Author Archives: Dave Kellogg

Playing to Win vs. Playing to Make Plan: The Two Very Different Worlds of Silicon Valley

Posted on May 26, 2024 | 5 comments

All strategy is a function of situation.  Situation varies not only as a function of the individual company and market, but also of time.  Remember that classic Silicon Valley strategy books were written in a different time and thus had some implicit assumptions built into them.  For example,

  • That you’re in a new category.
  • That it’s a huge greenfield market, ripe for the taking.
  • That once you took it, switching costs were high so you could keep it.
  • That if you didn’t take it, somebody else would.

Be the gorilla of the space.  Just ship in the tornado.  Design the category to become king.  Sound familiar?

Those assumptions were largely valid in the world in which I grew up:  the dawn of relational databases, ERP, SFA, CRM, data warehousing, and business intelligence. 

A subtle part of what drove those assumptions were some underlying facts about exits:

  • If you finished win, place or show in the category, you could go public.  You’d get a very different valuation multiple as a function of position, but you could make it out.
  • If you finished in fourth or beyond, you’d end up a zombie.  You couldn’t go public.  But there were no PE firms to buy you (either standalone or as part of a roll-up).  So, you’d limp along half alive, half dead with no real future.
  • A zombie’s only hope was to be acquired by one of the few zombie-eaters like Computer Associates who’d put you out of your corporate misery — firing your exec team, your R&D team, several other teams, and then jacking up your annual maintenance fees faster than your captive customer base could flee.

That was it.  So, you needed to play to win.  The markets were new, huge, and greenfield — and there was nothing else to play for.  Fight to win, hope that you do, and worst case end up in the top three.  Otherwise, may God have mercy on your corporate soul.

But things have changed. 

  • Many software markets aren’t new or greenfield, but replacement.
  • Markets aren’t always huge, but we have collectively realized you can build a nice business in what was formerly seen as a niche (e.g., account reconciliation).
  • Switching costs aren’t that high.  At least compared to their on-premises predecessors.  Customers can change systems.
  • There are more exit options available for both venture- and PE-backed, as well as bootstrapped, startups.

While there certainly remains a large winner-take-all world (e.g., AI) that dominates most Silicon Valley thinking, there is now also a parallel, more mundane world.  The danger is when strategic thinking designed for one gets applied to the other.

That’s the distinction between “playing to win” and “playing to make plan.” 

Because I grew up in the playing-to-win world, my inclination was to call the latter “playing to play,” but that’s too pejorative.  It’s not playing for playing’s sake.  But nor is it playing to win.  It really is playing to make plan.

While I’m going to end up using the word “win” in two different contexts here, one of my favorite strategy authors defines strategy as the plan to win.  That definition quickly begs the question:  for us, in our situation, what is winning?

  • For some, it’s changing the world by creating a new market and dominating it, delivering a 100x or more return to early investors.  Here, winning means winning in the market. 
  • For others, it’s selling the company in 4-6 years for 3 times what the investors paid for it.  Here, winning means making plan, because – trust me — you can be sure that any board-approved plan will put or keep you on track to deliver that 3x.

These are two different worlds populated with different companies, backed by different investors, and usually inhabited by different employees.  Let’s contrast them by comparing the advice I give to CEOs in each.

The World of Playing to Win

When I meet a CEO in the playing-to-win world, I say things like:

