Category Archives: Venture Capital

Product Power Breakfast with Chris McLaughlin on Big/Small, US/Euro, and Marketing/Product

This week’s episode of the SaaS Product Power Breakfast is Thursday, June 10th, at 8am Pacific and we welcome a special friend and unique guest, Chris McLaughlin, currently CMO at France-based powerhouse LumApps, a collaboration and communications platform backed by top European investors including Idinvest and Goldman Sachs.

I got to know Chris by working together in his prior gig as joint CMO and CPO at Nuxeo, a France-based content services platform that had a great exit earlier this year to Thoma Bravo / Hyland Software, and where I sat on the board of directors for the past 4 years.

Chris has a unique background because of its dualities, working:

  • As a senior executive for both US-based and European-based companies.
  • At both growth startups and large megavendors (e.g., EMC/Documentum, IBM/FileNet)
  • In leadership roles on both the Product and the Marketing side.

In this week’s episode we — and the audience — will ask Chris many questions, including:

  • How to get product and marketing working together, especially when they aren’t under a common boss.
  • How European startups should organize their go-to-market functions to enter and grow in the US market
  • The role of both the product and marketing leaders in startups with either a technical founder or business founder
  • When is the right time to hire your first CPO and/or CMO
  • How to align product, marketing, and sales around a strategy — and dealing with the normal challenges in focusing that strategy

See you there, Thursday 6/10 at 8 am Pacific — and bring a friend.

As always, the room will be recorded and posted.  We think of the show as a podcast recorded in front of a live, studio audience.

How To Be A Good Independent Board Member

I’m writing this from both the perspective of a former CEO (who would occasionally get sideways with his board) and that of a six-time independent board member.  I’ll look first from the CEO perspective, examining what I wanted in an independent board member (aka non-executive director), and second from the board director perspective [1].

The CEO Perspective:  What I Wanted in an Independent Director

As a CEO, I wanted:

  • An advisor.  Someone I could use as a sounding board for ideas and decisions.  As CEO, you have no peer group within the company [2], so it’s valuable to have someone who knows the company, is current on industry best practices [3], but who feels less boss-like than the VCs/investors on the board.
  • An expert.  Someone the board would look to for opinions.  This is important — when the board is leaning left and the CEO wants to go right, an expert who has been-there, done-that and whose opinion is respected by the board can be quite influential.
  • A supporter.  Someone who would have my back both in board meetings and, more importantly, if and when board members get together outside board meetings to discuss the company [4].  When things go sideways, this can be the difference between a reconciliatory conversation and a replacement CEO search [5].  Remember Sequoia founder Don Valentine’s famous quote:  “I am 100% behind my CEOs right up until the day I fire them.”
  • A diplomat.  Someone who, when times are tense, can work as an intermediary between the differing parties, often but certainly not always, the investors on one side and founders/management on the other. Former sales leaders often perform well in this situation [6].
  • A coach.  Someone who can help make the game plan for getting something done (e.g., decomposing and sequencing) while providing a pep talk or a kick in the butt, as indicated, along the way of doing it.

I think (and I’m obviously biased here) that current/former GMs and CEOs make better advisors than current/former functional heads [7] because they have wrestled with more of the issues that CEOs face.  The hardest part of the CEO job (for me at least), and the part for which climbing the corporate ladder leaves you most unprepared, is working for a board, not a boss [8].

I should add that ensuring proper corporate governance is an important duty for for the board, but while critical, I view it as table stakes and have thus excluded governance-related items from the list of differentiating attributes above.

The Board Member Perspective:  What I Think Makes a Good Independent Director

From my position on several boards, I think a good independent director is:

  • Someone who acts as an advisor, not a consultant.  People sometimes confuse the two.  Advisors respond and consultants create.  Advisors provide feedback on your ideas, plans, and deliverables.  Consultants play a role in making them.  Put differently, advisors can show up to a discussion without doing any homework; consultants do the homework to create the materials for the discussion.
  • Someone who builds a 1-1 relationship with the CEO and delivers the vast majority of their value-add through that relationship [9].  Board meetings are great, but they typically involve a large group of people and are part performance art and part working group.  Important decisions do get made in board meetings, but a lot of education, detail-driving, consensus-building, and other value-add happens outside.
  • Someone who brings ideas and best practices.  It’s easy to get myopic when you’re building a company; there is so much to do inside, it’s easy to forget to look outside.  Good independent directors stay current on best practices (e.g., systems, methodologies, tools) and bring them to the CEO and the company.  See my current Gong evangelization as an example.
  • Someone who’ll have hard conversations.  Nobody likes being told things that they don’t want to hear, but somebody needs to do it.  The good independent director tells the CEO when their go-to-market analysis is weak, their hiring plan is completely unrealistic, or they should pay more attention to a competitor who’s intent on eating their lunch.  These contrapuntal conversations aren’t always pleasant, but they can add a lot of value.
  • Someone who challenges the CEO on strategy and executive team hiring and composition.  These are absolutely key CEO duties.  Too often strategies lack focus, and executive recruiting processes lack discipline.   Executive team composition, at a high-growth company, is a constant struggle [9A].  Someone needs to say things like, “you’re trying to be everything to everybody,” “the three CFO finalists have completely different profiles,” or “why is every e-staff member in the biggest job they’ve ever hard?”  We need a focused strategy that we can execute.  We need finalists to fit an agreed-to profile [10].  We need a team that balances up-and-comers with veterans.
  • Someone who inspects the troops.  Call me old school, but I think an important part of every (post-quarter) board meeting is a brief operational review where each functional heads presents the status of their department.  While experience has taught me that this is a better way to discover bad apples than identify good ones [11], I nevertheless believe it’s an important part of a meeting.  As a former operating executive, the independent director should take the lead in this inspection.
  • Someone who pushes for standard metrics and templates.  This is not primarily because I like metrics, but because it is human nature to cherry-pick metrics and the only way I know to prevent such cherry-picking is to design standard, holistic templates and use them at every meeting.  That eliminates any possibility of only talking about the good metrics and omitting the bad ones.  If the board doesn’t know about a problem, they can’t help solve it.  Standard templates ensure they know.

# # #

Notes

[1] Knowing full well that the CEOs you’re supporting should be the final judge of that.

[2] Which why it’s a nice idea to get one outside the company via one of many CEO groups

[3] Some operating execs let themselves get pretty rusty in this regard.  Having worked with highly pedigreed but anachronistic advisors, I work hard to stay current in operating models and topics.

[4] This might be a closed-closed session after the usual board/CEO closed session, or it might be separate formal or ad hoc meetings where non-executive board members and investors have discussions.

[5] Founders typically worry about the latter less, but hired CEOs do and probably should worry about it more.

[6] Who later go into GM or CEO jobs to best pass all my tests.

[7] With the exception of CFOs for audit committees and such.

[8] This is particularly true on venture-backed startup boards where there is comparatively more “cat herding” than on PE boards which, while they have their own challenges, are usually more clear and singular in what they want.

[9] It should always include the CEO.  It might also include relationships with the CRO, CFO, CMO or other advisor-relevant functional head.

[9A] The fundamental tension between the cliché conflict between:  “dance with who brung ya” and “the people that got us to this level aren’t [necessarily] the ones to take us to the next.”  (See slides 11 to 16 of this presentation.)  [Necessarily] added because some people seem to think that getting the company to Level X is actually a liability in the climb to Level X+1.

[10] Deciding whether you want a CFO from an accounting/controller background or a finance/FP&A background should be decided long before you have a list of finalists.

[11] If someone is bad at presenting their department, they are typically bad at running it.  However, the converse is not true:  if someone is good presenting their department they may or may not be good at running it.  Some execs “give good meeting” such that they paint a rosy picture of a broken function.

Private Equity Funcast: A Board Perspective on Peopleops

I’m back for my second appearance on the ParkerGale Private Equity Funcast, this time speaking with Jimmy Holloran on topics related to Peopleops and the Chief People Officer (CPO) in a session entitled A Board Perspective on Peopleops.

Topic we cover include:

  • The role of HR and my mantra:  help managers manage
  • What help means and taking pride in a supporting role
  • Help who?  (Managers or employees)
  • Hiring and recruiting
  • Conflict aversion
  • The three golden rules of feedback
  • 9-box models
  • Giving a successful People update at board meetings
  • Scorecards and the infamous “it’s all green” story
  • How to tell if the CPO is helping (hint: ask)

The episode is available on the ParkerGale site, Apple Podcasts, and Spotify.  For those interested, my first appearance — a romp that contrasts the PE and VC worlds with my old friend Jim Milbery — is available here.

