The Venture Capital Inversion

There used to a be time in Silicon Valley when a startup created a strategy, made a business plan to go execute it, and then raised the amount of money required to execute the business plan.

That seems pretty  quaint these days.  Because today, many companies have this upside-down.  Instead of making a plan and raising funds to execute it, they raise a pile of money and then go figure out how to spend it.

This is happening largely because of the frothy, particularly mid- to late-stage financing environment that exists today.  More and more money is going into later-stage VC and PE growth funds, funds get bigger, minimum check sizes get bigger, and all of sudden you have a bunch of investors who each need to write checks of $50M to $100m to make their funds work and those check sizes start dominating round sizes in Silicon Valley.

But it’s all upside down.  Companies shouldn’t raise more money because investors want to write bigger checks.  Companies should only raise more money if they need it to fund their plan.

A key part of building a startup is focus.  Flooding companies with money works against focus.  Remember the startup epitaph:


When startups “just do both” they fail to choose — in so doing, often choose to fail.  When you flood a startup with money, it tends not just to do both, but perhaps all 4 or 5, of the ideas that were in discussion.

When a company gets caught in the VC inversion bad things happen.  For details, see this post I wrote entitled Curse of the Megaround, but the short summary is that startups with too much cash make too many questionable investments that defocus the company and don’t provide returns, ultimately resulting in the termination of the CEO and usually a chunk of the executive team along with him/her.  In short, turmoil.

Remember this tweet from Marc Andreessen:


So the next time you hear a company celebrating a $100M round ask yourself these questions:

  • Can they actually put the money to productive use?
  • What distractions will they start or continue to invest in?
  • How much longer will the CEO and executive team last given the new, heavy pressure put on the valuation?

Startups should be about entrepreneurs driving a vision for customers that benefits the founders and employees, with the VCs along for the ride.  Let’s not get that inverted and end up with startups being run for the late-stage investors with the customers, employees, and founders along for the ride.

Stop Making the #1 Mistake in Presentations

Ever hear this story?

VP of Sales:  “Hey, how did the sales training on the new presentation go?”

VP of Marketing:  “OK, well, you know, pretty good.”

VP of Sales:  “Why are you hemming and hawing?”

VP of Marketing:  “Well, I could tell they didn’t love it.”

VP of Sales:  “Do you know why?  I do.  They told me it was a great looking set of slides, but it felt more like an analyst pitch than a customer presentation.”

What’s gone wrong here?
It’s simple.  Marketing made the #1 mistake that managers of all ilks make when it comes to creating presentations:  they start with what they have — instead of starting with what’s needed.

What does that mean?
Marketing probably just came back from a few days of analyst briefings and when they needed to make a revision to sales presentation, they re-used a bunch of the slides from the analyst deck.  Those slides, created for analysts, talked about company strategy, positioning, and messaging.  Customer slides need to talk capabilities, benefits, and customer testimonials.

The slides, never designed to be used with customers, are thrown into a deck, and marketing feels great and super-efficient because they’ve re-used materials and presumably even increased message consistency in the process.  #wow

But it’s a #fail.  They broke the first rule of presentations:  it’s all about the audience.

Know thy audience
Presentations are all about the audience.  The first step in creating any presentation should be asking:  who I am speaking to and what do I want to tell them.

It’s not about you; it’s about them.  Which brings to mind one of my favorite quotes from Frank Capra, director of It’s a Wonderful Life.

“I made mistakes in drama. I thought drama was when actors cried. But drama is when the audience cries.”  — Frank Capra

It’s not just about marketing
While I started with a marketing example, this isn’t just a marketing problem.  Here are some other favorite examples:

  • Making a board presentation from an operations review deck.  Yes, they both have a lot of data and analysis about the business, but the ops review deck is created for an audience of your peers, for people who want more detail and who are far closer to the daily operations of the business.  One great way to hang yourself in a board meeting is to paste a bunch of slides from your ops review deck “to save time.”
  • Making one sales presentation from another.  This might work if the two customers have a lot in common, but if they don’t it will be a disaster.  My favorite quote here comes for a story about an Atlanta-based salesrep who kept referencing Coca Cola to Delta Airlines.  “Stop telling us about Coke.  We are Delta.  We fly airplanes.”
  • Making a product introduction presentation from a product management presentation.  You instantly doom yourself to feature-itis.
  • Making a vision presentation from a sales presentation.  Sales presentations about motivating benefits and differentiation.  Vision presentations are about what’s wrong with the status quo and how to fix it.
  • Making a roadmap presentation from a product planning deck.  Not only will you forget to pad the dates, but you will likely end up turning your product vision into a laundry list.

