Category Archives: Career Development

The Three Un’s of Founders

[Edited 4/16, see notes at bottom]

I’ve worked with scores of founders and companies over the years and I’ve come to make bright-line distinction between founders and managers.  Let me demonstrate it with a story.

One day long ago I was in a board meeting.  We were discussing the coming year’s budget.  The hotly contested question was:  do we spend $8M or $9M on R&D?  After much wrangling, the board agreed that we should spend $8M.  The meeting adjourned shortly thereafter.  The VCs left first and I was walking out of the room with only the founders.  The CEO said to the CTO as we were leaving, “spend the $9M anyway.”

My jaw hit the floor.  I was aghast, dumbfounded.  What the CEO said was literally incomprehensible to me.  It wasn’t possible.  That’s just not how things are done.

At that moment I realized the difference between a manager and a founder.

As a professional manager [1], we grow up climbing the corporate hierarchy.  We have savoir faire.  We know the rules.  We disagree and commit.  We horse trade.  We split the difference.  But, unless we want to do a deliberate end run to the person in charge, we abide by the decisions of the group.  We are team members in an organization, after all.

Founder aren’t.  While they may strive to be some of those things, in this case, the founders were fresh from university, with little work experience and certainly no ladder climbing.  This wasn’t some organization they were part of.  They started it, based on their research.  It was their company.  And if they thought it spending an extra $1M on R&D was the right thing to do, well, they were going to do it.  That’s a founder.

I write this post in two spirits:

  • To former-manager founders [2] as a reminder that you are now a founder and need to think like one.  It’s your company.  Your investors and advisors will have plenty of opinions but if you end up buried, you will be buried alone.  Unlike your VCs and advisors, you have but one life to give for your company [3].  Act like it — you’re not an EVP at BigCo anymore!
  • To investors [4], advisors, and startup execs as a reminder that founders are not managers, even though sometimes we might like them to act more as if they were.

Example:  a founder is raising a seed round off $1M in ARR and a VC is asking a lot of questions about CAC and LTV.

  • Manager response:  “Well, I know a CAC of 1.7 is high but we are ramping quickly and carrying a lot of unproductive sales capacity that hurts the CAC ratio.”
  • Founder response:  “This is a seed round.  I have two barely qualified SDRs and me selling this stuff.  We don’t have a sales model, so why are you calculating its efficiency?  The only thing we’ve been trying to prove — and we’ve proven it — is that people will pay for our software.”

The manager tries to be reasonable, answer the question, and preserve optionality in raising money from this target.  The founder highlights the absurdity of the question, wonders if this is a VC that they want to partner with in building their company, and isn’t shy about letting their feelings leak out.

The first example, combined with many other experiences, has led me to create the three “un’s” of founders.  Compared to managers, founders are:

  • Unreasonable.  Heck, the whole idea of starting a company is unreasonable.  Taking it to $10M in ARR is unreasonable.  Thinking you have the best product and company in the category is unreasonable.  Becoming a unicorn is unreasonable.  There’s nothing inherently reasonable about any of the things a founder needs to do.   In fact, that’s one reason why some founders are successful:  they don’t know what they can’t do.  Don’t expect someone take a series of very unreasonable risks and then be entirely reasonable in every subsequent management discussion thereafter.  It’s not how it works.  We expect every parent to think their child is the greatest and want what’s best for them; the same holds for founders and companies.
  • Uncompromising.  Managers are trained to split the difference, find middle ground, and keep options open.  In essence, to compromise.  Founders can’t compromise.  They know they will fail if they try to be all things to all people; they know the old saw that a camel is a horse designed by committee.  They know intense focus on being the best in the world at one thing is the key to their success.  If one VC on the board wants to go North and another wants to go East, a manager will tend towards Northeast, North, or East.  A founder — because in their mind it’s their company — will make up their own mind about what’s best for the company and potentially travel in another dimension, like up or down.  Getting promoted in a big company is about keeping those above you happy.  Creating a successful company is about getting the right answer, and not whether everyone is happy with it.
  • Unapologetic.  Managers are professionals who are paid to do things right.  Thus, they tend to count negatives like errors and strikeouts.  They apologize for missed quarters or bad hires.  Founders own the team.  They want to win.  While they don’t like errors and strikeouts, they neither obsess over them nor even necessarily care about minimizing them; they’re not trying to keep their resume free of red correction ink.  They’re trying to win in the market and create a leading company.  Errors are going to happen.  Fix the big ones so they don’t happen again, but let’s keep moving forward.  Yes, we missed last quarter, but how do we look on the year?  We don’t belabor the mistakes we made in getting to where we are, we focus on where we are and where we’re going.

