My friend Ron Schmelzer – the CEO of Zapthink and co-founder of Channelwave – pointed out an upcoming MIT Enterprise Forum (Cambridge, MA) conference called “Rated R for Revenue: Selling and Marketing Your Next Great Thing.” The conference is on Saturday February 12th at the Newton Marriott and looks super. My frat brother Colin Angle (iRobot CEO) and his iRobot co-founder Helen Greiner are the morning keynote speakers and the day is finished off by Reid Hoffman, the CEO of LinkedIn. The agenda looks great and is full of strong entrepreneurs and – ahem – a few venture guys.
My favorite line from Colin is “15 years running a robotics company plus my MIT education and I’m just a vacuum cleaner salesman.” If nothing else, Colin is worth the price of admission. If you are interested in this conference, you can register here.
I had a great board meeting today at Quova and a near perfect board meeting at Rally last week. While it’s a pleasure to be involved in both companies since they are both performing very well, the structure and tempo of each board meeting really turned me on.
I had started to notice a disconcerting rhythm to some of my board meetings. On the positive side, several of my CEOs have done a spectacular job of putting together comprehensive board packages that we’ve replicated throughout much of our portfolio. As a result, we have substantial, detailed board packages that come out around a week prior to the board meeting. This gives me plenty of time to read through the board package, ask specific questions of the CEO in advance of the board meeting, and study the financials carefully. Since most of my companies are working off the same board package template, the information is predictably organized, easy to follow, and comprehensive.
However, I’ve noticed recently that a lot of the time being spent in the board meeting was being squandered by effectively reading through the board package in real time. This is often disguised as “functional updates” where each VP goes through his part of the business by simply rehashing the information in the board book. Given that the typical board meeting is three hours, I started to notice that most of the meeting was being spent reviewing the board book (which I’d already read and gotten 90% of the information from) and a minority of the time was being spent on non-operational (e.g. strategic) discussion.
I’d subtly made this comment to several of my CEOs (as subtle as I’m capable of being – visualize a bull in a china shop) during board meetings in Q4 where I realized that while it was exciting to rehash what was essentially solid performance for 2004, I was much more interested in spending time looking forward and talking about what we needed to do to drive asymmetric business value in 2005.
Rally’s board meeting last week nailed it. The board package came out five days prior to the meeting so everyone had plenty of time to read it. We had a typical three hour board meeting that started on time. The meeting then occurred as follows:
- 5 minutes: Administrative items (approve the minutes, approve new options).
- 55 minutes: Department updates. We used the board package as the guide, but each exec spent a few minutes summarizing key points (rather than reading from the package) and then we drilled into Q&A and discussion on each area. It was a spirited discussion that was forward looking (e.g. “what are we doing in the next 30 days about issue X”) rather than backward looking (e.g. “good job on doing Y last month.”)
- 90 minutes: 2005 Strategic Priorities. We worked from a six page powerpoint presentation (that had crappy production value, but was high content value) and spent 80% of our time on one slide. The entire leadership team participated in the discussion – it wasn’t a “presentation of a conclusion” but a “discussion about what to do given limited resources and divergent opportunities.”
- 30 minutes: Executive Session (Board Only). We talked about a handful of personnel related issues, summarized the discussion, and set the tone for Q105.
I left the meeting feeling both excited by where Rally is at, delighted by the dynamic among the members of the leadership team, and satisfied with the direction the board gave the leadership team.
Today, I had a very similar board meeting at Quova. While we covered very different topics – especially since we celebrated Quova’s five year anniversary today (with a fun event at the San Francisco Museum of Craft + Design) – the preparation was equivalent, the tempo was similar, and the I walked out of the meeting equally excited about where Quova is and how the leadership team is interacting with each other.
The CEOs of Rally and Quova reminded me how a well-executed board meeting early in the year is a great way to set the tone for the business for the year to come.
Amy and I spent the week in Miami with our friends Warren and Ilana Katz. Warren runs a very successful software company called MaK Technologies that builds software simulation tools that are widely used within the military. Warren is on a holy quest for acquisition reform and we had several discussions about how government procurement of software works (or doesn’t work), what needs to change, what Warren is doing about it, and several reasons why I should actually like Donald Rumsfeld.