I could go on and on.  But the key mistake here is simple.  Instead of starting blank-slate with what’s needed based upon the audience, you start with leftovers.  What you have lying around from a prior presentation or meeting.

The road to Hell
Don’t have the good intentions of maximizing re-use when you make presentation.  Instead focus on your message and your audience.  That means starting with what’s needed instead of starting with what you have.

What’s the trick?
Most people condemn themselves at the 5th second of the presentation-creation process by double-clicking on PowerPoint and then hitting “open.”

Don’t do that.  Never do that.

Instead hit “new” and “blank presentation.”

Then think about the audience.  Think about your message and start roughing out an outline to achieve your goals and the slide structure (often just titles) to do that.  Let it sit for a while.  And then do it again.  Put your early energy into the structure of the presentation, not the slides.

Then — once you have a clear outline for what you want to say and how you want to say it — and only then, should you go looking for existing slides that will help you say it.

Managing Change: The Sailboat Tack Principle

Change is hard in business.  A few things routinely get messed up:

  • Pulling the trigger.  Think:  “wait, are we still discussing this change or did we just decide to do it.”  I can’t tell you the number of times I’ve heard that quote in meetings.  I think continuous partial attention is part of the problem.  Sometimes, it’s just straight-up confusion as the enthusiasm for a new idea ebbs and flows in a group conversation.  It can be hard to tell if we’ve decided to change or if everyone’s just excited about the idea.
  • Next-level engagement.  Think:  “wait, I know we all like this idea on the exec staff, but this decision affects a lot of people at the next level.  I need some time to bounce this off my leadership team and get their input before we go ready/fire/aim on this.”
  • Communications.  Think:  “wait, this change is a big deal and I know we just spent every minute of the three-hour meeting deciding to do it, but we need to find another hour to discuss key messaging (5W+2H) for both the internal and external audience.”
  • Anticipatory execution.  Think:  “While we had not yet finally approved the proposal for the new logo, it was doing very well in feedback and I just loathed the idea of making 5000 bags with the old logo on them, so I used the new one even though it wasn’t approved yet.”

When you screw up change a lot of bad things happen.

  • Employees get confused about the company’s strategy.  “First they said, we were doing X, and then the execs did an about-face.  I don’t understand.”
  • The external market, including your customers, get confused about what you are doing.  This is even worse.
  • You can end up with 5,000 bags that have neither your old logo nor your new logo on them.
  • You can make your management team look like the Keystone Cops in one of many ways through screwing up sequencing:  like dropping off boxes before the big move is announced, or employees finding out they’ve been laid off because their keycards stop working.

In order to avoid confusion about change and the mistakes that come with it, I’ve adopted a principle I call the “sailboat tack principle” which I use whenever we are contemplating major change.  (We can define major as any change that if poorly executed will make the management team look like clowns to employees, customers, or other stakeholders.)

If you’ve ever gone sailing you may have noticed there is a strict protocol involved in a tack.  When the skipper wants to execute a tack, he or she runs the following protocol.

Skipper:  “Ready about”

Each crew member:  “Ready”

Last crew member:  “Ready”

Skipper:  “Helm’s a lee.”

That is, the skipper does not actually begin the maneuver  until every involved crew member has indicated they are ready.  This prevents partial execution, people getting hit in the head with booms, and people getting knocked off the boat.  It also implicitly makes clear when we are discussing a possible course change (e.g., “I think we should set course that direction”) from when we are actually doing it (e.g., “Ready about”).

For those with CS degrees, the sailboat tack principle is a two-phase commit protocol, used commonly in distributed transaction processing systems.

I like the sailboat tack protocol because the extra discipline causes a few things to happen automatically.

  • People know implicitly when we’re just talking about course changes.  (Because no one is saying “OK, so do we want tack here?”)
  • People know explicitly when we are actually making the decision whether to execute change.
  • The result of that extra warning — “hey, we are about to do this” triggers numerous very healthy “wait a minute” reactions.  Wait a minute:  I need to ask my team, I need to make a communications plan, I need to examine the compensation impact, I need to think about what order we roll this out in, etc.

Are Your Managers Good Enough? A Simple Test

When I listen to senior executives talk about their first- and second-line managers, I sometimes get pretty concerned.  That happens when I hear what I call “good enough” thinking.

“Yeah, he’s not great, but he’s good enough.”

“She’s doing a solid job, but nothing too inspirational.”

“He’s not a great manager, but he can stay on top of the business.”

The purpose of this post is a to provide a brief inspirational reminder:  good enough isn’t.