I’m not saying all these un’s are great all the time, and I would encourage founders to recognize and appropriately mitigate them.  I am saying that manger-founders, particularly those who founded companies (or took over as CEO) after long successful careers at big tech companies, need to think more like founders and less like managers.

# # #

Notes
[1] Having never founded a company and as someone who has indeed climbed the corporate hierarchy I view myself as a manager — an entrepreneurial, and perhaps difficult, one — but a manager nevertheless.

[2] And, to some extent, first-time CEOs

[3] You are not living, as one friend calls it, the portfolio theory approach to life.

[4] Who probably don’t need the reminder, but the advisors might.

[Edited] I remove the word “successful” from the title as it was a last-minute, SEO-minded addition and a reader or two correctly called me out saying, “plenty of unsuccessful founders have these three traits as well.”  That’s true and since arguing that “the three un’s” somehow separate successful from unsuccessful founders was never the point of the post — they are, imho, what distinguishes founders (or founder mentality) from managers (or manager mentality) — I removed “successful” from the title.

Unlearning as you Scale: Recording of my Costanoa Ventures 2020 Summit Presentation

Last month I presented Unlearning As You Scale at Costanoa Ventures 2020 Costanoa CEO UnSummit.  In response to several requests for a live recording of the presentation, I sat down this weekend and recorded the following.

Key topics discussed:

  • How to properly apply the popular Silicon Valley adage, “the folks who got you here aren’t the ones to take you to the next level.”
  • How to generalize that adage to not only people, but systems, processes, and strategies.
  • If and when required, how to hire next-level executives while avoiding common pitfalls.
  • How to critically think about success with your team.

 

An audio-only version of the presentation is here:

 

My original post on the event is here.

A Missive to Marketing: Impose Simplicity

Markets are complex. Customers are complex. Products are complex, sometimes very. Heck, the world is complex. What’s a marketer to do?

Great marketing is about making things simple. We do that by imposing simplicity on a complex world. We might be attacked for so doing — people might accuse us of over-simplification. And we don’t want that either because we need to stay credible. Paraphrasing Einstein, we want to make things as simple as possible, but no simpler.

Consider product marketing. Enterprise software products are enormously complex, built by scores (or hundreds) of developers across quarters and years. They have deep functionality and subtle differences.

But a product marketer, operating in a TLDR world, can never say:

The difference between our product and their product is actually quite subtle and ultimately is about 100 little things; there’s really no one big thing that separates them.

No, no, no. The successful product marketer finds the most important subtle differences, groups them, and amplifies them. Here are our three silver bullet features. Here’s our white paper on The Five Things You Should Look For in a Schmumble.

In so doing, black-and-white is infinitely superior to gray. While sometimes unavoidable, speaking gray (i.e., “our schmumble is better than their schmumble”) is infinitely inferior to speaking black-and-white (e.g., “we have a schmumble; they don’t.”)

The successful product marketer takes a complex, gray world and transforms it into a simple, black-and-white one. If you don’t have row-level locking, you’re screwed. If you don’t have semi-additive measures, you’re screwed. If you don’t financial consolidation, you’re screwed.  If you don’t have hyperblocks, you’re screwed. 

The great marketer imposes simplicity on the product.

Consider corporate marketing, where the goal is simple. Take a complex competitive landscape and position the company as the leader. Not a leader. The leader. “A leader” is complex because it means there are multiple different companies, each of a different size, and each with its own angle on what constitutes the best product. That means customers need to understand all the competitors and their relative strengths and weaknesses. That’s a lot of work.

“The leader” is simple. Define the space in as simple terms as possible — carving it up to make yourself the leader — and then declare yourself the leader. It’s not always possible to do this — at one point, I called out Brio for effectively claiming they were the leading business intelligence vendor — on Great America Parkway in Santa Clara, California.

But if you can do it credibly, then back it up with awards, customer wins, customer counts, and financing rounds. It’s safe to buy from the leader.