  • If you don’t win this market one of your competitors will.  A first-place valuation can be 10x second which in turn can be 10x third.  You must win.  Second prize really is a set of steak knives.
  • For the next several years, you need to get in touch with your inner barbarian.  When the smoke clears at the conclusion of the hypergrowth phase, you must emerge the winner.  After you’ve won, you can do TechCrunch interviews about the difficulty of maintaining your values during hypergrowth.  But win first.
  • Hire a VP of Sales who makes you uncomfortable.  They should be so aggressive you get worried.  You don’t want shipping bricks or channel-stuffing aggressive, but you do want a strong dose of, “you want me on that wall, you need me on that wall.”  They should be respected more than liked, feared more than loved. 
  • You must build a hyper-competitive sales force who will win deals at nearly any cost.  Turnover will be high.  Consultative selling will be low.  You’ll hear negative things about how aggressive your people are from time to time.  That’s fine.  You’re trying to win market share, not the vendor congeniality award. 
  • Even though you’re larger and growing faster than your competitors you need to plan to keep growing at extraordinary rates.  You can’t let up and risk someone catching you.  One day this will end in a phenomenal plan miss with internal chaos, but you won’t care.  You’ll have won the market.  Then you can clean up the mess.
  • Make a loose discounting policy that provides sales with lots of discretion.  Then throw that policy out the window when a deal heats up.  You must win.  You’ll be accused of slashing prices to sell a deficient product, but you don’t care. 
  • Market your leadership.  Your top marketing message needs to be, “we’re #1” in any of its various forms.  #1 is safe.  #1 is the default choice.  #1 has the biggest ecosystem with the most partners.  Make competitors explain why a prospect should pick them despite the fact that the market has chosen otherwise.  Crush any misguided claims that the company should be more humble or that some customers prefer to buy from underdogs.
  • Track relative market share.  At every QBR, put up charts that show relative ARR (triangulated in all likelihood), burn rate (ditto), and headcount so you can get a clear sense of who you’re gaining on and who is gaining on you.  Yes, this is paranoid but you have to do it – to build the leader you must be realistic about where you stand, and to stay the leader you must detect and eliminate threats early.
  • Blunt all competitive threats.  You never want to let a smaller competitor – particularly a high-profile one — get a toehold in the market.  So, when someone announces a new feature, you announce it too, ship an anemic version at once, and then round it out over time.  Deny differentiation. “Grey” is your watchword.  Any time a competitor tries to establish a black-and-white differentiator, you immediately grey it out.  Eventually, they’ll stop trying to differentiate or their differentiation will become so esoteric as to be irrelevant.

The biggest risk here is losing, having missed the usually once-in-a-lifetime opportunity to define and dominate a category.  For more on what to do in this situation – and how to blunt common tactics if you’re on receiving end — see my post entitled The Market Leader Play.

The World of Playing to Make Plan

When I meet a CEO in the playing-to-make-plan world, I say things like:

  • Is the total available market (TAM) big enough to support your 20-25% growth targets over the next few years?
  • If not, how can you expand into adjacent markets and/or offer new products that will help ensure you can grow?
  • How can you get to a point of indifference between a 5x ARR and a 15x EBITDA valuation?  (Hint:  the answer is 33% EBITDA margins.)
  • What is your plan to get EBITDA margins to 20% and then closer to 30%+ over the next few years?
  • Is the operating plan achievable?  Have you inspected all the key levers to ensure that we have a high chance of achieving it?  To the extent we’re assuming changes to productivity metrics, what plans have you put in place to achieve them?  Or are they simply wishes?
  • Are you identifying and doubling down on success sufficiently in your go-to-market plans to increase GTM efficiency?
  • Against whom are you competing, and do you have a playbook such that you know you can win your fair share of deals?
  • Remember my definition of solution selling, that we can win the deal if we convince the customer of three things: (1) they understand my problem, (2) they can solve my problem, and (3) I want to work with them.
  • Are you exit-ready?  Have you done due diligence on yourself — and put plans in place to correct problems — so that you can be reasonably sure there will be no problems when one day an acquirer’s due diligence process occurs?

The biggest risk here is that your make-plan focus inadvertently becomes blinders to external changes in the market (e.g., a new, disruptive entrant) that can ultimately inhibit your ability to make plan going forward. Think: you know you need to grow at 20% and crank up EBITDA to 30%. But you forget to answer the question: why would anyone want to buy from us again?

The other risk is execution, which is why PE investors prefer working with proven leaders who they know and trust to take on these assignments. When you’re only shooting for singles and doubles you can’t afford many strike-outs.

When The Whole Category Just Wants to Make Plan

One interesting case is when an entire market goes into “make plan” mode.  I’d argue that my old category, enterprise performance management (EPM), is largely there.  All the major independent players are owned by PE firms and presumably more focused on making plan than on winning in the market.  Thus, innovation has slowed.  The level of competitiveness has diminished (also helped greatly by Workday’s acquisition of Adaptive Insights, a well-funded, aggressive, price-slashing competitor back in the day).  It strikes me today as a sleepy category with a bunch of PE-owned firms all grinding out their “make plan” goals, hoping to get sold for 3x+ their invested capital in the coming years. 

