I was at a board meeting last week that introduced something new into the mix that I thought was brilliant.
At the beginning of each section of the board meeting, there was one slide that was titled: “What Are We Trying To Get Out of This Section.” Before we started into a section, whoever was leading it walked everybody in the room specifically through what she was expecting to get out of the section.
I think we did this five times over a 3.5 hour board meeting. The first time it felt a little pedantic, but by the last time it was clearly magical. Each “What Are We Trying To Get Out of This Section” was different. Sometimes it was a decision. Other times it was feedback. Once it was a set of introductions.
You could feel the people in the room get recalibrated whenever this slide came up. The previous section had come to an end. The new section hadn’t yet started. Take a deep breath. Erase all the noise in your brain. Pay attention again, especially if your mind has drifted because of the bloviating of the Boulder-based long-haired board member.
I’d never seen this particular tactic before. I hope to see it again.
I read Ben Horowitz’s The Hard Thing About Hard Things last weekend. This is the third time I’ve read it. It gets better each time. If you are a CEO and you haven’t read it, buy it right now and read it next weekend.
There are endless gems in the book, many of them from Ben’s own experience. My favorite of all time, that stays with me through all the work I do, is his distinction between “peace time” and “war time.”
I think the first time he wrote about this was in his post in 2011 titled Peacetime CEO/Wartime CEO. There has been plenty of commentary on the web about it (see The Myth of the Wartime and Peacetime CEO, which really only says a CEO has to be effective in both wartime and peacetime to be successful.)
Ben has an incredible rant in the post that starts off with:
Peacetime CEO knows that proper protocol leads to winning. Wartime CEO violates protocol in order to win.
The rant is worth reading every single word, but I want to highlight and comment on a few of my favorites.
The first one is:
Peacetime CEO always has a contingency plan. Wartime CEO knows that sometimes you gotta roll a hard six.
BSG fans know about rolling a hard six even though the definition is contested by pilots who think non-pilots confuse planes with dice. In wartime, the odds are often very against you. Sometimes you just have to get lucky.
Another one that I love is:
Peacetime CEO strives for broad based buy in. Wartime CEO neither indulges consensus-building nor tolerates disagreements.
Things during wartime are intense. Decisions have to be made quickly. Many will be wrong, need to be overturned, and new decisions have to be made. Sitting around arguing about what to do simply doesn’t work. Get all the ideas out on the table, but then choose. And then execute like crazy.
Peacetime CEO sets big, hairy audacious goals. Wartime CEO is too busy fighting the enemy to read management books written by consultants who have never managed a fruit stand.
Your big hairy audacious goal in wartime is not to die.
As an investor, I’m involved in some companies operating in peacetime and others in wartime. There’s a lot of emotional dissonance during the day as I go back and forth between them. I’ve learned how to be calm in both modes and deal with my emotions outside the context of interacting with CEOs, founders, and leaders. But, Ben’s metaphor of peacetime vs. wartime has been so incredibly helpful to me as an investor in identifying what mode I’m in that I should probably get him some sort of a gift as a thank you.
I spent the past few days in Tokyo at the Kauffman Fellows Annual Summit. Over the past five years, there has been a large increase globally in the number of venture capitalists and people interested in becoming VCs. As a result, an organization like Kauffman Fellows is more important than ever as it helps build an incredible community of the next generation of VCs to learn from each other.
In the mid-1990s, I learned how to be a board member by sitting on a lot of boards, learning from other experienced board members, and making a lot of mistakes. I still make a lot of mistakes (that’s that nature of venture capital, and of life in general), but I like to believe that I’m a much more effective board member than I was 25 years ago. That said, I still have my bad days and walk out of a board meeting feeling unsettled for one reason or another.
Recently, Mark Suster, Fred Wilson, and Seth Levine each wrote excellent posts on how to be a good board member. Each post is worth reading from beginning to end carefully.
Mark Suster: How to Be a Good Board Member
Fred Wilson: How To Be A Good Board Member
Seth Levine wrote a five post series: Designing the Ideal Board Meeting
- Designing the Ideal Board Meeting
- Before the Meeting
- Your Board Package
- The Board Meeting
- Board Conflict
I especially love Fred’s punch line, which I strongly agree with.
