Category: Entrepreneurship

Yesterday, I had the opportunity to spend time with the CTO of a major financial services company with a $1 billion IT budget.  In these meetings I like to learn about the major priorities and where the open opportunities for early stage companies exist.  The good news was that the company was very open to working with entrepeneurial ventures.  Priority number 1 for the organization was to standardize on a common architecture and infrastructure.  When the company deploys a new app, the developers should only have to worry about coding the business rules and not about what infrastructure to deploy and how to manage the application.  At the end of the day, like most large institutions, this company was focused on increasing capacity utilization and moving to an on-demand model where new applications can tap into a pool of resources, where these resources are monitored closely for performance, and where these applications can have real service-level agreements and chargebacks tied to them.  The company said it was still early in the process and that alot of the big vendors still do not address the needs.

The other major initiative was security.  We spent a fair amount of time talking about best-of-breed versus the single vendor approach.  While the company had a bias towards single vendor for most infrastructure buys, it certainly was an advocate of best-of-breed for security.  We talked about how a monoculture was not as immune to disease and attacks as a heterogenous environment.  What this means is not only layering security but also deploying 2 different security products at each layer to avoid company or product-specific attacks.  This is a big deal at lots of companies which is why, despite the intense roll-up activity in the security space, that new vendors will constantly have the opportunity to sell.

As always, I had the opportunity to find out where a few of my companies were in the sales process.  The big takeaway for me was that "you only have one chance to make a first impression."  What does that mean?  Well, in today’s environment, enterprises have the upper hand.  This means that most enterprise sales end up in a proof of concept (POC) or bake-off against other competitors.  So the first impression you make in the POC is the installation.  If it is hard to install, forget about it.  The logical conclusion your sales prospect will draw is that it is a hard to use product.  So while you spend time building some great features and making your product more scalable, do not forget to spend time, lots of it, in the areas that customers touch and see.  This means making the install process as easy as possible (this is where appliances can help in many cases) and making your GUI intuitive and easy to use.  If you can’t get this right, you will lose most deals or at least be fighting an uphill battle in a competitive bakeoff no matter how scalable or feature-rich your product is. I tried to get my company a second chance, but the impression was already made.

As I prepare for my trip to Israel this weekend for a board meeting, one piece of equipment I am sure to bring is my Plantronics DSP 400 headset so I can Skype with the CEOs in my portfolio companies. I have been using Skype for the last 6 months and can honestly say that it not only saves a ton of money but more importantly allows me to end the phone-tag game with my porfolio company CEOs and easily communicate with them.  Sure VOIP is great from a cost-saving perspective, but having presence is even more important in my mind.  I know when someone is available to speak and when they are not-no more wasted time with voicemails or I’ll call you back later.  As you know, as an active board member and investor much of the value add happens outside of the board meetings in ad-hoc in-person meetings and calls.  Prior to Skype I had all of the CEOs that I worked with logged into IM, and we would frequently have long, off-the-cuff exchanges throughout the week.  Well, with Skype, we can not only IM but through an extra click turn that into a high, value-add phone call.  Just like in customer service, not every exchange needs to escalate to a live phone call, but having the ability to easily point and click to make it happen is a huge benefit. Wait till Skype adds live video to its platform and the value of that conversation goes up higher.  Of course, the beauty of Skype is that as long as my laptop in logged into a network, I can easily make calls from anywhere in the world.  Since it is the holiday season and a time of giving, one of the gifts that I sent to a new CEO hire (will be announced in New Year) was the the Plantronics DSP headset.  I am now just waiting for him to get registered so we can start Skyping.

I was recently advising a friend of mine who wanted to expand his team and hire some senior executives, and it occured to me that others could benefit from some of my thoughts on recruiting.  As you know, hiring is a critical component in the success of any company.  People and their ability to execute are what separates the winners from the losers in any industry.  Hiring the wrong person, particularly in an early stage company, can cost you dearly.  On the contrary, hiring the right person can make a huge positive impact creating significant leverage through what I call the A-Player domino effect.  So here are some of my random thoughts on hiring new executives.  I tried to make this as logical and short as possible – some of the thoughts below can clearly be expanded into longer posts.

1. Build a target profile: Put together a specification of the role, responsibilities, required experience, and intangible qualities you are looking for in a senior hire.  Share the specs with your board for additional feedback to make sure everyone is on the same page with respect to the person needed and the major goals and objectives.  Many times, the specification itself can highlight bigger issues about company direction if everyone is not communicating and on the same page.  Does a board member want to change the goals for next year?  Is everyone aligned with that change?  Understanding who to hire and what their goals are incredibly important – hiring a person without having a spec will result in failure nine out of ten times.

