Sell before you Buy

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Many of us operate at work like we shop at a grocery store.  At a grocery store, we might smell the oranges, check which brand of cereal we want to try and contemplate what is on sale.  We’ll walk around, consider the options, and ultimately put the winners into our carts and walk out the door.

We know how to buy.

A lot of how we work comes from the same instinctual behavior.  We’re interviewing candidates before we sell them – considering them like the bucket of oranges. We are thinking about which software vendor to work with – a lot like those boxes of cereal. We are evaluating technical options – considering which one is the right balance of return vs. cost. We are qualifying sales opportunities – thinking carefully about – and sometimes over-thinking – the question of which one deserves our time and attention.

Fundamentally, we operate like buyers or consumers first. But here’s the issue if you are an entrepreneur or working at a startup:

No one in the world cares about you. You have no currency. You have no money. You’re lucky to have anyone spend any time on your business when there are so many successful companies to spend time with.

So, reverse how you operate. Sell first, buy later.

The “buy first” mentality comes from a large company orientation. Oracle can be in “buy first” mode since everyone knows them.  If you’re at a startup, and you try to “buy first,” you’ll be choosing from poor alternatives.

Let’s talk about specifics.  Suppose you’re recruiting, and you prioritize choosing among incoming resumes or interviewing the selection of candidates that are high quality from that group. Fundamentally, you’re choosing from poor candidates. None of the best candidates care enough about your startup to apply. Instead, focus your time on selling to the best people – spend 80% of your time recruiting them to interview and 20% of your time selecting.

Suppose you’re thinking about which of five potential features makes the most sense to build. You can spend a lot of your time evaluating which one is most doable (that’s “buying”) and then push it out to your teams to sell. The alternative would be to spend most of your time “selling” (or validating in product-management-speak) and then only evaluate feasibility on what you know would move the needle.

Suppose you’re meeting a potential vendor – a PR firm, a software provider or a law firm.  Our natural tendency would be to start by assessing them. However, the best vendors in the world fundamentally shouldn’t work with you, because you have a high probability of amounting to nothing.  Start the opposite way. Seek out the best vendors in the world and sell them on your vision and the future potential of your startup. Then evaluate.

Finally, let’s get to sales.  You’d think that the one group of people who would certainly be focused on selling are salespeople. But even in sales, how much time do we spend thinking about compensation plans, territory alignment, qualification, adherence to Salesforce, preparation for those meetings, internal alignment, qualifying deals vs. the pure act of selling – persuading someone to buy something they fundamentally don’t have to?  Of course, all of those are important activities but do they matter if we don’t have demand for our products?  Shouldn’t we be spending 80% of our time on the latter?

As startup leaders, we are not grocery store customers. We are grocery store clerks at the corner store competing against Wal-Mart, Safeway, Whole Foods and Trader Joe’s.  And the landlord is happy to throw us out.

Sell authentically. Sell often. And, sell before you buy.

Image from Farmer’s Market by Pabak Sarkar licensed under CC by 2.0

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Building a Culture of Profitable Growth

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Silicon Valley is embracing the new reality of constrained VC markets, lower exit multiples for technology businesses, and a much more balanced perspective on risk versus return. As the cost of capital has gone up, both sides of the entrepreneurial ecosystem (investors and founders/CEOs) have taken predictable positions. Investors are a lot more bearish on funding, in large measure because the assumptions that underlie their Internal Rate of Return models are uncertain and they are busy funding portfolio companies. Founders and CEOs are engaged in belt-tightening – as we’ve seen from fellow SaaS companies Optimizely, high-flier Zenefits and a range of others. Internet businesses have arguably fared worse. A lot has been written about the rapidly narrowing mismatch between public and private company valuations.

The point of a business is to make money, and too few Silicon Valley businesses, including us at BloomReach, do.  As one CEO told me, effecting a culture change from unprofitable growth to profitable growth is “the hardest thing I’ve ever done.”

At BloomReach, we have set the course to achieve the triple play — the kind of recurring revenue scale that provides an ability to tap public markets, best-in-class growth rates, and profitability. We believe that’s what creates long-term sustainable value.  We just raised $56 million in capital, so some might ask – why are you worried about driving to profitability now? Now is exactly when we should be worried about it, so we control our own destiny and don’t have to make tough choices to achieve the triple play. Fortunately, we have the benefit of a natural history of capital efficiency and strong unit economics to help get us there, but I fully expect it to be really hard – maybe the hardest thing I’ve ever done.

Building towards profitable growth requires a metamorphosis in the culture of one’s business in so many ways.