The great marketer imposes simplicity on the market.

Consider customer targeting. The world is complex and gray when it comes to targeting. An ideal customer profile (ICP), typically the result of a regression used to identify the best target companies, isn’t black and white. It might output a score that varies from to 0.0 to 1.0. That’s gray. You need to make that black-and-white so sales can use it — e.g., by using it to identify named accounts for sales and account-based marketing (ABM), by using the score to create tiers that follow different processes in the high funnel, or by looking at the model to derive simple rules to say when some opportunities look better than others (e.g., we double our win rate when the customer is using Spark).

The great marketer imposes simplicity on targeting.

Consider messaging. The database reveals that the key contacts at our top 50 customers have over 80 different titles. If we stopped there, we’d end up wasting money buying overly broad lists and with an overly generic message. The great marketer interviews a broad set of customers and discovers there effectively two canonical personas in that set. Precise titles and hierarchical levels aside, there are two different animals: data analysts and data architects. And a VP of data architecture thinks a lot more like a director of data architecture than a VP of data analysis.

They look at things differently. The have different missions within the organization. They have different career backgrounds. They will respond different to sales and marketing messaging. If you want architects to come to your webinar, talk about data transformation initiatives and enterprise architecture. If you want data analytics people to come to your webinar talk about better decisions made more quickly on higher-quality data.

If you want to sell a data architect convince them your system is built for scalablity. If you want to sell a data analyst, convince them they’ll be more productive and make better analyses.

The great marketer imposes simplicity on messaging.

The hardest part of all this is believing with conviction that you have to do it. You’ll be accused of being inaccurate. Others will say you’re over-simplifying. You’ll be told, “well, it’s really not that simple” over and over again. You yourself will start to wonder.

Don’t forget that simplicity isn’t easy. Just as it takes a tough man to make a tender chicken, it takes a tough marketer to make a simple message. It’s your job.  A key skill in marketing is the ability to impose simplicity on a complex world.

Your career will depend on it.

What To Do When Someone Says You’re Not Listening

In work life from time to time you may be accused of not listening. It may not be fair. You may not like it. But you’d be shocked how many people completely flub their reaction when the boss, a coworker, or a customer says, “you’re not listening.”

Here’s my three-part formula for what to do when someone says you’re not listening.

  • Shut up
  • Active listen
  • Keep and use a mental ledger going forward

Shut Up, Immediately

If someone says you’re not listening the first thing to do is immediately begin the demonstration that you can. Acceptable responses:

  • “OK”
  • “I understand”
  • “Tell me more”

Unacceptable, yet nevertheless incredibly common, responses:

  • Keep talking, simply ignoring the comment. Recall the First Rule of Holes: when you’re in one, stop digging.
  • Get defensive. “Of course, I’m listening to you.” “Most people tell me I’m a great listener.” “I pride myself on my listening skills.” Recall Kellblog’s Second Rule of Feedback: defensiveness kills communications.
  • Make pedantic distinctions between listening and hearing. “I’m listening to you, but perhaps I’m not hearing you.” “I’m hearing you just fine — my ears work perfectly — I just don’t agree with you.”

Active Listen

The second part of your listening demonstration is to use active listening. This boils down to showing that you’re listening and confirming understanding using these techniques:

  • Focus on the speaker. Look at him/her. Make eye contact. Don’t engage in any common distractions like looking at your phone or screen.
  • Take notes, even if you have an amazing memory and don’t need them. Taking notes shows that you are engaged and listening.
  • Don’t interrupt. If the speaker says something you disagree with, write it down. I put it in triangle I’ve pre-marked at the bottom of the page. Doing this gives you a third option other than conceding the point or interrupting to dispute it. I’m amazed by how infrequently I come back to these points that, in the heated moment, seemed worthy of interrupting someone.
  • Confirm back. “OK Charlie, I want to make sure I understood what you just said. I’m hearing that you [1] tried to set up the review meeting on Monday, [2] that everyone initially indicated they could come, and [3] that … Did I get that right?”

Keep and Use a Mental Ledger

The first two steps help eliminate basic communication problems. But say it’s deeper. You’re communicating just fine, you just happen to disagree with a lot of the feedback. Examples:

  • You disagree with almost every piece of directive feedback a board member gives you — and he gives you about ten pieces of it [1] every board meeting [2] [3].
  • You are a consultant and you disagree with most of the feedback your client gives you on a draft survey that you’re running.
  • You are a manager and you disagree with most of the messaging in a presentation one of your subordinates is creating.