Appearance on the Metrics That Measure Up Podcast

“Measure or measure not.  There is no try.”

— My response to being called the Yoda of SaaS metrics.

Just a quick post to highlight my recent appearance on the Metrics That Measure Up podcast, hosted by Ray Rike, founder and CEO of RevOps^2, a firm focused on SaaS metrics and benchmarking.

Ray’s a great guy, passionate about metrics, unafraid of diving into the details, and the producer of a great metrics-focused podcast that has featured many quality guests including Bryon Deeter, Tom Reilly, David Appel, Elay Cohen, Mark Petruzzi / Paul Melchiorre, Sally Duby, Amy Volas, and M.R. Rangaswami.

In the episode, Ray and I discuss:

  • Top SaaS metrics — e.g., annual recurring revenue (ARR), ARR growth, net dollar retention (NDR), net promoter score (NPS), employee NPS, and customer acquisition cost (CAC) ratio
  • How metrics vary with scale
  • Avoiding survivor bias, both in calculating churn rates and in comparisons to public comparison benchmarks (comps) [1]
  • How different metrics impact the enterprise value to revenue (EV/R) multiple — and a quick place to examine those correlations (i.e., the Meritech comps microsite).
  • Win rates and milestone vs. cohort analysis
  • Segmenting metrics, such as CAC and LTV/CAC, and looking at sales CAC vs. marketing CAC.
  • Blind adherence to metrics and benchmarks
  • Consumption-based pricing (aka, usage-based pricing)
  • Career advice for would-be founders

If you enjoy this episode I’m sure you’ll enjoy Ray’s whole podcast, which you can find here.

# # #

Notes

[1] Perhaps more availability bias (or, as Ray calls it, selection bias) than survivor bias, but either way, a bias to understand.

Navel Gazing, Market Research, and the Hypothesis File

Ask most startups about their go-to-market (GTM) these days and they’ll give you lots of numbers.  Funnel metrics.  MQLs, SQLs, demos, and associated funnel conversion rates.  Seen over time, cut by segment.  Win/loss rates and close rates as well, similarly sliced.  Maybe an ABM scorecard, if applicable.

Or maybe more financial metrics like customer acquisition cost (CAC) ratio, lifetime value (LTV) or net dollar retention (NDR) rate.  Maybe a Rule of 40 score to show how they’re balancing growth and profitability.

And then you’ll have a growth strategy conversation and you’ll hear things like:

  • People don’t know who we are
  • But the people who know us love us
  • We’re just not seeing enough deals
  • Actually, we are seeing enough deals, but we’re not making the short list enough
  • Or, we’re making the short list enough, but not winning enough.

And there are always reasons offered:

  • We’re not showing enough value
  • We’re not speaking to the economic buyer
  • We’re a vitamin, not a pain killer
  • We’re not aligned with their business priorities
  • People don’t know you can solve problem X with our solution
  • Prospects can’t see any differentiation among the offerings; we all sound the same [3]
  • They don’t see us as a leader
  • They don’t know they need one
  • They know they need one but need to finish higher priorities first

It’s an odd situation.  We are literally drowning in funnel data, but when it comes to actually understanding what’s happening, we know almost nothing.  Every one of the above explanatory assertions are assumptions.   They’re aggregated anecdotes [4].  The CRM system can tell us a lot about what happens to prospects once they’re in our funnel, but

  1. We’re navel gazing.  We’re only looking at that portion of the market we engaged with.  It’s humbling to take those assertions and mentally preface them with:  “In that slice of the market who found us and engaged with us, we see XYZ.”  We’re assuming our slice is representative.  If you’re a early-stage or mid-stage startup, there’s no reason to assume that.  It’s probably not.
  2. Quantitative funnel analysis is far better at telling you what happened than why it happened.  If only 8% of our stage 2 opportunities close within 6 quarters, well, that’s a fact [5].  But companies don’t even attempt to address most of the above explanatory assertions in their CRM, and even those times when they do (e.g., reason codes for lost deals), the data is, in my experience, usually junk [6].  And even on the rare occasion when it’s not junk, it’s still the salesrep’s opinion as to what happened and the salesrep is not exactly an unbiased observer [7].

