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  At least with eyeballs you are dealing with customer acquisition, with PP&E, you’re talking about outdated optical equipment.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

Can you be an introverted CEO?

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The world’s stereotypical definition of a successful CEO is perhaps half Jack Welsh (polished, organized) and half Richard Branson (brash, outspoken, charismatic).  CEOs are supposed to be outdoor cats – comfortable representing their peers in the wild, spending large numbers of hours selling the company and the stock.  Essentially, it’s a people job, right?  So how do you operate as a CEO if you are an introvert?

I’m squarely an introvert by any definition.  But I’m not uncomfortable around people and I work hard to be an effective communicator.  Remember, the definition of an introvert is not someone who is shy or nervous around people. It is a person who is energized by being alone and whose energy can be drained by being around others.  How can one be a leader of people and be an introvert at the same time?

Here are a few things that I’ve learned along the way that help me:

  • Work on your public speaking:  Fortunately my parents had me do a bunch of debate and extemporaneous speaking contests when I was young. It helps enormously as CEO – to have the confidence to get up in front of a large crowd and discuss any subject without enormous preparation.  Like any learned skill, public speaking can be learned with practice and it matters as a CEO.  Its worth joining Toastmasters or forcing yourself into uncomfortable public-speaking situations to gain practice.
  • Surround yourself with enough extroverts at work: The demands on your time to participate in events, speak to people or sell will always outpace the amount of time in a day. And because you often don’t derive energy from those activities – you need people who do. I have the benefit of an executive team with enough extroverts to represent the company effectively. This provides a level of balance to my life that helps enormously.
  • Reserve enough “think time:” I’ve found, especially for an introvert that derives energy from thinking, that if you overschedule yourself – it not only means that you may not be using your time wisely, but that you are not giving yourself enough time to recharge and gain energy. I’ve tried hard to give myself enough unscheduled time to problem-solve, think, read or write.  (My philosophy on time management)
  • Learn the “cold start:” Among the hardest things for an introvert to tackle is the cold start. It’s actually a lot easier to present in front of a room of 5,000 people than to walk up to 10 people and start shooting the breeze. The cold start (i.e. what do you say first) can be among the most challenging things for an introvert. To try to improve in this area – I pushed myself in 2008 to do some cold-calling on behalf of the Obama presidential campaign. It forced me to get on the phone and start a conversation with someone I did not know in Nevada (and ultimately try to get him or her to stay on the phone with me and vote for Obama).  My cold starts (and my selling skills) improved enormously.
  • Spend a lot of one-to-one time and be approachable: Because you are unlikely to be the person who hangs out a ton with folks after work, it’s important that you reach people in other ways. One-to-one time, with the right set of folks, is a valuable way to do that and far easier for an introvert.  Often, I don’t do it in scheduled ways – but will rather have multiple, short, frequent conversations with folks on the team. It keeps me in touch with them and them in touch with me, and it’s super easy as an introvert to pull off.  Doing everything possible to approachable matters too – joining social events, sitting in an open floor plan or being responsive to email from anyone anytime.

The good news is, as an introvert you’ll bring a lot of good things to the table as CEO that compensate for the skills you may not have.  You’ll often be a pretty good listener.  You’ll often be able to use your think time to create impactful results for your company and your team. You’ll reach other introverts more effectively because you’ll understand that not everyone naturally speaks up. You’ll make sure you’re balanced as a CEO, spending an appropriate amount of time as an inside cat to make sure your house is in order before you start prowling outside.

Can you be a successful introverted CEO?  Absolutely, just ask Larry Page or Bill Gates, both noted introverts.  In fact, four in 10 CEOs are introverts. And that’s not an accident.

Image from Jacksonville zoo meetup by fdbryant3 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

Hire a Sales Ninja First, Sales Samurais Later

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Most early stage startups hire sales people way too early.   In fact, in this world of rapid iteration, the impetus to hire your first salesperson fast is even greater.  Your product will only achieve product-market fit with customer input.  Where do you find customers if you don’t have salespeople?  Your first couple of hires might be engineers, but you should probably go hire a salesperson pretty quickly, right?


