Push On The Hamstrings
Posted on September 18, 2011
Filed Under Business, Decision Making | 1 Comment
“Unless, therefore, an executive looks for strength and works at making strength productive, he will only get the impact of what a man cannot do, of his lacks, his weaknesses, his impediments to performance and effectiveness. To staff from what there is not and to focus on weakness is wasteful - a misuse, if not abuse, of the human resource.”
- Peter Drucker, The Effective Executive
My first business was a sports training franchise. I didn’t own it long because I missed technology businesses, but while I was there I learned a very important lesson about strengths. We hired a track coach as our lead performance director, who came from a powerful track program that had come under scrutiny multiple times. This coach had so many championships, he was repeatedly accused of cheating. He finally had enough and had decided to leave for a less stressful job, which is how we landed him.
One night as we were closing down, I asked him about it. “Tell me the truth, just between us. What did you really have to do to win so many titles?”
“Rob,” he said, “I never cheated. You see, when most coaches get a good sprinter, they instantly look at where he is weak. If he has naturally great hamstrings, they overload him with exercises to improve his quads, calves, etc. They assume his hamstrings are fine, and he needs work elsewhere. I look at a guy like that and wonder how much his hamstrings can take. I give him exercises to push his hamstrings to their limits. I build on his natural strengths. No sprinter is perfect. To win, you have to accentuate your strengths.”
Everyone likes to complain about what everyone else does poorly. But really, that doesn’t matter nearly as much as what everyone does well. Peter Drucker had it right. Instead of trying to build a company of perfect people who are good at everything (which is undoubtably an unrealistic goal), build a company around people’s strengths.
Entrepreneurs Are More Ideological Than Politicians
Posted on August 27, 2011
Filed Under Entrepreneurship | 3 Comments
There is a contingent to the Republican Party that believes there should never be any tax increases under any conditions for any person. There is a contingent to the Democratic Party that believes rich people never pay their fair share of taxes no matter how much they are taxed. They are absolutists, and don’t think about the complex nature of the political and economic landscape in which these decisions really have to be made.
I’ve lived in Boston for a year now and after meeting dozens of entrepreneurs, and hundreds of startup types, I must unfortunately say that most of them fall in the same category - absolutists. I constantly hear philosophies about how you can only win as a startup if you have a perfect product. Or how you can only win if you are quick to market and don’t worry about a perfect product. I hear about how you have to charge from Day 1 and never give anything away for free. I hear about how you have to give everything away for free at first and not squelch your traction by prematurely optimizing for monetization. I hear about how you have to rule with an iron fist as a CEO to be successful, and how you have to be a laid back CEO who stays out of people’s way to be successful. The people who espouse these beliefs rarely qualify, equivocate, or second guess them. They are absolutes. They are ideologies held as strongly as those in politics. But I think they are wrong.
Let’s consider a few examples. First of all, look at Apple. Designers in particular love to point out that Apple is the second most valuable company in the world and attribute that to their design culture and the pursuit of perfection. But it misses the point that Microsoft ate their lunch for the first 25 years of Apple’s existence, and it took Apple 34 years to pass Microsoft in market cap. What really happened is not that Microsoft or Apple had the right philosophy, but that they had the right philosophy to match the market at the right time. Apple beat Microsoft not because Apple or Microsoft changed, but because the PC market changed. Those of you over 30 probably remember a time when you did only buy a PC on specs because they all looked the same, and you remember that you wouldn’t have paid more for a sexy looking PC because they were already too expensive. It wasn’t until the price fell, and average performance far outstripped what the average user needed before people decided they wanted an iMac.
Dropbox is another company whose success has perpetuated the perfect product myth. Some people seem to think that Dropbox created the sync market, but the truth is, there were already a lot of players. The Dropbox team was smart enough to realize that sync products were clunky, and there was an opportunity for a perfect product to come in and take center stage. See a pattern yet? Perfect product strategies (and their cousins, beautiful design, easy to use, etc) work best in markets that already have some decent adoption and multiple players. The early players have clunky legacy technology that came from building the initial market before it was ready, so the market is ripe for a new and better player.
Free vs. paid is another area where people have strong beliefs. The mantra goes something like… “no one ever went out of business charging for their product.” Um… yes, some people did. Some of these entrepreneurs would never have built Google or Facebook because they would have charged for search or social networking from day one, and would never have gotten traction.
The flip side of course is that some companies hide behind their “free” ideology to disguise the fact that they have no business model whatsoever. They have a weak product that can’t be monetized through ads, and that no one would really pay for.
The truth is, the better way to think about companies is to use evolutionary models. Companies are organisms that are successful in various ecosystems, and the strategies that lead to success vary by the ecosystem. In fact, multiple companies can sometimes be successful in the same ecosystem using different, complementary strategies. Whether or not you get disrupted by a newcomer depends on how your ecosystem changes over time, and how you respond to that change.
In some ecosystems, first to market wins. In others, perfect product wins. In some ecosystems, market share matters. In others, it’s all about early profitability. Many entrepreneurs lose because they adopt the wrong strategy for their ecosystem and they refuse to change because they only believe in one way. And of course, luck and timing play a role as well.
My advice to anyone starting a company is this - cozy up to an industry where there is already lots of money, and that is undergoing some kind of interesting change. Figure out how to leverage that change to your advantage. The figure out what type of strategy you need to be successful. Think broadly, not ideologically, and you will have a much better chance of success. There are many paths to success, and they fall all over the map. Adopt the one that is right for your situation, and ignore the ideologues who say it can only be done one way.
