Altgate

Sales vs. Web Dude

A bit long, but one of the funniest videos I've seen this year.

All-Hands Team Meetings

The all-hands team meeting is unique to startups.  I think it's one of the great reasons to work at (or start) a company.  As an employee you get to interact with the CEO and management team in a way not possible at larger companies.  As CEO, you get to work with folks who actually do work as opposed to just manage others.  All around, it's really fund and refreshing.  Anyway, I recently saw a Youtube clip of an all-hands meeting and wanted to share it along with a list of tips on how to run a good all-hands meeting. 

Now this all-hands meeting is not your typical startup...it's actually Barack Obama speaking to his Chicago headquarters staff.  That said, if you're a startup CEO, you'll see a lot in common with what you do in this video.  Bear in mind that the HQ staff is probably a couple hundred people none of whom worked for the campaign 17 months ago.  The clip is a bit long (about 15 minutes), but worth watching.  So here are a few things to pay attention to (in roughly chronological order, as opposed to importance):

1. Entry.  There are different types of all-hands meetings, but this one was clearly used to deliver a message.  Part of setting that up is to bring the team together (note a key lieutenant was coordinating and actually "introduced" Obama).  It's an interesting bit of stage management, but you'll notice that Obama enters the meeting after everyone is assembled.  It definitely sets the tone of, "pay attention to this message."
2. Continuity.  I like how he starts by talking about the last all-hands meeting (which happened to be about 9 months previous which should be familiar to any CEO who's just gone through a crunch period).   If every meeting has a different message and there is no continuity, it makes it harder for the team to follow (and believe).
3. Honesty. You hired smart people and if you try to spin something, they're going to see right through it.  When recounting the message from the last all-hands meeting (I would love to see that video clip), Obama recounts that he said, "I wasn't sure if I would be the best candidate..."  At another point, he says, "it would have been nice to have a couple weeks off, but..."  That kind of candor will motivate your team much more than a hyperbole or hope. 
4. Humor.  Don't do comedy if that's not your thing, but people always enjoy an inside joke.  A good example is when he joked about the "fist bump" getting so much play in the press because that was one of the few chances they had to "celebrate."
5. Thanks for job well done.  Obama spent a lot of the meeting delivering heartfelt thanks to the team.  He said, "you have created the best political organization we've seen in the last 30-40 years" and continued, "it's not because of the candidate, it's because of you."  It's easy to revert to the "I," particularly after achieving some success, but this is a good example of how to deliver a meaningful thank you.
6. There is no plan B.  Sometimes the message you want to deliver is, "look, we've done a lot of work and we have a backup plan," but other times (like when you don't) you need to tell it straight.  Obama talks about the "enormous sense of obligation" they (the team) now have.  He says,"if I had lost Iowa..." there would have been a plan B (as in Hillary or Edwards or some other candidate), but continues "because we won, we now have no choice.  We have to win."  That was a great Cortes moment!  I could imagine saying something similar after raising an A-round...
7. Call to arms.  A salary gets people to show up, but real greatness requires inspiration and that can only be achieved by calling your team to achieve the greater good.  When telling the team they will have to work harder, longer than ever before he says, "I know that's a heavy weight.  But also, what an awesome opportunity.  You are 5 months from...changing the world!"
8. Finish up.  Notice how he doesn't linger around.  Doing so would dilute the power of the message.  Better to leave the chit chat for another time. 

All-hands team meets are important...take time to prepare and make them effective.  I'd be curious to hear comments from readers on what works/doesn't work for you.

Customer Support 2.0

This morning I was reading a blog post by Ben Yoskovitz on customer support and it reminded me of some of my own experience with clients.  It's basically a truism that one really happy customer might tell two other people about your company but one slightly unhappy customer will tell 10!  Do the math and a bad customer experience for early customers can be fatal for a startup.