Actually maybe you need to hire a sales leader or manager, right?

Double Wrong.

In the early days of iteration on product, it absolutely makes sense to get customers involved.  Once you have a hypothesis on both the BIG problem you want to solve and the way you want to get started in that market, you need customers both to validate the problem and to iterate with you on the solution.  At BloomReach, we launched on our first pilot customer in July 2009 not even three months after we’d established our four person engineering team.  Signing up an early customer was an essential way to drive towards execution and away from debate.  It clarified priorities in a way that nothing else could have.  Over the course of 2009, we signed up five-plus pilots and monetized our first paying customer in November 2009.

Where do you get that initial cohort of customers and who gets them?

Ideally, you (the founders) or your product manager (general business person) get them.  No salesperson worth his or her salt is interested in selling your half-baked idea with little to no cash incentive.  You use your network.  You cold call.  You show up in potential customers’ lobbies.  You go to industry trade shows and hang out as people exit (to avoid paying exorbitant conference fees).  You use your school ties.  You do anything and everything to get meetings with the right people.  Then, you pitch your product to your prospect in a way that is both transformative and realistic.  It sounds something like this:

“I am building a product that will drive $X million in revenue, or $Y million in savings or make your life much better in Z way, I’d love you to try it.  If you partner with me on this and we succeed together, we will potentially create an industry-defining transformation in your business.  Of course, we will have plenty of bumps in the road because this is an early product, and we’ll work through those together.”

If your pitch is compelling, the early adopters will self-select in.  You’ll have an initial set of customers to iterate with – all set-up with the right expectations.  You may not be the best salesperson in the world, but you know your vision.  You (likely) are one of the few people to believe in your product.  And your job is not to sell a static product, it is to be part product manager / part salesperson.  The learning around the product’s viability is actually a lot more important than the transactional value of the sale.

Your product needs to get to the point where it is very interesting to 5 out of 10 early prospects in your target segment.  That number will drop materially once you scale out sales and ask for real money.  You may ultimately hire better salespeople than yourself.  However, they are not likely to be able to adjust the proposition on the fly to converge the product with the market and therefore you will miss out on valuable product-shaping opportunities.  In BloomReach’s case we hired our first salesperson in July 2010, after we had already won 10 customers (many of them turned out to be outside of our desired target market but they enabled us to find a sweet spot).  At that point, we hired our Sales Ninja – Hank Lemieux.  As Historian Hanawa Hokinoichi writes of the ninja’s key role:

“They travelled in disguise to judge the situation of the enemy, they would inveigle their way in the midst of the enemy to discover gaps, and enter enemy castles… always in secret.”

This is in contrast to the better known Samurai – many of whom you will need later in your business’ lifecycle as you try to scale.  Samurai are all about their strict rules of honor and combat, much more akin to the “scaling-oriented” salespeople you will need later.

I met Hank at a Tapas restaurant in Mountain View, Calif., and knew by the end of lunch that he was the right guy for us.  He was charismatic, asked a ton of incisive product-oriented questions.  He was not initially focused on the compensation or the position.  He was excited about the problem. He was excited about the technology.  And he was ready to bet on his own ability to take an immature technology to market.  He was a player/coach – happy to coach but unafraid to play.

He didn’t have many questions for me about the sales process (good, because we did not have any) or about average deal size.  Fundamentally, he understood that it was his job to create those, not to expect those out of an early stage startup.  He was all about creative solutions to problems.  He was inherently optimistic.  He really focused on the key people involved and was motivated by market creation.  At the same time, he was a salesperson, not a product manager.  He knew how to qualify, how to probe and how to lead a customer to a logical conclusion that ours was the product to buy.  And he was not afraid to talk about money.  Hank is in a role today as Head of New Product Sales at BloomReach.  He is as effective at bringing our new products to market today as he was then at helping me build out our early sales efforts.

Your Sales Ninja is there to acquire early customers by any means necessary and then to put enormous pressure on your product/engineering team to deliver.  The interactions between your product teams and your Ninja should be tension-filled at times.  He/she is there to represent what it takes to sell and help you develop a repeatable set of processes that can allow you to scale through Sales Samurais.  That does not happen if he/she does not crisply articulate what is/is not working in the market and what it takes to sell.  Without that, you are not ready to sell in a repeatable fashion.

