Category Archives: Venture Capital

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.

Congratulations to Nuxeo on its Acquisition by Hyland

It feels like the just the other day when I met a passionate French entrepreneur in the bar on the 15th floor of the Hilton Times Square to discuss Nuxeo.  I remember being interested in the space, which I then viewed as next-generation content management (which, by the way, seemed extraordinarily in need of a next generation) and today what we’d call a content services platform (CSP) — in Nuxeo’s case, with a strong digital asset management angle.

I remember being impressed with the guy, Eric Barroca, as well.  If I could check my notebook from that evening, I’m sure I’d see written:  “smart, goes fast, no BS.”  Eric remains one of the few people who — when he interrupts me saying “got it” — that I’m quite sure that he does.

To me, Nuxeo is a tale of technology leadership combined with market focus, teamwork, and leadership.  All to produce a great result.

Congrats to Eric, the entire team, and the key folks I worked with most closely during my tenure on the board:  CMO/CPO Chris McGlaughlin, CFO James Colquhoun, and CTO Thierry Delprat.

Thanks to the board for having me, including Christian Resch and Nishi Somaiya from Goldman Sachs, Michael Elias from Kennet, and Steve King.  It’s been a true pleasure working with you.

My Two Appearances on the SaaShimi Podcast: Comprehensive SaaS Metrics Overview and Differences between PE and VC

The SaaShimi podcast just dropped the first two episodes of its second season and I’m back speaking with PNC Technology Finance banker Aznaur Midov, this time discussing some of the key difference between private equity (PE) and venture capital (VC) when it comes to philosophy, business model, portfolio company engagement, diligence,  and exit processes.  You can check out the entire podcast on the web here or this episode on Spotify or Apple podcasts.

I’ve also embedded it below:

Dave Kellogg on SaaShimi Discussing Differences between Private Equity and Venture Capital.

 

If you missed it and/or you’re otherwise interested, on my prior appearance we did a pretty darn comprehensive overview of SaaS metrics, available here on Apple podcasts and here on Spotify.

I’ve embedded this episode as well, below:

Dave Kellogg on SaaShimi with a Comprehensive Overview of SaaS Metrics.

 

Thanks Aznaur for having me.  I think he’s created a high quality, focused series on SaaS.

Appearance on the Sage SaaS Success Series: Best Practices in Forecasting for Fundraising

Just a quick post to highlight that I’ll be speaking in a panel discussion with Mihir Jobalia, managing director of technology investment banking at KPMG, and David Appel, head of the subscription and SaaS vertical at Sage Intacct, on  2/23 at 11AM pacific time.  It’s part of a four-part SaaS Success Series, hosted by Sage Intacct, with episodes including:

  • The 100-Day Ramp Plan for New Finance Hires
  • What is the Next SaaS Finance Technology Stack?
  • 3 Best Practices for Forecasting and Fundraising (our session)
  • How to Plan for Your ASC 606 Revenue Recognition Scenario

They all look super  interesting. Well, except for the last one — just kidding, #revrec matters (and ASC 606 does some interesting things, in particular to subscription-based companies not delivering via an online service).

Thanks to David Appel for inviting me.  I look forward to speaking with David and Mihir on the panel.

I hope you can join us.  Those interested can register for the series here.

(Revised 2/18 to remove speaker who dropped out.)