Category Archives: Management

SaaStr 2019 Presentation Preview: Five Questions SaaS CEO Wrestle With

I’m super excited for the upcoming SaaStr Annual 2019 conference in San Jose from February 5th through the 7th at the San Jose Convention Center.  I hope to see you there — particularly for my session from 10:00 AM to 10:30 AM on Tuesday, February 5th.  Last year they ended up repeating my session but that won’t be possible this year as I’m flying to Europe for a board meeting later in the week — so if you want to see it live, please come by at 10:00 AM on Tuesday!

saastr 2019

I’d quibble with the subtitle, “Lessons from Host Analytics,” because it’s actually more, “Lessons From a Lifetime of Doing This Stuff,” and examples will certainly include but also span well beyond Host Analytics.  In fact, I think one thing that’s reasonably unique about my background is that I have 10+ years’ tenure in two different, key roles within an enterprise software company:

  • CEO of two startups, combined for over ten years (MarkLogic, Host Analytics).
  • CMO of two startups, combined for over ten years (BusinessObjects, Versant).

I’ve also been an independent director on the board of 4 enterprise software startups, two of which have already had outstanding exits.  And I just sold a SaaS startup in an interesting process during which I learned a ton.  So we’ve got a lot of experience to draw upon.

SaaS startup CEO is hard job.  It’s a lonely job, something people don’t typically understand until they do it.  It’s an odd job — for what might be the first time in your career you have no boss, per se, just a committee.  You’re responsible for the life and death of the company.  Scores or hundreds of people depend on you to make payroll.  You need to raise capital, likely in the tens of millions of dollars — but these days increasingly in the hundreds — to build your business.

You’re driving your company into an uncertain future and, if you’re good, you’re trying to define that future your way in the mind of the market.  You’re trying to build an executive team that not only will get the job done today, but that can also scale with you for the next few years.  You’re trying to systematize the realization of a vision, breaking it down into the right parts in the right order to ensure market victory.  And, while you’re trying to do all that, you need to keep a board happy that may have interests divergent from your own and those of the company.  Finally, it’s an accelerating treadmill of a job – the better you do, the more is expected of you.

Wait!  Why do we do this again?  Because it’s also a fantastic job.  You get to:

  • Define and realize a vision for a market space.
  • Evangelize new and better ways of doing things.
  • Compete to win key customers, channels, and partners.
  • Work alongside incredibly talented and accomplished people.
  • Serve the most leading and progressive customers in the market.
  • Manage a growing organization, building ideally not just a company but a culture that reflects your core values.
  • Leverage that growth internationally, exploring and learning about the planet and the business cultures across it.

Basically, you get to play strategic N-dimensional wizard chess against some of the finest minds in the business.  Let’s face it.  It’s cool.  Despite the weight that comes with the job, any SaaS startup CEO should feel privileged every day about the job that they “get to” do.

But there are certain nagging questions that hound any SaaS startup CEO.  Questions that never quite get answered and put to bed.  Ones that need to asked and re-asked.  Those are the 5 questions we’ll discuss in my talk.  And here they are:

  1. When do I next raise money?
  2. Do I have the right team?
  3. How can I better manage the board?
  4. To what extent should I worry about competitors?
  5. Are we focused enough?

Each one is a question that can cost you the company, the market, or your job.  They’re all hard.  In my estimation, number 4 is the trickiest and most subtle.  There’s even a bonus question 6 – “are we winning?” — that is perhaps the most important of them all.

I look forward to speaking with you and hope you can attend the session.  If you have any advance questions to stimulate my thinking while preparing for the session, please do send them along via email, DM, or comment.

You don’t need to be a CEO to benefit from this session.  There are lots of lessons for everyone involving in creating and running a startup.  (If nothing else, you might get some insight to how your CEO might think about you and your team.)

I hope to see you there.