  • Hiring: We intend to use the favorable hiring environment to hire extraordinary people, but we’re fully committed to raising the bar from an already high standard. The natural instincts of a growth-only business are to hire as fast as possible and against a “headcount plan.” That’s not what gets one to profitable growth. Every hiring manager must ask the question — “Is this incremental hire going to move the needle on growth or profitability? Is it going to meaningfully upgrade my team?”
  • Shorter-horizons on investment: There are a ton of good investments to be made, and in a non-capital constrained world, the question is — “Is this investment going to get us a return?” In a capital constrained world, the question is —  “Is this investment the lowest risk, shortest horizon, highest return choice?” Are your marketing programs the ones that have a history of results? Are your product investments sufficiently oriented to where the revenue is rather than where it might be? What’s the risk of achieving those returns?
  • Investments in productivity and cost-control: You only get to profitability if you spend less than you make. And focusing only on the top line is like fighting with one hand tied behind your back. The natural ethos of Silicon Valley is to build and sell great products. That’s important in any market environment. But what about productivity tools for your customer success team? Or initiatives that help bring down your Amazon Web Services spend? Do you celebrate those victories with the same passion as a new feature or product?
  • Leveraging teams in every geography: At BloomReach, we have teams in India, the U.S. and the UK. There is a cost to effectively leveraging teams globally, but doing so can make a huge difference in effectiveness and the cost structure. We built a significant product (BloomReach Commerce Search) in India. Of course, teams will always have good reasons for why proximity to HQ or the market matters. But the reality is, if you don’t leverage geographic diversity – you compound the profitability challenge.
  • Alignment within your executive team and your overall leadership: You’re not going to get to profitable growth if you’re doing it alone. As we started the journey towards profitable growth, our CFO pulled us all together to map out a range of scenarios (around growth vs. profitability) and we committed together to the mission of profitable growth. An aligned leadership team goes a long way towards good decision-making.
  • Just say no: At times, the decisions to not spend are really painful — a hire you’d really like to make, a trip you’d like your team to take, an initiative you’d really like to start. You’ve done all the context-setting possible but there will come a point on your journey where you’ll just have to say, “No.” It will be highly unpopular, but it’s necessary.
  • Answering the question,“Is the company in trouble?”: Not growing headcount super-fast can somehow feel the same as reducing your employee base. The psychology of the change from growth-only to profitable growth, requires over-communication of the message that growing costs at a slower rate than revenue growth is exactly the way for a successful company to win.  This is particularly true when certain teams are working on growth-oriented initiatives and others are working on profitability-oriented initiatives (important for each set to stay focused on their objectives).
  • Over-index compensation and culture initiatives on the great people you have: If you have a  dollar to spend, spend it on the key people you have that help make you great, and the environment around them that helps them succeed and thrive. At BloomReach we invest a ton in culture and citizenship. I’d rather hire a little slower and over-index on the proven winners than over-hire but sacrifice culture.
  • Getting rid of the growth-only mindset or marginal-contribution people: There are some people in your business who are only well suited for a growth-only mindset. You’re not going to change them. It’s time for them to move on. There are others who are OK performers, but not great – move on from them.
  • Don’t over-correct: In a drive towards profitability – your team can interpret your goals as only about profitability. That’s a mistake. Growth still matters a ton, it’s just got to be accomplished in a smarter manner.

The journey to bring the triple play to BloomReach is going to be a tough road, and it is one that is paved with good, balanced decisions. When the temptation to spend the extra money with an uncertain result comes up, remember that the ultimate choice you have to make is – do you want to subject your company to the whims of fickle financial and venture markets or do you want to control your own destiny? I want us to control our own destiny.

Image from Balance Scale by Sepehr Ehsani licensed under CC by 2.0

Do You Have Practical Courage?

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Nobody makes Hollywood movies about characters that don’t have courage.  The warrior who goes to great lengths to put himself or herself on the line for his or her brother-in-arms.  The sports star who dared to take the game winning shot. The executive who bet the business on a new direction when the forces at play suggested otherwise. The doctor who is prepared to try an experimental treatment.  The investor who bets against market forces and wins. These are the stories of legend and heroism.  The trouble is – plenty of sports stars miss the last second shot, execs throw their companies into turbulent times with moon shots that don’t work, investors can get fired for countercyclical decisions and doctors can get sued for excessive risk-taking. How should you think about approaching your own work-life?  How should you evaluate the level of “courage” you should have when making a decision that affects your career and your business?

The answer is to have “practical courage.”  Practical courage involves making courageous decisions that lead to non-linear outcomes for yourself and your business but in a way that is inherently practical.

You can apply practical courage to a whole range of situations.  Making practically courageous choices is really hard. The temptations are on one extreme or the other. You will have a large number of people in your life telling you that the path ahead on the courageous decision is really hard, and that one should take the easier road. You will have others who prey purely on emotion. You will hear people say “greatness comes from taking a big bet blindly, believing in yourself and just doing it.”  Neither is practical courage and fighting the two polarizing forces is what practical courage involves.  Ask yourself a few questions to help you make a practically courageous choice:

  • Do you have the unfair advantage of knowledge or facts that others don’t have?  Peter Thiel calls it “the secret” in his book Zero to One.  When Mark Zuckerberg turned down a $1 billion offer from Yahoo!, he likely did not do it because he simply didn’t want to be acquired. He had knowledge about the potential impact of a social network that Yahoo! (and likely many Facebook stakeholders) just did not have.  When Andy Grove bet Intel on the microprocessor business and away from the memory business, he knew that one was a path to commoditization and the other was a path to real growth. They could make the courageous choice because they had information that the market did not.
  • Can you be practical in the short term but right in the long term?  Practically courageous choices often involve short-term – long-term tradeoffs.  If you make a big bet on a new, more risky choice that is likely to be right in the long term in a way that can be practically pulled off in the short term you have found the zone of practical courage.  The lean startup methodology that Eric Ries has talked about is inherently about practical courage. It involves rapid innovation in a clear direction, but it limits investment until early market feedback is positive.  Promoting someone with high potential can be courageous.  Promoting someone with high potential, but with a backup plan in case they fail is practically courageous.
  • Have you considered the true downside case?  I thought a lot about downside when I decided to be an entrepreneur. It can be a tough decision to leave a good job and great career prospect, until you consider the downside case. I started to think of my education and my previous work experience as an “insurance policy.” I had the good fortune of enough qualifications to get a job anytime, so what’s the real downside case of taking a bit of risk?