What happens then? Alas capitalism works.  There is now a crop of VC-backed startups like Cube trying to fill the Adaptive void or Mosaic in financial analytics.  France’s Pigment is the most aggressive grower and capital raiser in the space, but more focused on mid-market and the Anaplan void in enterprise.   But there is a short answer to the question, what happens when the whole category ends up PE-owned and focused largely on “making plan?”  A crop of new startups enter to seize on that opportunity. (And see my disclaimers as I’m working with several of them in different ways.)

Conclusions

Let’s wrap up this post with a summary:

  • Back in the day, the only real play in enterprise software was playing to win.
  • Much of enterprise software strategy was thus defined in books primarily focused on the problem of winning in large, greenfield markets.
  • Over time, as new exit options emerged, companies could either plan to win or play to make plan.  Both were good ways to make money.
  • But those are two different worlds that require two different strategies and often attract two different types of employees.
  • Your company will work best when you identify which mode you are in and then define strategy, hire employees, and run the company accordingly.
  • Beware the big risk in each world:  losing in the playing-to-win world, and blinders in the playing-to-make-plan world.

5 Comments

Posted in Private Equity, Startups, Strategy, VC

The Two Big Choices Enterprise Software Companies Make in Opening Japan

Posted on May 21, 2024 | 2 comments

For no apparent underlying reason, a lot of the companies I have worked at over the years have been quite successful in Japan.  Thus, while I don’t write about it much, I have a fair bit of experience working with Japanese subsidiaries and/or distributors in the enterprise software market. 

On a recent trip to Tokyo, I met with an old friend who’s lived in Japan for well over a decade and who is now the GM of Japan at a large enterprise software company.  Over a beer, she validated two of my basic beliefs about how enterprise software companies should approach business in Japan and the purpose of this post is to share them.  To be clear, these are my beliefs — not hers — but they at least passed muster during a nice chat with an expert.

Let’s start at the top.  Much as I believe, at the first order, that there is no Europe (only France, England, and so on), I believe that there is no Asia-Pacific:  only Japan, Australia, and so on.  While in the organizational hierarchy, East, West, Central, and Japan might all sit at the same level (sub-regional), there is a world of difference between a US sub-region and a country.  And that world of difference is perhaps no larger than when we’re discussing Japan. 

The odds that an Australian expat running Asia-Pacific out of Singapore can effectively conduct business in Japan are low.  Sure, if they’re an experienced Asia-Pacific leader they’ll have previous exposure to Japan, but that usually means they know much more about how to manage a Japanese operation than they do about how that Japanese operation works on the inside.  Contrast that to how your head of Americas works with the RVP in Chicago – the central region is not a black box at all, and the Americas head absolutely knows how the operation works and how to conduct business within it.  Hierarchically, it’s the same level in the org chart, but there’s a world of difference in the interface.

With that warm-up, let’s cut to the two big choices you have when working in Japan:

  • Direct or indirect?
  • Insider or outsider as general manager (GM)?

The First Choice:  Direct or Indirect?

The first decision you make in Japan is whether to go direct (i.e., build a subsidiary that markets and sells to customers directly) or to go indirect (i.e., enter the market through signing one or more partners to market and sell your software). 

The default play is to start indirect, but you’ll quickly realize that the Japanese partners are much more demanding than US partners and ergo require much more support.  You can try to support them remotely, but that doesn’t usually work.  Hence, the smart play is to do both – sign a small number of partners to represent you and open a direct office in Japan to support those partners.  The “small number” part is important (and may reduce all the way down to one) because the more partners you work with the less incentive any single partner has to develop the market.  I’d call this model indirect distribution with a high level of local support.  The subtlety is that many people equate “indirect” with “no local presence” and that does not have to be the case.  In fact, the smart play in Japan is to do both.

I’ll make an odd analogy here that should hopefully resonate:  Japan is a lot like Federal.  Wut?  How? 

Well, in Federal:

  • You usually distribute indirectly through partners.
  • Those partners are often large, somewhat ungainly, organizations.
  • Those partners require a lot of support.
  • You create a local organization whose primary purpose is to support those partners.
  • They speak kind of a different language.
  • They generate their own idiosyncratic product requirements.
  • The deals can be large, complex, and require a lot of system integration.
  • If you half-ass the investment, you’ll probably fail.

I’m always amazed at the similarities between these rather odd bedfellows, but there are indeed many.