Two Natural Reactions That Great Managers Suppress

Most employees tolerate their managers more than love them.  According to a year-old survey in Forbes:

  • Only about 50% of employees say the boss values their opinion.
  • Only 35% of employees feel inspired by their boss.
  • Some 25% say they can do a better job than their boss does.
  • Almost 20% say that their boss takes credit for their work.

Given this, there should be no surprise that employee-manager relations sometimes flare up and that when they do employees often feel uncomfortable bringing the problem to their manager.  According to a different survey, 68% of employees are afraid to complain about their boss, fearing retaliation for so doing.

Great companies recognize these, perhaps sad, facts and try to manage around them.  For example, when I ran Host Analytics I would end virtually every piece of employee communications with the following:

If you have a problem with your boss and feel comfortable raising it with them, then please do so.  If you are not comfortable raising it with your boss, then please tell someone.  Talk to HR.  Talk to your manager’s manager.  Talk to any e-staff member.  Talk to me.  Talk to our coach.  I know that when employee-manager relations are the issue, it’s often impossible to raise the problem with your boss.  So please tell someone else.

In addition, beyond setting that as a policy, you can use other mechanisms to detect these issues.  Periodic, ideally anonymous, employee surveys do a great job of finding “hot spots” where an entire team is having problems with its manager.  (We used Culture Amp for employee surveys and its slicing-and-dicing lit up hot spots right away.)  Open-ended questions and comment fields also often reveal troubles on a more individual basis.  So does just walking around and asking people how they’re doing.

The goal from the company’s perspective is to surface these problems so they can be addressed.  Some managers, however, often react in a way that defeats that intent.  When a problem is surfaced via an indirect channel, many managers first instinct is say two things to the employee:

  1. “Why didn’t you bring this to me directly?”
  2. “Why didn’t you bring this to me sooner?”

Both are wrong.  Both not so subtly blame the employee — the first indirectly calling them a coward and the second indirectly accusing them of perpetuating the problem because you can’t fix an issue you don’t know about.   Both show that you care more about yourself and your reputation than you do about the employee.  Banish them from your management vocabulary.

Great managers don’t react this way.  They replace the above two reactions with two far superior ones:

  1. “Thank you for raising the problem to someone.”
  2. “Please tell me more about the problem so we can work on it.”

Maybe three months in the future, once and if the problem is clearly fixed, then the manager can safely say, “by the way, why didn’t you feel comfortable raising that problem to me anyway?”  In that context, the question will sound like genuine interest in the feedback.  In the heat of the moment, all it sounds like is “blame.”

Assume that, regardless of channel used, raising a working relationship issue is very hard for the employee and was probably preceded by some combination of sleepless nights and tears.  So thank them for doing the difficult thing and raising the issue — regardless of how — and respect their courage by jumping in immediately to learn more about it.

Not in My Kitchen, You Don’t: Leaders as Norm Setters

There are two types of restaurants:  those where it’s acceptable for a cook to pickup dropped food and serve it, and those where it’s not.

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Sure, when asked, everyone would say it’s unacceptable to serve dropped food in their kitchen.  But is that how their kitchen actually runs?  One of my favorite definitions of culture is, to paraphrase Henry Ford’s thoughts on quality, “what happens when no one is watching.”

And if managers really run such clean kitchens, then why are there so many:

  • Websites with typos?
  • Webinars with logistics problems at the start?
  • Demonstrations where something breaks?
  • Presentations where the numbers don’t foot?
  • Customer meetings that start late?

The fact is most managers say they run kitchens where it’s unacceptable to serve food that was dropped on the floor, but all too often they don’t.  Dropped food gets served all the time by corporate America.  Why?  Because too few leaders remember that a key part of their job is to set norms — in our company, in our culture, what’s acceptable and what’s not.

Defining these norms is more important than defining quarterly OKRs or MBOs — both because they persist over time and because they help define culture — yet few managers treat them as such.  Sure, some managers like to emphasize values, and will frequently story-tell about a focus on Trust or Customer Success.  And that’s great.  But that’s all positive reinforcement.  Part of norm setting — particularly the part that says what’s not acceptable is our culture — needs to be negative reinforcement:  you can’t do that here.

