Win-Seeking vs. Perceived Stupidity Avoidance

Posted on September 7, 2010 | 4 comments

Sunday’s New York Times had a fascinating article about (American) football entitled Coaches Take More Risks, But Perhaps Not Enough.

I’ve always believed that business managers are too conservative for two reasons:

  • They are rewarded for plan performance, not absolute performance.  (See Beyond Budgeting for more on this whole meme.)
  • They seek to avoid looking stupid as a primary motivation

To make this concrete, at BusinessObjects I’d often ask myself who (hypothetically) was the better manager:

  • The guy who ran Italy, who signed up for 75% growth and delivered 69%
  • The guy who ran France, who signed up for 25% growth and delivered 30%

In the vast majority of corporate reward systems, Mr. France is the winner.  In fact, if Mr. Italy’s not careful, he risks not only looking stupid but quite possibly getting fired — all for delivering double the growth of Mr. France.

I was, however, stunned to realize that the same kind of thing happens in professional athletics.  If there ever were an endeavor where getting-the-win should matter more than looking-dumb, you’d think it would be professional sports.  But it’s not so:

“Coaches are primarily conservative by nature,” Fouts said. “They don’t want to lose their jobs because they made a stupid decision. They are making a lot of money.”

Perhaps coaches are paid on a bad compensation plan, I wondered, one that doesn’t properly incent winning.  But it seems deeper than that.  A related story, Mr. Fourth And Go For It, details the work done by a UC Berkeley economist, David H. Romer, prompted by listening to a Raiders game many years ago:

[Romer] came up with the idea to rigorously examine fourth-down plays after listening to a radio broadcast of an Oakland Raiders game in his car about a decade ago. Although the Raiders had the ball in striking distance of the end zone, one of the commentators remarked that they would be smarter to kick a near-certain field goal rather risk going for a touchdown.

“I am pretty analytic,” Romer recalled telling himself. “That is a pretty shallow way of thinking about it.”

His work suggests that on fourth-down plays coaches are actually more motivated by perceived-stupidity-avoidance than by winning.  All this in a highly competitive sport with absolutely clear winners and losers and stakes that run in the tens of millions of dollars.  But here’s a typical — and funny — response to Romer’s work from a member of the football establishment:

“If we all listened to the professor, we may be all looking for professor jobs,” Bill Cowher, a former Pittsburgh Steelers coach, once remarked in ESPN The Magazine.

If you can’t get football coaches to take intelligent risks, does a business executive even have a chance to get his/her managers to take them?

This should make us all stop and think about how and when our organizations can make people look stupid, how to change that, and how to properly reward risk-taking, tolerate mistakes, and provide a culture in which people feel it’s a safe place to innovate.

4 Comments

Posted in Management

The Mythical World-Class Manager

Posted on September 5, 2010 | 10 comments

If I had a dollar for every time a venture capitalist said “world-class,” I could start my own venture fund.

But rather than dismissing world-class as a tired cliché, in this post I’ll spend a few minutes trying to understand what VCs mean when they say world-class and why they say it so often.  As always, I’ll add my personal take on the issue along the way.

First, let’s start with a definition:  world-class, quite literally, means among the best in the world.

World-class chess players come from all over the world to play each other at events like the World Chess Championship.  World-class tennis players come from all over the world to play each other at events like the US Open.  Once in a while someone who’s very, very good — but not quite world-class — gets into a world-class competition and receives a quick reminder about what world-class really means.  Think: yesterday’s 6-0, 6-0 routing of amateur teenager Beatrice Capra, ranked 371st in the world, by Maria Sharapova.

So how does world-class apply to Silicon Valley managers?

  • There are world-class companies at which one may have been formerly employed.  Oracle in enterprise software, Google in Internet search, SAP in enterprise applications, PayPal in Internet services, IBM in databases, VMware in virtualization, Salesforce in SaaS-delivered CRM,  or — let’s not forget — BusinessObjects in BI.
  • There are world-class universities from which one may have graduated.  Favorites in Silicon Valley including Stanford, MIT, Berkeley, Carnegie Mellon, and Harvard.
  • There are world-class exits. VCs are in the business of generating returns for their limited partners.  Operational managers are in the business of building companies.  Often, these two goals are aligned; sometimes, they are not.  I world argue, for example, that YouTube at $1.7B and Bebo at $850M were world-class exits.   I don’t believe either were world-class companies.  Google is still struggling to make an operating profit off YouTube, let alone get an return on the $1.7B invested.  AOL shut down Bebo just two years after buying it.