Being practical is a path to incremental improvements over the status quo.  Being courageous without practicality is like betting at the Casino.  But practical courage can give you a truly unfair advantage on a path to tremendous success. Developing an intuition for practical courage is not a science.  It is an art, and one that the best leaders have learned.  It involves collecting a lot of data and genuinely paying attention to it.  But it ultimately also involves having the inner strength to take a set of data points that are inherently grey and having the courage to trust your gut.

 

Image from by David Goehring licensed under CC by 2.0

Scaling a No-Titles Organization

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Three of the core values of BloomReach are “We”, “Own” and “No Drama.” “We” is about being on shared journey – no individual stars at the expense of the team. “Own” is about acting and behaving like an owner of the company. “No Drama” is about being a team of problem solvers – non-political and collaborative. These cultural values are tightly coupled with the core objective of many early-stage start-ups: creating an environment of little to no hierarchy and maximum creativity. Given that titles are typically a source of hierarchy, the question of how to handle the scaling of the organization while minimally introducing titles is the subject of this post.

Stage 1 – the early days

One of the earliest decisions my co-founder and I made was to establish a principle of “no titles” (full disclosure Ashutosh was always CTO and I was always CEO). The idea was born out of a desire to create an environment where those three values could really take root. In a world of large numbers of VPs, directors, senior directors and managers, the incentive system seems out of whack with the priorities of an early stage start-up. We wanted everybody to be part of “We” – not just the leaders of the company. If titles were eliminated as an issue, everyone could feel like an equal part of the journey. Everyone could feel like they were an owner. And if no one could gun for a new title, the drama quotient would be significantly reduced. Everyone in engineering was “member of technical staff.” People could be paid differently and given different levels of responsibilities – but the lack of hierarchical titles would drive a culture of equanimity. We even went so far as to word every offer letter by function rather than title. People were simply “in sales” or “in marketing.” The standard question we would get is, “How do you recruit great people to a no-titles culture?” By sticking to our guns. If we could come out and say “we have no titles at BloomReach” – it’s pretty hard for a candidate to make an argument that they deserve an exception. And those that walked away on that basis, we were happy to lose.

Stage 2 – “Head of”

As time went by, we got into the “head of” stage of the company-title evolution. We hired a “head of sales” and a “head of product”. The “head of” title was meant to signify leadership, not one’s superior position on the organizational chart. A “head of east coast sales” could report to a “head of sales”. By keeping both titles “head of,” we were continuing to send the message that we were still very much a “We” culture. We could recruit leaders if we needed to, and ensure that the efforts those people were leading could be reflected in the way they described themselves externally. The objective of adding a “head of” title was twofold – provide clarity to the external world on the role of our people and provide clarity internally on who owned a given function. We complimented the “head of” with leads. We had tech leads, marketing leads and product/account management leads. Leads were not titles – they were roles. Someone could be a tech lead for project A and a team member for project B. Stage 2 enabled us to grow up a little bit, just really slowly. And it allowed us to preserve a no-hierarchy culture in day-to-day operational life.

Stage 3 – Directors and Principal Engineers

As BloomReach’s engineering team grew we started to need real people-managers outside of the executive team. We also needed individual role models for the rest of the organization. Directors and principal engineers were born. We have always been very conservative about the criteria for these titles. The people who took them on were already clear leaders – managing complex projects and large teams or providing technical leadership across the company. The addition of directors and principal engineers provided aspirational role models, but still preserved the ethos of a “no titles” world. Since less than 5% of the team had these titles and the bar was so impossibly high – the same behavior of the early days was maintained, albeit with individuals now clearly responsible for the success of others.

Stage 4 – Peer-based promotions

Just recently we took our conservative approach to titling to a new level. As a result of clear feedback from our team that they were hungry for more readily accessible career paths, we introduced the “staff engineer” and “manager” titles in engineering. Though they may make us look a lot more traditional, it was our promotion process that preserved the essence of BloomReach values. The recently rolled out promotion process enabled a team of senior engineers and engineering directors to evaluate the contributions, cultural fit and impact of candidates. They reviewed everything – code, projects, leadership and interaction style. They set the criteria for being promoted to “manager” and “staff engineer.” They debated the merits of each individual and ultimately reached consensus. Importantly, neither my co-founder (our CTO) nor our head of development was present in those meetings. It sent a clear signal: promotions at BloomReach would not be achieved by currying favor with leadership. You succeed by earning the respect of your esteemed colleagues.

Why bother with all of this innovation around titles and promotions? If we were going to end up in the same place as many other companies, why not take the shortcut there? Culture is set in the early days and reinforced over time. Setting a no-titles culture created the collaborative nature of the BloomReacher. Even as titling is introduced, the value system has become so ingrained that it cannot be broken. The conservative approach to titles also ensures that we had the minimum amount of hierarchy needed for a given stage.

The spirit of the “no-titles” organization remains intact today and it is at the heart of everything we do that makes BloomReach healthy– debate, contribution, impact and limited politics. People said it would break over time as the company scaled. We are at 210 people and counting — and I’m still waiting.