Now let’s move to the second big choice.

The Second Choice:  Insider or Outsider GM?

Gaijin means “alien” or “outsider” in Japanese.  You can read the Wikipedia entry for more, but I don’t take it as having a negative connotation.  I believe it’s simply matter of fact:  you’re not from here, you’re not one of us.  Without diving into topics I know little about, let’s just accept that it’s a common word and one used to make an important distinction:  insider or outsider.

And the question for you is:  who do you want running your Japanese operation?

The easiest way to answer this question is to transform it into (what I believe) is a semantic equivalent:  do you want to know anything about what’s going on within your Japanese operation? 

  • If yes, hire an outsider.
  • If no, hire an insider.

And by outsider, I don’t just mean any outsider.  That “outsider” may speak reasonable Japanese, be married to a Japanese national, and have lived there for 20 years.  But they’re still an outsider.

Put differently again:  do you want your Japanese operation to be a black box?

  • If yes, hire an insider.  They might well do a wonderful job building the business.  You just probably won’t understand much about what happens within it.
  • If no, hire an outsider.  They will serve as the interface between the Japanese world in which they live and work and the larger world of the company. 

Some would dispute the semantic equivalence of these three questions.  And I’m sure there are exceptions such as insiders who can build the bridge quite well.  I’m just saying I’ve never met one of them, and in my experience, if you can hire the right outsider, you can have your cake and eat it, too – you can build a successful business in Japan without losing visibility into it.

Personally, because I have a strong preference for understanding what’s going on, I’d recommend the outsider GM in most cases.  But decide for yourself.  Just be aware of what you might be deciding, because you’re not just deciding who runs the organization, you’re quite probably deciding your relationship with it.

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Posted in Management, Partners, Startups

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These People Aren’t Gods: How European Founders Can Stop Making The #1 Mistake in US Recruiting

Posted on May 18, 2024 | 5 comments

“When you read their profiles and interview them, you think one thing:  these people are gods.”  — European founder on early US hiring.

Despite numerous warnings, I continue to see many European founders fall into the same trap when it comes to hiring in the first years of their US expansion.  Sadly, it feels like one of those lessons you can only learn from experience.  That’s painful because failing on your first US hires comes at a high cost in both dollars and, more importantly, time. 

So, I thought I’d take one more run at solving this problem, based on a chat I had the other day with a European founder.

What causes the “these people are gods” problem? We Americans are:

  • Natural storytellers who build narratives that can potentially mislead.
  • Take credit much more freely than Europeans.
  • Embellish our resumes and profiles, often turning the hype up to 11.

That’s why behavioral interviewing — drilling down into claims, asking “tell me about a time” questions that describe specific moments — is so important in the US. Here’s an example question sequence:

“So, you ran the budget process in 2023 as the head of finance?”

“Tell me how you laid out the process, the milestones, and timing?”

“Did anyone have problems with it?  Were there any disagreements?”

“When you ran the first budget meeting, what major challenge did you encounter and how did you manage it?” 

This approach eliminates generic answers discussing budgeting philosophy, telling you instead how they manage a budget process and, most importantly, whether they actually did.  Because few embellishers can survive multi-layer, drill-down questioning, you might eventually get a response like, “well, the CFO actually laid out the process that year and ran the first meeting.”

In the US we’re used to discounting career claims.  We drill down.  We ask, “what precise role did you play?” We use behavioral questions.  We check references, both those provided and backdoor.  It’s all a normal part of the process.  We do it without thinking.

But European founders are not used to all this.  They come from an understated culture where people tend to discount their accomplishments. To understand a European resume, an American might need to amplify it.  Think:  “yes, we grew the company from $20M to $200M but I was only part of the team that did that,” when they were actually its leader who built it from nothing.

What happens when a culture of understated accomplishment meets a culture of overstated achievement?   

“These people are gods.”  That’s what happens. 

Worse yet, remember this happens in the context of hiring your first US employees, who are typically salespeople and ergo top decile in storytelling and embellishment.

It’s a wonder that anyone successfully expands at all. 

Since this appears to be a lesson best learned by experience, I discovered a great trick the other day chatting with a European founder.  Provided you’ve already begun your US expansion:

Go look at the LinkedIn profiles of the first people you hired and then subsequently fired and see what they say today about their experience at your company.  You might be quite surprised at what you find.