I believe that when VCs say world-class they mean primarily two things:

  • Fits the part.  You can think of Silicon Valley recruiting agencies as central casting:  “somebody call central casting and get two Nerds and a  Bimbo.”  Think:  “somebody call Heidrick and get two sales RVPs and a marketing guy.”  Fitting the part often entails having attended the right universities and worked at the right companies.  For certain jobs, it entails personality traits — the room should hush when the world-class sales VP enters.  The world-class corporate development VP should be as inscrutable as destiny.  I’d dare say it might also tacitly include being the right age or gender, which I believe is one major problem in the Silicon Valley system that I otherwise admire.
  • Has been part of a team that delivered a world-class (or at least regional-class) exit.  That is, someone who’s made somebody — preferably me — some money.

I believe that as a result you end up with two types of “world-class” managers:  drivers and passengers.  To get into the club, you need to have attended great school X, worked at great company Y, and been on a team that delivered great results Z.  But, once in the club, you find two types of people:  those who were key to driving those great results and those who — despite being very good in many respects — were just along for the ride.

This is not lost on all VCs.  I remember when interviewing at MarkLogic that a well known and very smart VC kept probing me in certain areas during the interview.  The prodding continued to the point where I exclaimed:  “oh, you’re trying to figure out if I was a driver or a passenger on the BusinessObjects bus!”  While purely spontaneous, the exclamation was probably worth its weight in gold.  Mere awareness of the dividing line is a good indicator as to which side of it you’re on.

Strategically and operationally, I think there is a huge difference between drivers and passengers that comes out when they are placed in a new situation.  When placed in their next company:

  • Drivers assess the situation and develop strategies and tactics appropriate for the new reality.
  • Passengers do what worked last time.

Due to some smart choices (Berkeley), some work (an MBA), and some luck (a battlefield promotion at Versant), I have been an e-staff level executive in enterprise software since 1993.  In those 17 years, I have seen a lot of world-class managers come and go.  And I am repeatedly stunned by the number of otherwise very intelligent people who show up and do what worked last time.  Often with the very same cohort / entourage with whom they did it.

Now, for passengers, to the extent that this-time is situationally similar to last-time, things are actually quite good.  However, disaster strikes when it is not.

I’d say there are three key traits for recognizing passengers:

  • Ego.  Ironically, drivers tend to be more humble about their past successes than passengers.  Drivers understand that role that teamwork and luck (i.e., right place at the right time) played in their success.  Passengers, on the other hand, tend to give themselves undue credit for just about everything, ignoring the possibility of Fooled by Randomness effects.
  • Showing up with all the answers.  When you ask drivers “what are you going to do?” at new company X, they will say something like:  “I have no idea.  I need a few months to assess the situation and then make a plan.”  Passengers, on the other hand, will quickly bark off a list of 10 things that need to happen in the first 100 days.
  • Job hopping.  I think passengers end up job hopping as a result of their desire to repeat the formula.  When it works, they stay and often succeed.  When it does not, they bail.  In fact, quick bailing is a key success strategy for passengers:  you can/want to do X, so go find situations where X is what’s indicated.  Drivers will tend to do longer gigs with different strategies and tactics.  Passengers will tend to do in-and-outs repeating the same strategies and tactics.

I think for some VCs the world-class manager is actually a form of hope, a silver bullet in which they want to believe:  “if we could just get someone world-class in here, then everything would be better.”  I’m sure that sometimes works out, but I wonder if it wouldn’t work out just as well substituting the word “competent” for “world-class.”  As in:  “if we could just get someone competent in here, then everything would be better.”

In my 17 years watching lots of e-staff-level execs come and go — all of them “world-class” on their start dates — I have to say I’m a skeptic.  I’ll go for people who are drivers, people who reason, and people with low egos any day over the alternative.

That’s not to say that I don’t believe in excellence:  Steve Jobs is world-class.  Larry Ellison is world-class.  Hewlett and Packard were world-class.  Marc Benioff is world-class.  Tom Siebel is world-class.  Bernard Liautaud, while lesser known, is also world-class.  World-class does exist. But just as Maria Sharapova doesn’t give tennis lessons, none of the aforementioned proven world-class managers is going to work at a startup.

