Mike Bloomberg Returns

Mike Bloomberg did no favors for his friend Mr. Doctoroff who left  his role as CEO rather than succumb to political pressure from insiders imbued with power from Bloomberg. This pressure was apparently enough to thwart any changes that Doctoroff attempted. Trends like this follow most founder returns.  And this one hits pretty close to home.

Cook at Apple is much better off (and performance shows).  No one around to second guess him. No wonder he is smiling.

Meetings -- the Silent Killers

If you are like most people, much of your day is taken up by meetings. And, when you really dissect the amount of time you spend in meetings, can you determine how much of that time was well spent?

I've spent a good deal (of productive) time trying to deal with this issue in my own situation. I've shared this with my colleagues. Below are my thoughts.

Premises:

• People are very busy.
• Meetings represent a sizable percentage of our busy days.
• Meetings are often too large.
• Meetings are often unproductive.

Suggestions:

Meetings need to be tightly controlled – the agenda should be set in advance; not everything is fair game – if it wasn’t expected to be discussed, it shouldn’t. People need to arrive on time and meetings need to be completed on time. Cell phone calls should not be accepted. Any follow up items and decisions from the meeting need to be documented.

Preparation is key – all meetings should have a known purpose. EVERYONE who will participate in the meeting should come prepared. If there is information that will be discussed in the meeting it should be disseminated in advance. If people are not prepared, the meeting should be postponed.

Meetings are for decisions – Meetings should not be show and tell – That was for elementary school. Unless a meeting is to a large group and specifically designed for mass dissemination of information, necessary information should be disseminated in advance so that it can be read and digested prior to the meetings. Meetings should become less presentation and more decision making. This should speed along the process.

Reduce the number of participants – In my opinion, the most important meetings are one-on-ones. This is where you really connect, where you can direct feedback and where you can actually understand how the other party is feeling about the topic. When the number of people grow, the communication generally gets worse. It’s been said that your ability to get each person in a meeting to understand the information discussed goes down by the square of the number of participants. So if you have five people in a meeting it is 25 times more difficult. Think of a meeting with 10 people, where it is 100 times more difficult. Having people who are not critical to the meeting (not just who will be impacted by the meeting) participate usually explodes the scope and expands the agenda, waters down the communication, or just wastes time.

Everything should not be fair game in every meeting - Just because people are together in a room does not mean they should discuss whatever they needed to raise with that person. That happens better in one on ones. Group discussions need to be limited to the specific topic and only to things that critically matter to that topic.

It’s OK to hurt someone’s feelings by not including them in a meeting – When it comes to meetings, titles and positions should not matter. Meetings should be focused on accomplishing a goal. People who are needed to create that solution should attend. Everyone else should be happy not to be burdened.

Follow-up is critical – If the meeting was important enough to have, it was important enough to document. Certainly any critical decisions that were made in the meeting, and ideas that were uncovered, or any follow-up items and commitments made, should be documented. If this is a regularly scheduled meeting, then this summary should be discussed at the start of the subsequent meeting and people who committed to follow-ups should discuss the completion (or not) of their committed actions.

An Execution Model For The Ceo

Bob Sywolski, a former operating executive, turned venture capitalist, gave this presentation at a recent (October 2008) JMI Equity Executive meeting in San Diego. I've posted this presentation (with Bob's permission) and think it's got critical lessons for any founder/CEO. You can send any questions or comments you have to me directly here on the blog or you can find Bob at the JMI Equity web site.

Bob Sywolski An Execution Model for the CEO

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It's the economy stupid!

Many CEOs and founders have been focused on the current economic downturn. Some take knee-jerk actions to cut expenses (and layoff employees), some clamp down on all activities, and some ignore reality hoping it will change. Not being old enough to have lived through the Great Depression, except through tales that I've heard, the only analogy I have is the economic aftermath of 9/11. At that time, I was running Transcentive, a stock plan administration software company. And, as you might imagine, stock options and enterprise software were not the top priority on everyone's list as we all struggled to understand the new reality that an attack on our homeland and the ensuing stock market crash and economic turmoil caused.

I've searched for some guidance during this unique patch of our economic history. One of the best, is an article found on CNN Money's web site by Ram Charan, a writer and management guru entitled:

Managing your business in a downturn

As the optimistic entrepreneur that I am, I like to view turmoil as a friend. Turmoil and uncertainty typically are great times to topple the status quo, to empower new market leadership, and to cause customers to look for new solutions.

Ram's article was written with this particular downturn in mind, but I see it as a handy reminder to refer to any time the macro economic conditions turn abruptly south.