These are not easy situations and nobody wants to lose on every point, so you need to step back and make a mental ledger of credits (I took your input) and debits (I did not), so you can both ensure you’re somewhat balanced and to get a big picture sense of the score. This will prepare for you for a “you never listen to anything I say” attack, because you have kept some tally of accepts and rejects.

“Well, in fact, I took about 40% of your ideas and rejected about 60% and while I know that might not feel good, it’s simply not true that ‘I never listen to anything you say.’ Now, let’s go discuss the important points on the merits.” [4]

You may think I’m reducing feedback to game theory, and I suppose I am. The three key points are:

  • People do keep some mental tally and it’s almost always biased, so why not actually keep some rough score to inform the conversation.
  • You must keep the power balance in mind when playing the feedback/input game. If you’re a consultant servicing a customer, you want the customer winning. If you’re a manager challenging a senior vice president, you should be hoping to score a few points.
  • More than anything it says choose your battles, keeping the power balance in mind when you do so.

The last point leads to a corollary I love: when you are in the position of inferior power you should never argue about small matters. Why? Because the mental tally is, in my opinion, unweighted, so the smart way to get what you want and let the person with superior power win, is to let them win on issue-count while you win on importance-weighting. Put differently, if it’s a small matter it definitionally isn’t that important, so so why take a mental debit to win? Concede, instead.

Finally, when responding to input, it’s always useful to start not with the numerical tally [5] but with a summary. “Well, Sarah, I agreed with your on these points and I disagreed with you on those.” That starts the conversation in a balanced place which should keep everyone most open for feedback.

# # #

[1] Directive feedback = “You guys should do X.”

[2] The best solution here, if relationship allows, is to ask the board member not to give directive feedback. However, that’s not always possible.

[3] I have a theory that board members should never give CEOs directive feedback. Here’s the proof. Case 1: the CEO wants to do the idea, in which case it will be done anyway. Case 2: the CEO doesn’t want to do the idea and does it only because they were so directed. Thus the only result from directive feedback is to make CEOs do ideas they don’t want to do, which is a terrible practice. QED.

[4] For spouses I recommend an entirely different methodology. Say, “you’re right.” Repeat as necessary.

[5] Which you can keep in your pocket for later if challenged.

The Red Badge of Courage: Managing and Processing Failure in Silicon Valley

When I lived in France for five years I was often asked to compare it to Silicon Valley in an attempt to explain why — in the land of Descartes, Fourier, and Laplace, in a country where the nation’s top university (École Polytechnique) is a military engineering school that wraps together MIT and West Point, in a place that naturally reveres engineers and scientists, why was there not a stronger tech startup ecosystem?

My decade-plus-old answer is here: Is Silicon Valley Reproducible? [1]

My answer to the question was “no” and the very first reason I listed was “cultural attitudes towards failure.” In France, failure was a death sentence. In Silicon Valley, I wrote, failure was a red badge of courage, a medal of valor for service in the startup wars, and a reference to the eponymous classic written by Stephen Crane.

In this post, I want to explore two different aspects of the red badge of courage. First, from a career development perspective, how one should manage the presence of such badges on your resume. And second, from an emotional perspective, how thinking of startup failure as a red badge of courage can help startup founders and employees process what was happened.

Managing Failure: Avoiding Too Many Consecutive Red Badges

In Silicon Valley you’ll often hear adages like “failure is a better teacher than success,” but don’t believe everything you hear. While failure is certainly not a scarlet letter in Silicon Valley, companies nevertheless hire for a track record of success. In the scores of C-level position specifications that I’ve read and collected over the years, I cannot recall a single one that ever listed any sort of failure as required experience.

We talk as if we love all-weather sailors, but when it comes to hiring people — which often requires building consensus around one candidate in a pool [2] — we prefer the fair-weather ones. Back in the day, we’d all love a candidate who went from Stanford to Oracle to Siebel to Salesforce [3].

I sometimes think Silicon Valley is like a diving competition that forgot the degree of difficulty rating. Hand a CEO $100M, 70% growth company — and the right to burn $10M to $15M per quarter — and it will likely go public in a few years, scoring the company a perfect 10 — for executing a swan dive, degree of difficulty 1.2.