How To Communicate With Investors. Tips For New CEOs
Posted on July 12, 2011
Filed Under Entrepreneurship | 5 Comments
Andy Swan, one of my angel investors, asked if I would publish some of my investor emails. I’m not ready to do that, but I do think investor communication is important and difficult for new CEOs. Since several of my investors have commented that they like the format I use, I will share it here for those of you who may be interested.
First Some History
My first angel investor was Dharmesh Shah, and in those days when it was just me, Dharmesh, and my co-founder Vik, I just emailed Dharmesh whenever I had a question. After a few months, Sean O’Leary and Sterling Lapinski from Genscape joined as angels, and I began sending out weekly emails about what we did. In a very early stage company, a week is a long time, and the emails weren’t really to keep them informed as much as for me to aggregate all my questions for them in a single place.
When I took a seed round of funding in January 2010, I almost stopped sending the emails. It can be intimidating, as a newly backed CEO, to communicate with a bunch of wealthy successful people who you know will be judging everything that you say. It seemed easier not to do it anymore, but Vik convinced me that there were benefits beyond just keeping investors apprised of company events. There were career benefits. Raising money is about relationships, and these letters were a great way to build those relationships. So I moved them to twice a month, and then post A round (August 2010) moved to a once a month format.
Investor Email Format
Once I month I send out an email that looks something like this…
Heading I always title it “Backupify End of (Insert Month) Update” and the first line of the email says “This email is divided into <#> sections” Then I list the sections in the email. This is important because these emails are sometimes long, and if someone has a specific issue they want to know about, they can see whether it is covered in the email and they can jump to that part. Sections I have used include: Intro, Bad News, Good News, Update, Fundraising, Partnerships, Strategic Discussion, Technology, Marketing, How You Can Help, and Summary. Any given email usually has 4-5 sections.
Intro- Every email has an intro where I list cash in the bank and projected cash out date, since this is probably the most important thing to know for an early stage company. I also put other metrics in this section sometimes, but over the history of Backupify they have changed. We used to measure free consumer signups, but we don’t worry about those any more. Now it’s revenues and Google Apps backup seats. I also list any new hires in this section.
Bad News- Bad news always comes after the intro because I like to get it out of the way and end on a more positive note. Some CEOs hate to share bad news, but if you have good investors they shouldn’t be scared by it. They invest in lots of companies that go away, and it isn’t always the fault of the company or the team. Some markets never develop, and those that do almost never develop as planned. If your investors can’t deal with some bad news, you picked the wrong investors. About 3 out of 4 emails have bad news, but sometimes I get to say “nothing to report.” Those are my favorite months, of course.
Bad news for us has ranged from losing a major deal or a good customer, having a major tech problem, a surprising cost spike, an experiment that didn’t pan out well, firing someone who didn’t work out, or something similar. If the bad news is something that may be ongoing (e.g. higher than expected costs of something, increased churn, etc) I talk about what we are doing to fix it.
Bad news is usually just a few sentences or bullet points.
Good News- There is always good news, and in the 2.5 years of Backupify’s life, I have probably sent 40 of these emails, maybe 2 or 3 of which had more bad news than good news. In general, good news consists of hitting milestones, landing a marquee client, learning something key about the market, closing a new partnership, or something along those lines. I don’t talk about everything good in the company, even when we have really good months, but I focus on the top 3 or 4 things that happened. The point isn’t to be a pep talk to investors and list 1000 little positives - it’s to share important things that affect the direction and success of the company.
Good news is usually just a few bullet points with extended explanation, or at most two paragraphs.
Update- The update section is where I go into more detail on specific things. This section is the one I assume most people skip. It can be as long as 7 or 8 paragraphs sometimes. I use it to clarify points from earlier in the email, or explain one or two key issues in depth. This is also where I put topics that may not be interesting to all investors, like technical details or specific information about marketing programs.
Strategic Thinking- Every 3-6 months I put one of these sections in to tell investors how I am thinking about the company and where we are going. This can be long too, or occasionally can be an attached Powerpoint deck or Word document.
How You Can Help- Investors like to help, but they often don’t know where they can contribute. If you make it easy for them by clearly stating what you need, you are likely to get it. This section usually has just one or two things I need, either an intro to someone, a supplier for something, or some brainstorming around a specific problem. Occasionally I leave this section out because we are just heads down on something and I don’t need anything.
Wrapping It Up
I always end the email by thanking everyone for their continued help and support. Investors like to throw out ideas, but honestly, most of them are usually not that valuable. But I think it’s worth listening to 30 bad ideas to get that 1 good one that can really impact my thinking or the direction of the company. So I always encourage my investors to call, email, or share whatever they are thinking.
And that’s it. I don’t think this is any magic formula about how to communicate, so I encourage you to adopt your own format. The key is to make it regular, useful, and transparent. By forcing yourself to send it once or twice a month, you get used to writing it even when you don’t want to write it. If you wait until you feel like sending it, that will probably be never.
Someday, when Backupify is much further along, I may start publishing some of my early letters. I go back and read them regularly for some good perspective on where we have been and how my thinking about the industry has changed.
If you are a new CEO, I encourage you to take up this habit. It’s not just useful to investors… over time you will find that writing out your thoughts is therapeutic and will help clarify your thinking on major business issues.
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