“Which leads me to my rule for being a good board member.
It comes down to one word.
If you care, really care, deeply care, like the way a parent cares for a child, you will be a good board member.”
If you are a board member (or interact with a board as part of a leadership team) and want to go even deeper on this, I encourage you to grab a copy of my book Startup Boards: Getting the Most Out of Your Board of Directors
And, if you are having a board meeting that I’m a part of, take a look at my post from 2014 if you want hints about My Ideal Board Meeting.
I’ve been doing a three-year future org chart exercise with the CEOs of a number of the companies I’m involved in between $25m and $250m in revenue.
This can be done on a napkin, a sheet of paper, or a whiteboard. It should not be done in PowerPoint, Google Slides, or a fancy org chart maker app. It should be done in real-time, without preparation, and in front of a small group, which could include co-founders or board members. But, start with a small group – no more than four people in total.
Draw your current org chart. If this is difficult, messy, or ambiguous, then slow down and talk it through with whomever you have in the room. You probably have some opportunities for improvement here.
Do not draw any empty boxes. Do not have any TBH boxes. Try to avoid dotted lines, although own up to them if they exist. Given that you are at least $25m in revenue, go two levels down (your direct reports and their direct reports.)
Now, stare at it for a while and discuss with
Write down all of your thoughts and feedback. Don’t change your org chart, but try to decide what you don’t like about it. Identify when you have the wrong person in a role, or when they have too much, or too little span of control. Are all your direct reports white guys? Are they functional peers? Do you trust them and respect them equally? Do they communicate well with each other – both one on one and as a group? If you were to rehire them today for the role they are in, would you? Are you paying them too much or too little? Do they have too much equity or too little? Or is the org porridge just right?
Close your eyes and image three years into the future. You are three years older. If you have kids, they are three years older. If your parents are still alive, they are three years older. There are new politicians in office. The New England Patriots just won the Super Bowl again for another year in a row, but no one except people who live in New England care. You still get way too much email and VR is still pointless for anything except video games.
Open your eyes. Your business is somewhere between two and three times bigger than it was when you closed your eyes. Do not look at your old org chart from three years ago. Draw a new org chart. This time you can have empty boxes and TBH. You still don’t want dotted lines if you can help it.
Once again, go two levels down. But start with the CEO box. Are you still in it? If not, are you in a different box on the org chart? As you fill out the future org chart, once again only go two levels down. Make a list off to the side of people you have in the company today in senior roles who you don’t think will be with you in three years. Make a different list of the people who in senior positions today who will still be in the company, but won’t be in the top two levels of the organization.
Now, compare the org charts. Are there any changes you would (or should) make now, rather than in three years? As with the current org chart, discuss this with the people in the room. Let them challenge you, allow yourself to be defensive and feel whatever feelings you have, rather than try to please them or get to the right answer. Let it be uncomfortable.
As a bonus, design your ideal board of directors for three years from now. Once again, start with your current board. Close your eyes. Then draw your future board. Instead of names, put characteristics in the boxes. After you’ve done this, you can put names against the future board members when the person fits the characteristics.
Now, bring more people into the room.
Walk everyone through today’s org chart, the future org chart, the current board, and the future board. Pause after each one for feedback or thoughts, especially on the future org chart and future board. Finally, go person by person for feedback on where you have ended up.
If you take this exercise seriously, it will take an hour or two. While you don’t have to do it face to face, I’ve found it most effective if the first set of people involved is in a room in front of a whiteboard. If you attach this exercise to a board meeting, do it at the end, and go out for a meal afterward.
As the CEO, record all of what you did (at the minimum, take photos with your phone.) Put it off to the side for a week, but then revisit it and decide what changes you are going to make and how you are going to make them to your team to get from today’s org structure to the org
One of our favorite VC firms to work with is True Ventures. I’ve made many investments over the years with both Jon Callaghan and Tony Conrad, and I love being a co-investor with them.
Recently, Tony told me a great Jon Callaghan quote.
“Money Doesn’t Solve Problems. People Solve Problems.”
I’ve learned this lesson 7,345,123 times.
Every successful company I’ve been involved in had a least one near-death experience. Most of the successful companies I’ve been involved with have had at least one stall period, where growth slowed dramatically for some time. Lots of successful companies I’ve been involved in were tight on cash for extended periods. Some successful companies I’ve been involved in looked like they were doing well if you looked at their top line revenue and growth numbers, but were a disaster below the surface.