Or, if you’re not that far along, go look at the LinkedIn profiles of the people you’ve hired and who are still on board.  Now that you know them, what do you think of how they described their past experience? How are they describing their current experience?

In both cases, you’ll get real, first-hand experience with American resume and profile inflation that should help you not just intellectually — but viscerally — understand the problem.  And it appears that without this visceral understanding, in many cases you won’t be able to fix it.

The alternative is literally to lose 12-24 months building, firing, and rebuilding your entire US team.  And I’m desperately hoping to help you avoid doing that.

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Posted in Hiring, Startups, VC

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Strategy as a Series of Beliefs

Posted on May 12, 2024 | 2 comments

I’m always looking for better ways to distill strategy. My favorite strategy author is Richard Rumelt, who wrote Good Strategy, Bad Strategy and the more recent but less acclaimed follow-on, The Crux.

I love Rumelt’s work for two reasons:

  • He takes a wrecking ball to the garbage that is often passed off as strategy. Aspirations are not strategy. Goals and OKRs are not strategy. Financial projections and forecasts are not strategy. SWOT analyses and five forces analyses are not strategy. Driving results is not strategy. Deciding to be a butcher, baker, or candlestick maker is not strategy. You may, like me, find reading these takedowns not only educational, but therapeutic.
  • He whittles strategy down to the head of a pin. First, by defining strategy as identifying and planning to overcome a company’s most important challenge (aka, challenge-driven strategy). Then, by capturing what he calls the kernel of strategy: a diagnosis, a guiding policy, and a set of coherent actions.

Much as I love the kernel idea, in one assignment a few years back we tried to apply this framework and stumbled into a problem. We arrived at a diagnosis fairly easily, but got stuck trying to create a guiding policy. We found that the diagnosis alone wasn’t enough to arrive at a guiding policy. We kept needing to insert a few assumptions (or beliefs) about the future before we could agree on a guiding policy. We drifted to a modified framework that looked like this:

  • Given diagnosis X,
  • And beliefs Y,
  • We choose guiding policy Z,
  • And coherent actions 1-5 to implement it.

I was so excited with this discovery that I emailed Rumelt. While he kindly did reply, I don’t think my point landed. He directed me to his then-upcoming book and suggested it would be addressed there. The Crux was subsequently published and I don’t think it was. Never meet your heroes, as Flaubert wrote, a little gold always rubs off when you do.

Undeterred, I continued to use Rumelt’s framework, but added beliefs as an explicit part. I’ve always felt that diagnosis was by far the hardest part of strategy, as I believe does Rumelt, given this excerpt from his first book:

“After my colleague John Mamer stepped down as dean of the UCLA Anderson School of Management, he wanted to take a stab at teaching strategy. To acquaint himself with the subject, he sat in on ten of my class sessions. Somewhere around class number seven we were chatting about pedagogy and I noted that many of the lessons learned in a strategy course come in the form of the questions asked as study assignments and asked in class. These questions distill decades of experience about useful things to think about in exploring complex situations. John gave me a sidelong look and said, “It looks to me as if there is really only one question you are asking in each case. That question is ‘What’s going on here?’ ” John’s comment was something I had never heard said explicitly, but it was instantly and obviously correct. A great deal of strategy work is trying to figure out what is going on. Not just deciding what to do, but the more fundamental problem of comprehending the situation.”

I believe Rumelt would say that what I call beliefs are simply part of the diagnosis. For example, he said, “Netflix’s overall challenge (in 2018) was that it could no longer count on contracting for existing good TV and studio films at reasonable prices.” I’d argue that Rumelt’s Netflix diagnosis is actually two statements in one. Writing from the viewpoint of Netflix:

  • That today we find ourselves increasingly hit with large price increases and/or a non-desire to renew distribution agreements for content.
  • We believe the vast majority of the content producers will enter the content distribution business via streaming services in the next few years and ergo will not want or need to work with us.

First, that’s one hell of a “gnarly challenge” as Rumelt likes to call the crux issue. Second, I like splitting it because, particularly when working with a good-sized group to build strategy, it helps to distinguish between what we are seeing right now versus what we anticipate in the future. The former are facts, the latter are beliefs — and most of the interesting debate is not about the facts, but the beliefs.