Image from Ceramic Hierarchy by Travis licensed under CC by 2.0

Leaders should be Problems Solvers and Problem Creators

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The trajectory of most careers starts with problem solving.  Good engineers, faced with a well-defined problem, can usually do an effective job thinking through how to best solve the problem.  The best engineers find the 10x solution – 10x more scalable, 10x more maintainable in one-tenth the time. Good marketing people, armed with an adequate budget and clear goals, problem-solve around messaging or marketing program choices.  Good finance people take the characteristics of the business and think about the best deployment of capital to achieve the desired outcomes. Good salespeople are problem-solving around how to navigate obstacles to persuade decision-makers.  We all start our careers honing skills around being effective problem solvers.  I spent the early part of my career problem-solving as an engineer, problem solving as a financial analyst and problem solving as an early entrepreneur.  And some of the best individual contributors at BloomReach, and at every organization I’ve seen, are incredible problem solvers.  The CEO job involves a ton of problem solving.  And usually, by the time the problem reaches you, it’s a big hairball.  It’s a decision where the path is unclear and where the data is murky (a bet on a new market or new product). It’s a complex, people-oriented problem (a manager or team not performing or two leaders not getting along).  Or it is a problem that has inherent short-term vs. long-term trade-offs (losing a customer that might be very valuable vs retaining that customer at the cost of longer-term priorities).

 

Great problem solvers who continue to advance in their careers, are constantly broadening the scope of the problems they can take on.  At any startup, leadership opportunities often outpace the people that the startup has to take on tough, large-scope problems. As I look at the people who have advanced quickly at BloomReach we’ve seen them grow from task-oriented problem solvers to outcome-oriented problem solvers.  On the customer-success side, they move from “I can complete the analysis” to “I will own the customer’s success end-to-end.”  On our engineering team, they move from “I can build this component” to “I can lead this project.”  Being an outcome-oriented problem solver provides enormous benefit to one’s manager. There is nothing an oversubscribed manager appreciates more (or should) than someone on the team who says “I got this.”  And has the credibility to have earned that trust.

 

Being a great outcome-oriented problem solver is a necessary, but not sufficient, condition for true leadership.  Leadership means both being a problem solver and a problem creator.  The inherent nature of a well-executing team is that they are focused on solving a problem.  But what if the problem definition needs changing?  What if you have a team chasing a revenue goal when they should be chasing a customer satisfaction goal?  What if you are executing really effectively against a narrowing addressable market?  What if your organizational alignment inherently is misaligned with the goals of the company?  Those are all times to step in and create problems for the teams involved.

Problem creation has been important at BloomReach.  At times, we’ve created problems to  drive a change of direction – sometimes by hiring a new exec, sometimes by personally selling a customer who might be outside of the qualification criteria, sometimes by reorganizing a team, sometimes by radically changing the product goals and sometimes by materially changing budget allocations.  Many of these steps create more problems (at least in the near-term) than they solve.  Often, they materially disrupt the execution cadence of the organization.  They invite significant dissent among key team members.  But they are key to driving a team or an organization to raise the bar, think differently and adapt to a dynamic world.  I’ve seen cases of leaders going down the problem creation road too far.  They create so many problems that they set their teams up for failure.  They are unsympathetic when a team member asks for help.  They become unapproachable.

 

Many of the best leaders are great problem creators, inspiring teams to achieve what they never thought possible and adapt in ways that can appear radical at first, but become second nature over time.  And they are also great problem solvers, taking ownership for the toughest problems around and helping teams navigate them. The problem-creation gene is a wholly different gene than the problem-solving gene.  Problem solvers want to get through the task list.  Problem creators want to create a new one.  The best leaders get both genes to co-exist in harmony, artfully drawing on each at just the right time.

Image from Troublemakers by THEJOKER licensed under CC by 2.0

Operating in the Tech Bubble

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“Every incremental day that goes past I have this feeling a little bit more.  I think that Silicon Valley as a whole or that the venture-capital community or startup community is taking on an excessive amount of risk right now.  Unprecedented since ’99.  In some ways less silly than ’99 and in other ways more silly than ’99.”

–       Bill Gurley to the Wall Street Journal, September 15, 2014

I may be in the minority but I remember 1999.  In 1999, I was part of a bubble that made the dot-com bubble look small.  Sure, those were the days of Pets.com imploding and Amazon’s stock going from $107 to $7 per share.

But I was a part of the telecom bubble, borne out of excessive spending by telcos on spectrum, fiber optic cable in the ground spanning the world, and a massive data center build out.  About $2 trillion was lost in telecom market capitalization by 2001, by both well-established companies (MCI, AT&T) and startups (Exodus, Level3, Global Crossing).  It was a period when companies were valued as a “multiple of gross PP&E” – or basically, the more money you spend on assets in the ground – the higher your valuation.  At least with eyeballs you are dealing with customer acquisition, with PP&E, you’re talking about outdated optical equipment.  During that time, I helped start FirstMark Communications – a startup for which we raised $1 billion, including $600 million from private equity firms (KKR, Goldman, Morgan Stanley and Welsh Carson) and $400 million of debt.  The story did not end well.

Which brings me to 2014, and the recent spate of articles cautioning startups that the current tech valuation levels might not last and warning startup founders to be careful about raising hundreds of millions of dollars on companies with extraordinarily high burn rates.  That is good advice, but hard to accept for entrepreneurs who have never really operated in the dark days; and much easier said by investors than done by entrepreneurs when every force around them pulls in the opposite direction.