2. With the specification in hand, put together a target list of potential companies where you can find this executive.  The ideal companies are in the bullseye and others will be in concentric circles one or two removed from the center.  For example, if you have a network security startup, the obvious players will be other security companies that sell similar products at similar price points with a similar distribution channel.  One concentric circle out from the bullseye could include networking companies that have a similar business model and distribution channel.  From an experience perspective, the perfect candidate will be someone who has had a VP role (if you are looking for a VP) and worked at other large brand name companies as well as been successful at earlier stage entities.  Like in darts, it is not easy to get a bullseye (unless you spend too much time in the local pub), so you need to think of all of the tradeoffs that must be made in terms of the characteristics of a new hire which will include qualities like leadership, requisite experience, and domain knowledge.  In general and depending on the role, I tend to prefer leadership and experience over domain knowledge and hungry, up and comers over rich and happy.

3. Begin the search – look in your own network – trusted people you or your board have worked with before always come first as long as they meet the spec.  Putting a spec together eliminates the need to do favors and hire friends.  If you can’t find someone in your network, bringing in a knowledgeable executive recruiter can help.  The right firm will always help you find the person not necessarily looking for an opportunity – many times that is the person you want for your company.  When picking a search firm, I prefer boutiques or small, highly focused shops which tend to have the partners doing the work and making the initial calls to prospects.  Your executive recruiter is an extension of your company and must be able to give a great pitch to high level prospects.  A recruiter who gets it and can properly sell the story to prospective hires will truly help the company.

5. Make hiring a priority – You have to stay on top of the search.  If you are using a recruiter, I suggest having weekly status calls in the calendar with members of the search team, typically one or two from the company and one or two board members.  Regardless, if you want to bring high caliber talent in quickly, you have to make hiring a priority.  The more time you put into it, the more you will get out of it.  Whatever you do, do not slowroll the process and leave people hanging.  Change a few meetings, etc. if need be, to get in front of the right person sooner rather than later.

6. Reviewing resumes – Resumes are not everything but what I look for is a person’s story.  Do they have a history of demonstrated success?  Have they worked at other blue-chip startups or well known companies and been a top player?  Were they responsible for delivering meaningful results and contributing to the success of the company?  These are just some of the things that cross my mind when reviewing resumes.  A history of working at companies that repeatedly failed will certainly worry me.

6. Interviews – It is always good to have a proper blend of selling and interviewing in your first meeting.  Many times you will know by a person’s resume whether they have some of the experience needed to do the job.  Obviously you will want to dig into specific examples of how the prospect overcame challenges, drove new initiatives, led and hired a team, etc., but always leave some time to do some selling on the opportunity.  Assuming you like the prospect, you should get another set of eyes like some of your VCs to meet with the candidate and interview him.  As you meet a number of prospects, chemistry becomes an important determining factor in hiring.  The superstar on paper may not always be the best fit for the team if the chemistry is not there.  I always like to use the Detroit Piston/LA Laker analogy.  Both teams had consummate professionals playing at the highest level of basketball but the team with all of the superstars did not come out on top – there was no chemistry.  As you move a candidate further in the process, doing backchannel references are the most important ones you can do.  That means you need to call some of the other VCs and execs at prior companies who are not on the candidate’s reference list.  You can learn alot about a person from these checks.  I have passed on a number of candidates based on some negative backchannel references.

7. Close them – now you have the right person, get the deal closed as quickly as possible because as I have said before the longer it takes to close a deal, the more chances it has to fail.

In the past, I have written about a number of first generation NYC entrepreneurs coming out of the woodwork to launch new ideas.  Sure, the market may not be great right now but in my opinion it is the best time to build a business.  As an entrepreneur you have time to develop your product, refine and test it, and get it ready for when the market turns.  The most recent addition to this list of second generation entrepreneurs is Andrew Erlichson, former CEO and cofounder of Flashbase.

When I first met Andrew in late 1998, he had just finished his Stanford Ph.d program in EE from Stanford with other well-known classmates.  My fund seed invested in his idea which was to allow anyone to build database-enabled, web-based applications through a simple GUI.  Some of the applications that users built ranged from simple forms for their website to richer ones like help desk, call center, project management, and sweepstakes apps.  This was 1998 and Flashbase was a true predecessor to Intuit’s Quickbase. We were obviously way too early but after a year of blazing this trail, we ended up selling the company to Doubleclick for a nice return.  After spending a few years with his golden handcuffs on at Doubleclick, Andrew is back in action with his next project, Phanfare.

Like any great consumer service, the company started because Andrew wanted to solve his own problem with sharing his digital photos.  For many, the first instinct with a digital camera is to make prints.  However, it is clear that this will evolve and people will share more and more of their pictures online.  The problem is that the print sites only want you to share with friends as a vehicle to sell more prints.  They do not keep your photos up indefinitely, their branding is all over your private albums, and your friends and family get bombarded with email to buy more prints. So Andrew did what most entrepreneurs do, created his own software and service.  Simply put, Phanfare allows users to share and back up their digital photos in a simple, permanent, polished, and unbranded way.  You can even use your own URL to share photos.