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That’s why I love Gordon Ramsey and his shows like Hell’s Kitchen.  “YOU CAN’T SERVE THAT, IT’S BLOODY RAW!”

He is a clear, if overzealous, communicator who sets very clear norms.  The power of norms is that, once set, the culture reinforces them.  Everyone quickly understands that in our kitchen you don’t serve dropped food and people will call each other out if someone attempts to do so.

I remember over a decade ago, mixed in a deluge of corrections I’d made on a press release, I wrote something like this:

“No, No, No, No, No, Goddammit, No — Never [break this rule and do that].”

The guy who wrote the press release was new.  He complained to HR that my feedback created a hostile work environment.  The complaint made me pause.  Then I thought:  you know what, for someone who writes like that guy does, I want it to be a hostile environment.  Cook like that in someone else’s kitchen.  But not in mine.  (Yes, he quit shortly thereafter.)

Over time I’ve learned that you don’t need to scream like Ramsey (or my younger self) to establish clear norms.  You just need one, simple, almost magical word:  unacceptable.  Just as it’s unacceptable in this kitchen to serve food that’s been dropped on the floor:

  • It’s unacceptable in this marketing team to publish work with typos.  (Work on your writing skills and have a better process.)
  • It’s unacceptable in this events team to have logistical problems at the start of an event.  (Test them all, three times if necessary, before running the webinar.)
  • It’s unacceptable in this SC team to have demos crash during sales calls.  (Test every click before you start, and don’t go off-road for the fun of it.)
  • It’s unacceptable in this finance team to create slides where the numbers don’t foot.  (Cross-check your own work and then have someone else cross-check it again.  Or, better yet, use a system to publish the numbers off one database.)
  • It’s unacceptable in this sales organization to start customer meetings late.  (Our standard practice is to book the meeting room 30 mins before the meeting start, arrive 30 mins early, and test all logistics.)

When it comes to norms, you get what you expect.  And when you don’t get it, you need to be clear:  what happened is unacceptable [1].

Since this is all pretty simple, then why do so few managers spend time defining and enforcing such operational norms?

First, it will make you unpopular.  It’s far easier to be “surprised” that the webinar didn’t work for anyone on Chrome or “understanding” that sometimes demos do crash or “realistic” that we’ll never eliminate every typo on the website.  But remember, even here you are norm-setting; you’re just setting the wrong norms.  You’re saying that all these thing are, in fact, acceptable.

Second, it’s hard because you need to be black-and-white.  A typo is black-and-white.  Numbers that don’t foot are black-and-white.  But amateurish PowerPoint clip art, poorly written paragraphs, or an under-prepared sales presentation are grey.  You’ll need to impose a black-and-white line in defining norms and let people know when they’re below it.  Think:  “this is not good enough and I don’t want to debate it.”

Third, your employees will complain that you’re a micro-manager.  No one ever calls Gordon Ramsey a micro-manager for intercepting the service of under-cooked scallops, but your employees will be quick to label you one for catching typos, numbers that don’t foot, and other mistakes.  They’ll complain to their peers.  They’ll cherry-pick your feedback, telling colleagues that all you had were a bunch of edits and you weren’t providing any real macro-value on the project [2].  You can get positioned as a hyper-critical, bad guy or gal, or someone might even assert that it’s personal — that you don’t like them [3].  A clever employee might even try to turn you into their personal proof-reader, knowing you’ll backstop their mistakes [4].

But, know this — your best employees will understand exactly what you’re doing and why you’re doing it.   And they will respond in kind:  first, they’ll change their processes to avoid breaking any of the established norms and second, they’ll reinforce those norms with their teams and peers.

# # #

Notes

[1] And people who do unacceptable things don’t last long in this organization.