Let’s put aside the question of whether or not there is a tech bubble and ask the question – how should a CEO or founder operate in the midst of one?

Gurley says the answer is being “pragmatically aggressive.”  I think the real answer is that there should be very little difference in how you operate your business in a bubble world or a non-bubble world.  Sure, the cost of or access to capital might be different in the two scenarios but the truth is that for most software, Internet or other low-capital-asset businesses, the cost of capital is far less correlated to success than the use of that capital.  Let’s take two cases: You are operating in “normal times” and you need to spend $100 to acquire a customer, versus you are operating in “bubble times” and it costs $200 to acquire a customer.  Given that most business cycles, up or down, last three to five years and the lifetime value of your customers likely does not change in the two cases, you should be willing to spend roughly the same amount in both cases.  The fact that you can raise $50 million at a $500 million valuation versus raising $50 million at a $250 million valuation should not impact your fundamental decision-making.  If the “normal” case only allows you to raise $25M, then you really have to ask yourself whether the incremental $25 million really changes your calculation.  In a world of natural capital abundance for good businesses, I would argue it mostly should not (i.e. if you can only raise half the money today, but if you deploy it to good use, more capital will likely be available downstream for you anyway).  There may be a difference in ultimate founder / early investor ownership but not likely in ultimate outcomes.

The playbook for operating in a tech-bubble involves mostly blocking the noise out:

  •      Stop worrying about how high Uber’s valuation is:  First of all, their valuation does not impact your valuation.  The only thing worse than spending large amounts of money unnecessarily or raising money at outrageous valuations that you don’t deserve is doing so because someone else did.  I get the competitive fire that most founders/ceo’s have about being best-in-class but worry about the hand you’re dealt, not the one you wish you’d been dealt.
  •      Play for long term:  Remember, you are playing for your product vision and potentially towards an exit that takes several years.  Responding to current market forces in ways that diminish the value of the long-term to get a short-term pop almost never works.
  •      Over-communicate to your team: Everyone reads TechCrunch.  I had one engineer ask me at what price I would be a “buyer and/or seller” of BloomReach stock.  Others will be influenced by the events around them and it is important that you continue to explain to your team the various forces that ultimately impact your value and their equity value.
  •      Resist the temptation to massively over-pay or over-hire: The natural conclusion of any self-respecting entrepreneur in a capital-abundant environment is to raise too much capital and then over-pay or over-hire in a super-competitive job market.  Don’t do it. It will create fairness issues with your team downstream; and if you over-hire when the risk profile of your company doesn’t permit it, you will ultimately be faced with painful layoffs.  Explaining the cuts to your team will damage morale much more than the gains incurred by over-hiring or over-paying.
  •      Only raise money at a price that you have a line of sight towards being priced at in “normal” markets: Just because investors are prepared to value your company at billions of dollars doesn’t mean you take their money at those prices.  At some point those investors will want a return; and just the psychological burden of knowing that you need to actually earn out an unattainable price can destroy a founder or a CEO. If you at some point need to do a down round, the financial and cultural costs are massive. Mitigate that risk.
  •      Burn as much money as you would in “normal” environments: Remember the good days will end and you will ultimately be held accountable for what you did with your capital.  Usually, in any high-growth environment, there are only so many things you can execute on in parallel and generate a good return.  Stick to those.

I’m not suggesting that you should not be opportunistic in good times.  Certainly plan your fund-raise to take advantage of the opportunity, negotiate the best possible deals with investors, consider exiting, and (at the margin), be slightly more aggressive.

But mostly, as you are faced with the innumerable pressures to take advantage of the tech bubble, step back and take a walk around your (overpriced) office space.  Then come back to your desk and make the unnatural move:

Don’t change anything.


Image from popped by carterse licensed under CC by 2.0

Are you Ready to Start a Company?

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I had the good fortune of attending a dinner with John Chambers, CEO of Cisco. When he was asked why he takes the time to speak to small groups of startup CEOs and entrepreneurs, he recounted a story of having been mentored by the CEO of Hewlett Packard in his early days in the valley. And when he asked the HP exec how he could repay the favor, the HP CEO simply said that he should take the time to mentor the next generation so that the unique assets of the valley transcend generations. Few entrepreneurs have access to regular mentoring from leaders of multi-billion dollar companies. Fortunately, you do not need that mentoring to start a company. What you do need though, is virtual leadership experience. Virtual leadership experience is what MBA programs aim to leverage. They take individuals through a large number of case studies with the goal of building muscle memory to help those individuals confront future situations. The good news is, you don’t need a MBA program to build entrepreneurial muscle memory either.

Let’s step back. Wanting to start a company and being ready to start a company are two independent things. Of course, there are plenty of stories of successful entrepreneurs without work experience – Bill Gates and Mark Zuckerberg among them. But the overwhelming majority of successful founders have been ready to lead. Indeed, the most important experience you can have prior to starting a company is to work at a start-up. Why is that? Because larger companies don’t expose you to enough situations, frequently enough, that would parallel the type of situations that you would need to confront if you were to start your own company. But just because you have worked at a startup, doesn’t mean you are ready to start a company. Once you’ve checked the box on desire, commitment, passion, risk tolerance, family situation and all of the other “must-haves,” you can now ask yourself the key question – are you ready?