Ironically – and sadly – MaK’s biggest competitors for their products are DoD funded projects to create custom versions of the COTS (“Commercial-off-the-shelf”) products that MaK sells – a blatant violation of numerous government regulations and a huge waste of money. Government programs competing with COTS products is apparently a deep and well known problem within the government. Warren pointed me to a great, short book called “Quotations from Chairman David” which is “a brief and humorous examination of some issues related to commercial off-the-shelf (COTS) products in DoD and government systems.” The author – David Carney – a senior member of the Software Engineering Institute at Carnegie Mellon – used the “Little Red Book” popular in China in the 1960s to discuss COTS related issues.
Interestingly, the ideas in “Quotations from Chairman David” are applicable to any software development / system integration effort. As the boundaries between custom software, system integration activities, and packaged software continue to shift around, one would be well served to meditate on Chairman David’s thoughts.
Ah – two of my favorite topics – running and entrepreneurship. Lucy Sanders – the executive director of The National Center for Women and Information Technology – sent me an article on a study from Ball State University that found entrepreneurs who ran regularly were more successful in sales, external goals, and internal goals. The study also found that regular weight training was positively correlated with success on external and internal goals (but not sales).
Time for a run.
Amy gave me an awesome coffee table book yesterday called Family Business. I devoured it last night after dinner. She told me it was a Christmas present – if all Christmas presents are like this I might actually start liking Christmas.
Family Business is a story by Mitch Epstein of the Epstein Family businesses (retail furniture store and real estate) in Holyoke, Massachusetts. Mitch tells the story in both words and amazing photographs of how the American Dream ultimately failed Mitch’s father Bill Epstein. It is simultaneously heart warming and heart rendering and probes family, business, and a father-son relationship in unique ways.
As I read the book and looked at the pictures, I kept being reminded of my dad’s father Jack Feld. Jack was the patriarch of our family as I grew up – our own personal Jewish Archie Bunker. Jack died a few years ago but I could easily see Jack in Bill Epstein.
As a kid, we used to trek down to Ft. Lauderdale, Florida on a regular basis to visit Grandpa Jack and Grandma Pauline. I was the oldest of the grandchildren (there are four men – me, my brother, and my two cousins) so as the oldest, I got the best and the worst of everything. Last weekend when I was in Aspen with my Uncle Charlie, his kids (Jon and Kenny), my brother Daniel, and our wives, our talk turned to Jack Feld stories one night. My contribution included reminding everyone how – when Jack got home from work at his clothing factory – he’d always kick me out of his chair, which happened to be the one comfortable chair in the living room.
Jack ran a clothing business all of his life. I don’t remember what it was like when he lived in New York (I was too young), but I visited his factory in the worst part of Miami several times. His company was a wholesaler – he made the stuff with sequins and pleats that was bought by clothing manufacturers to turn into retail goods. We used to joke that it was the crap you bought off the rack – he’d remind us that it was “real clothing by the big guys.” His factory was in a warehouse on a run down block that I was scared to walk down alone. There wasn’t a machine in the building made after 1960 (“I don’t trust anything that was done after 1959”) and the air conditioning consisted of a series of huge exhaust fans hung at the top of one wall. Jack got up every day of the work week (Monday to Friday), drove 30 minutes from his house in Hollywood Hills to his factory, worked until 3pm, and came home by 3:30pm. Every day. No matter what.
I was always surrounded by business as a kid. Jack had a company. My father was a doctor who had his own medical practice. He and my mom created a number of companies – Feld Properties (to manage their real estate investments, including a bunch of rental houses my mom managed), Feld Investments (presumably to manage their investments), and other “Feld X” companies I can’t remember any more. It’s probably no huge surprise that my first company was called Feld Technologies (named after my dad – of course) and my Uncle Charlies’ company was named The Feld Group.
Jack always loved to give advice. He lorded over us and encouraging us in his own special and unique way. As a 15 year old, his advice pissed me off, although I never had the courage to say some derivative of “Grandpa – leave me alone” (e.g. “go screw yourself”, or our family favorite “go shit in a hat.”) As a 25 year old, I remember sitting in full attention, soaking up every word about his business, what he did,what he learned, and what I should do.
At some point, his son the doctor (my dad) and the typhoons (me and Charlie who had our own businesses at the time – we were never tycoons – always typhoons presumably something to do with hot air) became the center of his business attention. He was endlessly proud of us, which was often motivating but always endearing.
Growing up, the idea of a family business was central to my way of thinking. I was surrounded by self-made people who created businesses out of nothing but ideas and hard work and who dedicated much of their life to the success of their work. When I started my first company at 19, it never occurred to me to get a job – I just did what seemed to come naturally to me. Twenty years later, as I turned the pages on Family Business, its easy to remember where this came from. As I read, I could hear Jack’s words. As I looked at pictures of Bill Epstein, I could almost see Jack if I squinted just right.