I know why executives and managers fall victim to “good enough” thinking:

  • Hiring is hard
  • Management is hard
  • Hiring managers is therefore hard^2

So while most executives demand excellence from their front-line employees, they seem to dial back their expectations when it comes to management.  The only thing scarier than hiring new salesreps or product managers is hiring sales managers or product management directors.  Scary though it may be, it’s their job to do so.

In mulling this, I have come up with a simple test to determine if you managers are good enough:


If your managers don’t pass that test, then maybe they shouldn’t be managing.

Collected Wisdom on Business and Life from the HBS Class of 1963

“The wisdom of the wise, and the experience of the ages, may be preserved by quotation.”

Isaac D’Israeli

Browsing my tweetstream I ran into this wonderful website the other day and instantly retweeted it, but also made a note to come back to have a deeper look.  On doing so, I decided it was so good that I’d do a quick post to highlight it.

The site, If I Knew Then, is actually also a book written by Artie Buerk, a member of the Harvard Business School (HBS) class of 1963 and contains collected wisdom — all in quotation form — from his classmates, gathered in preparation for their 50th reunion.

In addition to the obvious advantage of providing retrospective from an unusually successful group of people, Buerk argues their views are even more relevant because of the massive change that occurred during their lives.

It is, in fact, because these Harvard grads have lived through all these massive changes that their perspectives count for so much. They have been a part of both the “before” and the “after” pictures of a world transformed.

Consider what the world looked like in 1963:

In 1963, the average price of a new home was $12,650 — a fraction of what even the most modest home sells for today. That year, gasoline sold for 22 cents per gallon, the minimum wage was $1 per hour, [and] the average starting salary of a Harvard MBA grad was $9,500.

(Inquiring minds will be happy to know that today’s average starting salary for a Harvard MBA is around $140,000, growing at about twice the rate of inflation since 1963.)

Here are a few of the pithier quotes.

On business:

Surround yourself with the smartest, most ethical people you can find. Set clear goals, communicate them clearly, and delegate.

On careers:

Decide you like what you do, and do it better and smarter than anyone else.  If you can’t, change your career.  Don’t create an expensive lifestyle — living modestly frees you to make appropriate choices.

On leadership:

The best leaders I’ve seen have been as or more knowledgeable than anyone else about the business and the environment in which it operates. They have a clear vision they can communicate to others, and they make decisions easily.  On a personal level they are easy-going, don’t take themselves too seriously, admit their mistakes, and are quick to give others credit. They have high standards, clearly articulated, to which they hold their people.

On happiness and success:

Success is when you can spend 90 percent of your time doing the things you want to do and only 10 percent doing things you have to do.  Most people’s lives are just the opposite.

On life’s lessons:

There is no substitute for integrity. In a world where greed and taking shortcuts seem to be major themes, there is nothing that can replace one’s reputation. The ability to look back on life and say, “I did it the right way” is a treasure. There is no do-over when you lose your integrity and reputation.

United Airlines: Stop Bouncing People Out of Reserved Seats

Dear United:

Just when I thought you couldn’t get worse, you have managed to again perform well below expectations.  How?

I now believe that you have a deliberate policy to bounce low-tier flyers from reserved Economy Plus seats.  How do I know this?

  • I am a relatively high-tier United flyer, happily achieved not through flying you much anymore, but through legacy status as multi-million mile flyer.  With that status, you treat me just barely well enough for me to think about flying on your airline on competitive domestic routes.  (Though I avoid your international business like the plague.)  You may have noticed I dropped from flying about 100-150K miles/year to maybe 30K/year as a result of changing to alternatives like Virgin America.
  • My wife, however, is a low-tier United flyer.   The way you treat her is simply appalling and quite possibly illegal.  One purpose of this blog is to highlight the myopia of your CRM program where, among other weaknesses, you have literally for decades missed the basic possibility that high-tier flyers are married-to and/or parents-of low-tier flyers.  When you hose the low-tier flyer, you hose the high-tier flyer partnered with them.  But the real point is you shouldn’t treat anyone the way you routinely treat my wife.
  • For about the fourth time you have bounced her out of a pre-reserved Economy Plus seat — thus it is clear to me that this cannot be a series of accidents but a deliberate policy.
  • Today you bounced her (and my son) from 11EF  to 32AB on a 737-900 (literally the worst seats on the plane) even when we were traveling together.  I was never notified.  No email was sent.  I learned this at check-in time.  #nice
  • However, this is topped by my “favorite” story where my wife had paid $90 extra for Economy Plus.  Minutes before departure, she was called up at the gate and handed a new boarding pass for a non-economy plus middle seat.  No explanation was offered.  No refund was given.  Yes, you paid $90 extra for Economy Plus but someone more important came along, so we’re moving you back to 37E because we can.  She was so stunned she said nothing at the time.  If you this transactionally, you got away with it.  #congrats.  If you view this from a relationship perspective, you burned her forever.  Any time I want to fly United (and that’s less and less) she reminds me of the story and says we can’t be certain we’ll get our assigned seats.  Today again you proved her right.