Time to Replace Yourself

Fortune Small Business recently posted an article with this title. While I believe the article is a pretty good rendition of what founders go through when they determine they need some help, the issues touched upon are just the tip of the iceberg and are probably only appropriate from a founder’s point of view. But having been the replacement CEO for four different founders, as a successor to a founder you are often fighting an uphill battle trying to do things differently than the founder - especially when the founder is still peering over your shoulder. Often the founder/CEO may decide they need help, but not know how to accept it. In one of these companies, I used to joke that the founder encouraged me to initiate any changes that I thought were necessary as long as he agreed. This was a difficult charge, since doing only those things that the founder agreed with potentially doomed us to relive the past and not improve the business.

It is a unique founder indeed who is willing to leave a successor alone and let them make what the founder may feel are mistakes in order to take the business to the next level. In my experience, the founders who figured out how to get out of the way and give the new CEO the same full reign they maintained when they were running the show, are the ones who ultimately were able to reap the rewards of a successful liquidity event. The others were drastically different outcomes.

Of course you’ve got to have the courage and the foresight to hire the right successor. I am an advocate of “try before you buy” - hiring a successor CEO as a consultant or in a less invasive role before making a final succession decision. But continuing to hold tight on the reins after making that decision can compound the issues rather than solve them.

I’ve often considered that the best prescription for a founder who has determined that they need to hire a new CEO, is to get completely out of the way - which may require leaving the company - in order to empower the new CEO to make the necessary changes.

Large companies tend to understand this when replacing a CEO. Take the example of GE. Welch engaged in an extensive process to identify the appropriate successor. But when Welch stepped down from the role, he quickly extricated himself from the business altogether to enable Immelt to lead the company in an entirely new direction.

Business Models Matter

Have you ever tried to swim against a strong current? Even if you are a good swimmer, almost no matter how hard you try, its very difficult to make any forward progress.

This is a similar situation for companies who have business models that work against them. [Business models are roughly defined as the value proposition that your company brings to the market.] No matter how hard you work, or how smart you are, or how great your solution, you don't seem to make any money.

Smart CEOs attack business models first when founding or taking over the leadership of a business. Once they have that down, everything else is much easier to handle. In fact history has shown us that even great CEOs will likely fail with a poor business model and in fact the converse, poor CEOs often are propped up and succeed with great business models. So rather than continuing to swim against the tide, consider altering your model.


So what's a good business model look like?

We have found that good business models have the three characteristics that match up with an immediate, a future and a long term time frame.

Great Profit Margins
Stickiness
Defensibility

Great profit margins - Business thrives on this. Seems simple. However, there are untold numbers of businesses that don't get this. The work hard, sell lots of whatever it is they are producing, and like the old proverb, "will make it up in volume." Actually that is what many of these businesses believe (hope?) - that once their volume is sufficient, they will become profitable.

Instead, smart founders and CEOs seek out ways to make their business profitable today. Clayton Christensen used the term "impatient for profits" in his book Seeing What's Next. It's important to ensure that your business today (or as soon as practical) earns profits and that those profits are not necessarily dependent upon reaching some volume threshold. It certainly makes it easier on your scarce capital to do it this way. Businesses that clearly differentiate themselves from the competition (have a unique offering) generally have an easier time making a profit. They tend to have selling prices that have no direct relationship to their cost - typically large spreads between the two. Instead their prices are based upon their value they deliver to the purchaser. Scarcity helps as well - if you are the only one delivering this solution to a target market - you can often name your price.

Severing the markup-over-cost relationship can accelerate any business model. There certainly are great examples of this in the market, often associated with luxury goods that create a perceived value in the mind of the buyer. But great margins are sometimes found in more innovative ways. I've experienced two technology companies that saw this light. Tangoe, an application software company based in Orange, CT found that their telecom expense management was so good it saved big companies millions of dollars. Rather than just charge some amount that amortized the steep development costs of their software, Tangoe has begun to charge based upon "sharing" that value with the customer. Another company based in Hickory, NC, Transportation Insights, had the insight (pun intended) to charge their customers based upon how much their freight logistics services save their customers, generating large percentage profits for this young company.

At one company that I lead, we found that offering our software as a service (back before Salesforce.com made this term vogue) was our key to juicing our margins. After listening hard to our customer base, we heard there was great value in not just handing them the CDs with the code, but in fact in running the application for them (in this case employee equity management) provided more value and hence higher profit margins. (This move also had an ancillary positive impact on the idea we'll discuss in the next post - stickiness.)

So just don't take the business model you've been handed for granted. Be sure it works for you! If not, no matter how good you are, its probably a critical enough factor to rethink whether this is really a business for you.