This is where virtual leadership experience comes in. Throughout your time at an early-stage or growth-stage company, you will see a lot of situations that go well beyond your job, regardless of whether you are an engineer, product manager, finance person or salesperson. You will see product decisions being made around you. You will see the way decision-making takes place. You will understand your company’s interview process. You will understand the way leaders communicate in the face of adversity. You will watch politics develop – and see whether it gets squashed or cultivated. You will see competitors emerge, and watch how your company responds. You will see financial pressures, and watch how your company handles it. You will see good quarters – and see whether your company gets ahead of itself. You will see bad quarters – and see whether your company gets down on itself. You will see good hires and bad fires. In a relatively short period of time, you will encounter a richer curriculum than your average MBA program offers. You can choose to ignore the things going on around you or you can treat every single thing going on around you as a course in virtual leadership. Let me be specific: If you want to test whether you are ready for a start-up, put yourself in the shoes of the leaders of your company and every time your company is confronted with a situation, ask yourself – what would I do in this situation if I were leading my company? You are living through a true experiment. When a product decision is being made, seek out the information relevant to the decision and force yourself to make a call on the decision (ideally share that thinking with product leaders). Then watch how that decision plays out and look back on your instincts to figure out whether they were wise or unwise. If a personnel decision is being made, think about how you might handle the situation. Then watch how things play out and grade yourself. Think about how your leaders prioritize and communicate and evaluate how you might have approached those tasks. You can take this approach to almost everything going on around you.

One of the benefits to putting yourself through virtual leadership training is that you will learn a very broad set of things about startup decision-making across a range of functions. That will serve you well downstream when you need to weigh in on decisions you don’t have much experience in. More importantly, it will hone your instincts. The difference between being responsible for some decisions and being responsible (ultimately) for all decisions is a very big one and it is the fundamental difference between working at a startup and leading one. Very often, early on in your mental training session (and if you work for a good company), you will find that your instincts aren’t actually all that good. You’ll find that you may not have come to the same conclusions as your leaders, and that very often your thought process was not sound. You’ll also feel pretty uncomfortable – fundamentally lacking in clarity around what the right answer is. But over time, like any muscle, you’ll hone those instincts. You’ll start to agree with your leaders on some things and differ on others. You’ll develop greater and greater confidence in your decision-making and approach to situations. Once you’ve navigated two years or so of virtual leadership training, and graded yourself an A consistently across a range of multi-functional situations – you’re ready to join the thousands who are feverishly building their own dreams.

Image from Ready… by Amanda Tipton licensed under CC by 2.0

Be One with Your Customer

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Most companies fundamentally pay lip-service to customer-centricity. The economics make it so. If I spend a $1 on sales and marketing, I might get $5 in ongoing revenue pretty quickly. So it always makes sense to spend money on sales and marketing in the short term. If it spend a $1 on product and engineering, I might get $100 back in long-term revenue for my business. The return on $1 dollar spent on “customer-centricity?” Not clear. And therefore most companies shortchange their customer-facing organizations with people who cost less and add less value. I’ve never believed in that.

At BloomReach, we have some of the brightest people in the world solving problems for our customers. They don’t just take people out to lunch or dinner and say, “I’ll get back to you” when they get a hard question. They understand the product. They understand our business. They understand our customers businesses. They are analytical and organized. Some are technical. Some are business people. And we spent the same amount of money in 2013 on making customers successful as on marketing. There is no better marketing investment than a $1 spent on making a customer successful.

But how do you make a customer successful? If you want to be customer-centric, the key is to be one with your customer, at least for a day. I see tons of technology companies who say they have found a deep “customer pain point.” Or they say they have found a solution that will deliver an improved return on some part of their customers activities. But when you break it down, customers don’t have “pain.” They are not walking around looking for “ROI.” Searching for ROI might be part of what they do, but its not who they are. They are real people. We have great customers at BloomReach and they are some of the smartest, highest integrity business people I have ever worked with. One of our customers is spending time trying to drive search traffic to his website. Another one is figuring out how to convince his boss to redirect spending to a new project. Another is trying to replace the technical people who are leaving his IT organization. Another one is transforming the retail industry. Another one is tired of all the politics around her. Technology is supposed to make their lives better, not add irrelevant meetings to already busy calendars. If you want to build a great customer-centric company, don’t just put window-dressing on poor fundamentals. Step back and ask yourself some basic questions:

1. Are you solving a problem that is big enough to matter to your customer? Too many products fail here. They deliver value, but they don’t deliver enough value to really move the needle in their customers’ lives. For example, a lot of products promise “ 20% improvement in revenue,” but in some micro-part of a customer’s business. Is that worth anyone’s time if it only touches 2% of the Customer’s business? You’re not competing with other products. You’re competing for my time. And I only give my time to things that matter. Think of it like a consumer mobile app – is it cool enough for me to replace another app on my home screen?

2. Is the value of your product transparent to all involved? Too many software projects from old-school software vendors have great business cases that never pan out. Or at least, no one knows if they pan out. You cannot fundamentally live the life of your customer if you cannot clearly measure the ways in which you’re improving his or her life. At BloomReach we do a lot to measure value – we run control tests, we do analyses to correlate operational metrics with results and we develop ROI studies. We only build products that we believe we would buy if we were the customer. Measurement can be brutally hard and it does not make sense to count every nickel and dime, but if your organization does not care about value delivered, your organization is setting your customer up for the board meeting where they get called out. Value does not always mean revenue generated. It could mean just making someone’s life easier. It could mean improving the user experience of your customer’s business. There are a lot of qualitative ways of creating value. But the value should be palpable.