Now, as an investor, I’ll put money into such swan dives whenever I can. But, as an operator, remember that the charmed life of riding in (or even driving) such a bus doesn’t necessarily prepare you for the shocks of the regular world.

Consider ServiceMax who was left at the altar by Salesforce with a product built on the Salesforce platform and business plan most thought predicated on an acquisition by Salesforce. That team survived that devastating shock and later sold the company for $900M. That’s a reverse 4½ somersault in pike position, degree of difficulty 4.8. Those folks are my heroes.

If Silicon Valley believes that failure is a better teacher than success, I’d say that it wants you to have been educated long ago — and certainly not in your most recent job. Thus we need to look at startup failure as a branding issue and the simple rule is don’t get too many consecutive red badges on your LinkedIn or CV.

Using Grateful Dead concert notation, if your CV looks like Berkeley –> Salesforce –> failure –> Looker, then you’re fine. You’ve got one red badge of courage that you can successful argue was a character-building experience. However, if it looks like Berkeley –> Salesforce –> failure –> failure –> failure, then you’ve got a major positioning problem. You’ve accidentally re-positioned yourself from being the “Berkeley, Salesforce” person to the “failed startup person.” [4]

How many consecutive red badges is too many? I’d say three for sure, maybe even two. A lot of it depends on timing [5].

Practically, it means that after one failed startup, you should reduce your risk tolerance by upping the quality bar on your next gig. After two failed startups, you should probably cleanse and re-brand yourself via duty at a large successful vendor. After a year or two, you’ll be re-positioned as a Brand-X person and in a much better position to again take some career risk in the startup world [6].

Processing Failure: Internalizing the Red Badge Metaphor

This second part of this post deals with the emotional side of startup failure, which I’m going to define quite broadly as materially failing to obtain your goals in creating or working at a startup. Failure can range from laying off the entire staff and selling the furniture to getting an exit that doesn’t clear the preference stack [7] to simply getting a highly disappointing result after putting 10 years into building your company [8]. Failure, like success, takes many forms.

But failures also have several common elements:

  • Shock and disappointment. Despite knowing that 90% of startups fail, people are invariably shocked when it happens to them. Remember, startup founders and employees are often overachievers who’ve never experienced a material setback before [9].
  • Anger and conflict. In failed startups there are often core conflicts about which products to build, markets to target, when to take financing, and whether to accept buy-out offers.
  • Economic loss. Sometimes personal savings are lost along with the seed and early-round investors’ money. With companies that fail-slow (as opposed to failing-fast), opportunity cost becomes a significant woe [10].

For the people involved in one — particular the founders and C-level executives — a failed startup feels Janis Joplin singing:

Come on. Come on. Come on. Come on. And take it! Take another little piece of my heart now, baby! Oh, oh, break it! Break another little bit of my heart now Darling yeah, yeah, yeah, yeah.

I was reminded of this the other day when I had a coffee with a founder who, after more than four years of work, had laid of his entire team and sold the furniture the week before.

During the meeting I realized that there are three things people fresh from failed startups should focus on when pursuing their next opportunity:

  • You need to convince yourself that it was positive learning experience that earned you a red badge of courage. If you don’t believe it, no one else will — and that’s going to make pursuing a new opportunity more difficult. People will try to figure out if you’re “broken” from the experience. Convincing them you’re not broken starts out with convincing you. (Don’t be, by the way. Startups are hard, cut yourself some slack.)
  • You need to suppress your natural desire to tell the story. I’m sure it’s a great story, full of drama and conflict, but does telling it help you one iota in pursuing a new opportunity? No. After leaving MarkLogic — which was a strong operational success but without an investor exit — I was so bad at this that one time a VC stopped me during a CEO interview and said, “wow, this is an amazing story, let me get two of my partners to hear it and can you start over?” While I’m sure they enjoyed the colorful tale, I can assure you that the process didn’t result in a dynamite CEO offer. Tell your story this way: “I [founded | worked at] a startup for [X] years and [shut it | sold it] when [thing happened] and we realized it wasn’t going to work. It was a great experience and I learned a lot.” And then you move on. The longer you talk about it, the worse it’s going to go.
  • You need to convince prospective employers that, despite the experience, you can still fit in a round hole. If you were VP of product management (PM) before starting your company, was a founder/CEO for two years, and are now pursuing a VP of PM role, the company is going to wonder about two things: (1) as per the above, are you broken as a result of the experience and (2) can you successfully go back into a VP of PM role. You’ll need to convince them that PM has always been your passion, that you can easily go back and do it again, and in fact, that you’re quite looking forward to it. Only once that’s been accomplished, you can try to convince them that you can do PM even better than before as a result of the experience. While your natural tendency will probably be to make this argument, remember that it is wholly irrelevant if the company doesn’t believe you can return to the role. So make sure you’ve won the first argument before even entertaining the second.