[2] No one would ever say “the ambiance was great, the service prompt, and the customer should have been happy despite the raw scallops,” but somehow many business people will say “the vision was great, the idea creative, and that the CEO should have been happy despite all the typos and math errors.”

[3] Ergo be careful in your approach.  Feedback should always be about the work — criticize the performance, not the performer.  And you must be consistent about enforcing norms equally across all people.  (Norms aren’t just for the ones you don’t like.)  Proof-read only the first page or two of a document and then say, “continued review, but stopped proof-reading here.”  Or, borrowing from The Best Work Parable, you might just stop everything at page two, send the document back, and offer to read only a properly written version of it.

[4] This begs fundamental questions about approvals.  Say you approve a press release about last quarter’s results and it contains both several typos and several incorrect numbers.  Does your approval let people off the hook for those errors?  How will they see it?  What does your approval actually mean?  Are you approving every number and every comma?  Or are you, in effect, approving the release of the headline on a given date and assuming others are accountable for quality of the body?

A Simple Trick To Get Your CEO Closer to Your Team

Startup VPs sometimes lament that their CEOs don’t really know the people on their teams, don’t realize how smart and talented they are, or fully appreciate the value of their teams’ work.  How, they wonder, can they build a better bridge between their boss and their teams?

The answer is simple:  invite the CEO to something.  To what?

  • Your staff meeting
  • A departmental town hall Q&A session
  • Your team’s planning offsite
  • A quarterly business review (QBR) or equivalent

Social gatherings (e.g., team buildings, after-work drinks) are fine a complement, but they don’t actually solve the problem I’m addressing — how to build a bridge between your team and your boss. This is not about knowing their spouses’ names and how many children they have.  This is about seeing them at work, in the workplace.

That the answer is so simple and that so few VP actually do it reveals something [1]:

  • Some VPs like to complain about the problem.  These folks likely harbor insecurity about their teams because they are, in the end, afraid to put the CEO in a room alone with them.  They are afraid their teams may look stupid, or worse yet receive direct feedback that they worry their teams can’t handle.  These VPs would never invite the CEO unprompted, and even when prompted, reply with, “yes, we should do that one day” but somehow that day never seems to come.  These VPs are weak and will likely get stuck in their careers unless they have have more confidence in their teams (or hire better teams, as indicated) and more confidence in their boss.

 

  • Some VPs like to fix it.  These people typically don’t need to be told to build a strong relationship between their team (particularly their direct reports) and their boss.  It’s good for everyone, and the company overall, when such relationships are in place.  These people aren’t afraid their team will embarrass themselves because they know they’ve hired smart, quality people.   These people aren’t afraid that their team will wilt under a bit of direct, executive feedback either — probably because they’re not afraid to deliver such feedback themselves.  If they don’t think of the idea themselves, when prompted, they jump on the idea — and not just once for show — but by building such invites into their standard operating cadence.

My strong advice is that you want to be the second type of VP.  If you’re not trying to build a better relationship between your team overall, your directs, and your boss, then you are failing everyone — including yourself.

# # #

Notes

[1]  Now you could argue I’m projecting here because I’m not a highly invite-able CEO, but I can say across 12 years of CEO experience at two different companies, it was a relatively rare experience to be spontaneously invited by my direct reports to such events.  (And when it did happen, it was always the same VPs doing the inviting.)  What’s more, I can also say across more than a decade of CMO experience at two different companies, I didn’t see a lot of my peers do it, either.

Top Kellblog Posts of 2018

Here’s a quick retrospective on the top Kellblog posts (as measured by views) of 2018.