3. Are you prepared to have an honest conversation with your customer? You will at some point disappoint a customer. There will be a bug in your software. Your release date will slip. Someone will handle a customer care situation badly. Your customer will ask for something totally unreasonable. What are you going to do about it? Are you going to stand up and have the tough conversation where you tell your customer you think they are wrong? Or tell them you have totally screwed something up? If you’re not, you can never be one with your customer. Because you would never misguide yourself (at least knowingly).

I told myself before I started BloomReach that I was only going to start a business-to-business focused company if I could assure myself that the CEO of my customer’s company would care about my product. The world is too noisy for technology that doesn’t matter. I think that’s the starting point for being one with your customer. From there, every aspect of your organization should ask the question, “What would I do if I were the customer?” If I’m selling, is it easy to buy from me? If I’m marketing, do the messages pierce through the noise bombarding my multi-tasking customer? If I’m providing analysis, does my customer care about my analysis? Is it trustworthy? If I’m serving a customer, do my actions get my customer ahead in their organization? If I’m building a product, how hard is it to use the product to fulfill its value proposition? If I’m acting on a support request, how long am I making my customer wait?

The journey to being one with one’s customers is a long one, one that we are very much in the middle of. When you think about customers, remember the famous Jerry Maguire quote from the eponymous movie:

“You…complete me.”

Image from We stick together…smile together…be together by Thai Jasmine licensed under CC by 2.0

Do Financial Plans Matter in Tech Startups?

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In this world of go-big or go-home startups, it seems trendy to focus on the product, focus on the user and focus on the long-term platform you are building.  All of that is super-important.  Interestingly, there is very little conversation on the financial plan.  In the old days, the financial plan was the heart of the business plan that you raised capital on.  In the days when Silicon Valley actually had a bunch of startups working on “silicon,” costs mattered. It wasn’t as simple as spinning up a couple of Amazon EC2 instances and hiring a few developers to get started.  As capital has become more available, startups’ costs have plummeted, and the potential outcomes have become even larger, the question is, “why should any early-stage entrepreneur pay any attention to their financial plan?”  If the product works, money is always available.  If it doesn’t, you’re dead anyway.

It is true that as part of the seed and Series A pitch, financial plans are probably an after-thought to any savvy entrepreneur or venture investor.  You barely have any data with which to project your business, so why should anybody trust any of the numbers you have in a deck?  At board meetings in your company’s early days, reviewing progress against the financial plan when product/market fit isn’t really even there feels totally at odds with reality.  The role of the financial plan isn’t primarily about fundraising or external reporting.  It’s about helping you chart and run your business.

We had a financial plan at BloomReach pretty much at the founding of the business (when the company was just two of us).  Here’s an excerpt from our fundraising deck in February 2009:

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One and a half years later, we pretty much hit or exceeded all of those milestones and showed up to raise our Series B ahead of our plan.   In the fall of 2010, we raised our Series B with a clear 3-year financial plan and materially exceeded those projections by 2012.  While good products, good selling, and good execution helped a lot, our financial plan played a key role in helping drive BloomReach to achieve great things. From the day of the company’s founding, it was always something that we measured ourselves by. Goals have a way of turning into reality.  Even though we were only two people with pretty much no product and no business model and no customers, simply willing the revenue to occur by putting it down on paper, helped it occur.

Start-up financial plans can play a couple of key roles and really matter:

  • As the company grows, the plan helps focus the team.  Nothing speaks to engineers and other analytical individuals like numbers and having the financial plan really drives consistent goal-setting and priority-setting.
  • It sets a culture of caring about revenue.  Believe it or not, there are many early-stage businesses that don’t obsess about revenue (a small number of them because revenue isn’t what matters most then, but for many just because they are poorly run).  Putting the financial plan out there commits you and everyone else at the company to revenue.
  • Trade-offs become clear. No financial plan in its early days is likely to be valid for very long, but it gives you a map to your destination.  If you find a better path, or encounter a new obstacle, it forces you to revisit and edit your map.  It drives home the tough trade-offs in dollars and cents.
  • It sets you up downstream for the all the operational and financial discipline you need to raise money and build a much bigger company:  Because you’ve done it from the early days, it does not feel like a new muscle you need to build when the time that you really need a robust financial plan comes.

In most software businesses, there are only two key numbers that matter in your financial plan – revenues and cash.  Spending a ton of time thinking about the trade-offs between revenue coming in and cash going out is a worthwhile use of a sleepless night or two.  Revenues come naturally to most people in this growth-obsessed environment.  But take the cash number seriously.  Remember that cash buys freedom to fail one more time and being too aggressive about spending cash just means you’re likely to be at someone else’s mercy before you get enough “at bats.”  At every point in BloomReach’s fundraising history we have had about 80% of the cash left from the prior funding round, while seeking the next round – all of which makes fundraising a lot easier. I attribute a lot of that to thoughtful financial planning.

You can take an intense focus on the financial plan too far.  Certainly don’t let the plan be the enemy of good decisions.  Spend money outside of your budget if it will drive a meaningful return.  Choose to miss your plan if you’ll create more long-term value doing so.  Hire a lot more, or a lot fewer people if it makes sense to do so.  Remember, the financial plan is just your GPS system. Don’t hesitate to take another road if there’s an accident in front of you and  you see a shorter path to your destination.  Just be sure to adjust the GPS as you go.