The characteristics of your Sales Ninja are vastly different than that of the Samurais you will hire later, or even your eventual sales leader.  If you hire your Samurais too early, they will burn out and leave you.  And you won’t know if it was bad selling or bad product that doomed you.  If your Ninja sets things up properly, you will be ready to take the market by storm.

Image from Ninja_2 by Jeyhun Pashayev 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

Act II: Building a Second Great Product Line

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It’s really hard to get your start-up off the ground and find initial product-market fit. Very few companies do. An even smaller percentage of entrepreneurs ever come up with Act II. Act I can take many successful tech businesses really far. Google did $15.9bn in revenue, $14.4bn came from advertising, $10.9bn of that came from Adwords. 20 years into its journey and after we have heard of Google getting into video, android, self-driving cars, maps, Google aps, infrastructure to power websites, Enterprise and so many other businesses – nearly 70% of Google’s revenue (and an even higher proportion of its profits) comes from the same business it entered when it was founded. Despite their diversification efforts of launching into new markets, things aren’t much different at at Salesforce (known for CRM, but also with Service Clouds and Marketing Clouds) or at Cisco (known for networking equipment but present in telephony and cable). Microsoft, after its amazing success with Windows, created an Act II in the productivity space – Microsoft Office. Remember, Act II is not a pivot. It’s a second great business.

Why is Act II so hard? When do you need to invest in Act II and how can you give them a better shot at succeeding?

Most businesses never even attempt to build a second meaningful product. For most start-ups, if you achieve meaningful success and market share with a first product line as we have with BloomReach Organic Search all the forces at work will cause you to double down on that business. Customer feature requests will be intended to enhance the existing product. Revenue growth on a larger base will feel like it more easily comes from growth in the existing product. Your distribution model will be much further along for your initial product, so you’ll put more into it. All of this makes sense if you happen upon an initial business whose market size is MASSIVE. The common element of the database market for Oracle, the networking market for Cisco, the CRM market for Salesforce, the Search market for Google or even the Ride-Sharing marketplace for Uber is that they all tackle markets that could be $50bn+ for the initial product they build.

Success in that initial market can take you an awful long way. But here’s the paradox – most successful start-ups don’t start by having their initial product tackle a $100bn market because to do so involves competing with an incumbent that has seemingly unlimited resources on their terms. The graveyard of start-ups that have directly attacked Cisco in networking, Oracle in databases, Google in search and Facebook in Social Networking is extremely large. So what do you do? You fight on the edges.

You attack Google not at Search but by focusing on doing a better job on a highly profitable part of their business (as Amazon is doing in Commerce) or a by riding a different trend (Apple with Siri and other apps steals Search views from Google). Start-ups employ similar strategies. There are a large number of start-ups focusing on the salesperson rather than sales management in an attempt to gradually eat away at Salesforce. There are noSQL alternatives hoping to gradually eat away at Oracle by dominating certain workloads. But here is the challenge. The exact thinking that leads you to pick a market segment that you can genuinely win, causes you to narrow your market size.

Many of the recent public SAAS companies have all but acknowledged that they need an Act II to take their business to the next level. Marketo bought Insightera to expand from Marketing Automation that is B2B centric to Website personalization. Splunk has rapidly expanded its suite of “Solutions” away from just IT operations to a whole range of other domains. All of this is about expansion of the addressable market. It’s about Act II.