  • Career Development:  What It Really Means to be a Manager, Director, or VP.  The number two post of 2018 was actually written in 2015!  That says a lot about this very special post which appears to have simply nailed it in capturing the hard-to-describe but incredibly important differences between operating at the manager, director, or VP level.  I must admit I love this post, too, because it was literally twenty years in the making.  I’d been asked so many times “what does it really mean to operate at the director level” that it was cathartic when I finally found the words to express the answer.
  • The SaaS Rule of 40.  No surprise here.  Love it or not, understanding the rule of 40 is critical when running a SaaS business.  Plenty of companies don’t obey the rule of 40 — it’s a very high bar.  And it’s not appropriate in all circumstances.  But something like 80% of public company SaaS market capitalization is captured by the companies that adhere to it.  It’s the PEG ratio of modern SaaS.
  • The Role of Professional Services in a SaaS Company.  I was surprised and happy to see that this post made the top five.  In short, the mission of services in a SaaS company is “to maximize ARR while not losing money.”  SaaS companies don’t need the 25-35% services margins of their on-premises counterparts.   They need happy, renewing customers.  Far better to forgo modest profits on services in favor of subsidizing ARR both in new customer acquisition and in existing customer success to drive renewals.  Services are critical in a SaaS company, but you shouldn’t measure them by services margins.
  • The Customer Acquisition Cost Ratio:  Another Subtle SaaS Metric.  The number five post of 2018 actually dates back to 2013!  The post covers all the basics of measuring your cost to acquire a customer or a $1 of ARR.  In 2019 I intend to update my fundamentals posts on CAC and churn, but until then, this post stands strong in providing a comprehensive view of the CAC ratio and how to calculate it.  Most SaaS companies lose money on customer acquisition (i.e., “sell dollars for 80 cents”) which in turn begs two critical questions:  how much do they lose and how quickly do they get it back?  I’m happy to see a “fun with fundamentals” type post still running in the top five.

Notes

[1]  See disclaimer that I’m not a financial analyst and I don’t make buy/sell recommendations.

[2] Broadly defined.  I know they’re in Utah.

Seven Books Not To Give the Boss for Christmas*

Well, when you run a company focused on corporate finance, you don’t get a lot of Holiday Party scandals.  At Host’s very nice 2018 Holiday Party the closest thing we had was an employee conversing with me about books (Bad Blood) and then wholeheartedly suggesting that I just had to read another book, Drive — which, as it turns out, is about motivating employees.  Hum.

The blowback potential hadn’t occurred to me in real time, but after got home I noticed an email from the person who’d suggested the book, contritely offering that the suggestion wasn’t intended to send a message or anything.  I laughed.

My reply was simple:  I once actually not just recommended but actually bought and gave Death by Meeting to my boss, so I’m not one to be throwing stones.

But, for those with a dark sense of humor, the exchange did get me thinking about the perfect Christmas anti-shopping list for the boss.  Here we go.

Seven Books You Probably Shouldn’t Buy the Boss for Christmas*

  1. (When East Coast people move to California.)  Stop People Pleasing: Be Assertive, Stop Caring What Others Think, Beat Your Guilt, & Stop Being a Pushover.  

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2.  (“Can somebody please make a decision around here?”)  The Perfection Trap: Cultivate Self-Acceptance, Fire Your Inner Critic, Overcome Procrastination, and Get Things Done.

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3. (“I love those all-hands emails.”) Writing to Be Understood: What Works and Why

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4. (“Don’t worry, you can lead without it.”)  The Charisma Myth: How Anyone Can Master the Art and Science of Personal Magnetism

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5. (“If you’ve not checked Glassdoor recently, uh.”) How to Make People Like You in 90 Seconds or Less

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6.  (“I love the team you’ve put together around here.”)  Needy People: Working Successfully with Control Freaks and Approval-holics

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7. (“Executing our new strategy looks like a piece of cake.”)  Endurance, Shackleton’s Incredible Voyage.

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# # #

Notes 

* or equivalent.