The overwhelming majority of companies today have a very "1.0" view of customer support.  In the early days it usually means having one or a few folks in engineering or QA answer the phones and respond to emails on a "help@" email address.  Some more enterprising companies will include IM for more immediate, cost effective support and then start building a FAQ on their website to address common issues.  As the business grows, the company will hire dedicated support staff on a helpdesk, implement Salesforce.com or some similar ticketing system all of which at some point gets viewed as expensive so someone suggests moving it offshore to save money.

Then along comes support 2.0.  Not only is it far better, but it is much less expensive.  A great example of what I mean by support 2.0 is NVIDIA, makers of high end video cards for computers.  NVIDIA hosts a very popular discussion forum as part of their support service.  If you read the posts, there are many and the beauty of this is that customers have a "living FAQ" that addresses many more topics than standard ones could ever do and you will also see that many of the "answers" come from evangelist customers!  Yes, that's right, customers will help other customers which not only reduces the cost to deliver support but also creates a stickier relationship with key customers.  Empowering your customers to connect in this way is incredibly powerful but some find this frightening...what if my customers start colluding on price?  What if they say bad things about our product/company?  My view is that it is best to embrace your customers.  If they hate your product, don't you want to hear that?  I have also found support 2.0 to be a very rich forum for finding new product / feature ideas.  And the good news is that developing a support 2.0 community is cheap, fast and easy using tools like KickApps (a hosted platform) or other "roll your own" solutions.

Why Entrepreneurs Don't Scale

My friend Clark Waterfall pointed out an HBR article by John Hamm the gist of which is that the traits that help an entrepreneur succeed in the early days actually work against them as the business grows.  And worse yet, by the time the entrepreneur figures it out, they've either run their company into the ground or gotten themselves ejected by the board.  The article gives some examples that will seem familiar to most of us. 

The four traits are:

• Loyalty to team mates.  A great trait while recruiting the early team, but as Hamm points out, "a potential liability when managing a large, complex organization."  Someone told me a few years ago that first time CEOs are quick to hire and slow to fire while seasoned CEOs are the opposite.  There's some truth to that.
• Task orientation.  Getting things done is important in the early days, particularly when you are CEO and janitor at the same time.  But as the company grows, it can lose its way without a focus on strategy and vision.
• Single mindedness.  Think about how much stick-to-it-iveness is required in the early days but how that can turn into tunnel vision as the company grows.
• Working in isolation.  Building a large organization is a team sport, however in the early days there may not be much of a team.

Toward the end of the article, Hamm lays out questions to assess ability/willingness to scale and has some suggestions on how to transition.  Overall, it's an article worth reading.

Sales Is A Science, Not An Art

A lot of folks will try to convince you otherwise, but don't believe it.  Seth Levine has a good blog post on this topic.  It's sort of in the vein of my post asking why there isn't a degree offered in sales and sales management at leading universities.  I asked about this on LinkedIN's Q&A forum a while back and elicited some very interesting responses.  Bottom line, I have to believe, like most things, there is an 80/20 rule here where the bulk of great sales is a "science" and the rest is magic applied by really talented, charismatic sales people / managers.

What To Include In A Board Package

In response to my post on board management tips, I got a few questions on what to include in a board package.  So here's my take.  Obviously some of the materials will be unique to your particular situation, for example if you're negotiating venture debt, you might include term sheets to review, but there are some basics that you should provide to the board at every meeting and these include:

• Board presentation deck (PowerPoint).  These run anywhere from 15 to 50 pages in length and are typically broken up into sections that have one of two goals: (1) updates or (2) decisions.  More on format and content of board decks later.
• Financials (Excel or PDF). Send the most recent month's results.  If you were able to schedule your board meetings for the second or third week of the month, that should be enough time to close out the previous month and include those figures. Ideally you want to include an income statement, balance sheet and cash flow statement. You should also include actual performance versus budget.
• Cap table (Excel or PDF). While this doesn't change that dramatically on a monthly basis, you will be well served to include an up to date copy in each package.  Be sure to include new options approved in previous board meetings as well as option cancellations from ex-employees.
• Board minutes (Word). Somebody should be responsible for taking minutes in the board meeting. These are not very lengthy minutes, but more formalities (who attended, when it started, topics discussed, etc.). You will want to circulate the draft minutes from the previous board meeting with the package and then during the meeting call a board vote to approve the minutes. In terms of who takes the minutes, it's typically either the CFO or corporate counsel.  Most attorneys will join the meeting by conference call and prepare the minutes without charging, or at least without charging much.  I'm a fan of using your attorney for this as it keeps your records organized (hopefully your CFO has something better to do!).
• Summary (Word). I confess I have never done this, but I have seen other CEOs do it and plan to do this in the future. The summary is basically a 1-3 page prose document which gives your 360 view of the business, e.g. how it’s performing relative to plan, any big strategic issues, etc.

Provided they are accurate and timely, a board package that includes these 5 things will be very well received by your fellow board members.

Founder / CEO Succession

Professor Noam Wasserman has a nice piece on founder / CEO succession in HBS's Working Knowledge.  To summarize he talks about the heads-you-win-tails-I-lose phenomenon that founders face as they grow their business, i.e. if they fail they get replaced and if they succeed they also often get replaced.  I think what Noam is observing is actually the case, but in the "success" scenario, I don't think that success is causal with replacement.  More likely it is some new aspect of the larger, more successful business that other board members perceive the founder as not being able to manage (e.g. more of a focus on sales management than new product development).  Either way, the lesson is clear to founders: success in a startup doesn't guarantee you get to keep your job.

Interview with Professor Noam Wasserman

As mentioned in a previous post, Professor Noam Wasserman at Harvard Business School does some fascinating research on executive compensation in venture-backed start-ups.  Since 2000, he has conducted an annual survey that has grown to include more than 500 privately held companies.  The results are truly fascinating and are a must-read for every entrepreneur, VC and start-up board member.  Noam also regularly posts on this topic and others related to start-ups on his blog--I highly recommend you check it out.  So over the past few days, I have conducted an "interview" over email with Noam and wanted to share.  I should note that Noam's responses include input from research collaborator Mike DiPierro from the executive search firm J. Robert Scott.

FN: How did you become involved in studying startup compensation?

Noam: I study the most critical issues faced by founders, and have been interested in compensation in particular from two main perspectives. First, to the extent that compensation affects a venture’s ability to attract and retain key employees, it is important unto itself. Second, I have also found that compensation data helps give us a window into essential but hard-to-quantify organizational dynamics within a venture, so examining compensation issues can help us study issues that are hard to study in other ways.

FN: There are a lot of data on compensation including sites like Salary.com, Payscale.com and Monster.com. Why do another study?

Noam: In 1999, when we began exploring doing a survey, there were a lot of sources of data on public companies, but we could not find extensive, solid, and detailed data on private companies. Thus, startups were flying blind when it came to compensation decisions. After the first survey in 2000, we received great feedback from the venture community as well as from the companies who, thanks to the Compensation Report produced with our data, finally had solid data with which to make compensation decisions. By getting so many companies to participate, we are able to slice the data along a lot of important dimensions, making it possible for participants to zero in on the true comparables to their own stage of development, industry segment, geographic location, and a variety of other factors. Academia has also lacked solid research data on private companies, so the survey data also provides me with a unique dataset to study important founder issues that haven’t been studied before.

FN: How many companies participate in your study? What filters to you apply to submissions in deciding whether to include them?

Noam: Annually, there are over 500 companies that participate. To be included, the companies have to be private (or very recently public), U.S. based, and in the Information Technology or Life Sciences (biotech, medical devices, etc.) industries. The survey population closely resembles the overall U.S. funding trends in terms of VC investment.

FN: Do you think there are any significant biases in the participants, e.g. troubled companies are less likely to participate skewing the figures higher?