What’s the fix here?  We need to go old school.  Let’s complement that wonderful data we have from the CRM with custom market research, that costs maybe $30K to $50K, and that we run maybe 1-2x/year and ideally right before our strategic planning process starts [8].  Better yet, as we go about our business, every time someone says something that sounds like a fact but is really an assumption, let’s put it into a “hypothesis file” that becomes a list of a questions that we want answered headed into our strategic and growth planning.

After all, market research can tell us:

  • If people are aware of us, but perhaps don’t pick us for the long list because they have a negative opinion of us
  • How many deals are happening per quarter and what percent of those deals we are in
  • Who the economic buyer is and ergo if we are speaking to them
  • What the economic buyer’s priorities are and if we are aligning to them
  • When features are most important to customers shopping in the category
  • What problems-to-be-solved (or use-cases) they associate with the category
  • Perceived differences among offerings in the category
  • Satisfaction with various offerings with the category
  • If and when they intend to purchase in the category
  • And much more

Net — I think companies should:

  • Keep instilling rigor and discipline around their pipeline and funnel
  • Complement that information with custom market research, run maybe 1-2x/year
  • Drive that research from a list of questions, captured as they appear in real time and prompted by observing that many of these assertions are hypotheses, not facts — and that we can and should test them with market research.

 

# # #

Notes

[1] As many people use “demo” as a sales process stage.  Not one I’m particularly fond of [2], I might add, but I do see a lot of companies using demo as an intermediate checkpoint between sales-accepted opportunity and closed deal — e.g., “our demo-to-close rate is X%”

[2] I’m not fond of using demo as a stage for two reasons:  it’s vendor-out, not customer-in and it assumes demo (or worse yet, a labor-intensive custom demo) is what’s required as proof for the customer when many alternatives may be what they want — e.g., a deep dive, customer references, etc.  The stage, looking outside-in, is typically where the customer is trying to answer either (a) can this solve my problem or (b) of those that can solve my problem is this the one I want to use?

[3] This is likely true, by the way.  In most markets, the products effectively all look the same to the buyer!  Marketing tries to accentuate differentiation and sales tries to make that accentuated differentiation relevant to the problem at hand, but my guess is more often than not product differentiation is the explanation for the selection, but not the actual driver — which might rather be things like safety / mistake aversion, desire to work with a particular vendor / relationship, word of mouth recommendations, belief that success is more likely with vendor X than vendor Y even if vendor X may (perhaps, for now) have an inferior product)

[4] As the saying goes, the plural of anecdote is not data.

[5] And a potentially meaningless one if you don’t have good discipline around stages and pipeline.

[6] I don’t want to be defeatist here, but most startups barely have their act together on defining and enforcing / scrubbing basics like stages and close dates.  Few have well thought-out reason codes.

[7] If one is the loneliest number, salespersonship is the loneliest loss reason code.

[8] The biggest overlooked secret in making market research relevant to your organization — by acting on it — is strategically timing its arrival.  For example, win/loss reports that arrive just in time for a QBR are way more relevant than those that arrive off-operational-cycle.

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.

A Tip of the Hat to Grid On Their Launch Day

It’s not every day you hear about a startup in Iceland, founded by a guy whose last company was a data marketplace that he sold to Qlik.  And it’s a small world when a friend and fellow board member had independently discovered the same tool and built a SAFE calculator  and an inverted pipeline model using it.  Moreover, I included this tool, Grid, almost tangentially in my next-generation EPM round-up, as it’s not really an EPM tool, but it looked interested anyway and I thought it was worth mentioning.

With all this karma pointing me towards Reykjavik, I sat down for a Zoom call the other day with the guy in question, Hjalmar (pronounced like Hallmark without the k) Gislason, founder and CEO of Grid.  After being impressed with him and the tool, I decided to do a quick post to support their official launch, which is today.

Grid is pretty simple in essence.  It’s not a reinvention of the spreadsheet.  It’s not a replacement for the spreadsheet.  It’s a layer atop spreadsheets, a no-code tool that lets spreadsheet users build interactive web documents using their spreadsheets as data sources and publish them on the web.

Here’s an example of what you can build using it in about two minutes.  Among other things, it gives a whole new look to driver-based planning.

The company raised a $12M series A back in August, led by NEA. Congratulations to Grid on their official launch and best of luck to Hjalmar and the team going forward.