From a technology perspective, we are seeing an evolution in the way network client software is written. Initially, the client sw was web-based, with simple html as the implementation technology. Then interactive sites moved to using client side scripting like javascript. Now, for media intensive applications, we are starting to see full fat client network applications like iTunes. While I am a fan of software as a service, it truly makes sense for apps manipulating or using large files to be client-side but network-enabled. With Phanfare’s client software, you can manipulate your pictures locally from within the app while your website stays in synch in the background. While the idea of sharing photos does not sound like a heavy-duty technology initiative, Phanfare’s founders were trained to build cache coherent multiprocessors at Stanford. This means that like any web-based service you can use Phanfare from any computer with a simple download and keep your albums synched.

So as the holiday season approaches and you snap tons of photos of your friends and family, I suggest giving Phanfare a try.  I have my own family website and may just transition it all to Phanfare.  While the service is great, my only question is how big this market will be for Andrew.  That being said, it is great to see Andrew back with a new venture.

Early stage companies have to be nimble and disciplined when creating and releasing product.  One of the important decisions a startup can make is how it chooses to manage its product releases.  In a software company a product release affects everyone.  A mistimed release can severely impact sales, cash flow, and the company.  We had a thorough discussion in a board meeting this week on this very topic.  I have to admit I was quite pleased with our new VP Engineering as she put forth her methodology and process, shared below.

There are a couple of different ways to manage engineering releases.  One engineering release is date driven, the other is content driven. In a date driven release, the team knows when the next release is out but does not know exactly what will be in it.  The release runs like a train schedule, whoever makes it to the station on time is part of the release.  The other release is content driven; the team knows what is in the next release, but does not know the exact ship date. The release runs more like an airplane shuttle, it takes off only when full.

While I may be oversimplifying the issue, the one that I like my companies to subscribe to is the date driven one.  Of course, just because it is date driven does not mean that there isn’t a highly focused theme.  It just forces the team to clarify the absolute minimum requirements necessary to deliver the right product for the market.  It also discourages feature creep and encourages highly disciplined prioritization.  Most importantly, having a date driven release can get everyone at the company aligned.  Everyone knows the ship date and sets their schedule accordingly to ensure that all pistons are running as GA hits.  This means marketing has to have its collateral ready, upgrade program in place, and product launch schedule set.  Sales knows when it can start telling prospects about the new product and time it appropriately so it can get customers lined up for the next quarter without delaying sales in the existing one. Engineering, of course, needs to deliver product and not get distracted.  While all of this discussion on product releases sounds great, none of it really matters if you do not have the experienced team that can manage them and instill the discipline.  So as you think about your next product release, think long and hard about whether you want the trains to run on schedule or the airplane shuttle to be full.  You know where I stand on the issue.

It has been awhile since my last post as I have been busy with a number of board meetings.  It is so hard to find time.  Anyway, one thought I wanted to share with you is a discussion we had in one of the meetings about the balance between closing large deals and adding new features.

More often than not, you will hear a sales person complain about their product and tell corporate that if they had these 5 features, they could sell more.  Since sales people look for the path of least resistance, they typically go back to marketing and development to ask for the fixes and changes to close a new customer.  Many times, management, in pursuit of meeting their numbers, will oblige and make the requisite changes to land a new customer.  If you fast forward into the future and continue this behavior, you will end up with a company that has a number of customers but also a support nightmare-too many different versions of a product which makes it difficult to maintain and support from a development and customer service perspective.  In addition, you end up constantly delaying the next release of your product as precious resources get sucked away.   You also have lots of features that the market does not want.  Finally, the profitability for each customer goes down significantly as you add new features just to close deals.

In the long run, having too many of the wrong customers can kill your business.  The more experienced and disciplined team will not build a new feature for every customer but rather have a seasoned and proactive product management process for gathering data from the field and prioritizing feature requests based on market and customer need. In some cases, it may make sense to give a feature request higher priority as a number of prospects and customers have asked for it.  In other cases, you will have to make a decision of whether or not to build a one-off feature to close a deal or lose it to a competitor.  While every situation is unique, in general, you have to be extremely careful of going down the slippery slope of customized versions of your product for every customer as the one-off requests will suck up your resources.  It is easier said than done, but the simple rule is don’t add features if the market does not need it.

In the end, I never like my portfolio companies to end up in feature/function wars.  That is a losing proposition.  Rather it is important to take a step back sometimes to see if you can change the playing field on your competition by positioning yourself differently.  This includes understanding the customer and market, pitching a longer term vision and product roadmap that maps to the customer and market needs beyond today’s purchase, and then making them feel that tactically you have enough of what it takes to solve their problem in the short term.  If done right, you can help the customer understand why one missing feature today may not be so critical since your company is the only one that can meet their needs in the longer term.