I was happy with this modified framework until a strange thing happened the other day. I was talking with a founder and — lightbulb moment — I realized I could further distill strategy simply by looking only at beliefs. Not a laundry list of them (which can easily get generated in such a process), but what I call the primary belief, the big one, the one that resolves the crux issue and drives all the rest.

I immediately tried to apply this idea to my experience at Business Objects where, for nearly a decade, I worked as one of the top executives as we grew the company from $30M to $1B. I found it was pretty easy to divide 16 years of history into four eras categorized by primary belief:

  • Era 1 (5 years). We believe customers will pay 5x the price of commodity query and reporting (Q&R) tools for an enterprise solution.
  • Era 2 (4 years). We believe that Q&R and online analytical processing (OLAP) tools should be integrated in one product.
  • Era 3 (4 years). We believe the Internet will require a wholesale rewrite of business intelligence (BI) and enable both existing internal and new external use-cases.
  • Era 4 (3 years). We believe that customers will increasingly want to buy an integrated suite of BI tools, including Q&R, OLAP, and enterprise reporting.

These beliefs were largely heretical at the time. $500/seat for a Q&R tool? Insane. Integrating Q&R and OLAP? Can’t be done (and “they” were nearly right). Extranet BI? Never, corporate data is highly proprietary. BI suites? No, customers still want best of breed!

But those four beliefs took us from $0 to $1B in revenues. The beliefs alone are not enough, of course. You need to build strategies (e.g., product, go-to-market) and execute against them. In era 1, we needed a highly targeted strategy to break into the market with this radical idea. In era 2, we needed to build and market the integrated product. In era 3, we needed to devise the right web product strategy, a task that befuddled several of our competitors.

But I can and will argue that it all flowed from the underlying primary belief.

I worked with Alation in various capacities for many years, so I feel I know their evolution pretty well. Let me try the same exercise, as an outsider looking in, separating Alation’s history into three eras and assign a name to each:

  • Era 1 (search and discovery). We believe that companies will need a centralized data catalog to help people find the data they need, and that machine-learning can help with that finding.
  • Era 2 (data governance). We believe that data catalogs (almost surprisingly) turn out to be an ideal tool for data governance, particularly the non-invasive variety.
  • Era 3 (data intelligence platform). We believe that customers will increasingly want to buy a data intelligence platform that includes data search & discovery, governance, and lineage.

I’m probably missing the company’s strong commitment to cloud platforms as part of era 3 and there may be a new era 4, but you get the idea. Again these beliefs were often heretical at the time. A lot of people didn’t believe data catalogs were even needed. Most people believed data governance was a distinct category and that the “prevent access” ethos of data governance ran strongly counter to the “enable access” ethos of data catalogs. Until recently, many people didn’t believe in data intelligence platforms (but with help from IDC and Databricks that debate has been put to bed). Again, beliefs alone are not enough. There are numerous also-ran data catalog companies who presumably shared some of these beliefs, but built the wrong strategies in response or lacked Alation’s relentless drive in execution.

I often say that strategy is best analyzed in reflection. Meaning that somehow everything is clearer and simpler when you look back 10 or 20 years to reflect upon what happened. In fact, I often encourage people to do a future look-back when formulating strategy: “imagine it’s ten years from now and your company won in the market — now tell me why.”

My conclusions from all this are:

  • Read Rumelt. Both Good Strategy, Bad Strategy and The Crux.
  • Add beliefs to the framework. More precisely, separate the diagnosis into present truths and future beliefs.
  • Work to find the one primary belief for your current situation. If you’re a new startup, that belief is probably embedded in the answer to, “why did you found the company?” If you’ve been around for a while, start by analyzing your history and trying to break it into belief-driven eras.
  • Once you’ve found a potentially era-defining primary belief, resume the Rumelt exercise: define guiding policy and coherent actions around it.

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Posted in Leadership, Management, SaaS, Startups, Strategy

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You’re an Operator and Maybe Don’t Even Know It

Posted on May 7, 2024 | 2 comments

Many concepts in Silicon Valley are defined from the point of view of the venture capitalist (VC), not the employee or founder.

For example, the term “exit” is a misnomer when seen from the employee point of view. An IPO is usually anything but an exit for executives who first will be subject to a 6-month lock-up period and restricted to certain trading windows thereafter. A PE acquistion is usually not an exit for the executive team who may be expected to stick around, sign employement letters as a condition of the sale, and rollover a certain percentage of their proceeds into the deal. These transactions are, strictly speaking, best described as an “exit” only for the investors.