# # #

Notes

[1] A lot has presumably changed since then and while I sit on the board of a French startup (Nuxeo), I no longer feel qualified, nor is the purpose of this essay, to explore the state of tech entrepreneurship in France.

[2] And ergo presumably reduces risk-taking in the process.

[3] And not without good reason. They’ve probably learned a lot of best practices, a lot about scaling, and have built out a strong network of talented coworkers.

[4] Think of how people at a prospective employer might describe you in discussing the candidates. (“Did you prefer the Stanford/Tableau woman; the CMU/Salesforce man; or the poor dude who did all those failed startups?”)

[5] Ten years of impressive growth at Salesforce followed by two one-year failures looks quite different than three years at Salesforce followed by two three-year failures. One common question about failures is: why did you stay so long?

[6] And see higher quality opportunities as a result.

[7] Meaning investors get back all or part of what they are entitled to, but there is nothing leftover for founders and employees.

[8] And, by extrapolation, expected that they never world.

[9] For example, selling the company for $30M, and getting a small payout via an executive staff carve-out.

[10] Think: “with my PhD in AI/ML, I could have worked at Facebook for $1M per year for the past six years, so in addition to the money I’ve lost this thing has cost me $6M in foregone opportunity.”

Kellblog's Greatest Hits 2016-2019 per the Appealie SaaS Awards

I’ll be speaking at the APPEALIE 2019 SaaS Conference and Awards in San Francisco on September 25th and I noticed that in their promotions the folks at APPEALIE had assembled their own Kellblog’s Greatest Hits album from 2016 to 2019, complete with its own cover art.
appealie
When I looked at the posts they picked, I thought they did a good job of identifying the best material, so I thought I’d share their list here.  They also called me “a GOAT software blogger” and after playing around with acronyms for about half an hour — maybe Groove, OpenView, AngelVC, Tunguz? — my younger son swung by and said, “they called you a GOAT?  Cool.  It means greatest of all time.”  Cool, indeed.  Thanks.
Here’s the APPEALIE Kellblog’s Greatest Hits 2016-2019 list:

 

Things to Avoid in Selecting an Executive-Level Job at a Software Startup

This is a sister post to my recent one, Career Decisions:  What to Look For in a Software Startup.  That piece is all about what to look for when considering taking a job at a software startup.  This piece is kind of the opposite:  what to look out for when considering an executive job at a software startup.

This post isn’t simply the inverse of the other and I didn’t approach writing it that way.   Instead, I started blank slate, thinking what are the warning signs that would make me think twice before taking an executive-level job at a software startup.

Before jumping into the list, let me remind you that no startup is perfect and that unless your name is Frank Slootman that you are unlikely to get a C-level offer from a startup that has all eight of the things I say to look for and none of the eight I say to avoid.  The rest of us, to varying degrees, all need to make intelligent trade-offs in facing what is effectively a Groucho Marx problem [1] in our career management.

That said, here’s my list of things to avoid in selecting an executive-level job at a startup:

1. Working for TBH, i.e., working for a boss who is to-be-hired. For example, if a company’s board is leading the search for a new CMO while the CEO slot is also open, the CMO would be working for TBH.  Don’t do this.  You have no idea who the new CEO will be, if you will like them, and whether their first act will be to fire you.  Ignore any promises that “you will be part of the process” in hiring the new boss; you may well find yourself interviewing them as you notice an offer letter sticking out of their backpack, suddenly realizing that you’re the interviewee, not the interviewer.  Read my post on this topic if you’re not convinced.