At BloomReach we made the decision to expand our platform from a single successful application (BloomReach Organic Search) to a suite of applications to build a full personalized discovery platform. That is our Act II. It is off to a terrific start and I believe will at least quadruple our addressable market. I’ve learned a couple of things along the way:

  • You can’t rush new products: If you are judging $1 of incremental revenue on your new product at the same value as $1 of incremental revenue of your existing product, you’ve forgotten the trials and tribulations you went through in your first business
  • If you’re building a new product line, make sure it does not need a new distribution channel: You simply can’t take on building a new product and building new distribution at the same time. If your core business is in Enterprise in the US, make sure your second one is too. (It’s totally fine to expand distribution but do so for the same product, not a new one).
  • Set up a separate team to tackle the new product: Focus is the key to execution and a separate team (at least in product/engineering) is the only way to drive focus.
  • Don’t over-resource your new products: Remember most great software products fail because they don’t meet demand. Adding more people to the team doesn’t necessarily fix that problem.
  • Build an appropriate financial plan: I’ve often gotten this wrong – expecting instantaneous results from a product lifecycle that has to go through its paces. You still need early customers. You still need to prove value. You still need to create customer success. You still need to invest in scalable systems. You can’t skip steps.
  • Simplify, don’t extend the marketing: The temptation when you are selling two products is to double the size of your slide deck. Take the opposite approach and simplify.

Building and making Act II successful has been as hard as making Act I successful. I have many more resources ($s, customers, distribution, brand and technology). At the same time, I have many more distractions so I can’t take it on myself or with my co-founder. In fact, making Act II successful has involved creating an entrepreneurial team led by our product managers, tech leads and other execs on the management team. Hiring and mentoring entrepreneurs capable of building your Act II and moving obstacles out of their way is a necessary pre-condition for success.

Building a great company is like building cities. You go back and forth between building the infrastructure (highways, internet, waterways etc.) and building the new neighborhoods. Nothing is more exciting than adding another neighborhood, just make sure it’s somewhere people really want to live.

Image from Red Curtain by Kristy licensed under CC by 2.0

The Best Days in a Founder/CEO’s Professional Life

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There are a ton of great days that come along with both founding a business and leading a business.  While the lows might be really low, there is no greater professional joy that creating and building something substantial.  Here are some of the best days:

• The “Firsts:” The “firsts” are awesome. The day you make your first hire is a day of affirmation.  Someone thought your idea was good enough to put their career in your hands. The day you ship your first product, you feel an immense sense of pride for seeing your team deliver on v1.0 of your vision. Your first “user” or “customer” shows you that at least one person believed that you built something of value. The day an investor closes on your first round of external funding validates that people will not only put their career in your hands, but their money, too.  Everything about celebrations at a startup seems to be about “firsts.” So much about what we try to do at startups is create the future; and what better way to celebrate the imminent arrival of the future than to celebrate the “firsts” that help get you there.

As you go through your journey, you start to realize that “firsts” are really important but they are a bit like puppy love. They seem like the most important events in your life, and yet – the consequential milestones are the ones that are yet to come.

• The day someone you bet on grows up: So much about innovation is about betting on people. At BloomReach we’ve made plenty of bets. We bet on a whole new blended analytical product and account management role and when the first member of that team became a manager, it was a terrific day. I’ve made bets on key execs, folks who have not had the scale of roles they today have at BloomReach.  And the day when they stand up in front of your board and your board member passes you a note saying “you’ve built a great team” is a terrific feeling.

• The day that someone else sells your product: As a founder, you’ve likely moved heaven and earth to help accomplish your first sales. You’ve been half product manager, half salesperson. You do that in the beginning to drive momentum but you have this gnawing fear that no one else will be able to sell your product. And then someone steps up to do it. It makes you feel like a million bucks because it means you can begin the arduous process of thinking about scaling.

• The day you can actually predict your business effectively: Startups are about small numbers for a long time. Small numbers of users or customers or employees or early revenues. Big companies are about sizable revenues and margins and predictability. As you go through your financial planning it can feel pretty ad hoc for a long time. In fact, it can feel like a waste of time because you are nowhere near any kind of scale. And then the day comes where you put together a financial plan to forecast the business over 6 months or a year and actually hit it or exceed it. That’s a terrific day. It means you have real metrics to help you drive your business and that means that you have levers to pull to help you achieve your next milestones.

• The days when you give yourself the guilty pleasure of retrospection: It usually comes on anniversaries (5th anniversary) or material financial events ($1 million per month of revenue). On those occasions it hits you – we started with two people in a small office. We have created a real business here, with really valuable employees, great products, great customers and a great future. The “look at where we came from” days are important. They give you perspective as you confront the many challenges you face.

