesterday, I wrote about the magic of having 3 founders on a start up team.  Not only is it a useful number for making decisions, getting stuff done and staying coordinated, but it also gives you a chance to cover the three key bases of a startup: The Mousetrap, the GTM and FinOps.

The Hustler-Hacker dynamic has been written about effectively elsewhere.  As a shorthand, especially in quick introduction situations, it is helpful to say "Our team has two hackers and a hustler. I'm the hustler." It sets expectations about a lot of things very quickly.  An alternative phrasing (favored by Isaac Saldana, founder of SendGrid) is 'technical and non-technical.'

However, when you are actually building a team, then thinking through the three roles of Mousetrap, GTM and FinOps is critical.

Mousetrap is the person/people who build stuff.  90% of founders I meet are Mousetrap people.  They are very excited about the speed, scalability, features and functionality of their mousetrap.  Almost always when people think of innovation, they think in terms of 'mousetrap-innovation.'

GTM is the person/people who can take a Mousetrap to market.  This is the area that I think is most interesting and rare.  While there is a lot of innovation on the mousetrap, where is the innovation on the GTM? Modern examples such as ebay or priceline come to mind but what about Tupperware? Innovate the direct model was astounding for that product in its place and time.  I'd much rather in invest in GTM innovation than Mousetrap innovation.  Also, as a mentor, you should have one theme that you focus on with companies.  For me that theme is 'how do you get big fast.' So I like to ask, where is your unfair advantage on the GTM side? Do you have a founder with personal relationships that gets you 25% market share on day 1?

FinOps, or the back office, such as finance, accounting, tax, hr, facilities and legal is the most overlooked early role.  Having started as a CFO, I may have a particular affinity for this area, but nonetheless, it is much more important that it is usually given credit for by mousetrap or GTM people.  If the mousetrap founder builds it, and the GTM founder sells it, the FinOps founder pays for everything.  Getting your legal structure right (Delaware C corp), number of shares (~10M) and most importantly being the CASH FLOW OFFICER (that's what CFO stands for btw) is fundamental to your success and cannot be outsourced to a 'part-time bookkeeper.'   Whether things go poorly and you need to understand your PG's (personal liability) or things go well and you need to minimize taxes (high class problem, but still...), getting FinOpS right matters more than you think.

So what if you have a founding team of three and they are all in one dimension? The usual case is that there are 2 or three founders and they are all on the mousetrap dimension.  The immediate (and free) answer is to create an active, yet unpaid, advisory group around your core team that covers the GTM and FinOps perspectives. I have found that using your personal network you can find three GTM people to care about your business.  Host a lunch and grill them on your thinking.  If you've chosen well, they'll even pick up the tab (especially if its at The Cheesecake Factory.) As you scale your team, start to cover the other bases with experienced people who can build teams in the areas where you are short.

Tuesday, January 17, 2012

Day One, Again

Somewhere along the line in school or life I got the notion that raising venture capital was an ending rather than a beginning.  Prior to having raised venture money, I thought that all of our problems would be solved if we only had more money. 

Boy was I surprised the day after I first raised money (from Sequel Ventures.)  No customer traction? Difficult to recruit and retain employees? Difficult product or pricing decisions? All still there.   And raising money can have unintended consequences such as reducing urgency and creativity.  Nothing like needing to make payroll to focus a team.

I used to have golden brown hair, which turned grey and now white.  Maybe it was genetics, but I’ve got to believe that running a business on no cash for a long time had something to do with it.   I know some people are natural bootstrappers (Bart Lorang), but for me I’d rather raise the money if I can.  Business is already hard enough.  I’m just not that good to make the right decisions without some room for error.  Financing gives you that room for error.

I’m very happy to welcome Byron Deeter to our board and Bessemer as our investment partner to grow SendGrid from Day One,  again.   As I tell the startups that I work with, you are always fundraising.  Time to work on Series C.

Co-Founder Dynamics/ Champion, Skeptic, Arbiter

Having worked with dozens of founding teams over the last twenty years, I've noticed there its some magic to the number 3.  Having 3 founders, covering 3 roles and needing 3 types of decision dynamics.  For the this post, I'll be describing the best practices around the 3 types of decision dynamics. 

In any start-up, there are hundreds of decisions to be made.  From "what business should we be in?" to location or logo, the founding team needs a healthy dynamic around how those decisions are made. In each decision, there is usually a champion, a skeptic and an arbiter.  

The champion typically says "wouldn't if be great if..." and focuses on the upside of the decision.  The skeptic says "that is risky/costs a lot/is de-focusing." And the arbiter is in the middle weighing the relative tradeoffs.  

A few key thoughts are:
1. Be aware of this dynamic
2. There are many decisions to be made.  Note if the same person is always in the same role.  If so, then intentionally switch up the roles.  See "Six Hats Thinking" for a related analysis of this idea.
3. It's tough to have a healthy dynamic in this regard if you don't have three founders.  So, this reinforces the idea that 3 founders is the right size for starting something (big enough to get stuff done, but small enough you can stay coordinated.)

So healthy teams have an awareness of these roles, rotate them frequently and are not overly-invested in any particular decision.  If your point of view does not carry the day on this issue, there is always the next one. 

Monday, January 16, 2012

Good Decisions v. Good Outcomes

I'm often surprised at the confusion around good decisions v. good outcomes.  Like any good MBA, I like to think in terms of a 2x2 matrix. On one dimension we have Decisions and on the other we have Outcomes.  Either dimension can be either "Good" or "Bad."  So let's look at the four quadrants.

Good Decision, Bad Outcome: in this quadrant, you have made the best decisions given your situation, but nonetheless you had a bad outcome.  A classic example would be oil well drilling.  All of the geological data indicated that a particular place should be optimal for oil, but after spending $10M in drilling costs, you come up empty.  This quadrant I call "Life" because sometimes it just works out that way.

Bad Decision, Bad Outcome: in this quadrant you made a bad decision and you paid for it.  I like to call this quadrant "Justice."

Bad Decision, Good Outcome: in this quadrant you have made a foolish decision, yet had a good outcome.  While there are a lot examples of this in technology investing, the classic example is a Lottery winner. The expected value of a lottery ticket is less than its costs, so it is never a good economic decision to buy a lottery ticket -- even if you win.   I like to call this quadrant "Lottery."

So what about Good Decision, Good Outcome? In this quadrant, we'd like to think that it is our planning, innovation, and execution that translates our Good Decisions into Good Outcomes.  However, I like to call this quadrant "FBR" which stands for 'Fooled by Randomness.'  As Nassim Taleb teaches us, there is a lot of randomness in life and markets.  Perhaps those Good Outcomes aren't as tightly linked to our Good Decisions as we would like to believe.  Recognizing this randomness can help to keep us grounded during times of success.