Good business model provide enticing profit margins - so enticing that your well-heeled competitors might view this territory as ripe for their expansion. While a good business model (and a great product) might generate some nice short term profits, how do you keep this good thing going?

We call this next stage Stickiness. Stickiness is that quality that keeps your customers loyal to your solution.

Stickiness has another dimension as well. The stickier your solution, the less effort you should have in deriving additional revenue from that same client. Sticky solutions are the "gift that keeps on giving." You've probably been told that is is much cheaper to continue to keep a customer than to try to find a new one. Stickiness trumpets this characteristic ... and more!

Often times smart companies can create solutions that are sold once but paid for on an on-going basis. Subscriptions, leases, maintenance, outsourcing, services, royalties and the like are all examples of long term payouts from a single sale. If you can morph your business model into one that has recurring revenue, rather than a one-time fee, do it! Salesforce.com, mentioned earlier, pioneered a concept called SaaS - Software as a Service. Rather than do what everyone else in the software business was doing - selling based upon a large up front perpetual license fee and relatively small annual maintenance fees (usually running 15-20% of the license fee), they decided for this and other good technological reasons to charge a use fee - based upon the number of users, charged annually. This model changed the dynamics of the software industry. Sell a customer today, collect 100% of this year's fees this year, and then be virtually guaranteed next year's fees next year too! Compare that to the typical company that received 100% of this year's fees today and only 20% of that fee next year. Salesforce.com's model almost guaranteed growth - just by selling one more incremental customer.

Other sticky models are created through a community model. By community, we mean that the company has done something more than just sell you today's solution. They have developed a brand that you become loyal to because they delivered what they promised and they provided the reinforcement for you to continue to identify with that solution. eBay created a great community model that actually became more attractive the more customers it captured - there were more reasons to attend an eBay auction each time a new customer joined.

Each of these characteristics provides an ongoing value proposition for each new customer - one that will continue to generate benefits for the company - and for the customer. Done right, these can be like the proverbial snowball - gaining (revenue) volume at an accelerating pace.

Sticky solutions enable CFOs to sleep at night. Sticky solutions generally have a more predictable and less lumpy revenue flow - characteristics that are valued on Wall Street.

So now you have a great profit margin and a reason for your customers to stick around; what else do you need?



With both profit margin and stickiness, you may be set for the short and middle term. But what about the long term, once competitors have enough time to regroup and mount an attack?

We used to call this a barrier to entry. Most Venture Capitalists used to quiz their founder CEOs on how they were going to maintain their position in the light of big competitors targeting them.

Like security, no protection is fool proof. What you need is to find as much protection as you can today and then run like hell to build yourself as sticky a solution as you can. The government gives you some protection if you have developed something novel by issuing patents and copyrights. Each gives you a bit of a legal monopoly (hence scarcity) on your particular invention. But intellectual property protection is usually not available for services or other non-proprietary businesses, and patents wear out and are costly to defend, copyrights are relatively weak protection, so you will need to take much of this matter into your own hands.

So ultimately your long term protection will be built on establishing yourself, through both bulk and brand. Bulk comes from just that - getting big quick. Companies like RIM who invented the Blackberry was a company just in this situation. They initially relied on patent protection which ultimately backfired (they had to pay almost $1 billion for allegedly violating someone else's patent). But even with that big settlement, they didn't have to fold their tent and go home once their IP barrier was breached. Instead they were large enough to withstand the financial impact, had created a very loyal user base, and continued to innovate off of their original design.

There are always obstacles to customers changing brands - sometimes they are simply psychic impediments such as "I don't know how that new product will work - but I do know that the one I use now works fine" - or sometimes there are real switching costs - like having to convert one's data to a new format. But smart companies rely much more on the positive side of attractiveness to retain their loyal customers. They provide a great continuing customer experience - one that keeps the customer from even thinking about changing in the first place.

Together, great profit margins, stickiness and a good defensive strategy can create long term value for the owners of a valuable solution.

Presentation to Long Island Software CEO Forum

Last week I presented "Lessons Learned" to a group of software company CEOs on Long Island. Below, using a new tool that I found called "SlideShare," I've embedded the presentation. Let me know any thoughts about it and/or slideshare by leaving a comment.

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Lessons learned

During the past year I have reviewed several dozen business propositions, talked with founders, entrepreneurs, angel investors, venture capitalists, and plain old rank and file business people. I've been in search of the the holy grail of business opportunities - and have yet to find it (but that is the definition of the holy grail isn't it?)

Along the way, I learned and confirmed some business truths that I thought were worth sharing.

Money

• There is lots of it available in the market. Even VCs have more capital than they can manage themselves.
• Valuations are always astronomical for other companies (i.e., not yours).
  