2. The immediate need to raise money.  Particularly for a CEO job, this is a red flag.  The problem is that unless you are a tier 1 rockstar, investors are not going to want to back the company simply because you’ve arrived.  Most investors will want you to have about a year in the seat before considering investing.  If you’re immediately dispatched to Sand Hill Road in search of capital, you’ll be out pitching the company poorly instead of learning the business and making plans to improve it.  Moreover, to state the obvious, joining a company that immediately needs to raise money means joining a company that’s in the midst of running out of cash.  That means either the company gets lucky and does so (often via an inside round [2]) or it doesn’t and your first quarter on the job will be focused on layoffs and restructuring instead of growth.  Think:  “I love you guys; call me back once you’ve done the round.”

3. Key internal customer TBHs.  For example, the VP of Sales is the VP of Marketing’s key internal customer, so Marketing VPs should avoid taking jobs where the VP of Sales is not in place.  Why?  As your key internal customer, the VP of Sales has a lot of power in both assessing your performance and determining your continued employment [3], so you really want to know if you get along and see eye-to-eye before signing up for a new job.  Moreover, even if you are work-compatible, some Sales VPs like “travel with” their favorite VP of Marketing.  Think:  “Mary’s great.  I just want to work with Joe like I have done at my last two companies.”  Bye Mary.

4. Strategic “traveling” violations.  “Pivot” is one of my favorite startup euphemisms. While many great startups have indeed succeeded on their second try, after a strategic pivot [4], some startups seem to want to make the pivot into an annual event.  Let’s remember that pivots mean strategic failure and the virtual write-down of any VC that went into funding the failed strategy.  While pivots can save a troubled company from continuing to execute a doomed strategy, they’re not something you want to do at all, let alone on a periodic basis.  In basketball, you get called for traveling if you (a) take more than two steps without dribbling or (b) move an established pivot foot.  I call startups for traveling when they (a) do two or more strategic pivots or (b) pivot to a new strategy that has nothing to do with the old one [5] (i.e., moving both feet).

5.  Nth-place Vendors (for all N>=3).  Most high-tech markets have increasing returns effects because customers like to reduce risk by buying from market leaders.  In the early 2000s, these normal increasing returns effects were compounded by network effects [6] in many markets.  Today, machine learning is compounding increasing returns yet again [7].  In short, it sucks to be third in Silicon Valley, it always has, and it’s likely to suck more in the future than it does now.

Therefore avoid working at vendors who are not #1 or #2 in their category.  If you’re considering a #N vendor, then it should be part of it moving to a focus strategy to become #1 at a product or vertical segment.  Don’t get sold the idea that a mega-vendor is going to acquire #4 after being rebuffed by the market leaders or to get a better price.  Mega-vendors greatly prefer to acquire market leaders and recent history has shown they are more than willing to pay up to do so.  Tuck-ins and acqui-hires still happen, but typically for very early-stage companies and not at great valuations.

6. Sick cultures and/or dishonest leaders.  Silicon Valley companies often make a big deal about “culture” but too often they conflate culture with ping pong tables, free lunch, and company parties.  Culture, to me, is the often unwritten code [8] of what the company values and how business gets done.  Alternatively, to paraphrase Henry Ford’s thoughts on quality, culture is what happens when no one is watching.  While many Silicon Valley leaders — going all the way back to HP — are “true believers” trying to build not only unique products but also create unique places to work, there are unfortunately charlatans in our midst.  Some leaders are disingenuous, others dysfunctional, and a few downright dishonest.  If you sense cultural sickness during your interview process, back-checking references, or reading Glassdoor [9], then I’d say tread carefully.

7. Low post-money valuations.  You’ll hear this argument a lot with Nth-place companies:  “well, the good news is we only got an $80M post-money valuation on our last round of $20M, whereas we heard LeaderCo was valued at $240M — so if you come here you’ll start making money off $80M, not $240M.”  At one level, it’s persuasive, especially if you think LeaderCo and NthCo are similar in many respects — “it’s like buying shares at 2/3rds off,” you might think.  But that thinking basically assumes the venture capital market mispriced LeaderCo.  You might justify that position by thinking “valuations are crazy right now” but if LeaderCo got a crazy valuation why didn’t NthCo get one too, raising in the same market?  While some people will try to market low valuations as opportunities, I now see them as problems.