Lost and Founder: A Painful Yet Valuable Read

Some books are almost too honest.  Some books give you too much information (TMI).  Some books can be hard to read at times.  Lost and Founder is all three.  But it’s one of the best books I’ve seen when it comes to giving the reader a realistic look at the inside of Silicon Valley startups.NeueHouse_Programming_LostandFound

In an industry obsessed with the 1 in 10,000 decacorns and the stories of high-flying startups and their larger-than-life founders, Lost and Founder takes a real look at what it’s like to found, fund, work at, and build a quite successful but not media- and Sand-Hill-Road-worshiped startup.

Rand Fishkin, the founder of Moz, tells the story of his company from its founding as a mother/son website consultancy in 2001 until his handing over the reins, in the midst of battling depression, to a new CEO in February 2014.  But you don’t read Lost and Founder to learn about Moz.  You read it to learn about Rand and the lessons he learned along the way.

Excerpt:

In 2001, I started working with my mom, Gillian, designing websites for small businesses in the shadow of Microsoft’s suburban Seattle-area campus. […] The dot-com bust and my sorely lacking business acumen meant we struggled for years, but eventually, after trial and error, missteps and heartache, tragedy and triumph, I found myself CEO of a burgeoning software company, complete with investors, employees, customers, and write-ups in TechCrunch.

By 2017, my company, Moz, was a $45 million/ year venture-backed B2B software provider, creating products for professionals who help their clients or teams with search engine optimization (SEO). In layman’s terms, we make software for marketers. They use our tools to help websites rank well in Google’s search engine, and as Google became one of the world’s richest, most influential companies, our software rose to high demand.

Moz is neither an overnight, billion-dollar success story nor a tragic tale of failure. The technology and business press tend to cover companies on one side or the other of this pendulum, but it’s my belief that, for the majority of entrepreneurs and teams, there’s a great deal to be learned from the highs and lows of a more middle-of-the-road startup life cycle.

Fishkin’s style is transparent and humble.  While the book tells a personal tale, it is laden with important lessons.  In particular, I love his views on:

  • Pivots (chapter 4).  While it’s a hip word, the reality is that pivoting — while sometimes required and which sometimes results in an amazing second efforts — means that you have failed at your primary strategy.  While I’m a big believer in emergent strategy, few people discuss pivots as honestly as Fishkin.
  • Fund-raising (chapters 6 and 7).  He does a great job explaining venture capital from the VC perspective which then makes his conclusions both logical and clear.  His advice here is invaluable.  Every founder who’s unfamiliar with VC 101 should read this section.
  • Making money (chapter 8) and the economics of founding or working at a startup.
  • His somewhat contrarian thoughts on the Minimum Viable Product (MVP) concept (chapter 12).  I think in brand new markets MVPs are fine — if you’ve never seen a car then you’re not going to look for windows, leather seats, or cup-holders.  But in more established markets, Fishkin has a point — the Exceptional Viable Product (EVP) is probably a better concept.
  • His very honest thoughts on when to sell a startup (chapter 13) which reveal the inherent interest conflicts between founders, VCs, and employees.
  • His cheat codes for next itme (Afterword).

Finally, in a Silicon Valley where failure is supposedly a red badge of courage, but one only worn after your next big success, Fishkin has an unique take on vulnerability (chapter 15) and his battles with depression, detailed in this long, painful blog post which he wrote the night before this story from the book about a Foundry CEO summit:

Near the start of the session, Brad asked all the CEOs in the room to raise their hand if they had experienced severe anxiety, depression, or other emotional or mental disorders during their tenure as CEO. Every hand in the room went up, save two. At that moment, a sense of relief washed over me, so powerful I almost cried in my chair. I thought I was alone, a frail, former CEO who’d lost his job because he couldn’t handle the stress and pressure and caved in to depression. But those hands in the air made me realize I was far from alone— I was, in fact, part of an overwhelming majority, at least among this group. That mental transition from loneliness and shame to a peer among equals forever changed the way I thought about depression and the stigma around mental disorders.

Overall, in a world of business books that are often pretty much the same, Lost and Founder is both quite different and worth reading.  TMI?  At times, yes.  TLDR?  No way.

Thanks, Rand, for sharing.