Image from Numbers and Finance by Ken Teegardin licensed under CC by 2.0

Don’t Waste your 20s at Google or McKinsey

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What should you be looking to get out of your career in your 20s? Should you be looking to make a lot of money? Should you be looking to get a brand name on your resume? The most important thing you should be looking to do – is to find your true professional calling. As the famous rags-to-riches entrepreneur Jim Rohn said:

“Time is our most valuable asset, yet we tend to waste it, kill it, and spend it rather than invest it.”

Investing your time in your 20s wisely enables you to spend the rest of your life doing what you love, not searching for what you might love. So the real question you should be asking yourself is: How do I learn the most (about myself and the things I’m interested in), in the shortest time period possible, so I know what I want to be when I grow up?

Lets start with what not to do – go work at a big tech company. Unfortunately, that’s not the easiest choice to make. Google and all the big tech companies recruit on campus. The perks seem attractive (free food and occasional visits by Hillary Clinton or Bono). The brand feels impressive. The pay is good. A lot of your friends likely work there so there is a certain social comfort level. It feels like a stepping-stone to other things. The trouble is that your learning curve is unbelievably slow. If you are an engineer, you likely work on a large project whose contribution is likely irrelevant to the outcome of the business. You’re going to have high variance in the quality of people you work with (because in a company of 50,000 people that is almost certainly going to be true). You’re going to ship production code relatively infrequently. If you are a product manager – you are not facing the most important challenge of a real product manager (building such a product so great that even a lack of distribution capability doesn’t inhibit its success). If you are a salesperson – it’s hard to know if you are being successful because of you or because of the brand you represent. Fundamentally, you’re in the slow-lane as far as learning curves go. The skills you do cultivate, navigating large organizations or dealing with politics, are ones that don’t push you to the intellectual or emotional edge. Ask yourself the question: will the prospects of the big tech company I join change if I join? The answer will be no. And therefore neither your impact nor your learning can be significant. As a result, you might leave a little richer but you really don’t know a whole lot more about yourself and you’re likely much further behind your friends at start-ups or growth companies.

Big service businesses like McKinsey or Goldman Sachs also seem like super interesting opportunities. They pay well. They offer you the opportunity to flit between different projects (Consulting) or different deals (Investment Banking). You get to travel the country or the world and you’re told that you will be interacting with senior executives at clients. Some of that is true. The trouble is, for 90+% of people who work at big services businesses – they are routes to other careers, not careers in and of themselves. That would be fine if the skills you learn there enable to you to learn a lot about yourself. But most of the ex-consultants and ex-bankers I know are about as uncertain about what they want to do in life as they were on the day they joined the big service company. Rather than clarity, the diversity of projects just creates confusion. While there may be some good critical thinking skills that you cultivate – remember that the fundamental job of a Consultant or Banker is to put together PowerPoint presentations and excel spreadsheets that give advice – rarely to implement anything. Your learning will be so concentrated in strategy (5% of life) that you will lose out on learning skills in the more important part (execution).

I spent two years at a big service company in my 20s (Investment Banking @Lazard) and three years of my 20s at a big tech company (Cisco). But I learned 10x more about myself and the path I wanted in life at a start-up named FirstMark Communications where I was a founding member of the team and spent 3+ years at between the ages of 23 and 26. FirstMark was insane – we built a broadband network to provide high-speed Internet access across Europe in the late 1990s. It was a classic telecom bubble story that involved raising $1bn of capital, hiring 600+ people, dealing with government regulators in 10 countries, interacting with Henry Kissinger, building out optical networks and going after a big mission to go wire the planet. There were a ton of things we screwed up at FirstMark and a bunch we got right. But it was a life changing experience for me.

I had accepted admission to business school before I got involved in starting FirstMark and having been both an engineer and an investment banker, I was pretty uncertain about what I wanted to do in life. I would have likely been even more confused after the Business School experience. Instead, I got involved in starting FirstMark and it was the defining experience of my 20s. It told me I wanted to be an entrepreneur and more importantly, it gave me the confidence to do it. I learned more about business and myself in the first month at FirstMark than at 2 years at Lazard or 3 years at Cisco. And while it was intense, stressful, volatile and crazy – I loved it. I had clarity – the rest of my life was going to be about entrepreneurial pursuits. Interestingly, many of my friends and colleagues at FirstMark did not. Some went back to Wall Street. Some went to go work at big technology or telecom businesses. Some went back to school. But they all found themselves and the professional path they wanted in life.

Going to work at a start-up or growth company in your 20s will put you on the fast-lane learning curve. It will be the best investment you can make because you’ll find yourself. The folks who have come into BloomReach in their 20s unclear about their passions, often emerge knowing who they are – becoming business development people or founders or product managers or people managers. They find their calling fast because the pace of the business requires it. You might be concerned about what happens if your start-up fails. Relax. You (probably) don’t have kids at home. You can always move into your friend’s crappy 1 bedroom apartment for a couple of months. And I promise you this – the most employable person in the tech industry is the highly motivated 25 year old (ideally with technical skills). So even if that start-up doesn’t work out, don’t worry – you’ll have plenty of other opportunities and a clear sense of yourself.

Image from The Takakura Trash Basket by Ikhlasul Amal licensed under CC by 2.0

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