• The day someone tells you they are building “The [INSERT YOUR COMPANY NAME] of [INSERT INDUSTRY]. That is a pretty crazy day. When I started hearing other entrepreneurs talk about themselves building the “BloomReach of Social Networks,” or the “BloomReach of B2B Marketing” – I knew we had done something pretty special. Of course you have to have good marketing along with a good business to deserve it. There is a certain “I have arrived” feeling about the day you hear that.

You start companies mostly for the good days. The highs are so high that they can keep you going for a long time. They feel like that perfect golf shot – the one that makes you think somewhere deep within, that you might be working with more than a good wind at your back and a little bit of luck.

Image from Happy Flyer by Paul Hocksenar licensed under CC by 2.0

The Worst Days in a Founder/CEO’s Professional Life

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People often ask me how things are going at BloomReach. I pretty much give the same stock answer that any halfway decent CEO does – “It’s going great. Awesome. Couldn’t be better.” Of course deep down, there are always the dark days. And in those dark days, it helps to know you’re not alone – that people have been through it before you and that others will go through it after you.  I’m talking about successful businesses here, because there are really only two ways to be unsuccessful in a startup: quit or run out of money. Quitting as a founder is like leaving your child to be raised by others. Sometimes there are good reasons to do it, but not very many and you’ll spend most of the rest of your life explaining why you did.  Running out of money, after you’ve exhausted all of your options means the inevitable – you’re laying off people, calling it a learning experience and moving on with life. It goes without saying that either of those scenarios are almost always more devastating than any of the below.  But there are a lot of bad days in really good companies. Figuring out how to handle them effectively is the key to long-term emotional stability.  Here are some of the worst:

  • Great people leave you: Starting and building a company is an inherently emotional experience. You build your enterprise with a group of brothers and sisters.  You aim to have their personal success intertwined with the company’s success. You invest in them and they invest in your shared journey. And then (for all kinds of reasons), they choose to leave. You fight to keep them (as you should) but don’t succeed. You can feel a sense of betrayal or dismay.  Let it go. Have confidence that the business you have built will attract other great people. If you’ve done things right, the paradox is that every great person can have an immense impact and yet, the business will thrive even without them. Have them leave on great terms – always as ambassadors of your business.
  • Macro events start impacting your business: You built a great business and yet forces beyond your control are negatively impacting it. Maybe Apple came out with a competitive product. Maybe Facebook released a feature that kills your distribution channel. Maybe the financial markets are shut down for further investment. It’s rough. There is absolutely nothing you can do. The temptation is to just hope it gets better or you somehow survive the macro tsunami. Unfortunately, delaying just makes things worse. The right answer is to fully absorb the state of the world and ask the question: “If a new CEO walked in today what would he/she do?” Whatever that is, do it.
  • You lose a big deal or a big customer leaves you: You did everything right. You built and sold a killer product. You engaged the right buyers and delivered a value proposition that was tremendous. You built the right relationships. And then you lose a deal – maybe to a competitor, maybe to a stalled budgeting cycle, maybe for reasons you don’t understand. Once again, you fought hard to keep them but did not succeed. Take a deep breath and analyze the situation. What could you have done better or differently? Sometimes, the genuine answer is “not much.”  Make sure there is nothing systemic going on; part on good terms and move on. 

There are many more challenges that can be more business-impacting (lack of product/market fit or inability to scale for example). However, you don’t feel quite as powerless in those situations as the ones above- there is always a way forward and you can usually explain the challenges you face. Interestingly, it’s exactly the characteristics of founder/leaders that make the above three situations particularly rough. For founders, everything is personal. The product is personal. The team is personal. Customer wins are personal. That is what can make founder-led businesses special. And it is also what makes the dark days darker. On those dark days, try hard not to respond in the moment with an email or a tirade that you will later regret. Try hard not to take it out on your loved ones. Just for those days, be a professional manager, not a founder.

Image from Sad by Kristina Alexanderson licensed under CC by 2.0