So it’s clear what you’re doing.  You’re making two promises that you seem to have no intent on delivering upon:

  • A low-status flyer can buy-up to Economy Plus and have a guaranteed seat.  This promise is clearly now false.  They can have the seat only if it is convenient for you at departure time.
  • A high-status flyer can bring 1-2 low-status flyers with whom they’re traveling up to Economy Plus.  Today you proved this promise false as well.

Given the frequency with which this occurs it is clear that this is not bad luck or coincidence.  This seems to be policy.  And I think it’s probably illegal.  You’re probably CYAed by some regulation never intended for this purpose.  But what you’re doing is nevertheless wrong.

From a customer experience (CX) perspective, let me make clear what you’re doing.

  • With your normal, crappy, bad flight attendants, no video screens, worst-boarding-process-of-any-airline, service I’d guess you are driving survey responses on a net promoter score (NPS) survey from maybe passives of 7-8 down to detractors of 4-5.   Lucky for you, people don’t expect much from airlines so you can get away with this.
  • However, with the failure to honor pre-reserved seats you are actively creating detractors — and not just 2-3 out of 10 detractors, but 0 out of 10 detractors.  Like “I never want to fly United again” detractors.  Like “I’ll fly one-stop to Denver because I can’t stand United” detractors.  Like “even if it’s business/first, I don’t want to fly United” detractors.  In fact, I have trouble of thinking of a better way to make people hate you more than repeatedly making the promise of reserved seat — and in cases collecting a supplement for it — only to fail to honor that promise.

It’s not an accident.  It must be policy.

This year I’ll probably fly 30K miles on United out of a total of 200K.  Next year my goal is zero.

The Second Agenda: Why No Executive Should Ever Have One

Sometimes leaders have second agendas:

  • CEO:  I want to win for my shareholders and prove I can take a company public.
  • Founder:  I want to win for my shareholders and destroy the great evil at Microsoft.
  • Volleyball coach:  I want to win the league and prove to the world that I can convert an average outside hitter into a great libero.
  •  CMO:  I want to beat the plan targets and develop my protege.

I’m going to argue that in basically all cases these are bad.  Why?  Because when a leader has two primary agendas they can come into conflict.

  • The CEO will turn down a potentially great buy-out offer because he/she personally wants to ring the bell at the NYSE.
  • The Founder will turn down a fantastic deal from Microsoft because he does not want to do business with the great (perceived) evil.
  • The volleyball coach might lose the game by not playing the best players to win it.
  • The CMO might miss plan targets by focusing more on his/her protege than on delivering MQLs to sales.

This is, of course, not to argue that leaders can only focus on one goal.  Running a company requires a whole set of goals that map across the organization.  But leaders should have one mission, one cause, one agenda:  to win.

Any other agenda, no matter how well intentioned will eventually come into conflict with winning and start to tear the team apart.

  • Investors find out a prospective buyer was snuffed without due consideration and lose trust in the CEO (and potentially either fire or sue him/her).
  • The Founder ends up distanced by his organization which now sees him as fighting religious wars instead of running a business.  Employees leave because they wonder what other great deals won’t be pursued for non-business reasons.  (Think:  Yahoo!)
  • The volleyball coach is seen as subjective and someone who “plays favorites” and thus fails to recruit top players to his/her team in following years.
  • The CMO is seen as political and his team starts to distrust his motivations for assigning projects, leading to general distrust on the team, and the loss of several key players.

I remember one day, years ago, when I felt that our CEO had not been loyal enough to a teammate.  I thought “that’s shitty, he prioritized winning over loyalty to a long-term colleague.”  And then I thought some more.  And then I realized that’s exactly the kind of CEO you want to work for.

I’m not saying we should treat people as disposable and that loyalty shouldn’t exist.  Managers should be creative and try to find win/win solutions to issues with employees.  But when you can’t, when there appears to be no win/win to be had then no secondary agenda* — even loyalty — should trump the leader’s primary objective.

# # #

* Obviously I view things like “ethics” and “the law” not as secondary agendas, but as constraints on the solution.