I suppose you could introduce a concept like weight-class, as a surrogate for corporate size, to the equation in order to add a dimension:  she’s a world-class, welter-weight marketing VP or he’s a world-class, bantam-weight CFO.  While there is certainly some truth to the idea that different executives prefer different size ranges, this just piles subjectivity on subjectivity.

That’s what I think about world-class.  What do you think?

(Revised 9/7/10.)

10 Comments

Posted in Management, VC

Twelve Things Good Bosses Believe

Posted on August 23, 2010 | 7 comments

I found this post by Stanford evidence-based management professor Robert Sutton and tweeted about it earlier today.  But since it’s so good, I decided to do a post about it along with some commentary.  First, here are the twelve things:

  1. I have a flawed and incomplete understanding of what it feels like to work for me.
  2. My success — and that of my people — depends largely on being the master of obvious and mundane things, not on magical, obscure, or breakthrough ideas or methods.
  3. Having ambitious and well-defined goals is important, but it is useless to think about them much. My job is to focus on the small wins that enable my people to make a little progress every day.
  4. One of the most important, and most difficult, parts of my job is to strike the delicate balance between being too assertive and not assertive enough.
  5. My job is to serve as a human shield, to protect my people from external intrusions, distractions, and idiocy of every stripe — and to avoid imposing my own idiocy on them as well.
  6. I strive to be confident enough to convince people that I am in charge, but humble enough to realize that I am often going to be wrong.
  7. I aim to fight as if I am right, and listen as if I am wrong — and to teach my people to do the same thing.
  8. One of the best tests of my leadership — and my organization — is “what happens after people make a mistake?”
  9. Innovation is crucial to every team and organization. So my job is to encourage my people to generate and test all kinds of new ideas. But it is also my job to help them kill off all the bad ideas we generate, and most of the good ideas, too.
  10. Bad is stronger than good. It is more important to eliminate the negative than to accentuate the positive.
  11. How I do things is as important as what I do.
  12. Because I wield power over others, I am at great risk of acting like an insensitive jerk — and not realizing it.

And here are some thoughts on them:

  1. While 360 degree feedback studies can help managers understand themselves better, I agree that, by definition, managers will always have a flawed and incomplete understanding of what it’s like to work for them.  By the way, in general, I think managers always need to assume they are missing information, regardless of the topic.
  2. I agree strongly with this one; I think the media puts too much emphasis on the big, breakthrough idea and virtually none on the mundane business of clarifying operational goals, getting people to agree them, and then holding people accountable for delivering them.
  3. I semi-agree with this one.  I think quarterly operational goals are critical, annual goals are important, and some general sense of “where we’re headed” is important as well.  But I do agree that a big part of a manager’s job is getting those small, everyday wins that my colleague Martin Cooke refers to as “1% changes.”
  4. I totally agree with this one and struggle with it every day.  On one hand you have experience and opinions and want to show leadership.  On the other you don’t want to run over your people.
  5. I’ve seen myself in this way only when it came to certain constituencies (e.g., the board, bankers, analysts) and not in general.  Perhaps I should.  I’ll mull on this one.
  6. Yes.  See 4.
  7. I am a big believer in understanding both sides of an argument before deciding.
  8. I think this is a very important point and every manager, including me, surely believes:  “it’s OK to make a mistake, just don’t make the same one twice.”  The question is does our behavior actually reinforce that view?  People listen to words, they watch behavior, and they weigh the behavior about 10x relative to the words.
  9. I agree that innovation is important, and not only in large things.  I think the business media tends to equate innovation with “the next big thing.”  To me, innovation matters in all things, both large and small.  And if you agree with Sutton’s point 3, it matters perhaps more in small matters than in large ones.
  10. While I’d never consciously thought about this issue that way, I do have an innate tendency to worry more about driving out the negative than collecting the positive.  Some of my philosophies (e.g., mediocrity intolerance) reflect that.
  11. Yes, and it’s easy to miss this one.  As a CEO you can get so results oriented that you can forget the how whilst focusing on the what.
  12. Indeed.