Note that I repeated “successful companies I’ve been involved in” for each sentence. Each of these companies that I’m referring to ultimately were successful. I’m separating them from companies I was involved in that failed.
In all of these cases, Jon’s statement is correct. The solution was not to throw money at the company and hope things at the company got better. Instead, the successful companies had a functional leadership team and board that was able to figure out the problems and solve them. While the issues often included some members of the leadership team (including occasionally the CEO), in each case, it required focusing on what wasn’t working, where the problems were, and taking aggressive and decisive action to address them.
Assuming the people addressing the issues were the right people, and the extended team (management and board) focused on the correct problems, and then the team gave each other enough time to see whether or not what they were doing addressed the issues, more often than not things ended up in a happy place. While sometimes the issues were intractable, or the dynamics between the people were ineffective, most of the time the focus on people solving the problems resulted in spending less money.
I have a corollary to Jon’s statement which is: “When things break or stall, slow down your spending.” The momentum of growth often results in expense growth regardless of what is happening in the rest of the business. A lot of this expense growth is headcount but also includes a substantial (and often surprisingly large) mix of variable and discretionary spending. While cutting headcount can be part of the approach, taking a hard look at all expenses, eliminating what is unnecessary or ineffective, and communicating clearly with everyone in the company, can often have an immediate and dramatic impact.
It’s scary to tell everyone in the company exactly what is going on when you are in distress. We recently had a long thread on our CEO list titled Surfacing runway: yes or no? It was brilliant and full of great examples, but one, from a company that had stalled but then went on to be extremely successful, stood out to me. The CEO of that company said that during their stall period:
We shared with all employees both income statement and balance sheet (including cash position) to make clear that we needed to better control our expenses so that we could control our own destiny re runway (it was also in context of decelerating growth rate – our rule of 40 was in the teens). We slowed hiring considerably and created programs called “Save to Reinvest” to drive home a sense of fiscal discipline. We showed the company at each monthly All Hands how the financials were changing from our collective activities.
The solution here was people. Not money. Like it usually is.
I used to be chronically late to everything, both personal and professional. In my twenties, before cell phones, I was one of those people that others referred to as having “Brad time” which did not correlate with the actual time in the world. My calendar and schedule was a rough sketch, not even a guide.
My lack of attention to time finally imploded on me around age 35 when Amy said she’d had enough on multiple dimensions of our life. The foundational issue for us was that my actions didn’t match my words, and by being late all the time, I wasn’t honoring my priorities (which I would regularly say was Amy over everything else …) If you ever get us together at a meal and want to hear some epic “Brad was late” stories, ask her about the Postrio dinner of 2000.
Since then, I’ve gotten a lot better at being on-time. I’m not a “five minutes early to everything” person, but I’m rarely more than a few minutes late to anything. I’m very scheduled throughout the week, so it’s often hard to transition between the thing that ends at 2:30 and then be on time to the thing that starts at 2:30 and get it exactly right each time. And, throughout the day, when I end up going until 2:35 for whatever reason, the 2:30 call then goes a little long, and everything backs up a little so that I’m 15 minutes late for the last meeting of the day. And now I know to always say “I’m sorry for being late” whenever I’m late.
Over the years I’ve tried many different approaches to
Today, I use a different approach. I try manage the clock better during a meeting when I’m in charge, and prompt others when I’m not. That works a little, but it’s annoying.
I find this particularly challenging on calls that are an hour long with multiple people. Or, in three hour-ish board meetings with a lot of people. I don’t control the agenda in those meetings, so clock management is up to someone else. And, most people are painfully bad at it.
There are a few tips for anyone who wants to do this well.
Next, front end load the meetings. Do the stuff you need everyone on the call or at the meeting for up front. Some things need you to build into them, but don’t leave them “for the end” – build deliberately to each deeper discussion or decision you want to have. Leaving the critical discussions and decisions for the end of the meeting is a guaranteed way not to get to them.
Send out materials well in advance (at least 48 hours) and assume everyone can read. If they don’t, that’s their problem, not yours, and they’ll get the hint pretty quickly. Instead of going page by page through your materials, or using the materials as a crutch to “review” things, summarize they key points and focus on discussion and debate, rather than review.