Noam: We struggle each year with that question as it could certainly play into the quality of data we receive and provide. We feel that this issue is mitigated by our broad reach in terms of invitations to participate, our number of repeat participants, and the amount and type of slicing that we do with the data (enabling us to compare apples to apples).

FN: One of the main findings of your research is that there is a “Founder Discount.” What is this?

Noam: The “Founder Discount” is the subject of a paper published in the Academy of Management Journal in the Fall of 2006, and is summarized in a blog post here. Years ago, while discussing with a founder his problems negotiating compensation with his board, I realized that being a founder could actually hamstring you in such negotiations. (I recently completed a case, “The Tale of the Lynx,” that delves into this and other founder-related issues.)

Since then, I have seen the pattern on a regular basis and decided to test it more systematically using our survey data. I took the top management teams from our 2000-2002 IT surveys (a total of more than 500 companies) and examined their compensation. Even after controlling for a wide variety of differences across the managers (their prior work experience, equity holdings, etc.) and ventures (stage of development, size, financing history, etc.), there still remained a significant gap in compensation between founders and similar non-founders – i.e., a “Founder Discount.”

FN: So, why is there a Founder Discount?

Noam: I have found both voluntary and involuntary reasons for the founder discount. Both reasons can be traced to founders’ much higher level of psychological attachment to their ventures. On the voluntary side, this attachment often leads founders to accept less compensation in order to free up scarce cash for their ventures to invest in other important activities. On the involuntary side, most of what I have seen was captured nicely by the founder in my “Lynx” case. When reflecting on his threatening to leave the company if he didn’t get a raise, he said: “The board knew we were so attached to the company that we wouldn’t walk away – we had too much vested in building the company to leave over short-term cash compensation. So they knew it was a bogus threat. ... We thought we were being altruistic, and figured we’d make it up later. We never could. That ended up being an albatross around our necks.”

One interesting fact is that the strength of both the voluntary and involuntary factors should diminish as the venture grows, and the data in fact does show that the Founder Discount is large in smaller ventures but disappears in larger ventures.

If your readers have seen other reasons for the Founder Discount, I’d love to hear them!

FN: You’ve been doing this study annually for several years now. Have you identified any trends?

Noam: One trend is that the Founder Discount persists across both up and down markets. Another pervasive trend, found in both our IT and Life Sciences companies, is that incentive compensation has played a much more important role in total cash compensation in recent years.

Doctorate in Sales

Why is it that you can get a PhD in engineering, finance, marketing and human resources, but not sales?

It's Lonely at the Top?

I don't agree (if that's the assertion) that CEOs are lonely people, however, there are some issues about which there aren't many folks to whom a CEO can speak completely candidly.  Everyone needs to just think aloud sometimes, but it is hard for CEOs to find an appropriate forum for some topics. Foremost among these sensitive topics are personnel issues, I've found.

For example, let's say a CEO is dealing with a marginally underperforming executive and is trying to decide upon a course of action. That's not exactly a topic that can be candidly discussed (in fairness to all involved) with the other executives on his or her team. It's also not something that can always be candidly addressed with board members for fear of getting an over reaction and putting a black mark on said marginally underperforming executive. How many of you CEOs have tried this and gotten a "What?!  You've got a "VP" problem?" from your board members?  In the example I mentioned, maybe you're wrong about the executive or maybe the real issue is your leadership. Sometimes you need someone to whom you can just think aloud on the issue on your way to a conclusion (which may involve talking to the other executives and one or more board members).

In my experience, issues like this (and there are many) are frequently topics of dinner time conversation with the CEO's spouse (who after a while responds something like, "can we please talk about something other than work?"). I've found that one of the best forums for discussing this is in periodic meetings with other CEOs. While you can talk with friends and acquaintences about this, it's really helpful to have a formal or informal group of peers to whom you can go on topics like this...at least that's what I have found.

In Boston, the best CEO network I've come across is organized by Clark Waterfall, a partner at the Boston Search Group, a headhunting firm.  Clark really does an amazing job with the network; every participant I've spoken with raves about it.