7 Comments

Posted in Management

Confusion Is The Enemy and Inconsistency is His Ally

Posted on August 10, 2010 | 5 comments

Pioneering a new market and introducing an innovative technology in the process invariably results in customer confusion, usually driven by a fairly predictable “I’ve never seen one of those before” reaction:

  • What is a relational database and why would I need one when IMS is doing just fine?
  • What is a business intelligence tool anyway why would I need it in addition to ReportSmith?
  • What is a data warehouse and why would I need one in addition to my operational databases?
  • What is search engine optimization and why should it matter to my marketing team?
  • What is server virtualization and why would I care?
  • What is a social network and why (in the world) would I want to part of one?

One of my top marketing rants is that pioneering new markets is difficult enough that vendors shouldn’t make the task any harder by muddling their message along the way.   While this would seem obvious, it happens all the time.  Why?

  • A diversity of internal opinion on how to describe the company and/or its product.  This is normal.
  • A lack of marketing leadership in establishing one clear “correct answer” that the company should follow.
  • A lack of discipline in sticking to one message on the part of the field and/or marketing team members.

Invariably, when pioneering a new market, there will be a variety of internal opinions about how to talk about it.  For example, as a technologist, I could honestly describe MarkLogic Server in any of the following ways:

  • XML database
  • XML server
  • Content database
  • Document database
  • Unstructured database

There are pros and cons to each of these choices.  While our media customers like the term “content,” it does not resonate with our Federal customers who see a data/content dichotomy as meaningless.  For years, we were gun shy about calling MarkLogic Server a “database,” because that would tend to prompt a reaction of “oh, we have one of those, it’s Oracle, thanks for coming by.”  So, for years we referred to MarkLogic Server as an “XML server,” attempting to follow the example set by Arbor Software who positioned its multi-dimensional database system as an “OLAP server.” Recently, we decided to come out of the database closet and, going forward, you will see us positioning MarkLogic Server, arguably more accurately, as a database for unstructured data.

But that’s not the point of this post.  This post is about consistency.  Note that we have quickly found 15 ways to position MarkLogic Server.   {XML, content, document, semi-structured, unstructured} x {database, server, platform}.    The question for marketing should be:  which way is best.  The question for everyone else should be:  which one did marketing pick?

Why?  Because it’s better to be consistent than better.

Imagine in your heart-of-hearts that you think “content server” is simply a better answer than “unstructured database” and you decide to use your own lingo instead.  The first thing you might do wrong in this instance is bleed.

Customer:  What is your product anyway?

You:  Well, that’s a great question.  It’s actually quite confusing and did you know that there are about 15 different things we could have called it.  Marketing — and you know those guys — what’s the expression “if you can, do, and if you can’t do marketing” — ha, ha — well, marketing decided to position it as an “unstructured database” but I think that’s a bad answer, so I actually think of it instead as a “content server” because it really does serve content — and boy does it go fast — and some of my buddies on our DC team call it an XML database, but that’s bad because everybody knows that Gartner hates XML databases — ix-nay on the atabase-day, har, har  — and it isn’t really all about XML, it’s really about marking up semi-structured information, you know?  Uh, what was your question again?

The are many problems with bleeding on the customer:

  • You’re talking instead of listening.  Look how many words you took to answer the simple question of “what is it?”
  • You’re confusing the customer, giving three or more different answers to one simple question
  • You may think you’re making yourself look smart with a great analysis, but to a sophisticated listener, you are making yourself look dumb instead
  • Most important, you are confusing the customer.  He/she asked a simple question and you were unable to give them a simple answer.  Quite possibly he/she had several follow-up questions in mind, all of which were forgotten during your stream of consciousness response.

The fact is that selling a new technology is hard enough that you shouldn’t make it harder through inconsistency and bleeding.  It isn’t easy to understand what MarkLogic Server is and we don’t have the benefit of a category with 3-5 other vendors all evangelizing the same idea.  If you’re in a similar situation, then you have to ask yourself:  shouldn’t you make things as simple as possible, speaking precisely and consistently so we can make it as easy as possible for customers to understand our message?

If you agree, that means two things:  (1) you need marketing to step up and choose:  to define the standard vernacular –ideally in a conversational Q&A-style format — and then drive it into all marketing communications and (2) you need to lead by example in sticking to it.  If you think marketing has chosen poorly, do not bleed on the customers (or fellow employees).  Go raise your concerns to marketing.  If you think there are common questions that need standard answers that are not yet addressed, then go to marketing.

When pioneering  a new market, your primary competitor is confusion, and inconsistency is his ally.