Mitch Epstein – thank you for creating this wonderful book and giving me these amazing memories. Amy – thanks for the Christmas gift. And Jack – I miss you.
Charlie Feld’s latest leadership article for CIO Magazine is about How to Inspire Your Team. It’s a quick read that explains the value of trust (table stakes – you’ve got nothing without it), hope (fuel for achievement), enjoyment (sustenance for high performance), and opportunity (individual growth is required for people to work at peak levels.) It’s well worth reading and sending around to your leadership team.
In my first company (Feld Technologies), we wrote customer software for medium sized businesses. This was back in the late 80’s / early 90’s – pre client/server (remember dbase, Paradox, Access, Clarion, and DataFlex.) It was hard – and our goal – as I’ve said before on this blog – was to suck less.
I just had an email exchange with one of my companies where I said “if this takes ZERO engineering on our side other than packaging and support and ZERO licensing fees” then I’d support chasing after a specific opportunity in the near term. The answer back was “there is potential for SOME engineering.” The debate ensued.
At Feld Technologies, I used to walk down the hall and ask folks “how things were going.” The most common answer from our consultants and engineers was “OK.” After a while, I realized OK could mean anything from “it’s great – I’m on plan, on budget, kicking ass, and feeling good” to “my life sucks, I just broke up with my boyfriend, the client is a shithead, the last build is completely broken, and I want to kill Joe because he’s such an asshole when he gives me feedback on my code.” SOME is similar – it could mean “all I’ve got to do is spend an all-nighter and all is well” to “it’ll take our entire engineering organization the next 12 months.”
At Feld Technologies, we outlawed the word OK. Whenever someone used it, a sit-down meeting was generated to find out what was really going on. SOME – and plenty of other words – are the same. Outlaw them – don’t make decisions based on vagueries.
I was at a Rally Software board meeting where we spent a chunk of time finalizing and approving the 2005 operating plan. A big part of the discussion – not surprisingly – was on the sales ramp and the corresponding expense base (and timing of opex growth throughout the year based on a prediction of sales growth and performance.)
Rally started shipping their product in mid-2004. So – 2005 is their first full year of product ship. They have a nice, active customer base that is growing as expected. The growth curve is ambitious (but achievable) for 2005 – f they make plan, they’ll have a great year. However, their operating expense ramp (pre-board meeting discussion) assumed they made the sales plan. The guys running Rally are responsible and know how to sandbag a plan, so we’re confident that they won’t pull the trigger on hiring if they don’t see the sales ramp happening. The going in proposal (and plan) assumed they hit their numbers relied on management backing off hiring if they missed their numbers.
I’ve been involved in over 100 companies. None of them ever have made their operating plan on their first year of product ship. Occassionally they outperform, but they almost always underperform for some reason. The reasons are often logical and non-fatal, but the dynamic that gets created is one where the business is always “behind plan.” This sucks.
I made the strong point that I actually care LESS about “making our 2005 revenue plan” then I do about learning why people are interested in what we do, why they turn into real prospects, why they become customers, and why they buy more stuff from us. I know – with certainty – that our 2005 revenue forecast is wrong – we just don’t have enough data to have any precision on it. So – I want to learn the “why” in 2005 – not that “what.”
We do have a sales force to comp, a team to motivate, and a plan to achieve. So – the “what” is important. However, in my experience, the way to calibrate things is to set up the operating plan so you are in a position to increase opex as you are successful vs. having to back off spending (or hiring) if you fall short of plan. I’d rather go to a board meeting mid-year where the management team says “we’ve hit our revenue ramp so far this year so we want to pull some head count adds forward” vs. the meeting that says “we missed our revenue ramp so we’re holding off hiring folks in the plan.” The nuance is subtle but the dynamic is important – as you succeed, you get to apply more resources; if you don’t reach your goal, you haven’t assumed more resources (e.g. we can’t hit the goal because we need the resources.)
It also reinforces the focus on the “why.” If we fall short of plan, we’ll focus on “why.” If we exceed plan, we’ll rejoice, talk about “why”, and add more resources. However, we won’t spend a lot of time agonizing over “what we should do because we missed plan.”
The first full year of product ship for a software company is a very defining year. I’ve seen way too many of my VC cohorts believe that the operating plan and forecast is gospel and spend all their time in year one of product ship (and usually year two of the business) focusing on the quantitative financial metrics rather than understanding how things actually work in the business. Financial planning is imprecise early in a business – a smart executive team understands this and sets the right expectations and parameters around it.