So it was with great one surprise one day, a decade or so ago, that I learned I was not a CEO, but an “operator,” when seen from the viewpoint of a VC. Frankly, I found it odd to be referred to as an operator, but I hoped that at least I was a smooth one.

From the VC point of view, there are four types of people:

  • Founders. The entrepreneur(s) who found a company.
  • Operators. The executives who build and run companies
  • Investors. The venture capitalists who invest in startups.
  • Employees. The 95%+ of the staff not on the executive leadership team (ELT) but who, paraphrasing George Bailey, do most of the working and paying and living and dying in the company.

So, what might you do with this morcel of knowlege? While I believe that the mere act of trying to see things from others’ viewpoint is always developmental, there are some practical takeaways here.

Let’s assume you’re an operator. What should you know and do?

  • You are not a founder. Many operators, particularly ones who join early, start to think of themselves as one of the founders. While the founders may even treat you as such, from the VC/board point of view you are not. The founder invincability cloak does not apply to you, no matter how much you’ve contributed nor how much you are valued. You are an operator. You may be beloved, but your replacement is always one phone call to 1-800-DAVERSA or 1-800-HEIDRICK away. Don’t overplay your hand. Some do.
  • You are valued for different things than a founder. Boards value operators for their experience, common sense, reliability, and professionalism. If given only one adjective, I’d say board members want “brilliant” founders, but “solid” executives. Operators are not creating the vision; they’re executing it. I don’t need an artiste to replace my fence, just an experienced fence builder. Be solid and low drama. This doesn’t diminish your value in any way: such operators are often quite hard to find.
  • You are positioned by expertise and sub-expertise. You are a velocity sales leader. Or a big-deal CRO. Or a demandgen marketer. Or a CRM product leader. You become what you repeatedly do. Actively manage your work so that you position yourself where you want to be. If you want to be positioned as an ABM marketer or a post-agile engineering leader, then go lead an ABM marketing or post-agile engineering team.
  • Fighting positioning is pointless. Positioning works because the human mind likes to simplify. If you think you can position yourself as the SMB and enterprise, transactional and artisanal, process-driven and relationship-driven sales leader, then you are mistaken. If you fail to position yourself, don’t worry, the market will do it for you — you just may not like the result. Actively position yourself and don’t fight the tide in so doing.
  • You are positioned by size-range. Think: we need a $10-30M CRO. Or a $30 to $150M CFO. Or a $100M to $300M CEO. The size ranges aren’t fixed, but be aware of what size range you’re positioned in. Avoid the number one mistake I see: leaving a high-growth company too soon because you’re tired of something, thus leaving yourself positioned as a $10-30M operator when — if you’d held on for a bit longer — you might have been a $10-100M one.
  • Expect to get hired below the top of your size range. No patient wants to hear, “this is the first time I’ve tried a brain surgery this complex, but I’m really confident I can do it.” Expect VCs and boards to think similarly. If you’re positioned as a $10-30M CPO, don’t expect to get hired by a $30M company growing to $100M. Expect to get hired by a $10M company growing to $30M. Per the prior point, ride existing success to increase the top of your range. And beware anyone willing to hire you above it.

I’ll use myself as an example of some of these principles:

  • Despite having been CEO of two startups from $8-50M and $0-80M for over a decade, I am still widely positioned as a marketing guy. I embrace that both because there’s no point in fighting the tide and I think it’s true. I am a marketing guy. It’s my DNA. I ooze marketing. But I try to remind people of my overall experience with my 10/10/10 message: 10+ years a CMO, 10+ years a CEO, and 10+ boards.
  • Despite having been CMO of a $1B company and SVP/GM of a $500M business at a $3B company, I get positioned as an early-stage guy, and get size-bucketed in the $0-100M range. While I am certainly strong in that range, I have both signficant experience and clients well beyond $100M. While I can find work beyond that range and enjoy doing it, as a marketer, I must accept that I can’t position at both ends of the scale. Positioning is all about choice and, as the saying goes, “if you try to be everything to everybody, you end up nothing to nobody.”

Or, as I like to say to marketers in career planning: marketer, position thyself!

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