• Angel capital usually comes from people who have too much time on their hands and put their noses in places in which they have no expertise.
  
• Just because you have money to invest does not make you smart – in fact there may be an inverse correlation. (Thanks to Harry Gruner at JMI for that truism).
• Money alone can’t help a bad venture or a good venture with a bad management team.
  
• You probably can’t succeed without it.
  
• If you continually have too little of it, you either are spending too much time looking for it, your valuation is stupid, your management team is inept, your venture is not worthy, or more likely all of the above.

Management Talent

• There is not enough to go around.
• In the land of the blind the one eyed man is king.
  
• A combination of business savvy and engineering talent is virtually non existent.
  
• Most techies would disagree.
• Just because you are a founder, does not mean you deserve to run an organization (unless you are the only employee).
  
• Good management techniques transcend most industries.
  
• If you think your industry (or business) is different, you are wrong.
• Founders who hold the title of CEO only because they started the company are usually in the wrong job.
  
• Founders who have this epiphany, can actually become good CEOs.
  
• Friends and family teams are usually all that is necessary to burn down a very promising venture.
  
• Most bad management teams don’t agree with any of this.

Technology

• You can’t risk your success on the back of one or a small team of technical people who don’t believe in technology transfer as a priority.
  
• As a CEO if you don’t understand it, over time you still won’t get it.
  
• It is highly overrated.
  
• Companies that start with great technology and succeed have figured that out.
  
• In order to succeed, your technology actually has to solve some problem.
  
• Creating the problem just so your technology has something useful to do just won't cut it.
  

Sales

• Great sustainable sales only exist in an environment where there are processes and metrics.
• If you claim to have metrics, but don’t track them or can’t recite them, you are fooling yourself.
  
• If you think your business is different and you don't need metrics, you are wrong.
  
• Great sales talent is not personality based – it is process based.
  
• If you are not concentrating on how to create reproducible sales – you won’t have any.
• You can always spot a sales driven organization - their employees wear company-logoed clothing.

Founders

• Believe their ventures are worth at least an order of magnitude more than people with money do.
  
• Think that the money guys don’t get it.
  
• Expect that splitting the pie is equivalent to shaving ice.
  
• Need adult supervision.
  
• Every organization has at least one.
  
• If you care about how people feel about you, it’s probably best not to be his/her immediate successor.
• There is much too much more to include (see the rest of my blog postings for more).

Details

• Some people thrive in the details.
  
• This isn’t always bad.
  
• There is a place for them in every organization.
  
• I’m not one of these people.

Quality of Life

• In today’s world this often takes center stage.
  
• Working with great people, having a flexible work environment, and controlling your own destiny often count more than fewer hours in the office.
  
• Working for a, with a, or just be- cause can shift this balance.

Risk

• There is a significant variance about the propensity of individuals to accept risk, which varies over time, with the weight of their pocket books, and the size of their mortgage.
• Potential participants in any venture have different short term vs long term needs which also varies over time.
• Everyone says they are looking for long term wealth generation.
• Most can’t afford to really do that.

People

• No good person wants to work with assholes.
  
• Most assholes would love to work with you!
• You are only as good as the company you keep.
  
• That includes clients and investors.
  
• Even a bad technology can succeed with good people.
  
• The converse is never true.

Why CEOs Fail?

One of the most compelling articles ever written about CEO failures has many lessons for Founder/CEO's as well. In June 1999 Fortune Magazine published the article: Why CEOs Fail? The lesson was that CEO failure was generally not caused by a disagreement between the CEO and his/her board, or even a failure of strategy. More often, failure was a product of relying too long on key employees who just weren't cutting it. The CEO's failure was the refusal or unwillingness to get the right people into (or probably more important - out of) the right positions due to personal relationships that had grown between the CEO and his/her team.

Attributing the same characteristics to the founder/CEO seems to be all too appropriate. Often the Founder brings family (husbands, wives, brothers, parents), close childhood or school friends, or others with whom the founder has had an other than pure business relationship, in as early trusted employees. No one would argue that it is hard to sever those relationships; doing so might have severe implications for their outside-of-the office life. However, the implications of maintaining these relationships beyond what is good for the company can be critical to an early stage venture's prospects.

We've seen dozens of ventures that have either failed or been critically wounded by the presence of fairly nice but incompetent friends and family holding positions of authority. Not only does the lack of competence in their particular field hinder the company's success, but it also has a detrimental impact on other employees who have only their objective performance on which to rely.

Certainly the writers of this article (now gone on to fame as pop business book writers) were not focusing on founders when they wrote this piece. However, founders should pay close attention to the issues identified and realize the implications of a more-than-business relationship in the workplace.