Finally, build in buffer. Almost everyone needs to go to the bathroom during a three hour meeting. At the minimum, it’s good to stand up and stretch your body. All video conferencing systems, no matter how good, continue to have weird friction at the beginning of the meeting, so have a front-end start buffer, rather than anxiety around the inevitable five minute delay. And, when the meeting goes off the rails and you get ten minutes behind because someone (e.g. me) can’t shut up about something and your time enforcer was daydreaming about Dali paintings, use the buffer to catch back up.
This is a problem that has been persistent in my life for over 30 years. If you have magic tricks that have worked for you, I’m all ears.
A lot of people are predicting that 2018 was the peak and the beginning of a
I’m not a predictor so I have no idea. I try not to pay attention to the macro (as I’ve said many times), but I do think it is important to have a frame of reference about it.
My frame of reference has a few components.
First, it’s going to be incredibly noisy out here on planet Earth. The year 2018, especially in the United States, was full of endless, chaotic noise that carried very little signal. It was either noise for noise’s sake (and page views), or misdirection (like in the movie Swordfish).
This isn’t just politics. It’s everything. And it’s going to get noisier. So, the search for signal gets harder, more complicated, and more important.
Next, the indicators are trailing, not leading. By the time people are prognosticating on the direction of things, the prices of crypto, interest rates, IPOs, the stock market, P/E multiples, and everything else, it’s too late – you have already missed the moment you are probably searching for. So, put all this stuff in the noise category. This is really difficult, especially given our natural human tendency to try to anticipate and react to things in order to win (or believe we are winning.)
The core of my frame of reference is that I’m playing a very long game. At 53, I’ve already been through a lot of downturns – both large and small ones. Some of the big ones impacted the things I was involved in directly (like the collapse of the Internet bubble) and were incredibly brutal to my world. Others, like the global financial crisis, were adjacent to my world. I didn’t even notice many others. But, in all cases, the downturn ended. And, with the benefit of hindsight, there were huge opportunities even in the downturn.
Ultimately, we all die. I’m currently reading Tolstoy’s A Calendar of Wisdom: Daily Thoughts to Nourish the Soul (I’m on January 31st – I read it in the bathroom.) One thing is clear when reading between the lines – the downturn doesn’t care about us.
In the world of entrepreneurship, there are endless things to do. Tasks, to do lists, new initiatives, new projects, and P1s. Leaders spend a lot of time planning, especially in the context of “we have to grow more, do more, and get bigger.”
Lately, I’ve been suggesting to a few of the CEOs who I work with to make a “2019 Won’t Do List.” While this is a high-level list of things not to do, it can be on multiple dimensions.
I like to start with things that often are optional, but consume a lot of time and energy. Examples would be “an acquisition” or “a financing” or “an IPO.” Let’s take “acquisition” as an example. Assume you are a fast growing company with plenty of financial resources. Maybe you’ve made some acquisitions in the past. But, you haven’t thought about it specifically, so it’s a reactive or opportunistic move. It’s very freeing to decide “this year we aren’t making any acquisitions and we aren’t going to be distracted by the motion around an acquisition.” The nice thing about being a CEO, especially of a company in a strong position, is that you can change your mind. But by declaring what you won’t do up front for some time, it makes the decision one where you have to actively change your mind about what you won’t do.
Then, I like to roll into metrics that create a floor on how the business will operate. For example, “We won’t have a month of negative EBITDA.” Or, “well never have negative cash flow of more than $500,000.” Or, we won’t hire anyone new, other than replacing attrition, until after we have revenue of $X / person.” These are different than what your goals are, where the goals look like “We are going to grow 10% month over month” or “We will adhere to the rule of 40 for a healthy SaaS company.”
Then, I like to end by pushing the CEO to define personal Won’t Dos. These can be behavioral or functional. Most people are comfortable with the functional ones, but struggle to identify the behavioral ones. I like the struggle around this – it almost always generates fascinating conversations that are highly personal.