Think not:  wow, what a great arbitrage play.  Think instead:  (a) what don’t I know [10] such that the market priced NthCo at 1/3rd the price of LeaderCo, and (b) what effects that will have on future financing — i.e., it’s likely LeaderCo will continue to have better access to capital going forward.  (Remember, the IPO class of 2018 raised a median of around $300M.)

In olden days, the rule was if the market leader went public at a valuation of $1B, then number two was worth about $500M, and number three $250M (4x, 2x, 1x).  Today, with companies going public later, more access to capital, and stronger increasing returns effects, I think it’s more like $4.5B, $1.5B, and $300M respectively (15x, 5x, 1x).  Given that, and increasing returns, maybe a “crazy” early valuation gap isn’t so crazy after all.

8. First-time, non-founder CEOs.  First-time, founder CEOs are the norm these days and VCs do a good job of helping surround them with a strong executive team and good advisors to avoid common mistakes.  Personally, I believe that companies should be run by their founders as long as they can, and maybe then some.  But when a founder needs to replaced, you get a massive signal from the market in looking at who the company is able to attract to run it.  Back in the day, if you were Splunk, you could attract Godfrey Sullivan.  Today, if you’re Snowflake, you can attract Frank Slootman.

My worry about companies run by first-time, non-founder CEOs [11] is less about the difficulty for the first-timer in transitioning to the CEO job — which is indeed non-trivial — and more about the signaling value about who would, and more importantly, who wouldn’t, take the job.  Experienced CEOS are not in short supply, so if a company can’t attract one, I go back to what don’t I know / what can’t I see that the pool of experienced CEOs does?

That’s not to say it never works — we did a fine job building a nice business at MarkLogic under one first-time, non-founder CEO that I know [11].  It is to say that hiring a non-founder, first-time CEO should prompt some questions about who was picked and why.  Sometimes there are great answers to those questions.  Sometimes, things feel a bit incongruous.

# # #

Notes

[1] Marx often quipped that he wouldn’t want to be a member of any club that admitted him, the rough equivalent to saying that you wouldn’t take a C-level job at any startup that would offer you one.

[2] As one VC friend so tersely put it:  “our job isn’t to put more money into a company, it’s to get other people to put more in at valuations higher than the one we invested at.”  (This somehow reminds me of the  General Patton quote:  “the object of war is not to die for your country, but to make the other bastard die for his.”)

[3] The number one “cause of death” for the VP of Marketing is the VP of Sales.

[4] I particularly like when those pivots are emergent, i.e., when the company is trying one thing, spots that another one is working, and then doubles down on the second thing.

[5] In the sense that they moved an established pivot foot by changing, e.g., both the target customer and the target product.  Changing your strategy to sell a different app to the same buyer, or the same app to a different buyer feels much more like a pivot to me.

[6] Everyone wants to be on the social network that their friends are on, so the more your friends pick network A over B, the more newcomers want to pick network A.  Back when there was competition in consumer social networks, entire high schools went either Facebook or MySpace, but virtually none went both.

[7] Where machine learning (ML) is an important part of the value proposition, you have even stronger increasing returns effects because having more customers, which means having more data, which means having better models, which means producing superior results.

[8] In cases there may be a very public written code about company culture.  But, to the extent the written culture is not the one lived, it’s nothing more than public relations or a statement of aspiration.

[9] While Glassdoor has many limitations, including that reviewers are not verified and that most reviewers are recently-terminated job-seekers (because the requirement to look for a job is to write a review), I still use it in researching companies.  My favorite dysfunctional pattern is a litany of detailed, fact-filled, seemingly sincere negative reviews, followed by a modest number of summary, high-level, HR-buzzwordy positive reviews followed by someone saying “I can’t believe management is feeding positive reviews to people in order to up our ratings.”

[10] An economist friend once taught me that when economists studied established practices in any field, e.g.,  the need for a second-serve (as opposed to just hitting two first serves) in professional tennis, they start out assuming the practice is correct, i.e., that the professionals really do know what they’re doing, and then see if the statistics justify the practice.  One might apply the same philosophy to valuations.

[11] Yes, I was one at MarkLogic.  In terms of signaling value, I was at least CMO of $1B company before starting and while I’d not been a CEO before, I did bring an unusual amount of database domain expertise (i.e., Ingres, Versant) to the party.