5 Comments

Posted in Marketing

EMC Acquires Data Warehouse Vendor Greenplum; Creates New "Data Computing" Product Division

Posted on July 6, 2010 | 12 comments

See EMC’s press release on the deal here.  First, some takeaways from the press release and related coverage:

  • All cash transaction, valuation undisclosed.  See below for some fun and math, trying to guestimate it from standard ratios.
  • Greenplum had raised $61M in venture capital.
  • EMC intends to create a new “data computing” product division and to have Greenplum CEO Bill Cook run it, reporting to Pat Gelsinger.
  • This the second of the specialty data warehouse DBMS vendors to get acquired.   Microsoft acquired Datallegro in 2008 at a rumored valuation of $250M.
  • Greenplum was ranked a visionary in Gartner’s Data Warehouse DBMS magic quadrant in January.  They were positioned about 70% on vision and about 49% on execution.   The leaders were Teradata, Oracle, IBM, Netezza, Microsoft, and Sybase.
  • Greenplum’s CEO and two co-founders have posted an open letter to customers and partners which argues that EMC is “uniquely positioned to dramatically accelerate the Greenplum vision of building the enterprise data system of the future.”
  • In addition to their DBMS, Greenplum offered an “enterprise data cloud platform” called Chorus, which includes something called the Greenplum Data Hypervisor.
  • This Wall Street Journal article quotes EMC talking about “great synergies” between Greenplum and VMware which to me are non-obvious.  Perhaps they’re related to the prior point.
  • EMC will continue to offer Greenplum’s full product portfolio to customers
  • Note this, buried at the end of the press release:  EMC plans to deliver new EMC Proven reference architectures as well as an integrated hardware and software offering designed to improve performance and drive down implementation costs.  Pretty clearly, this says a data warehouse machine/appliance is coming.

So what does all this mean?

  • That storage vendors are going to continue to move up the food chain.  EMC has done a slew of acquisitions — Greenplum looks to be its 53rd — and I expect that to continue.  Storage itself is changing as it continues to include more networking and memory technology.  But storage vendors are changing too, not content to get stuck in the commoditization trap.
  • That yet another type of vendor is now attacking the database market.  In addition to (1) a slew of startups focused on specific niches, we now have (2) SAP via its acquisition of Sybase, and (3) now EMC via Greenplum attacking different segments of the ~$15B/year database market.  The big three oligopoly should not sleep too soundly at night.
  • With my Aster Data board hat on, I’d say that EMC is only getting part of the picture.  Basic data warehousing on big data is only part of the equation.  What customers ultimately want to do with big data is analyze it, and that requires the high-performance execution of complex analytics on big data — something that Aster Data does uniquely well.  Most of the data warehouse DBMS market is focused simply on reducing the price/performance for basic data warehousing.  To my knowledge, only Aster Data is focused on that plus enabling complex, high-end analytics.

Here’s my estimate on the valuation range.  This is based on math, guesswork, intuition, and standard ratios.

  • LinkedIn says Greenplum has about 130-140 people.
  • Enterprise software company revenue often runs about $250K to $350K/employee.
  • This implies revenues of $30M to $50M.
  • Software companies typically sell for 1-2x revenues when they’re in trouble, 2-3x revenues when they’re plodding along, and 8-10x revenues when things are hot.
  • Netezza, for example, currently trades at 4x revenues.  (But remember, that’s to buy one share.  If you want to buy them all, you’ll have to pay a premium.)
  • Greenplum, to my knowledge was doing pretty well.  Let’s take 5-8x as my guess on the revenue multiple.
  • This implies a valuation range of $150M to $400M.
  • It’s hard to imagine that their last funding of $27M in January 2008 was done at anything less than $100M post-money, and possibly a fair bit more.
  • This, in turn, implies that no VC would want a 1x return over 2+ years for a company that was doing well.  If true, this wipes out the low end of the valuation range.
  • This leaves me estimating the valuation at somewhere between $300M to $400M.

Bear in mind that it doesn’t take much to swing these numbers because they are built by multiplying estimates and ranges.  A few changes here or there and I can $200M.  Or I can get $500M.  My real hope is that I have enough offsetting errors that I end up close to the right answer!  If I get new information that either changes my estimates or simply provides the facts, then I will try to update this post and share it.

12 Comments

Posted in Uncategorized