An example of something from my Won’t Do list is “take on another book project.” I have several that I’m working on and I’m happy about them, but once I’m finished with them, I’m not going to do any more non-fiction for a while. I have a desire to write some near-term science fiction and see if I’m any good at it. Since I want to finish the projects I have and know that I have poor impulse control around says “sure – I’ll work on that book project,” by putting this on my Won’t Do list for 2019, I say no to everything.
A personal example on my Won’t Do list is “buy another big thing other than art” (e.g., house, car). I’ve got enough. Amy and I talked about this around my birthday (she was looking into getting me a new car) and I didn’t want one. I suggested that we buy a half dozen Subarus and park them in front of my friend Dave’s house (Dave hates Subarus) and call them an “art installation” instead. As I thought through this, I realized I don’t want something new like this for a while. In contrast, I exempted art because when I thought about it, I wanted to buy some additional art this year (especially sculpture.)
What’s on your Won’t Do list for 2019?
One of my favorite Bezo-isms is “Disagree and Commit.” I’ve seen it in articles a handful of times recently as the adulation around Amazon and Bezos’ management reaches a fever pitch.
Notwithstanding the disappointing forecast for Q418, Amazon’s recent operating performance has been spectacular. But, more interesting is that it has been “spectacular at scale” and across a very large and complex business.
While Revenue Growth YOY has been strong,
the real story has been YOY growth in Operating Income.
Those are beautiful numbers. It’s clear that in the past few years the company has turned on the profit machine.
For many years, Amazon (and Bezos) trumpeted their focus on revenue growth. The mantra was “we are reinvesting all of our profits in growth.” This is the same thing most startups say (and most VCs push for) as growth compounds rapidly if you can keep the growth percentage (yup – it’s simple math.) This has been particularly true for B2B SaaS companies, not withstanding the notion of the Rule of 40 for a Healthy SaaS Company.
While growth in revenue is still important, Amazon’s ability to generate this kind of growth on its operating income is a reminder that turning on the profit switch at some point does matter, if only to show how much leverage your operating model has (me thinks Tesla did that in Q318 for the same reason). The AWS numbers are remarkable to me – their YOY growth is 46% and their operating income is about 30%. That’s well above the rule of 40.
I would have loved to be in the meetings during the shift from “grow at all costs” to “keep growing fast, but flip the operating income switch.” There were many moments in time over the past 15+ years where I’m sure this came up. But clearly the focus on this changed in the last few years, and the results are now front and center.
I don’t hold any Amazon stock directly, nor do I play the stock market, but the financials in public companies have a myriad of lessons buried in them for private companies that are scaling. That said, the management lessons buried underneath the numbers are even more important. “Disagree and commit” seems to be working well these days for Amazon.
Complexify is such a delicious, underused word. I’ve been using it a lot lately, hopefully with great effect on people who are on the receiving end.
CEOs and founders struggle with this all the time (as do I). They are executing on a strategy and a plan. A new idea or opportunity comes up. It’s interesting and/or exciting. Energy gets spent against it. Momentum appears. While some people on the team raise issues, suddenly the idea/opportunity starts taking on a life of its own. Things get more complex.
Eventually, there’s a reset. The core of what is going on is good – there’s just a bunch of complicated crap happening that is distracting everyone and undermining the goodness in the business. So, the CEO and the leadership team go on a mission to simplify things. This takes a while, usually involves killing some projects, and often results in some people leaving the company. These aren’t big restructuring exercises but rather focused simplification exercises. The end result is often a much stronger business, with more focus, faster growth, and better economics, especially EBITDA.
This happens regularly in the best companies that are scaling. In my view, it’s a key part of the job of a CEO who is working “on the company” a majority of her time, rather than simply working “in the company.” It’s particularly powerful when a company starts to see its growth rate decline (it’s still growing, but at a slower pace than before) or a company is spending too much money relative to its growth rate.
Six months (or twelve months) later the simplification effort is complete. The company is performing much better. EBITDA has dramatically improved (or the negative EBITDA has gotten a lot smaller.) Growth is happening in an economically justified way. The product is improving faster. Customers are happier. Everyone around the team is enthusiastic.
And then a new idea or opportunity appears. Energy starts being spent against it. Momentum appears. You get where this is going.
I call this complexifying, a word I rarely see in the entrepreneurship literature. Maybe it’ll start creeping in now. All I know is that I’m using it a lot these days.